Money Times - November 15, 2016

Posted by Jill Kerby on November 25 2016 @ 15:48



A fortnight ago I wrote that gold is a form of financial insurance, despite its price being variable and susceptible to market uncertainty. In euro, an ounce would cost €1,160 that day.  As I write, it is €1,173; five days earlier (just as Hillary Clinton’s emails were thought to be under FBI investigation again), it was €1,180.

This kind of volatility over just a few days was played out in the stock markets just before and after the US presidential election. Watching prices go up and down is the stuff of madness and sleepless nights. Accurate, specific price  predictions are impossible.

Trump’s election was a shock, but not surprising, given how it reflected the widespread mood of discontent among voters everywhere, including here in Ireland.

Ordinary folk in America, busy with their own lives, may not be able to put their finger on the exact causes, but they are a lot more aware than ever that things are not right, and haven’t been for some time. They increasingly see how the political class, shareholders and especially bosses in favoured industries (like financial and technology) and to a degree the public service, have managed to somehow avoid the job insecurity and losses, the wage stagnation that plagues people working in the less sheltered private sector businesses.

The hollowing out of the ‘middle class” – and Ireland is a country happily aspire to be middle class over the last four decades - and the descent into the credit and debt economy has come at a shocking price.

In the United States, where this great debt monster was conceived, nurtured and exported, measured by the same standard that applied even 20 years ago, employment, manufacture and production indicators, individual and corporate earnings, the movement of goods, price inflation are also lower or falling.  The US national debt has tipped over €20 trillion (if was just over €5 trillion when Bush took over the presidency from Clinton) and the Federal Reserve’s own “asset” balance is $4.5+ trillion, up from $500 million in 2008, made up of US Treasury bonds (debt) and mortgage and bank debts it bought to provide more liquidity to financial markets.)

And let’s not forget the estimated c$57 trillion of unfunded future liabilities the US government has promised to pay in the form of Social Security pensions Medicare and Medicaid.

Student debt and even motor vehicle debt is now measured in trillions in the US; the long wars in the Middle East are estimated to have cost about $6 trillion. (That’s 6,000 billion dollars.)

Hillary Clinton intended to raise corporate, capital gains and estate taxes and extend the national debt in order to fund her social spending programmes and the notorious “military/industrial complex” that President Eisenhower warned about when he left office in 1961. Trump has promised to spend trillions to rebuild America’s crumbling infrastructure and boost the military industrial complex but he said he’d pay for it by getting US foreign companies to repatriate their cash to America (from Ireland, among other countries) and by lowering personal and corporate taxes, thus creating more ‘trickle down’ wealth and income.

Bill Bonner, who publishes a network of financial newsletters, a few of which I’ve subscribed for more than a decade (I highly recommend MoneyWeek magazine) says that people ultimately vote with their wallets, whatever about their public claims of altruism. He frequently quotes the journalist and satirist HL Mencken (1880 -1956) who said, “Every election is a sort of advance auction sale of stolen goods.”

None of the candidates in this election (except perhaps the hapless Gary Johnson) addressed the cause of the economic debt, credit, boom and bust crisis in America (and here.) They didn’t propose a return to ‘sound money’ in order to limits unsustainable spending programmes, wars and vanity projects.

Like pretty much every other modern politician, including every single member of Dail Eireann, no one made the connection between the notion of living within one’s means – (yes, this includes prudent borrowing to build/own valuable assets) and long-term financial health and prosperity. They didn’t even agree on who to blame (previous Democrat/Republican administrations, Wall Street, the rich, the poor, the Chinese/Russians/the EU/Gulf Arabs…)

This unhealthy, catastrophic credit driven, debt burdened system and its mismanaged solutions  (more credit and debt) will only last…until it doesn’t.

So where do you and I fit in?  Bailing out our bankrupt banks has quadrupled our national debt from €50 to €200 billion since 2008. We’ll borrow €10 billion next year to roll over and service this debt. Personal debt rates are coming down, but we’re spending (and borrowing) very cautiously. Our ‘recovery’ is being funded by the extra foreign based corporate tax, tax that a negative Brexit effect and a Trump administration could eat into.

Will “things” get better or worse, now that Trump and his brand of populism has prevailed in the spluttering economic engine room of the world?  Probably.

The only question you can answer with any certainty is whether you’re prepared for both outcomes.


Next week: Part 2: A Financial Ark and How to Build One (again)




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