Here's the fact: America's standard of living is falling at a faster pace today than at any time since the Great Depression. Specifically, the real median income is down 9.8% since the fall of 2008. Additionally, Americans have lost roughly $5.5 trillion in asset value, or about 8.6% of their wealth.
When you talk about a depression, what you're really talking about is a collapse in the standard of living. That's what's happening today, right now, in our country. But people continue to go about their lives as though nothing is happening. Certainly, our politicians don't want to draw attention to the problem. Instead, they are behind the campaign to "paper over" these losses with schemes like "quantitative easing."
These schemes do nothing to make our economy more productive. They're designed instead to make prices rise so people (hopefully) won't notice how poor they're becoming.
If you've been reading my newsletters since 2008, none of this is a surprise to you. I've been warning month after month, year after year, that the government's efforts to paper over our bad debts won't work. And they won't work for two primary reasons…
First, soaring levels of high-powered money (like the Federal Reserve's asset base) will eventually cause prices to rise. That means the savings of millions of Americans – and the value of their wages – will fall in real terms. That's exactly what's happening. That's why our standard of living is falling so precipitously.
Second, the impact of this inflation and the uncertainty about its impact on the economy will cause entrepreneurs and corporations to delay or cancel major capital investments. That's the primary reason we have yet to see any rebound in employment.
The best way to see what's really happening in our economy and to our standard of living is to look at the value of the stock market through a sound-money lens. You can pick whatever sound money you like. Of course, most people won't ever do this… It would never even occur to them that the dollar is not sound and that it's distorting the value of everything in our economy.
Here's the real situation in America:
That's what the S&P 500 looks like when you price stocks in ounces of gold instead of in U.S. dollars. You'll see we are now below the lows we saw in 2009. Unfortunately, few people understand this… They've never thought about it this way before. And as a result, they're simply not doing enough to protect themselves.
They don't know this is what's really happening, because Washington keeps papering over these problems with more borrowing and more printing. But you can't solve a debt crisis by going deeper into debt. You can't reverse inflation by printing more money.
If I could magically wave a wand and change just one thing about my fellow citizens… I'd make them realize paper money is a crime.
It allows politicians to rob creditors to bail out debtors. It's a tool that's used to take value away from savers and give it to reckless borrowers. It's how both political power and economic power remain vested in Washington D.C.
Now… the politicians and their backers on Wall Street will swear up and down that their policies and the actions of the central bank (which has more than doubled its assets via nearly $3 trillion of asset purchases) aren't causing the inflation. It's as if, in their minds, printing trillions of dollars in new money has no impact on our economy.
It's simply a lie.
But that's not the worst part. The worst part is all that new money will end up in the hands of the people who caused this crisis in the first place.
Let me give you one example. Below, you'll find a chart of Genworth Financial. It's a mortgage-insurance/life-insurance company. It was spun out of GE Capital during the midst of the 2000s financial boom.
Without the bailout of the financial system, via $700 billion in TARP money and more than $2 trillion in quantitative easing, there's no doubt in my mind that Genworth would have gone bust because of losses in its mortgage-insurance unit. But that's not what happened. Instead, Genworth Financial became the No. 1-performing stock in the U.S. from the spring of 2009 until the spring of 2010.
It held on to those gains as long as the Central Bank continued its quantitative easing policies. And when QE finally ended in the summer of 2011… guess what happened to Genworth? I bet you can guess without even looking at the chart.
Paper money took the biggest loser, the company that had made the worst bets with the most leverage… and turned it into the biggest winner… at least, temporarily. For this, we all paid a massive, invisible tax: the largest decrease in real wages since the Great Depression.
This isn't how America should work. The rich and the powerful in New York and Washington D.C. shouldn't have the right to impoverish the rest of us simply to bail out their backers and their cronies.
My guess is… sooner or later… our creditors and the American people will wake up to what's happening to our money. And as I've been warning, they will be furious. What's scariest to me is to see how this anger is manifesting itself in the Occupy Wall Street movement. These folks are blaming capitalism for these kinds of problems. But this has nothing to do with capitalism. Paper money was Marx's idea. But try explaining that to any of those folks…
What's happening to our country is a crime. The ramifications of these kinds of manipulations will be decades of mistrust and social unrest. Unfortunately, this is a long way from being over. The price inflation that will inevitably result from the Fed's actions of 2009, 2010, and 2011 are only now beginning to manifest. The worst is yet to come. And it's going to be a lot worse.
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