Time Turning — It’s Becoming Hard to Plan for the Future

Time Turning — It’s Becoming Hard to Plan for the Future

Dear Reader,

Have you noticed time seems to pass faster the older you get?

Ever wondered why?

Psychologist Claudia Hammond has a theory. Something she calls the ‘holiday paradox’.

Humans perceive the timing of an experience in two ways: while it’s happening and after it’s happened. Our perception of time also changes depending on what we are doing and how we feel about it.

While doing something new and exciting, time seems to pass quickly. But we also tend to remember more details about new experiences than ones we are already familiar with, which will make them seem longer when we look back at them.

When we are young, everything is new, we go through new experiences often. It’s why our brain will remember more about our childhood and time seemed to pass slower then.

As adults we tend to settle into a routine, we record fewer memories and time speeds up.

Our time through the pandemic has been quite different. It’s been passing slow and fast at the same time.

On one hand, we are stuck on Groundhog Day, fixed in one place and doing the same things over and over.

On the other hand, there’s plenty happening around us and the world is changing fast.

Time is quite an interesting thing.

It’s limited.

It’s a currency, as I mentioned here.

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The Value of Time When Investing

It’s crucial in investing and growing your wealth. The more time you have the more you can invest and recover if you make mistakes.

But also, time can make you money.

That’s the power of compounding interest, for example. Put your money into a savings account and your interest payments will make you more interest over time.

At least that was the case. As I say, the world around us is changing.

I mean, if you think of my parents’ time, things were quite different.

My dad had one job in his lifetime. Over time they saved, they bought a home. They accumulated money through savings and investing, debt was something they tried to avoid. And there was growth.

That’s not to say they had it easy. But things made sense. There was some sort of stability, and they could plan for the future.

As our world shifts, it’s confusing and distorting everything we knew about economics.

A World of Low Interest Rates

The Fed said last week it’s looking to keeping interest rates low for years, ‘til 2022 or even 2023. Even as inflation goes higher. This is effectively negative interest rates. Your money in the bank loses you money.

Remember, your money in the bank is a loan. You should be getting some sort of return for this loan.

But this manipulation drives people to take on more risk.

In Australia, the Reserve Bank of Australia has also said they are expecting to keep rates low for long. Along with buying government debt and bonds to keep borrowing costs low.

Don’t expect much growth in the next few years.

It’s not something brought by the pandemic, but a trend we were already in that the pandemic has expedited.

There isn’t much job stability. We’ve had no salary growth for a while and savings are going negative.

In the meantime, property prices have appreciated way too fast, so much so that households have had to resort to taking on more debt to get a home. It’s what’s driven much of the growth we’ve seen. That is, property, not salaries.

The price of this is debt, high debt which is already robbing us of our time in the future…

And risk. The most valuable asset people have is also the biggest risk.

Housing and stock markets are still holding steady from central bank intervention.

But all these measures are also distorting our sense of time.

How do you think about the long term when there’s so much instability and nothing works like it’s supposed to?

You don’t.

It’s something that happened in Spain after the property crash in 2008 and people got wiped out. People started living day-to-day. They put off having families because of uncertainty. It was hard to plan for the future with high unemployment and debt.

In my opinion, this is the worse effect from all this manipulation. Thinking only in the short term, and not considering the impact the decisions we make today will have in the future.

When people start living in the short term instead of the long term, it makes things much more fragile.


Selva Freigedo Signature

Selva Freigedo,
For The Daily Reckoning Australia

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