Dreddnomics for Dummies - Part I: Introduction

From where we sit, many people are going to lose everything they have over the next few years and won't even understand what's happening to them even as it occurs. The entire purpose of this blog is to try and educate people enough so that they can make smart decisions about using their money and protecting it in this turbulent time. However, we continue to get messages asking for an "Economics for Dummies"-type of section.

Unfortunately, that's exactly what we thought we were doing. Clearly, though our intent has been good, we have not been successful in getting the message across. Thus, we will attempt to deliver the message in a moderately different manner through this series of Dreddnomics for Dummies.

We are constrained by a few things that make this difficult to do. First, how much does the typical person really need to know? After all, the goal is to understand what's occurring so that people can take the appropriate steps. It is not necessary to know everything about economics to do that (and we hope to not bore everyone to death...). But it's also not very clear on where one should draw the lines between what's valuable, and what's noise.

Second, no matter how you downplay the topic, it's complex. Note that we say "complex" and not "complicated." Economics is the same as any other complex topic--understanding automobile mechanics, constructing a home, writing software, running a business, etc. All of these topics have simple rules/laws/practices associated with them, and then become increasingly complex through adding new features. For example, understanding the basics of home construction is simple enough: one needs a foundation, walls and a roof. The subject gets more complex as we install plumbing, HVAC systems, integrated wiring, multiple stories, and other features. However, as we see, there is a foundation of knowledge (pun intended) for building a home. Everything else is simply an expansion on those fundamental ideas.

Third, we simply don't have much time. From a big picture point-of-view, the hour is very late. Very large risks to your wealth are coming from every direction. Those that recognize the risks and take the appropriate steps will be wealthier. Those that do not will be much, much poorer.

Of all of the concepts associated with the economy that are important to the typical person, arguably the most important is understanding money itself. Unfortunately, most people don't understand money even when they believe they do. Because of this gap in knowledge, they fall prey to all manner of scams from scam artists, companies, and even their own governments. Their very wealth is stolen from them daily, and they have no idea it's occurring. Since it is only out of ignorance that people have their wealth taken from them, it is only through understanding that they can prevent it.

Most people measure their wealth by the amount of money that they have in their bank accounts and by the perceived value of their assets. If you're doing this, you've already lost the battle. Money is not about debits and credits. Money has little to do with creating wealth. Money and capital are not synonymous. If you don't understand these nuances, you are simply waiting for someone to rob you of your wealth. You are a victim of a con artist, company, or government run amok just waiting to happen. As a matter of fact, the more you're saving today, the more your wealth is being stolen from you. Sounds counterintuitive? It is. Arguably, it's deceptive by design. But here we want to focus on what is happening and how it is happening, rather than why. Why is debatable. We don't care so much about why as about how to protect ourselves.

In order to build a house, you must know how to build a solid foundation. Similarly, if you want to protect and grow your wealth, you must understand (at least roughly) how the economy functions. To do that, we will focus on the basics of the economy--how it functions, the various parts of it, and how it would work in its simplest form. After all, before we go putting wiring in, plumbing in, and a second story on the house, we have to understand how the most basic house is built. From there, we can expand the concepts so that you see how money fits into the big picture. You will understand the risks to it, how to get more of it, and most importantly now, how to safeguard it in this perilous time.