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2017: The Year of 3 Lessons

What we learnt from Trump, Bitcoin and rates...

BACK in grade school, a teacher once told us that "anybody can grow up to be president", writes Bill Bonner in his Diary of a Rogue Economist.

In 2017, Donald Trump proved it.

In high school, we learned that "anything can be used as money." In 2017, Bitcoin proved it. (In yesterday's Wall Street Journal, a full-page ad offered a house in the Caribbean for 400 Bitcoin.)

And in college economics, we were told that "interest rates couldn't fall below the zero bound." In 2017, we learned that it wasn't so.

The last of these remarkable items suggests a remarkable choice: Either it really is a New Era in which the sun stands still (among other peculiar things). Or price discovery (the process of finding out what things are worth) has filled up with more lies than a cheap dating website.

We'll go with option No.2.


"Global Market Cap Adds Trillions" reads a headline in the Wall Street Journal.

This is unremarkable. That's what honest markets do as they try to discover what things are worth: They go up and down.

But if we look a little harder, we see the lies attached, like wires to a puppet.

The article tells us that stock prices rose all over the globe by an average of 22%, adding almost $10 trillion in market value by the end of the year.

Globally, for stocks, 2017 was the biggest year ever, edging out 2009, when world markets "created" an extra $8.1 trillion "as global markets rebounded from the worst of the financial crisis."

In 2017, markets weren't rebounding from any crisis. They were just adding to already fulsome prices. So what's going on?

First, where did that $10 trillion come from?

There is only so much wealth in the world. If stocks are worth $10 trillion more...what is worth $10 trillion less?

And second, we confidently assume that the earnings of the companies traded on the world's stock markets did not change much from January to December.

World GDP rose by about 3%. The output of goods and services must have gone up a similar amount. Some corporations must have done better; some worse. On the whole, they might be worth 3% more than they were at the start of the year.

So how could their stocks go up seven times as much?

Are these prices the result of honest price discovery? Or have they been jerked higher by the feds?

Wealth can be increased or decreased. But it takes work, savings, and time. And at any given moment, the quantities of tractors, ham sandwiches, and Van Gogh paintings are fixed.

So if the stock market added $10 trillion to the wealth of equity owners, it had to subtract $10 trillion from the wealth of people who don't own equities. That is the essential scam, and injustice, of the fake-money system.

Back in the early 1980s – before the wealth transfer scheme began – an investor needed about 70 units of the Dow to buy one average house. Now, with 70 units, he can buy five houses.

Likewise, an investor back then needed only two units of the S&P 500 and he could employ the average working stiff for a week. Now, his two units will buy him six working stiffs for five days of labor.

What counts is not the Dollars in your pocket...or the stocks in your broker account...but how much of a claim they give you over the available wealth at that time.

In a normal stock market, some stocks go up; others go down. When a single stock goes up, its owners are a little richer than other investors.

But when the whole stock market goes up, it must go up against somebody else's stuff...That is, if investors are getting richer faster than the real growth of goods and services, they must be making someone else poorer. Who?

The working stiffs!

We can see the results regionally as well. The working stiffs are getting the short end of the stick. The Atlantic:

In 1980, the per-capita income of Washington, D.C., was 29% above the average for Americans as a whole; by 2013 it had risen to 68% above. In the San Francisco Bay area, the rise was from 50% above to 88%. Meanwhile, per-capita income in New York City soared from 80% above the national average in 1980 to 172% above in 2013.

Broadly, in an economy dominated by politics and fake money, you do well – like a gulag prisoner who lands a job working in the kitchen – when you're near the centers of power.

Otherwise, you lose...Because "financialization" – feeding cheap money to Wall Street – is not an economic policy; it's grand larceny.

Which helps us understand Remarkable Event No. 1: Donald Trump.

Time magazine threw away its best annual cover story – Person of the Year – for 2017.

It named the "silence breakers," women who came forth and claimed to be victims of sexual harassment, as the most important people of the year.

But that men are often cads or creeps is not exactly news. And the women who denounced them in 2017 – with the full backing of the politically correct press – were not exactly martyrs who were committing acts of great courage.

The cover story should have gone to Donald J. Trump. Reckless, impetuous, big spending, big mouthed, vain, incompetent, unthinking – he is just the sort of oaf an earnest Time editor would like to ignore.

And yet, the showman understood something the professional politicians didn't.

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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