Today, we do our civic duty. We stretch out a hand to America's vast... suffering... holding on by their fingertips... middle class. We offer help...
On Friday, the markets took another step in a familiar direction. Stocks went up. Gold went down.
Wall Street analysts think it may be the start of a major move to the upside for stocks. The newspapers say so. The commentators agree.
"Big boom ahead," they say.
Why? Because every major central bank in the developed world is pumping new money and easy credit into the tank. A total of 38 are running zero or negative real interest rates. And some of the really big boys – the Fed, the ECB and now the Bank of Japan – are planning limitless QE! When that happens, even trash floats.
What's Bugging Gold?But what's with the falling price of gold? People don't need it, say the experts. The crisis is over. Clear skies, smooth sailing ahead.
Maybe. But the gold market is special. The serious players (including the self-same central banks) are buying gold. They know that gold – not dollars – will be "the last man standing" when this print-fest finally comes to an end.
They don't bet on gold. They don't speculate. They don't invest in it either. Instead, they just quietly accumulate it.
But the trend followers are dropping gold for more go-go assets. They bought gold because they were afraid. Now that things are quieting down... and the central banks seem to have the situation in hand... they're moving to riskier bets.
Will it work? Maybe... for a while.
Central banks may even manage to create a hyper-bubble in some asset classes. That should be exciting. A thriller. But every puffed-up bubble eventually blows up. This one will be no exception. And that is when everyone will wish he had gold.
Collateral DamageBut last week, we promised some advice – about how to avoid getting caught in the collateral damage. We'll begin with the basics.
Here's how we see it:
Back in the post-war period – the 1950s, 1960s and 1970s – an ordinary family could make decent financial progress by doing ordinary things. Get a good education and a good job. Work hard. Save money.
Saving money got to be a little tricky in the 1970s, because the rate of consumer price inflation shot up to 13%. Putting dollars in your mattress was a losing proposition.
Still, jobs were generally plentiful. And wages were going up, especially for people with college degrees.
People were told to send their children to college...
They were urged to "get in the stock market"...
Then they were told to get on the housing "escalator"...
The Joneses wanted to keep up with the Smiths... who wanted to at least stay even with the Jonkowskis. And so the middle class took the bait... hook, line and sinker.
They got bum advice.
If you measure inflation properly – looking at what most people actually spend their money on without resorting to the sleazy "adjustments" and "substitutions" the feds are so fond of – you find that the rate of consumer price increases has been much higher than advertised.
Independent analysts – for instance, from John Williams' ShadowStats and from Chapwood Finance – put today's real inflation rate at about 10% – five times more than the official rate, which is near 2%.
If these analysts are right, much of the gains people think they've gotten disappear. Even for college graduates, there have been no real wage gains in the last 40 years. And stocks... bonds... and housing... have all lost value, when adjusted to real inflation.
And now, the middle classes are stuck. Little or no wage gains in sight. A stock market they can't trust or understand. Not much equity in their houses (they traded up... many are now underwater). Both spouses working. Debt piling up – they're even on the hook for their children's student loans!
Sauve Qui Peut!To make matters worse, middle-class boomers are getting older... and facing retirement with little capital saved up. That makes them reliant on the feds' pension and healthcare systems.
And what's this? The feds say they have to cut back!
Well, let's not exaggerate the problem. Few middle-class families are desperate. Most live better materially – thanks to bigger houses, better appliances and more gadgets – than their parents.
And the feds, if they had their wits about them, could save their health and pension systems by cutting back in reasonable ways. Push the retirement age to 67. Make old people pay more for their tests, pills and health treatments. Stop invading foreign nations. Piece of cake.
Still, we feel sorry for the trapped middle class.
We feel sorry for them because they are trapped in a tough situation. Bills to pay. Retirement to prepare for. And no way to bring in more money.
Plus, they're depending on the feds to keep the ship afloat for a few more years so they can live off Social Security and Medicare. But the feds are untrustworthy. It wouldn't surprise us if they made a huge mess of things – forcing huge cuts in the real value of health and pension benefits.
So, herewith, we offer some advice: Get out! Escape the middle class trap. How?
More to come... tomorrow...