“We are creatures of Congress, not of the Constitution.” – Federal Reserve Chairman Jerome Powell, December 4, 2024
wild goose chase
The transfer of wealth from workers and savers to governments and big banks has taken place this week with Swiss-like precision. The process is mechanical and subtle. Here in the United States, the automated elegance of this work-in-progress receives little attention.
NFL football. Holiday BOGO available. Trump’s cabinet selections. A big man pardoned Hunter Biden. Name it. Bread and circuses like these give the American public countless opportunities to go on wild goose chases.
Meanwhile, with little fanfare, the Angeles National Forest’s debt is piling up like dead trees. These debts, whether public or private, have little chance of being repaid honestly. Obligations become much larger than the economy can support.
The national debt now exceeds $36.1 trillion. But that’s only a small part of the picture. There is over $221.4 trillion in unfunded debt, including Social Security, Medicare, publicly held federal debt, and federal employee and veteran benefits. If you are a U.S. citizen, your share of this pile is over $645,322.
The combined debt of non-financial households and businesses now exceeds $100 million. $41.6 trillion. Certainly, some of this private debt will default during the next credit crisis and recession. But when it comes to public debt, Washington will do its best to prevent outright default.
The Federal Reserve cut the federal funds rate once again to ease the Treasury’s borrowing costs. So far, interest rate cuts have failed. The yield on the 10-year Treasury note has risen 47 basis points since the Federal Reserve began cutting interest rates on September 18.
If Treasury yields continue to move against the Fed, we can expect another round of QE to artificially suppress Treasury yields and depress the dollar.
shrinkage
After Nixon ‘temporarily’ suspended the Bretton Woods Agreement in 1971, the money supply could expand without physical restrictions. This involves issuing new debt to pay for government spending beyond tax receipts. Thus, since 1971, government-directed money supply inflation has been standard operating procedure in the United States and most of the world.
Expanding the money supply has the effect of destroying wealth in the currency. This process allows the government to use newly created money as a backdoor into your bank account. They will have access to your wealth and future earnings without having to pay taxes, leaving you with money of reduced value.
This backdoor into your bank account is how Washington extracts $645,322 in unpaid debt you’re in trouble for. If you check your bank account balance, you won’t even see any money missing. It’s only after you go to the checkout and pay a huge amount of money for a bottle of shampoo that the theft is revealed.
This is why, overall, consumer goods prices are 22% more expensive than they were just four years ago. Politicians like to blame rising prices on greedy corporations. But let me be clear: prices are not going up.
As the value of the dollar falls, the prices of goods and services appear to rise. However, these price increases are a function of the dollar falling in value. This devaluation is achieved primarily through deficit spending.
And the Fed is doing everything it can to finance these massive deficits…
roll the dice
When central banks finance deficits through credit creation, something completely disgraceful is happening. In the United States, as in most of the world, this disgraceful enterprise is a matter of policy. This is the world we live in.
The Fed is likely to cut interest rates by 25 basis points after the next FOMC meeting on December 18. This will result in a 100 basis point rate cut cycle from the Fed. This is happening at a time when consumer price inflation is still well above the Fed’s arbitrary target of 2%.
In fact, the Fed helps finance annual deficits of nearly $2 trillion. That $2 trillion is what Washington spends on everything in the economy, from military hardware to food stamps to EV manufacturing. As a result, the dollars in your bank account and the dollars you earn in salary are devalued.
Therefore, as the value of the dollar declines, the process of acquiring, saving, and accumulating wealth also deteriorates. Nowadays, it has degenerated into gambling and speculation. But at the same time, many people are caught up in this gambling and speculation and do not recognize it for what it is.
At this point in the later stages of a bull market collapse, everyone’s retirement accounts (e.g. 401ks and IRAs) depend on a favorable roll of the dice.
Passive investors are feeling good. So far this year, the S&P 500 is up more than 28%. Plus, burgeoning Santa Claus rallies are almost guaranteed to bring good cheer through the end of the year.
After another year or two, these smart index analysts blindly pouring their savings into the S&P 500 will be able to retire a decade early.
Are you unknowingly on a suicide mission?
Surging paper assets through inflated stock market indices provided attractive cover for increased risk and vulnerability. Gambling on the market and extrapolating current trends to determine your exact retirement date is much more rewarding than sacrificing short-term gains to avoid large portfolio-destroying losses.
Why worry when the “Powell Put” is already firmly established before the market has even experienced the slightest wobble?
After a 15-year bull market without a correction of nearly 20%, American investors have become increasingly complacent. A quick look at the S&P 500 price chart over the past 40 years provides ample evidence that stocks always rise over the long term.
If stocks always rise over the long term, there is little risk in betting your retirement on the S&P 500 index. As long as you don’t need to access your money for several years, you can run your index fund without worrying about it. Right?
The answer to this question is mostly yes. But sometimes the risk is too great for the reward offered.
For example, in the summer of 1929, investors would have been wise to get their money out of the stock market in the final months before stocks plummeted 89% in less than three years. In the end, those who didn’t had to wait 25 years to break even. Many people died while their stocks were still underwater.
Likewise, when the new millennium began in 2000, investors were fat and happy. A few months later, a long and complex decline began, with the Nasdaq falling 78% over the next two and a half years. It took 13 years to get back to normal.
It is important to note that just before the bubbles burst in 1929 and 2000, the CAPE ratio was 31.48 and 44.19, respectively. What is the current CAPE ratio?
It’s 38.81.
Although valuation is a terrible indicator of market timing, it provides a very clear window into the future.
What we mean is, unless you’re on a suicide mission with your wealth, now is probably a good time to take a few chips off the table.
[Editor’s note: Have you ever heard of Henry Ford’s dream city of the South? Chances are you haven’t. That’s why I’ve recently published an important special report called, “Utility Payment Wealth – Profit from Henry Ford’s Dream City Business Model.” If discovering how this little-known aspect of American history can make you rich is of interest to you, then I encourage you to pick up a copy. It will cost you less than a penny.]
thank you,
minnesota gordon
for economic prism
Are you unknowingly on a suicide mission? in the economic prism
