Much of our financial world functions as a “Rob from the Middle
Class” economy. The system robs from the middle class and poor via
“money printing” and inflation of the currency supply!
The rich get richer and the poor get poorer.
Little benefit comes from complaining about the process or
fighting it. Understand the process, work around it, and use it
constructively.
Explaining Our Rob from the Middle Class Economy:
Governments, individuals, pension funds and corporations are
increasingly financialized and dependent upon debt, central bank
interventions and currency devaluations. Wages are less relevant in a
financialized economy because wages rise slowly while debt, currency in
circulation, and paper financial assets increase rapidly.
Caution: Those rapidly rising stock prices can reverse even more rapidly.
The Fed has your back if you are a member of the political and
financial elite. The top few percent earn far more because of central
bank “stimulus,” currency printing that levitates stock and bond markets
and huge contracts from federal and state governments. This trend
toward increasing the income and wealth of the financial elite has
accelerated since 1980, as shown below.
If you earn wages paid in debt based fiat dollars you know your
expenses have increased more rapidly than your wages. Your purchasing
power decreases because fiat currency units are devalued by the massive
government and central bank “printing” of those currencies. Every newly
created dollar (euro, pound, yen) devalues all existing currency units.
Most prices rise but hourly wages stagnate.
How can we measure these trends? (All data from the St. Louis Federal Reserve unless specified otherwise.)
Graph the ratio of M3 (a measure of currency in circulation) to average hourly wages. The graph below shows M3 has grown more rapidly than hourly wages in the past 40 years. The extra currency in circulation has created higher prices for consumers and financial assets.
Total Debt Securities in the U.S.:
Graph the ratio of total debt securities as reported by the St. Louis
Fed to hourly wages. The graph shows total debt has risen more rapidly
than wages, even though wages are somewhat higher than three decades
ago. Negative consequences occur, except for the financial elite, from
“out-of-control” government spending, corporate buy backs with
inexpensive debt, student loans, sub-prime auto loans and more.
- Debt is leverage and financial crashes become more likely.
- Debt must be repaid via devalued currencies or defaulted.
- Debt requires interest payments.
- Interest payments reduce future disposable income.
- High debt and reduced disposable income lead to bankruptcies and a weaker economy.
Wages grow slowly – about 4.2% per year since 1971. Wall Street
average bonuses (source: Business Insider) have grown rapidly. Those who
process paper and digital assets benefit from the financialization of
the economy.
The rich get richer … the poor and middle class get stagnating wages and higher prices.
But, the middle class can protect their savings and purchasing power with gold and silver.
Gold and silver should leap to mind because they are
financial insurance and protection against continually devaluing fiat
currencies. They insulate us from the “money printing” that leads to
wealth inequality.
The same is true for the S&P 500 Index and bonds. Currency units
are created by commercial banks and central banks. Debt increases, and
much of the newly created currency is directed into stocks and bonds, but not into higher wages for workers. The excess debt and currency in circulation levitates the stock market. Wall Street benefits while Main Street lags…
More currency circulates each year. The U.S. government spends about
$4 trillion each year – 20 times the value of the gold SUPPOSEDLY held
in Fort Knox. Total government expenses rise faster than hourly wages.
Wage earners and pensioners suffer from declining purchasing power in a financialized economy.
Currency in circulation, debt, government expenditures, the stock
market and Wall Street bonuses outpace hourly wages. The paper and
digital portions of the economy benefit from government and central bank
devaluation policies.
Wages earners have received little from the massive spending and debt
programs that levitated stock and bond markets and fed $ trillions to
the military contractors, large pharmaceutical companies, Wall Street
and other corporations that influence lawmakers.
Other Examples: Cigarettes and gold
The St. Louis Fed publishes data for the price of cigarettes and
tobacco as an index. A ratio of the cigarette index to hourly wages
shows that cigarettes are about three times more expensive today than 40
years ago when compared to hourly wages.
The ratio of annual gold prices to hourly wages shows the bubble peak
in 1980 and a smaller peak in 2011. Current gold prices are inexpensive
compared to both hourly wages and total debt securities. (See below.)
What do others say about wages?
From Wolf Street: “The Chilling Fact”
“We already found buried in it
that inflation-adjusted earnings from wages, salaries, etc. for
full-time employed men have fallen 4.4% since 1973.”
“Inflation-adjusted” uses the official government massaged inflation data. The 4.4% DROP
in wages is a politically motivated best case interpretation. Those who
pay for groceries, prescription drugs, college tuition, Obamacare or
rent know that official inflation statistics are “optimistic.”
The bottom line is that wages are stagnant compared to the paper and digital portions of the economy.
The rich get richer and the poor get poorer, as planned. The lowest
“inflation-adjusted” incomes remain flat over time while the top 1%, top
5%, and top 20% have enjoyed large “inflation-adjusted” increases in
their income. The top 1% benefit more from the stock market rally than
the bottom 60% of households.
COUNTER-PARTY RISK AND RESET:
Neither gold nor silver are subject to counter-party risk. “If
I don’t get paid, then I can’t honor my commitments to you,” is
IRRELEVANT when your wealth is stored in physical gold and silver. The
days of huge counter-party risk in the digital world, such as 2008, are
likely to return soon.
The stock markets are trading at all-time highs. In contrast, gold
and silver are down 35% and 70% from their all-time highs. It is easy to
“print” more digital currency units to boost stock prices. It is
difficult to mine gold and silver.
A reset to lower financial prices and higher gold and silver prices is inevitable.
Action Needed: Create gold and silver backing for your savings, investments, and retirement!
SUMMARY:
- Central bank and commercial bank creation of new digital currency
units have benefited stocks, bonds, and those in the top 5% of income
far more than those earning hourly wages or who survive in the bottom
80% of incomes.
Every newly created currency unit devalues all existing currency units. We experience that as “stuff costs more.”
- Total debt increases more rapidly than wages. Debt is rolled over
and “paid” by issuing new debt. The dollar’s purchasing power erodes
every year.
Gold and silver protect your purchasing power.
- If you don’t want to play the paper game, own real money, not the digital and paper stuff. Gold and silver are real money, and are NOT dependent upon central banks or government promises, commitments and integrity.
- Gold and silver are currently inexpensive compared to total
debt, M3 and government expenses. Risk is extreme in our over-extended
financial system. Gold and silver may remain inexpensive for many months
… or, after the economic hurricane, reset much higher.
Protect your purchasing power, savings and retirement.
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GE Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 - 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy, and central banking. His articles are published on Deviant Investor as well as other popular sites.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
