August 18, 2014
By: Kelly Diamond, Publisher
The class warriors are growing in numbers and upping their decibels as the US economy continues to suffer. Regardless of what the media says, or the contrived reports from the White House indicate, individuals are feeling the burn of reality. Little short term charts shown out of context telling us the housing market is recovering, or economic indicators regarding unemployment ignoring the growing number of individuals who have dropped out of the labor force altogether and stopped even trying to find a job can only sustain the illusion for so long.
I should preface all this with a few acknowledgements and disclaimers:
- I don’t deny that there is a growing gap between the rich and the poor.
- I don’t deny that some of the wealthy attained their economic position through non-market means such as political cronyism.
As the gaps grows, the class warfare escalates. Such a perspective is misguided, however. That gap, while real, is not created by wealthy people per se. In fact such a gap isn’t inherent in achieving any level of success. That gap is created by wrongheaded interventions by the Central Banks.
What is the difference between someone taking $0.20 of every dollar you make and devaluing every dollar you make by 20%? One is a physical removal of tangible cash. The other is far more covert.
Recently, there has been a bit of a boon in the stock market. Seems a little counter intuitive considering every other economic indicator says our situation is abysmal.
I won’t regurgitate the entire article here, but, in a recent Zerohedge post, the Fed has been hard at work printing money to make it look like the Non-Farm Private Payroll Employment numbers look good. Of course, all you have to do is deflate the numbers back to see the diminishing return on that “investment”.
U6 and Shadow Numbers tell a different story on why unemployment is down. It’s not because people are getting steady employment… but rather because they just stopped trying altogether.
New home sales are in a similarly precarious situation as the auto industry: the inventory is at historical highs. If inventory isn’t moving, or if there is even slight decline in purchasing, those two sectors will suffer.
I don’t know how many of you have ever seen the movie “Crank” with Jason Statham. But the premise was that Statham had a rechargeable battery in his heart, and he had to constantly seek out electricity to give him a jolt, or he would die. Well, that’s our economy in a nutshell: it needs to constantly be jolted by the Fed or it will collapse.
The class warrior immediately cries that the fed is propping up the 1%! But the reality is, the 1% has already cashed in long ago. They stand nothing to gain or lose from the stock market… at least nothing significant.
The 1%, regardless of what you think of them, have wealthy habits: they took their wealth OUT of paper money and converted them into hard assets. They know that fiat money has no sustainable value, but hard assets do. So they convert all their fiat currency into hard tangible assets like precious metals and real estate.
So who is the Fed propping up exactly? It would seem it is propping up an illusion. Specifically the illusion of the welfare state. The majority of pension funds in the US are invested in one stock or another. If the market were allowed to take its natural course without any government interference, you’d have a large generation of baby-boomers waking up one morning broke.
I’ve written about this before, only with regards to banks. In my article “US Banking = Selling Marks” I discuss how the FDIC is ill equipped to handle a run on the banks even at the $250,000 mark. Well, so are the other federal programs. They are likewise ill equipped to handle a run on any of their myriad programs. Welfare only works when there is a class of people funding it. Once you eliminate that class, either by scaring them off, or regulating them away, or squeezing them down several notches – who will pick up the tab of the run on not the welfare programs?
Clearly, the Fed nor its puppet masters can afford for this to happen.
What concerns me is how much money the US government spends on preventing the unintended consequences of their own policies from unfolding. $90 billion in preventing people from crossing the border. $25.7 Billion dollars so far this year to prevent people from buying, selling, or using drugs. The multi-trillion dollar war against “terrorism” that has only stirred the pot of blowback and has us returning to Iraq. Then there is the multi-trillion dollar relic of a war on poverty that Lyndon B. Johnson started… to prevent people from being poor. That has been an abject failure, but we continue to flush money down the toilet for it just the same.
I don’t understand how all this spending is somehow BETTER than allowing the market to take its natural course. All of this only makes it harder to recuperate later. And perhaps that is the point: all the political actions taken now are for the short game, not the long game. They need to get re-elected, so they enact policies that are populist in nature. Then they get re-elected on a platform to reform the policies they enacted in the last cycle.
The bottom line is: rather than begrudge the 1% for getting out while they still could, emulate them. You do not have to be uber rich to take up their habits. Wealth isn’t about what you make, but how you maintain and grow it. There is nothing patriotic about going down with this ship.
If you are interested in learning about ways to abandon ship before impact, set up a consultation. Click here to get started.