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The Illusion of Wealth
Most people have heard of the concept of a balance sheet, or in personal finance terms, a calculation of net worth. You essentially add up assets you own (house, cars, stocks, etc.) and subtract your total debt (mortgages, credit cards, etc.). The result is your equity or net worth. The reason it is an essential component of business financial reporting, and should be part of your own planning, is that debt distorts how rich you really are. For example, consider the houses of two neighbors:
Paul: $500,000 house; $450,000 mortgage
Doreen: $250,000 house; $0 mortgage
The other neighbors probably think Paul is twice as rich, and he may indeed feel twice as rich. But in reality, he is 5 times poorer than Doreen. What makes matters worse is that Paul has, to an extent, enslaved himself to his job. He doesn’t have the flexibility to quit or change to a lower-paying field if he wants to keep his home. If Paul has a 30-year mortgage, virtually all of his initial payments are going to interest. With a 50-year mortgage, it’d be even worse. Paul’s monthly payment would be around $2700 for a 50-year mortgage (not counting insurance & taxes), and after five years of payments, his principal would drop only from $450,000 to $444,000! Translation: the debt slavery continues indefinitely.
The concept applies also to government and national economies. The main reason stocks and real estate are at record highs is simply that we keeping adding more to the debt section of the balance sheet. It creates the illusion of wealth, while having no impact on net worth or tangible wealth. And like Paul, it makes the country a slave to the debt. It forces government to continue raising taxes, or alternatively, find ways of creating new debt; essentially, applying for new credit cards to make the interest payments on the old ones.
We’re running out of time to reverse course before the whole system crashes. However, given how both parties are spending, it appears a total crash may have been the goal all along.
Blog Link: https://educationdojo.com/study-break/2025/11/11-16-education-dojo-daily/#random_thoughts
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There is a reason why only Keynesian economics is taught in school (if any econ is taught at all). It is all based on smoke and mirrors and the premise that government spending is ESSENTIAL if the market won’t spend…as if stealing from one group to create fake spending is somehow good. Honest, Austrian economics education would lead everyone to wake up to just how horrible government and government economic policies are. Mises.org for anyone wanting an outstand and free access to great books, articles, etc. on EVERY economics subject you could imagine.
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