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Individual Lessons from Michael Lewis’s Boomerang

January 21, 2012

Kind of a depressing book, but one we hopefully can learn from.

Delayed gratification is one of the most difficult sacrifices for most people and societies as a whole. When we want something, we want it now. Unfortunately, this attitude can have disastrous effects over the long term, both for individuals and entire countries.

Author Michael Lewis’s book “Boomerang” took a look at three countries that chose instant gratification in one way or another, which will make the next couple of decades very difficult for the citizens of the countries. The first country Lewis looked at was Iceland. The population of Iceland is just more than 300,000. To put this in perspective, the whole country has a few less people than the city of Colorado Springs.

In the 2000s, the people of Iceland thought they could get rich quick by becoming a country of investment bankers. For a time, it seemed like they would. By investing with borrowed money, the country saw a huge boom in the mid-2000s. Unfortunately, when the world entered a recession, all their investments made with borrowed money tanked.

In 2008, the three largest banks in the nation had $19 billion in debt. This means that the nation’s banks had a debt of more than $60,000 for every person in the country. The government has taken over the banks and a nation where everyone thought they were going to be rich now has nothing.

The lesson here is that it is a mistake to borrow money for investing. If you think you have found a get rich quick scheme and need to borrow to make it work, it probably is going to leave you in a world of hurt. There is no trick to getting rich quickly. If you think you can, chances are you will find yourself in a lot of debt and nothing to show for it.

The second country Lewis visited was Greece. When Greece joined the European Union, they were able to borrow money as a country very cheaply. Greece used this money to employ numerous people as government officials and give them an excellent salary and benefit package. The problem was the employees weren’t really required to do much, and corruption was rampant.

When people outside Greece started to realize that their books weren’t going to balance, people got worried about Greece being able to pay off its debt. Greece owes much more than what it produces as a country every year. This money went to many individuals in Greece for not doing a lot. So what have the Greek people done in response to this? They have decided to quit work and start protesting. This is not going to help the country pay off its debts.

This is true for many individuals who choose to continually live a better life than they can afford by using credit cards and other borrowing. It may feel good in the moment, but eventually you need to pay it off. If you find yourself in a lot of debt, it is time to get to work, not to protest and blame others.

Many countries, including out own, were off track in the 2000s due to the ability to acquire very cheap credit. Individuals and countries borrowed and spent more than what they could afford over the long haul. This has caused trouble in the U.S., but nothing as serious as what happened in Greece and Iceland. Unfortunately, unless we change our ways we could find ourselves in the same situation.

Our nation’s debt has continued to increase and individuals continue to spend more than what they earn. Our nation needs to start paying off some of our debts. This will need to be done with higher taxes and less government spending. At this point we can’t get there with just one.

The problem is, we as a society still don’t believe this. We don’t want to pay off any more taxes, and we want the government to spend less, but on someone else’s government program, not a program that benefits us.

We need to expect fewer benefits from the government and higher taxes. We need a candidate who is willing to say we need to make sacrifices for the greater good, and we need individuals willing to support this candidate.

If we can do this, we can control our nation’s situation and have numerous prosperous years ahead. If we don’t, we will continue to slide to a point where we won’t have any choice, but to have drastic cuts and tax increases. A little pain now can save us from a lot of pain in a few years.

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