Archive for the ‘Purchasing Power’ Category
Most people fail to understand basic mathematical concepts such as exponents and ratios as they apply to everyday life. We usually “get it” when it comes to the mathematical facts that are taught in school (if we passed through basic Algebra) but nobody in our government schools ever teaches how these functions apply to the real world.
The reason they don’t, I assert, is that the educational establishment from the government itself on down knows full well how these functions relate to everyday life, and they also know that if you understood these facts there would be a revolution the next morning as you would understand exactly how you have been systematically and intentionally robbed by the mavens of finance with not only the consent but the active participation of your government.
With that in mind I wish to present two pieces of data today. The first is “average hourly earnings”, which is from the St Louis Fed, and the second is the total systemic debt, public and private, taken from the Fed Z1.
Why the second as a point of comparison? Because as I have repeatedly pointed out “credit” (that is, debt on the other side of the balance sheet) spends exactly the same as does currency (emitted money.) Therefore, when one compares earnings power in real terms one must look at the denominator that is in actual use, which is that currency + credit.
Over the last 30 years, from 1980 to today, the average production and non-supervisory employee earnings have gone from $6.61 to $20.09 (not seasonally adjusted.) We will use the September 2012 cut-off for this because that’s where our Z1 data ends (for another few weeks), which is $19.83.
This is an almost-perfect triple, which sounds great at first — you’re making three times as much, per hour, today as you were in 1980.
But how far does that money go?
In January of 1980 (in other words, the end of Q4 1979) the total systemic debt was $4.274 trillion. Were that to have tripled, that is, your purchasing power was to remain exactly constant then systemic debt would be about $12.82 trillion.
It is in fact $55.358 trillion, or 12.95 times greater.
Now to be fair we adjust for the population change. It has gone from ~227 million to about 314 million; roughly a 38% increase. In other words on a per-person basis the increase in debt has been a bit over 9x.
You got 3 of the multiples in increased dollars in your paycheck. You went backwards at three times the rate of “nominal” acceleration unless you were somehow able to glom some of the debt cycle “profits”, all of which were factually illusory.
This is what “drove” you into the stock market. It is what “drove” you into “investing” rather than saving. But since you can only pick up small crumbs even if you do so, and even if you’re right more often than wrong, the fact remains that you are still behind.
Who stole your purchasing power via this mechanism?
That’s simple — the 0.01%. The Wall Street Banks. The politicians. Their friends.
Everyone but you.
But — but — but you say, how about since 2006?
Ok. 2006, incidentally, is when the BLS started tracking all employees, not just non-supervisory ones. At the end of the first quarter of 2006 the average hourly earnings were $20.38. Again, as of 10/1/2012 (last update for the Z1) they were $23.55, or an increase of 15.6%.
At the end of the first quarter of 2006 systemic debt was $43.16 trillion. As of the end of the third quarter of last year it was $55.36 trillion, as noted before,an increase of 28.3% while population only increased about 5% during the same period.
In other words you are still going backward and in fact your hourly earnings are decreasing in purchasing power terms and have been since 2006, just as they have been since 1980. In fact GDP has “increased” by 20.1% over the same period (2006-Q1 to 2012-Q3) yet debt has gone up by 28.3% (22.2% population-adjusted), which means that GDP has actually declined in real terms on a per-capita basis over that period, not advanced.
The so-called “increase” in your wages are an intentional chimera which is thrown to you to make you “feel good” about your earnings “going up.” But in point of fact they’re not going up at all, they are going down because the divisor, the total number of dollars in the system that are available to buy the goods and services are rising much faster than your earnings are.
The fraud you’re being sold is exactly identical to going into a bakery and ordering a sheet cake. The baker asks you how many pieces you would like the cake cut into; your options are 2, 4, 8, 16 or 32. He then tells you that if you’re really hungry you should choose 32, because that way you can eat more pieces.
You’d either laugh at the baker or string him up by his necktie were he to pull that crap, yet this is exactly what Ben Bernanke along with all the politicians have been selling you for the last 30 years.
Incidentally the S&P 500 stood at about 107 at the start of 1980. If it increased at the same rate as systemic credit it would stand at 1385, which is not all that far from where it actually is. “Greatest Bull Market in History” or outright fraud due to credit manipulation by a 0.01% of the population who have systematically and intentionally lied to you while skimming off 90+% of the so-called “gains” of said “bull market”, leaving you with scraps — if you’re fortunate enough to be able to participate at all.
There is no answer to these problems found in “redistribution” or “entitlements.” There is only one answer available, and that is to stop inflating the monetary system through fraudulently unbacked emission of credit and remove same from the system, forcing those who unjustly stole your effort to eat the losses that will ensue and go bankrupt, deflating the price level and restoring balance to the economy so that your purchasing power is also restored.
Would doing that result in a large amount of short-term economic pain? You bet it would. But that pain would fall disproportionately on those who stole from you in the first place, exactly as it should.
There is no other means by which you can restore your purchasing power; all other schemes to “increase credit”, “increase lending”, “lend support through QE” or “tax and redistribute” will simply steal more through the exact mechanism that has been used to rip you off thus far.
I can understand how someone might not “get it” when it comes to how they’ve been robbed if it has not been clear to them, and they simply didn’t know where to look to find the truth. But after seeing this (and verifying it for yourself, which is not very hard), exactly what excuse do you have for continuing to play the puerile game run by both the banksters and the politicians of all stripes?
Here’s the bottom line folks:
These are the major spending items in the US Budget, from 1980 to today. I am ignoring all the ones that don’t matter, and I’m also intentionally leaving in one foil often used by both sides of the debate for scale purposes (Education.)
Of particular interest (and alarm) is Welfare, which doubled from 2007 to 2010. But — it appears to have come down some in the least two years and change. Therefore, while this is a problem, it is not the emergent one.
Those are the three categories on the top — Pensions (Social Security, mostly), Health Care and Defense.
One of them is discontinuous — Defense. It is possible that the rough tripling from roughly 1998 to today has stopped. If so then its impact on what is to come is not material.
Before you protest, please read the rest of this.
That leaves two categories — “Pensions” and “Health Care”.
Note the right scale graph, the purple dashed line. This is the reason that the so-called pundits, from Bernanke on down, all argue that we must deal with this sometime in the reasonable future, but right now we’re not about to hit the wall. That is, GDP is rising in rough conformance with those three major contributors to the government’s spending profile. And it is GDP (in one form or another) upon which all taxes are levied. Therefore, by first appearance, they argue, we are not about to have an imminent crack-up.
Note the category called “interest” and that it has been rising much slower that has the debt over the last few years. It tracked the debt growth until approximately 1996.
This is when active manipulation took hold by both The Fed and Government.
It is when, approximately, we transferred from growth in the economy to debt-financing for consumption.
Now I want to project out a few other assumptions just a couple of years.
First, I will project forward both Pensions and Health Care to 2015, along with the Debt.
I’m assuming defense remains constant. This is probably unrealistic given the screaming coming from the DOD right now, but let’s assume it in order to give the budget folks the benefit of the doubt.
Note that our public debt has exceeded $20 trillion. Note also that we have added $355 billion in annual expense to the budget and exactly none of it is discretionary. The so-called “sequester”, at $80 billion a year, is (by the second year) less than one quarter of this amount, and that assumes that every penny of it sticks.
Now I want to make one final assumption — The Fed loses control of interest rates because it is forced to abandon its programs due to either runaway “inflation” or the ongoing destruction of purchasing power in the American people’s lives.
That ongoing destruction is happening now and it is responsible for the zero GDP print last quarter. This is an emergent problem, not one for the future two, three or five years down the road, because without growing GDP that purple line does not go upward and the alleged ability to cope with the growing expenditures instantly evaporates.
That’s the bad news.
The worse news is what happens if The Fed is forced to back off.
Let’s assume that the One Year T-Bill rate goes back to the midpoint of its historical range (not including the 1980s discontinuity), or about 3.5%. What happens?
The expense profile of the government does not rise by $355 billion in mandatory spending, it rises by nearly $900 billion annually in just two years time!
This increase is approximately one third of all tax revenues and into a flat GDP there is no chance of collecting the taxes necessary to fund it.
That in turn will provoke a discontinuous interest rate move.
Pensions we can fix; OASDI can be repaired. We did the first piece of it with the expiration of the payroll tax cut that was (foolishly) passed. The rest is handled by indexing (now!) the retirement age to longevity.
The medical spending problem cannot be fixed within the government alone. It has to be addressed in the medical system as a whole. In short, the medical system must contract in terms of dollars spent by about 80% and then rise at no faster than GDP in the future.
This has to happen now. It can happen now, but doing so is a political nightmare.
We cannot do this in the future. We cannot do this over a period of 10, 20 or 30 years. We must do it right now, this year, today, in the present tense.
There is no other option and I don’t give a damn how much the medical providers, hospitals and lobbyists scream.
“Scotty, I need warp power in 2 minutes or we’re all dead.”
Yes, I’m fully-aware that the government and Fed will try to “kick the can” in some way, even if they see this as the imminent outcome of their acts. But any further ”can-kicking” just makes the problem worse by compounding the debt and expense profile even more.
Some of the back-of-the envelope numbers I had been working with gave us until about 2020 or thereabouts before the discontinuous spike occurred. Those models were ones that I tweaked back in 2007 and were the reason for my alarm at the time — we had less than a decade left before the impact started.
But now we have both Europe (which is falling back into recession), Britain (which is an utter basket case) and Japan, which has effectively declared that it will debase its currency and destroy the purchasing power of its citizens into a depleted savings base. In addition we have what is now a known set of outcomes from Obamacare, which I predicted would be an utter disaster and for many people would double their health care expenses (mostly insurance) and which is now known to be correct.
This changes have forced updates to those graphs and expectations and unfortunately they have pulled forward the “aw crap” date to as few as two years from now.
Note that these are quite-conservative estimates. If defense spending rises from here then it’s even worse. If welfare spending rises (E.g. more food stamps anyone?) then it’s even worse. If we subsidize more student loans, it’s even worse. This estimate and work assumes that no other part of the federal budget increases by one single net penny — a ridiculously conservative set of assumptions.
If the corrective actions aren’t taken in the immediate present tense then what you’re looking at is the outcome that will happen, and when that outcome occurs immediate collapse of the government’s funding model is assured.
This is not speculative — it is arithmetic.
The only option The Fed would have would into such an event would be to try to “QE” the difference via what at that point amount to completely-phony auctions and “open market operations” on top of what it’s doing now — that is, roughly double the destruction of purchasing power that is taking place today via their “QE-to-infinity.”
But that simply transfers the deficit to the population directly via that destruction of purchasing power and it falls almost-entirely on the bottom two quintiles of the income spectrum.
That’s a recipe for a nearly-guaranteed civil war as you will generate over 100 million Americans with nothing to lose.
Raw chart data from usgovernmentspending.com, traceable to US Budget data (official)
I hate bankers and so should you. Why? Because bankers steal a little bit of Christmas cheer
every year. For the past several years, bankers have stolen a lot of Christmas
cheer. Like the Grinch from Dr. Seuss’s famous children’s tale, How the Grinch
Stole Christmas, bankers have hearts two sizes too small, and by means of
burglary, they do their best to deprive everyone of Christmas every year. Only
unlike the Grinch, despite stealing from people every year, bankers never learn
and never reform, they never return to the people the vast amounts of money
they stole from them, and they are cold-hearted and arrogant enough to claim
that they are doing “God’s work” (as stated by Goldman Sachs Chairman and CEO
Lloyd Blankfein, when in reality, they do much more harm to society as a whole
than good. And this makes the majority of bankers worse than the even the
loathed Grinch himself.
Since the institution of banking was founded, bankers have
been guilty of deceit, fraud and theft. During Biblical times, “Jesus went into
the temple, and began to cast out them that sold and bought in the temple, and
overthrew the tables of the moneychangers [bankers]..And he taught, saying unto
them, Is it not written, my house shall be called of all nations the house of
prayer? But ye have made it a den of thieves.” (Mark 11:15-17)
Fast forward almost a couple thousand years later, and
bankers were still committing the same theft. In fact, over a period of
eighteen hundred years, bankers learned nothing from being cast out by Jesus
from the temples, and they continued to commit such questionable acts of
morality that even a man of very questionable character himself showed nothing
but contempt for them. Though historians noted that former US President Jackson
committed numerous hateful acts against Choctaw, Chikasaw, and Cherokee
American Indians, Jackson despised bankers so much, that in front of a
delegation of bankers, he stated the following:
“Gentlemen, I have had men watching you for a long time, and
I am convinced that you have used the funds of the bank to speculate in the
breadstuffs of the country. When you won, you divided the profits amongst you,
and when you lost, you charged it to the bank. You tell me that if I take the
deposits from the bank and annul its charter, I shall ruin ten thousand
families. That may be true, gentlemen, but that is your sin! Should I let you
go on, you will ruin fifty thousand families, and that would be my sin! You are
a den of vipers and thieves. I intend to rout you out, and by the eternal God,
I will rout you out.”
Fast forward another one hundred and eighty years, and we
discover that bankers have failed to evolve even a tiny iota from their
deceitful nature. When ex-CEO and former US Secretary Henry Paulson lied to the
American people and to US Congress by asking for more than $800 billion of
funds for the purposes of helping American home owners and then committed the
ultimate bait-and-switch fraud by handing this money to his banking friends, he
epitomized the very warning Andrew Jackson levied against bankers in the
1800’s: “When you won, you divided the profits amongst you, and when you lost,
you charged it to the bank.” In this case, Paulson acted beyond the normal
level of immorality of bankers, and charged the banks’ losses to every single
American citizen. Unlike the
Grinch, who repented from the error of his ways over a period of a few days,
bankers have refused to repent for the unsound monetary system they have
created for more than two thousand years!
To understand why Jesus threw bankers out of the temple, why
a former governor of the Bank of England stated that banking “was born in sin”,
and why Andrew Jackson, a focus of much hatred and contempt among American
Indians, viewed bankers as so immoral, that despite his own immense character
flaws, he made it his own personal crusade to throw out all bankers from US
government, one must understand how bankers continually rob all citizens of
their wealth every day. To state that bankers lie, deceive, rob and steal from
all citizens every day is not an exaggeration. The means by which they do so
today has drastically changed from the means they employed centuries ago, so
this is why so few people understand that bankers continually rob them. Most people don’t understand that
bankers ensure the continual devaluation of the purchasing power of all money
in the system by not only literally creating money out of nothing but also by
creating money as debt.
This process, to which they cleverly assign the word
“inflation” is in reality a tax that constitutes a direct theft of your
savings, and no different than the tax British monarch King George imposed upon
the American colonists that triggered the American Revolution. The bankers have
only changed the mechanism by which they collect this tax, and the word that
they use to describe this mechanism. In America, this hidden tax of inflation,
which is a euphemism for the devaluation of the currency that sits in your
savings account, is directly responsible for the following situation that Eric
Schlosser described in his national bestseller, Fast Food Nation:
“It used to be, even in low income families, that the father
worked and the mother stayed home to raise the children. Now it seems that no
one’s home and that both parents work just to make ends meet, often holding
down two or three jobs. Parents increasingly turn to the school for help,
asking teachers to supply discipline and direction.”
The above paragraph described the family life of many
families that lived in Middle America almost a decade ago. Due to an unsound
monetary system that has led to relentless devaluation of the US dollar, the
situation described above will explode in intensity and magnitude over the next
five years, and affect everyone in America, no matter your income level and
socio-economic status. As the US dollar continues to lose purchasing power,
despite a current possible extended rally against the pound and Euro,
middle-class America will sink into the ranks of the poor. If the world operated on a sound monetary system, even in low-income families, the mother could still stay home to raise the children. Today, even in middle-class families, thanks to bankers, the mother does not have the option to stay home and raise the children. When the situation
of both parents working two or three jobs and their kids attending high school
while working 20+ hours a week is still not enough to make ends meet, crime
will explode in America during the next five years. It is the critical problems
of these very families that the bankers are creating through their monetary
policies that will come home to roost in America.
In reality, I don’t hold hatred in my heart for anyone.
Christmas is a time for forgiveness and none among us are infallible and none
among us are without sin. Yet, to be forgiven, those that continually do wrong
must repent, and bankers have yet to do anything that demonstrates that they
have even the slightest amount of regret and remorse for the economic upheaval
and chaos that they have created throughout the world in recent years. The
rich, though they may not care to understand the tale of How the Bankers Stole
Christmas now, should make it their prerogative to understand this as soon as
possible. Why? The current course the bankers have set us on has ensured that
the rich will soon become victims of desperate masses of people in their
country that will see a huge degradation in their quality of life due to the
recent monetary policies bankers have elected to impose upon their
citizens. When large portions of
the middle class are destroyed, masses of people that never considered stealing
before, will steal and loot due to the simple instinct of survival, and a great
battle between “the haves” and the “have nots” will ensue in future years in
many developed countries, as crazy as this concept sounds today. Should the
people choose to understand “How the Bankers Stole Christmas”, the
inevitable massive increase in crime that will accompany the sinking of the
middle class into poverty can be avoided.
If instead, everyone chooses to buy into the propaganda of
the bankers, then this same scenario, as crazy as it sounds today, will come
true in the future just as the “crazy” stock market crashes I predicted in 2006
eventually materialized in 2008.
And the biggest culprit of this shameful scenario, should it
materialize, will embarrassingly be our own refusal to see the truth about how
bankers have commandeered today’s “modern” monetary system for their own
benefit, and their own benefit only, to the detriment of every single citizen
they claim to be helping. If one doubts the enormous reach of banker’s
tentacles into governments, then perhaps now is a good time to review former
IMF Chief Economist’s Simon Johnson’s brilliant article, “The Quiet Coup”.