Gold News

A Giant Rip-Off

Why the rich are getting richer...

THE RICH are getting richer than ever. The middle classes are having trouble making ends meet. Think about gasoline at $4 a gallon. To a rich guy in New York or San Francisco, it hardly matters. But it's a big deal to a truck-driver from Alabama or Georgia, writes Bill Bonner in his Daily Reckoining.

But, if you're rich, watch out. Because sooner or later the mobs are going to figure out what has happened to them. Then, they're going rise up and go after you. It won't be pretty.

Eventually, people will figure out how it works. They'll see how the 'rich' – or at least some of them – colluded with the government to rip off the middle and lower classes. Not exactly intentionally. It involved more stupidity than cunning. But here's what happened.

The feds created the Dollar-based monetary system in 1971. Wage gains ended three years later.

The Fed held interest rates artificially low...and undermined the purchasing power of the Dollar. It made more sense to spend than to save.

This eroded the benefits of building capital – either in the form of machinery or worker training. EZ money devalued the hard work, patience, and savings needed to create high value-added industry. Americans became good consumers, not good producers. And since they were not producing high quality products, they couldn't command high salaries. More and more, the labor force moved to low-paying service jobs that required little training and little capital investment...and shopped for cheap goods at discount stores.

Meanwhile capital gains tax rates were lowered, and business profits increased as jobs were outsourced to lower-wage economies.

The middle and lower classes were snagged in debt, particularly through federally subsidized mortgage lending. Then, the feds turned the financial industry into a vast hedge fund.

The genius of the hedge fund is in a trick of mathematics. If I invest your money and take 20% of the gains, it sounds like a decent deal. I only make money if you do. And you get the lion's share. But over time, I will eventually get all your money. Because you will take all the losses while I chip away at the gains, year in and year out.

When the financial industry's credits went bad, the feds stepped in to bail them out. Now, Wall Street is enjoying the "heads I win, tails you lose" life of a hedge fund. The Dollar – along with the Yen – has become the funding currency for speculations all over the world. If the speculations go well, the industry collects huge performance fees. If they go badly, the feds lend the failed speculators more money – at zero cost.

Of course, we always like to take the part of the under-dog. Besides, we've been rich and we've been poor. Being rich isn't necessarily any more fun, but at least when you're a rich underdog, you don't have to worry about money.

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, 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 more recently the election of President Trump.

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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