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In 1980 Ronald Reagan spoke about the Misery Index. An economist had added
the inflation rate to the unemployment rate, called it the Misery Index, and
used it to indicate the social costs and economic difficulty for the middle
class.
Today the Misery Index is much smaller than in 1980, thanks to … intelligent
fiscal management, economically beneficial monetary policy from the Federal
Reserve, and wise political policy from the White House. If you believe any
of those, read no further.
Most people will agree that the Misery Index is much smaller today because
the numbers have been gimmicked. Does anyone believe a few percent for
inflation or around 5% unemployment? Massage (torture) the numbers
and the Misery Index declines, incumbent politicians are re-elected, while
far too many people remain out of work, earning practically nothing on their
savings, and paying too much for food, clothing, drugs, medical care,
college, transportation and so on.
What we need for this decade, instead of a Misery Index, is an Insanity
Index based on measures than indicate how out of balance, crazy,
unsustainable, and dangerous our current fiscal and monetary world has
become. Consider a few examples:
- Wall Street bonuses (in excess of base pay) average
around $150,000 per person per year. Obviously some receive
significantly more than average. Finance, trading, and “paper pushing”
have become incredibly profitable. Compare the average Wall Street bonus
to the base annual wage for an E-5 U.S. military soldier. See graph
below.
- The SNAP (food stamps) program has escalated
from a cost of $15 billion in 1990 to about $74 billion in 2015. Measure
the program costs in ounces of gold each year and then try to convince
yourself that 60 million ounces of gold each year do not matter. See
graph below. Gold is real and can’t be printed like most currencies. The
program would “eat up” all the gold in Fort Knox about every three
years. Insane!
- Student loan debt is approaching $1.4 trillion, climbing
rapidly, and has increased about 11.5% per year, ever year, since 2006.
The student loan debt, measured in gold, is over 1.1 billion ounces –
about 8 times the gold supposedly stored in Fort Knox. See graph below
of student loan debt measured in Fort Knox Gold Units – the 147,300,000
ounces of gold that supposedly are vaulted in Fort Knox.
- National Debt (official only – not including
unfunded liabilities) currently exceeds $19 trillion, and that debt
has increased, and increased, and … increased about 9% per year, ever
year, since 1971. The official national debt of $19 trillion, measured
in gold, is about 15 billion ounces – around 100 times the quantity of
gold supposedly stored in Fort Knox. In 1937 the Fort Knox gold was an
asset and a national treasure. Today the U.S. government OWES that
national treasure about 100 times … and has what to show for those
expenditures and $19 trillion in debt? Insane!
My thoughts:
- The average Wall Street bonus is about five times the
annual wage of an E-5 soldier, and the ratio is increasing. Perhaps the
economy overemphasizes the value of the Wall Street casino and paper
money, and does not appreciate the soldier enough. Short term insanity!
- The Food Stamps program is expensive. How crazy is
running a program that spends the equivalent of 60 million ounces of
gold each year when the supposed total gold savings of the U.S. is about
260 million ounces, of which 147 million are supposedly stored in Fort
Knox? Insane!
- Student loan debt is obviously out of control,
increasing rapidly, and may not be repaid unless the Fed and politicians
devalue the dollar to near worthlessness. How insane is a program that
substantially increases the cost of a college education, creates
increasingly unpayable debt, and saddles graduates with a crushing debt
load before they are employed?
- National debt, over $19 Trillion, doubles every eight years
on average. Given the “spend, spend, spend” mentality of our
politicians, military, and entitlement programs, the national debt will
probably double even more rapidly in the next two decades. In round
numbers the debt will be $20 trillion by the end of 2016. Can you
imagine $80 trillion in debt by the year 2032 (two doubles in 16
years)? Borrow and spend may buy votes and military conquests in
the short term but in the longer term expect this insanity to bring dire
consequences to the people, country, U.S. economy, and the world.
The Insanity Index:
An index could be created – but what is the point? The United States
fiscal and monetary policies passed “crazy” long ago, and now are pushing
deeper into insanity with negative interest rates, a war on cash, out of
touch Federal Reserve policy, insane debt, QE, uncontrolled deficit spending,
and a “what could go wrong” attitude. Clearly the “paper game” has a limited
life expectancy, Wall Street is due for a reset, government spending programs
and pension plans are on life support, food stamps and student loans are two
of many programs aggressively pushing the U.S. government into insolvency –
and the solution is … negative interest rates, more QE, and a war on cash! Desperate
and delusional!
Suppose the U.S. national debt in 2032 exceeds $80 trillion and
the system has not yet imploded … what will be a fair price for an ounce of
gold or an average house? What will that 30 year T-bond you bought in 2016 be
worth in purchasing power in 2032? What will be the purchasing power of your
saving account or retirement account or Social Security check? Debt,
desperation and delusional thinking do not buy groceries, shelter, and
health, or create a vibrant economy.
Bubbles always pop. Delusions can persist for years or
decades, but they eventually crash on the rocky shores of reality. Gold and
silver were valuable 3,000 years before the first central bank and I submit
they will be valuable 3,000 after the world regains monetary sanity.
Given the insanity of endless borrow and spend programs, ever increasing
debt, overpriced stocks and bonds, desperation and delusions, and … so much
more … have you stacked physical gold in preparation for the
inevitable consequences of all the above?
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.
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