Jump in my hooptie hooptie hooptie hoop
I Own That
And I ain’t payin by rent this month
I Owe That
But @#$% who you want, and @#$% who you like
There’s no light, there’s no end in sight, [Nicki Minaj; Starships]
This week my reading and research for The Meekonomics Project has brought me around to the second book by economist, Dambisa Moyo. Her first book, “Dead Aid”, shocked the world by suggesting that the current system of aid to Africa is broken and rather than helping to lift people out of extreme poverty the aid apparatus, through organizations like The World Bank and International Monetary Fund has actually compounded the problems of both the donor and recipient nations.
Her second work; “How The West Was Lost” continues that research but is now focused on the donor nations and how they have squandered their wealth and mortgaged their future through short sighted monetary policy. Not surprisingly the greatest benefactors of all this have been the countries and institutions who lent out all that cash in the first place and those countries are not the usual suspects in America and Western Europe. The very institutions that are set to dominate the world for the foreseeable future are now based in the far and middle-east, most notably China, India and the Arab States.
I’m only about halfway through the book but I felt compelled to write out some of my observations thus far. So far Ms. Moyo hasn’t given any constructive advice on how we should be trying to fix the problem, I assume that will come in the second half, but the greatest piece of insight she has given to this point is simply this; there is a huge difference between ownership and control.
Ask most people who live in a home and have a mortgage on it whether they own their home and the answer is almost guaranteed to be a resounding ‘yes’. Yet it’s the wrong answer. Technically speaking, until they have paid the mortgage off, they don’t own it. Herein lays the difference between reality and illusion, between ownership and control. This confusion lies not only at the individual level, but also at the heart of government thinking. Here is another manifestation of the misallocation of capital. [Dambisa Moyo; How the West Was Lost]
Ownership; it strikes a chord deep in our psyche. We are taught from a very early age to be “master of our own domain” and to be master we must be the owner. “A man’s home is his castle” and all that, but let’s be real. If anyone else has any kind of claim on your property, no matter how small, they own it, not you.
Nobody reads the fine print of a loan agreement. Just for fun I challenge all of my readers to go and dig out their mortgage documents, or better yet your credit card statement (even if you don’t own a home chances are you have a credit card). Read it – all of it. Get out the magnifying glass because the smaller the print, the more important it is to understand.
Let’s be honest, I know none of you are going to do that so I’ll tell you what it says.
In a nutshell, until you pay back the very last penny your lender has the right to take possession of their asset. If you hold 99% equity in your home and you default on a payment, the bank has the right to kick you out and sell the home for as little as 1% of its market value. The bank’s only obligation is to recover what they are owed and you have no recourse to demand that they sell it at a fair market value and pay you for your equity. As long as you continue to make your payment you may control the asset but you own nothing. As if that wasn’t bad enough, if the bank can’t sell the asset for enough to cover what they are owed, you’re still on the hook for the difference. Not only do you no longer control the asset, but you’re still expected to keep making payments!
I doubt our friend Ms Minaj, quoted above encouraging her fans not to pay their bills, has any more understanding of what happens when you “@#$% who you like” than our government leaders who have encouraged us to build an entire consumer culture on credit, subsidies and bailouts. In the very next stanza she goes on to say this;
Now everybody let me hear you say ray ray ray
Now spend all your money cause they pay pay pay
The “they” she is referring to is the government. The governments of the west have built a consumer culture that needs to keep spending in order to sustain itself. If we don’t keep spending the whole system collapses, but when we don’t have any more money to spend where will it come from?
It would take me a very long time to explain how governments control money supply through taxation and borrowing but the bottom line is this. Sooner or later the bill comes due and if you don’t pay it, you end up not only owning nothing but you lose your right to control things as well. Right now, The United States is the world’s largest debtor nation; they may still control a lot but they own almost nothing. The world’s largest creditor nation, (the world’s largest owner), is China.
It’s high time we get our head around the difference between ownership and control because you can be sure that the debtor, creditor relationship is going to be what shapes the geopolitical landscape for the next century or more.
Or we can just stick our heads in the sand and sing along with Nicki Minaj;
Get on the floor, floor
Like it’s your last chance
If you want more, more
Then here I am
Starships were meant to fly
Hands up and touch the sky
Can’t stop ‘cause were so high
Let’s do this one more time