The Falling Dollar and Other Scare Tactics

During one of the 1980 presidential debates, Ronald Reagan used a great line when he thought President Carter was misrepresenting him on a particular position. Reagan waited patiently for his chance to respond, and then he turned to Carter, shook his head mockingly, and said, "There you go again."

Today, I'd like to borrow that line (without the visuals, unfortunately) and use it on someone whom I've written about before -- Robert Kiyosaki.

There you go again
Kiyosaki is at it once more with his campaign of misinformation. In his most recent column on Yahoo! Finance he talks about -- what else? -- debt and the loss in purchasing power of the dollar, which he refers to as "funny money."

Kiyosaki purports that since 1971, the year in which the U.S. suspended dollar convertibility to gold, the dollar has lost half of its buying power when compared over a 10-year timeframe. It's hard to know where he comes up with that figure, but let's go with it. Let's assume, for the sake of argument, that he is correct.

If the dollar indeed lost half of its purchasing power since 1971, then it would follow that we should have seen a concomitant decline in living standards since that time, unless workers worked twice as much to recover the lost purchasing power.

Yet when we look around, it is pretty obvious that living standards have not declined: We see people buying more cars, homes, vacation trips, and restaurant meals than ever before. We see more shopping centers. We see more education and better medical care. People are still purchasing necessities and luxuries alike.

Furthermore, technological improvements have allowed these products and services to add immeasurably to our standard of living. Remember what it used to be like trying to start a car in freezing winter temperatures? It didn't matter whether the car was new or old -- good luck getting it to turn over on the first try! Now we don't even think about a car's engine not starting immediately upon the turn of a key.

If living standards have not declined -- and if they have, in fact, risen -- then we must see whether the reason was that people have been working more to make up for lost purchasing power. Once again, the answer here is, unequivocally, no!

According to the Bureau of Labor Statistics, the average work week now is about 33.9 hours for 2006 for the private, non-agricultural sector. This compares with an average work week of 36.8 hours in 1971. In other words, we spend about 8% less time working for things now than we did back then, yet we have an equal or greater standard of living and far higher net worth. There is no way you can construe this as a loss of purchasing power.

It's not that I am obsessed with Kiyosaki. I think he's a marketing genius, and I wish I had a fraction of his acumen and skill in that area. He's built an empire on the sales of books and courses, and he gets paid a small fortune for speaking engagements. I don't begrudge Kiyosaki any of that.

Scare tactics for fools (not Fools)
What I do resent, however, are the scare tactics he uses to make people believe that the American economy is bankrupt and about to collapse. Granted, he is not alone when it comes to all of this "Debt Doomsday" stuff as I call it -- I've also written about another perpetrator, Ben ("Bueller? Bueller?") Stein.

But the problem I have is that lot of hardworking folks follow the advice of these guys. Those people are going to end up losing money listening to information that is erroneous and, for whatever reason, continuously ignores the facts. It's the kind of stuff that will rapidly lead you down the path to a diminishing bank account or, worse, to complete ruin -- if you bet big enough.

In the past, I've spoken about behavioral systems -- my P.A.D.D. system -- that will help you become a profitable investor. P.A.D.D. stands for Patience, Alignment, Detachment. and Discipline. This is how it works:

  • You must be patient and wait for the right opportunities, and you also must have the patience to see them come to fruition.
  • Your investment approach must be aligned with your personality. In other words, if you are a long-term value investor like me, then you'd better avoid day trading, because it'll kill you.
  • You must at all times remain emotionally detached. For example, if you bought a stock and took a small profit, only to watch the stock go kiting higher into the stratosphere, you must not let it bother you. You shouldn't care about the "money left on the table." You should only care about seeking the next opportunity.
  • Finally, you must have the discipline to implement the first three behaviors.

A Foolish tip
In addition to the P.A.D.D. system, I can throw another bit of behavioral advice into the mix: Try not to take bad advice. A lot of people do. I know that sounds silly, but believe me -- we listen to a lot more bad advice than we should. The ability to avoid bad advice at least gives you a chance of not losing. Once you've established how not to lose, then the gains will come, and in time, they will grow.

And by the way, you may be wondering just how, exactly, you can tell bad advice from good advice.

Simple.

Bad advice comes in only one form: It comes from advice-givers who continuously ignore facts, speak in hyperbole, or, worse, manipulate you to promote their agenda or for their own selfish gain.

Ignore the bad advice, as well as what the doomsayers tell you, and you'll be on the path to success.

Yahoo! is a Motley Fool Stock Advisor recommendation. Check out Tom and David Gardner's flagship newsletter service free for 30 days.

Fool contributor Mike Norman is an international economist and Founder of the Economic Contrarian Update. He can be seen on Fox News, where he appears as a business contributor. In addition, he hosts a radio show on the BizRadio Network. The Fool has a disclosure policy.


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