The real mountains represent surplus in the private sector of an economy. The reflected mountains represent government deficit. If the private sector holds a surplus of cash reserves in excess of costs, the government shows an equal amount of deficit because it guarantees the value of the private sector surplus. If private sector surplus disappears, so does government deficit…and the economy enters a recession. Conversely, government deficit reflects private sector wealth. As government deficit shrinks, full faith and credit of the government covers a shrinking amount of currency it can make available to the private sector. The notch between the two major slopes in the photo, and its reflection, represent a recession: no surplus, no deficit… and no normal flows of currency to pay the bills and grow production. If the government prints more money, its guarantees rely upon the private sector to expand and increase surplus. The photo illustrates an economic theory that says “Private sector surplus and government deficits: you can’t have one without the other in a growing economy.” Yin and Yang, heaven and earth, positive and negative… pairs of opposing forces that energize life and can move mountains for those who understand.
“Life is a cabaret, old chum!” is a catchy tune from desperate times. By comparison, a three-tier bubbling fountain produces a softer sound that can endure through good times and bad.
The top pool holds enough for daily consumption, the middle pool stores what is needed to meet infrequent major demands, and the bottom pool accumulates what will be needed whenever the flow stops.
While the fountain is flowing, surplus from each pool overflows to the pool below, or back to nature in the case of the bottom pool. When the flow ceases, what is left in the three pools is all there will be available at that fountain.
The fountain is an obvious metaphor for cash flow to cover our daily bills, then the big expenses like a house or car, and finally retirement. But the metaphor can expand to attune our fountain’s performance to whatever we value in life—like children and family, community participation, education, travel, contentment and maybe a legacy.
However large or small the vision, there must be balance among the three pools; if we live life as a cabaret, nothing is left to flow into the other two pools…
Then what, old chum?
Every now and then, a new twist can change things in a nice way, for a lifetime. When you tie your shoelaces, you probably start with an overhand knot, make a bow and secure it with another overhand knot while pulling out the second bow. The finished job is a granny knot with two bows, and you probably stop to re-tie your shoelaces on long walks.
If that happens, make the first knot an underhand knot and do everything else your usual way. The finished job should be a square knot with two bows, and it doesn’t work loose on long walks.
As with shoelaces, some of us never learned to incorporate a financial square knot into our money habits. We all know that tying up loose ends can prevent things from unraveling in the long run, but few of us think of seeking guidance from a skilled financial planner.
Make that a goal, if you haven’t already done so: it is never too late to learn a new and better twist.