Much of our financial world functions as a “Reverse Robin Hood” economy. Rob from the poor and middle class via “money printing” and inflation of the currency supply and give to the rich! 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 Reverse Robin Hood 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. 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…
Examples: Ralph Nader reports:
“The authors also cite General Electric, which in the same period [since 2005] spent $114.6 billion on its own stock ….”
“Walmart in recent years has bought back over $50 billion of its shares – a move benefiting the Walton family’s wealth – while saying it could not afford to increase the meager pay for over one million of their workers in the US.”
There is more currency in circulation 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 large 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.
Charles Hugh Smith: “The Real Reason Wages Have Stagnated: Our Economy is Optimized for Financialization”
“This chart shows that labor’s declining share of the national income is not a recent problem, but a 45 year trend.” [since 1971]
President Nixon removed the last hint of gold backing for the U.S. dollar in 1971, 46 years ago, about when earned income/GDP began its decline. Dollars were rapidly created, debt increased by $ trillions, and the financialization of the economy proceeded.
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 benefitted 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.
Call Miles Franklin to discuss precious metals.
Gary Christenson
The Deviant Investor
