Wayne Wile, The Big Picture: Savers vs. Borrowers, Us vs. Them

Why do I bother writing these little missives to people I will never meet? Why not just trade and make money for my own account? Because, dear reader, …

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Why do I bother writing these little missives to people I will never meet? Why not just trade and make money for my own account? Because, dear reader, I am engaged in a war and anyone fighting a war likes to have allies.

What war am I fighting? The same war now being fought by Donald Trump and Bernie Saunders, the war against the powers that be, the ones who are ruining the economy and destroying personal freedoms to enrich themselves. This is not some conspiracy theory about a deep, dark cabal pulling the strings behind the scenes. What I’m talking about is the banks and other large companies and very rich people manipulating the system for their own advantage. It’s right out there in the open for everyone to see. And people are starting to see it, which is why Trump and Saunders are getting crowds.

Now, I do not support Saunders because he wants more government, and government is part of the problem. The more power we give to government, the more incentive there is for the rich and influential to corrupt it. Government itself corrupts because it undermines the sovereignty and authority of the individual human being. I’m a libertarian. I honestly believe that if you stop taking care of people, they will surprise you by how well they can care for themselves and their families.

Anyway, here’s the point about the war I’m waging. It’s in this chart:

Since 1970, the U.S. economy has added about $60 trillion in debt. The date is relevant as you will see below. The country has added debt about three times faster than the growth rate of the economy. The debt has grown far, far faster than the real output needed to service it. Most of this $60 trillion came not from honest work and saving. Instead, it was created by banks, out of thin air.

In a normal, healthy economy, people work, save, invest, and build real wealth slowly over time. Not today. Now the economy runs on credit, not savings. The incentive is to borrow and buy rather than save and invest, not only for individuals but for businesses too, especially the big ones.

They key to this economic transition was the death of the gold standard in 1971. That freed the federal government and the Federal Reserve to expand the money supply in favour of borrowers rather than savers. And the hay day of Wall Street began. With no limits on money creation, Wall Street began to finance the players rather than the builders, fat cats and wise guys who wanted to buy existing assets rather than make their own. 

That’s where most of the money went, not for real investment, which has slowed to a crawl, but for financial engineering of all kinds–asset flipping, LBOs, M&A, share buybacks, dividends to the few and, my personal favourite, corporate takeovers where the target company pays for its own purchase via way more debt than it can handle. When the company fails, the raiders are long gone, having stripped the company of anything of value. Think Bain Capital, Mitt Romney and hundreds like them. 

After the inevitable cutbacks in jobs and pay, it is the productive Main Street economy that must try to service all this debt if it can, effectively shipping wealth from the real economy to Wall Street. And it is the savers who pay the most. To keep the game going when growth has slowed, the Fed has drilled interest rates down into the basement. Over the past 10 years, ultra-low rates have effectively transferred about $8 trillion in interest income from savers who would have earned it at normal rates, to banks and big time borrowers. Rather than encourage savers, monetary policy penalizes them and rewards borrowers.

As Bill Bonner says, “the scam is so elegant that not one person in 1,000 understands how it works”. But the result is obvious: Honest, working people struggle to survive while the wealth goes to the top.

This game is coming to the end. Next, we will see negative interest rates and maybe helicopter money to keep the game alive a little longer. But the natives are restless and the debt appears to be approaching levels that simply break the system. You can tell the end is near because the central banks are getting more and more frantic. The gold price is also sending a signal because gold is the best protection for wealth in a debt collapse. 

 

My solution is to go the other way from the money crowd. I am a saver and they are the enemy. I am on my own personal gold standard. I suggest you to do the same. And talk to your friends and family. Tell them what’s really going on. Unfortunately, Brandolini’s Law applies so you will have to persevere. Like sheep, they may believe that the shepherd is there to help them. You don’t know Brandolini’s Law? Here it is below with Alberto the inventor himself. 

 

Hat tip to http://www.acting-man.com/

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