You’ve probably heard the first quote in previous podcasts (it is his favourite saying, after all). According to Michael, he made the second quote up, and there’s no Google search result to prove otherwise!
What does it mean, though? Something you always hear in financial media is this:
spending is down and savings are up. Or reports from economists claiming that spending is down by 10%. In other words, the economy is suffering because nobody is spending money. But these are just standard scaremongering tactics.
One thing that was often heard during the GFC was that property value in the US had fallen by a trillion dollars. But that money didn’t simply disappear. It was still there, waiting to be used. The same goes for market volatility. When markets drop, people sell their shares because they are in a panic.
But think of it this way:
Someone buys $500,000 worth of shares, then panics when the market drops and sells them for $250,000. Sure, they’ve lost $250,000 – but someone else has gained that. The money hasn’t just vanished, despite the media saying assets and cash are disappearing.
Enter Michael: no-one is raking up cash and setting fire to it.
That is, although there may be a drop in spending right now – that money is certainly not disappearing.
While people may not be spending as much as they did previously, they’re saving money instead. And that money will come out of hiding eventually, getting injected back into the economy – which will be good for companies.
Another good example is people who travel every year. Perhaps, with the current climate, there may be a gap of two or three years in that routine. But the money saved on those trips might be used for a bigger, longer holiday down the track, or given to their children.
Our take-home message is that money isn’t simply disappearing; that is, no-one is setting fire to their cash (we hope…). It’s simply dormant, waiting to be spent eventually. Things are never as good or bad as they seem in the media!
Listen to the related podcast here!
