EXPOSED: The Great Money Fiction

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Men spin myths as spiders spin webs…

Eve and Adam munched the apple, Zeus kinged Earth, Washington axed the cherry tree.

To these fantastic fictions we must add another:

Money and wealth are synonyms. Money is wealth and wealth is money.

This myth — this deathless myth — commands our attention today.

Murdered and buried 1,000 times, 1,001 times it has stormed from its tomb. The very gods envy its immortality.

Man chased these gods down from Olympus aeons ago. Yet the money myth lives, breathes, prospers in A.D. 2020.

Inflation: The Birth of a Thousand Illusions

Explains Henry Hazlitt in his masterly Economics in One Lesson (1946):

The most obvious and yet the oldest and most stubborn error on which the appeal of inflation rests is that of confusing “money” with “wealth”… So powerful is the verbal ambiguity that confuses money with wealth, that even those who at times recognize the confusion will slide back into it in the course of their reasoning…

Yet the ardor for inflation never dies. It would almost seem as if no country is capable of profiting from the experience of another and no generation of learning from the sufferings of its forebears. Each generation and country follows the same mirage. Each grasps for the same Dead Sea fruit that turns to dust and ashes in its mouth. For it is the nature of inflation to give birth to a thousand illusions.

China first went chasing after this false fruit in the ninth century CE.

The results were… predictable.

By 1448 CE currency — face-valued at 1,000 — was trading for 3.

By 1455 China turned to silver to jam inflation back in its cage. It did not revisit paper until the late 19th century.

Meantime, Rome clipped coins, famously.

Kings, princes, prime ministers and presidents throughout history have bitten the same Dead Sea fruit.

In each instance it turned to dust and ashes in their mouths.

A Thought Experiment

Money does not create wealth. Money no more creates wealth than yardsticks create yards.

Please direct your attention to 18th-century philosopher David Hume…

Imagine, said Hume, that a benevolent fairy drops money into every pocket overnight. Instantly the money supply doubles.

But is this society doubly rich?

Alas… it is not.

The money supply has doubled, yes. But no additional goods have entered existence.

The new money will simply chase existing goods. Thus we can expect prices to roughly double as the fresh money runs them down.

The late economist Murray Rothbard:

What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its newfound wealth, prices will, very roughly, double — or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods.

And so we come to this question: What then is the proper money supply?

Money and “Price Stability”

Should the money supply increase each year to match that year’s increase of goods?

That is, if the stock of goods increases 2%… should the money supply increase 2%?

Many would argue yes. It is the way to “price stability,” they would say.

They concede that an overproduction of money relative to goods will yield inflation. That is, if money production increases 4% while goods production increases 2%.

But they will likely tell you that gentle inflation is tolerable — even healthy. It spurs the consumer to spend… which adds a figure to the gross domestic product.

That is because consumers will purchase goods today knowing their dollar will fetch them less tomorrow.

A little inflation can therefore keep an economy on the jump… and business in funds.

Conversely, an undersupply of money relative to goods works the opposite effect. That is, if money production increases 2% while goods production increases 4%.

Deflation means people will delay today’s purchases. That is because they expect lower prices tomorrow. And so tomorrow’s dollar packs more oomph than today’s dollar.

What is the ultimate result, the evil result?

Goods will wallow upon shelves, stockrooms will overflow… and the wheels of commerce will slow to a standstill.

Under extreme deflation they may stop entirely.

Thus is deflation the ultimate bugaboo, the ultimate fee-fi-fo-fum, the ultimate devil of monetary economics.

The money supply must therefore increase continually — lest deflation menace.

That is the theory as it generally runs. Do you question it?

As well question the reality of Noah’s Ark… or Russian sabotage of American elections… or of gravity itself.

But is it true? Is deflation really the supreme monetary evil?

Why Do People Keep Buying Computers and Large-Screen Televisions?

Consider, if you will, computers. Consider large-screen televisions.

Their prices slide lower year after year.

Yet computers and large-screen televisions do a very brisk trade — despite consumer expectations of falling prices to come.

Where then is Armageddon?

If deflation was so vicious… why do consumers continue purchasing this gadgetry… rather than waiting for next year’s prices?

Thus we revisit this question: What is the proper money supply? Is there one?

Could the economy even rub along without any increase in the money supply whatsoever?

That is, if the money supply was eternally frozen in place.

Paul Krugman would denounce you as an agent of darkness if you suggested it. But consider…

The Mystery of Prices

In an economy of fixed money, all goods and services must bid against the existing money stock.

Some prices would rise on supply and demand. Others would fall on that same supply and demand.

Consumers may prefer product X to product Y this year — for example.

The price of X will rise. And the price of Y will fall… all else being equal.

The maker of X will therefore profit, even in a world of fixed money. His purchasing power would in turn increase.

But what about the maker of Y?

He must lower his prices. But the consumer is the beneficiary. He can purchase Y at a reduced price. His purchasing power has therefore increased.

And so it goes, back and forth, forth and back.

We are led then to this throttling conclusion: The argument that the money supply must constantly expand finds little excuse in the facts.

If prices are free to seek their own equilibrium, changes to the money stock are unnecessary.

Any amount of money will do the duty of any other.

“We Come to the Startling Truth That It Doesn’t Matter What the Supply of Money Is”

Explains the grandee of “Austrian” economics, Ludwig von Mises:

As the operation of the market tends to determine the final state of money’s purchasing power at a height at which the supply of and the demand for money coincide, there can never be an excess or deficiency of money. Each individual and all individuals together always enjoy fully the advantages which they can derive from… the use of money, no matter whether the total quantity of money is great or small… The services which money renders can be neither improved nor repaired by changing the supply of money… The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do.

Here the aforesaid Murray Rothbard — who learned at Mises’ elbow — affirms:

We come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of [money]. There is no need to tamper with the market in order to alter the money supply that it determines.

To repeat — for emphasis:

Any amount of money is as good as any other. And there is no screaming need to add more.

Thus we declare ourself heretic today, raise our infidel flag… and train our cannons on the castle walls of the economics profession.

In conclusion, we petition the government to shutter the Federal Reserve — and to point its members toward productive employment in private industry.

Their services are not required. They never were…

Regards,

Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

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“Hell Is Truth Seen Too Late”

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“Hell is truth seen too late,” wrote Thomas Hobbes — sternly, grimly, gravely.

We fear the United States will see truth too late…

The truth, for example, that a comatose economy does not simply jolt to life at a button’s touch…

That extravagant debt levels murder growth…

That the costless midday meal has no existence.

Someone, somewhen, someway, must pay.

How Can It Continue?

The United States economy has hemorrhaged perhaps $25 billion each day of this economic coma.

No economy can withstand months and months and months of it.

The lights must wink on, the machinery must begin to whine, the workers must punch the clocks again.

The entire economic and financial system was dreadfully indebted before the pandemic.

Now it is plunging deeper and deeper into debt without the economic activity to brunt the cost.

GDP has contracted at a savage rate — as government spending has expanded at an equally savage rate.

That is, Americans are purchasing more and more lunch on more and more credit.

The Most Gluttonous Debt Binge in All of History

United States national debt has expanded $3 trillion in a mere six months — the most gluttonous debt binge in all of history.

At $26.6 trillion, national debt presently equals some 130% of the gross domestic product.

Never has the ratio been higher.

Today’s debt-to-GDP ratio outdoes the previous record of 121% from 1946 — after the United States emptied its pockets to scotch the Axis.

Today it has emptied its pockets to scotch the virus.

This year’s budget deficit is already racing for $4 trillion. But it could rise to $6 trillion after another serving of lunch.

Democratic and Republican “negotiators” are hard at work in the kitchen…

A 6-Inch Sandwich or a 12-Inch Sandwich

Only its dimensions — a six-inch sandwich — or a 12-inch sandwich — are at issue.

Bloomberg:

The negotiators are trying to reconcile differences between the $3.5 trillion Democratic plan passed by the House in May and the $1 trillion package that Senate Republicans introduced last week.

But, it is an election year.

Republicans do not wish to sport the black hat… and appear indifferent to suffering humanity, to hungry humanity.

Thus, we expect the 12-inch submarine sandwich. Or perhaps, a 10-inch submarine sandwich.

Either way, it goes upon the credit card.

The Lunch Bill Comes Due

Here is the difficulty of course:

Government claims no resources of its own. It collects them in one of two ways.

It presses a pistol against the citizen’s ribs… and plunders his wallet.

Or it takes to the credit markets, empty cup in hand.

But even if the government borrows, the pistol goes against the ribs.

Recall, the citizen must pay taxes to service the lending.

And how — again — does the government haul in taxes?

Either way… the citizen pays. His lunch bill comes due.

In days such as these, we might recall the timeless principles of economics…

Quack Panacea for Economic Ills

Here is Henry Hazlitt from his masterly primer on economics, Economics in One Lesson:

Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency”…

Here we shall have to say simply that all government expenditures must eventually be paid out of die proceeds of taxation; that to put off the evil day merely increases the problem… Once we look at the matter in this way, the supposed miracles of government spending will appear in another light.

The supposed miracles of government spending spring from Lord Keynes and his famous multiplier…

The False Miracle

It is the miracle of water into wine. It is the miraculous multiplication of five bread loaves and two fish into food for the multitudes.

It is the free lunch.

This is the promise of the Keynesian multiplier and its devotees.

It may appear miraculous under debt-free conditions.

But today’s system is so soaked through with debt… additional debt does not yield wine… but vinegar.

It divides, not multiplies, bread and fish.

Each dollar borrowed since 2008 has yielded under $1 of growth. It is perhaps 40 cents, by some estimates we have encountered.

It is a sort of miracle in reverse, an anti-miracle.

It merely piles up to unholy levels of debt. And debt drains the future… leaving it barren and empty.

Plunging into debt introduces a sort of hand-to-mouth living. It diverts cash flow to the service of existing debt — often unproductive debt.

And so, investment in the future is sent channeling backward. It is a titanic larceny of the future.

And artificially low interest rates are the stickup gun…

The Curse of Artificially Low Interest Rates

Lance Roberts of Real Investment Advice:

Low to zero interest rates incentivize non-productive debt. The massive increases in debt, and particularly corporate leverage, actually harm future growth by diverting spending to debt service…

The rise in corporate debt, which in the last decade was used primarily for nonproductive purposes such as stock buybacks and issuing dividends, has contributed to the retardation of economic growth…

The massive debt levels being added to the backs of taxpayers will only ensure lower long-term rates of economic growth.

It is the economics of the hamster wheel — frantic — but stationary.

We therefore expect no V-shaped recovery like the “rah-rah men” croon about.

We expect, rather, a protracted guttering along, a futile running in place, a languishing in purgatory.

More, More, More!

But the good Dr. Paul Krugman does not believe present borrowing is adequate to purposes.

He exhorts the government to load on additional debt because interest rates are so low:

The government will be able to borrow that money at incredibly low interest rates. In fact, real interest rates — rates on government bonds protected against inflation — are negative. So the burden of the additional debt as measured by the rise in federal interest payments will be negligible.

Yet is borrowing at extremely low rates a warrant to plunge deeper into debt?

It is true, the government can presently borrow at low rates. But this is likewise true…

Rates will not remain forever low. Invincible time will balance the scales ultimately.

Heading for Hell

When rates do return to historical averages — 3-5% — debt service could wash out the entire budget.

Prior to this crisis, the Congressional Budget Office already projected debt service would scale $915 billion by 2028 — nearly 25% of the entire budget.

Only the Lord — the Lord above, that is — knows the ultimate figure. But it will likely be far higher than prior estimates.

How will the government afford to pay for anything else? And how is America to rebuild its finances?

We do not pretend to know. Perhaps it cannot.

If hell is truth seen too late… the nation may be careening for a very hot place.

The mercury is already rising — fast.

Regards,

Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

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The China Myth, Exposed

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For almost twenty years, the myth of a “rising China” and the “Chinese century” has been gathering steam.

Of course, the U.S. is recognized as a superpower now, but its days as the greatest power in the world were numbered, according to this myth.

China was prized both  by U.S. manufacturers for its cheap labor and by U.S. consumers for the cheap prices on Chinese exports (never mind that the goods were shoddy with few exceptions and often fell apart not long after you removed them from their glossy clamshell wrappers).

The globalists praised the advent of highly integrated supply chains and just-in-time logistics that would bind global economies together and pave the way for One World governance, taxation and money.

There was only one problem with this narrative. It was completely false.

Chinese labor is running low because as many as possible have already moved from the country to the city.

Tight supply chains proved fragile as we saw during the COVID-19 pandemic when the U.S. could not get protective gear made in China and China threatened to cut off exports of antibiotics to the U.S.

Our craze for cheap Chinese goods meant that China piled up over $1.4 trillion in U.S. Treasury notes which makes China our biggest creditor.

Beyond that are horrific human rights abuses such as organ harvesting (without anesthetic) from political dissidents, concentration camps, reeducation camps, forced abortions, forced sterilizations, firing squads and more.

The Silicon Valley CEOs simply turned a blind eye in pursuit of profits. The cost in lost U.S. jobs was catastrophic.

The China myth has now been revealed to be a fraud. China has shown its true colors by suppressing freedom in Hong Kong in violation of a treaty with the UK that was supposed to run until 2047.

China’s military is still weak, despite advances in recent years. Its economy is bloated with unpayable debt and it is alienating potential friends from Australia to Japan and beyond.

The globalist dream for China has crashed and burned. Good riddance.

Meanwhile, dramatic developments may be under way within China itself…

Washington Times national security reporter Bill Gertz has excellent connections inside the U.S. intelligence community and a long track record of accurate geopolitical predictions far in advance of events.

Gertz now reports that China is going on red alert.

It’s putting up signs telling citizens how to get to bomb shelters. Military factories are being moved away from factories that produce civilian products. Ham radio operators report rumors of an impending attack on some remote islands technically controlled by Taiwan.

These activities suggest China may be preparing military action of some kind.

More importantly, rumors persist of an internal power struggle between Chairman Xi and what is known as the Shanghai political faction led by Zeng Qinghong.

China is entirely subordinate to the Chinese Communist Party. You can study the Chinese government all you like, but you won’t learn anything about how China works unless you study the role of the party.

The Communist Party and its survival come first. Everything else in China is devoted to that end.

The problem is that the Communist Party itself is opaque and difficult to understand. Written rules mean nothing. What counts are personal loyalties and control over organs of state power through party cadres.

For the time being, Communist Party Chairman Xi seems to be in a dominant position. He has the most firm grip on power of any leader since Mao Zedong, who died in 1976.

Considering China is much richer and more powerful militarily today than in the days of Mao, Chairman Xi is arguably the most powerful individual in history with firm control over the lives of 1.4 billion Chinese and many more in surrounding countries.

It’s difficult to know, but Chairman Xi may be walking on shaky ground.

It’s often difficult to sort fact from fiction in China, but investors should be braced for some kind of geopolitical shock emerging from China in the next few months.

It could be military action or what could essentially be a coup.

The rumors may amount to nothing, but they may indicate a major shock. And I should point out that Bill Gertz has a great track record for accurate forecasting.

Treasuries, gold and cash would benefit from a Chinese shock, while Chinese stocks and emerging markets would be badly damaged.

Investors should prepare accordingly.

Below, I show you why the Chinese economy is basically a house of cards, and why it’s mired in the “middle income” trap. Read on.

Regards,

Jim Rickards
for The Daily Reckoning

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Falling Into the Abyss Between Wall Street and Main Street

This post Falling Into the Abyss Between Wall Street and Main Street appeared first on Daily Reckoning.

I know this runs counter to every dominant narrative, but a vaccine doesn’t really matter, opening up doesn’t really matter, and the size of the “free money” stimulus checks doesn’t matter.

What matters is that the nation is falling into the abyss that’s opened between Wall Street and Main Street.

And nothing will stave off the collapse of the social order other than a fundamental re-ordering of the way we create and distribute money and political power, as money buys political influence.

The last economic tide with widespread benefits to Main Street was 30 years ago. Since then, the Federal Reserve and other central banks have incentivized globalization and financialization, two dynamics that favor mobile capital and financier skims and scams.

There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization.

Financialization has given those with access to central bank credit ways to skim great wealth from the system without creating any value whatsoever.

Financialization isn’t a consequence of having capital: it’s the consequence of having access to unlimited central bank credit, leverage and low-risk, low-tax skimming operations (for example, tax codes enable hedge funds to declare income as low-tax long-term capital gains).

Leveraging phantom collateral is another feature of financialization. Commoners were allowed a taste of this when subprime lenders were offering no-document, no-down payment mortgages back in 2004-2007.

Phantom income was posted as collateral for the nothing-but-leverage loan.

Financialization is not about investing in productive enterprises; it’s all about skimming wealth while providing no value to the real economy or society.

The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power.

Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class.

Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets.

Financialization is the disease eating away what’s left of democracy.

Financialization is the exploitation of assets/income that were previously safe from predation by central bank funded financiers. While definitions vary, mine is:

Financialization is the commoditization of debt collaterized by previously unsecuritized assets, a pyramiding of risk and speculation that is only possible in a massive expansion of low-cost credit and leverage for those at the top of the wealth-power pyramid: financiers, banks and corporations.

One example is the student loan “industry,” which prior to financialization did not exist. A previously safe from predation asset/source of income — college degrees — has been securitized so that loans issued to students for largely worthless diplomas can be sold globally as “secure assets with guaranteed yields.”

That the unknowing class of students have little to no income and no guarantee of income doesn’t matter. What matters is a previously unexploited asset can be turned into debt that can be sold at an immense profit.

And so student loan debt has skyrocketed from near-zero to $1.6 trillion in less than a generation.

This rapacious, ruthless exploitation would not have been possible without the central bank (Federal Reserve) and federal government enabling and enforcing the supremacy of the higher-education cartel.

IMG 1

Globalization and financialization have been the two engines of soaring wealth inequality.

Globalization can mean many things, but its beating heart is taking advantage of cheap overseas labor and skirting the environmental and tax costs of doing business in the developed nations.

In other words, globalization is the result of those at the top of the wealth-power pyramid shifting borrowed capital around the world to exploit lower costs of labor, commodities, environmental regulations and taxes.

This manifests as offshoring of jobs, the stripmining of forests, minerals, etc., the degradation of local ecosystems, the decline of tax revenues derived from capital and the explosive rise in stock market valuations as wages stagnate or decline.

A key element in globalization is the transfer of risk from the owners of capital to the workers and public resources.

Examples of this transfer of risk abound: rather than pay workers benefits, corporations game part-time/full-time labor laws so workers’ health insurance is paid by taxpayers (Medicaid).

Corporations pay wages too low to survive so workers depend on public-sector assistance (food stamps, etc.).

Alas, all good predations end when the prey has been dragged to the ground and consumed.

All the fruit of financialization and globalization have been plucked by the powerful, and now both the engines of “growth” are sputtering as the hollowed-out Main Street economy implodes.

Central bank free money for financiers doesn’t create collateral or creditworthy borrowers, and without those foundations, the decayed, rotted shack of debt will collapse.

If we set aside the proximate causes of social disorder, we discern the salient cause: the socio-economic political system no longer works for anyone but those skimming wealth from globalization and financialization.

Main Street has been in slow-motion collapse for a generation. But this terminal decay was masked by hyper-financialization and debt-fueled spending by consumers who became accustomed to filling the widening gap between their income (stagnant) and the costs of their lifestyle (rising), as they chased the top 5% who benefited from globalization and financialization.

Debt creates the warm and fuzzy illusion of wealth, but at a cost: debt payments never disappear, but income and profits can slide effortlessly to zero.

We come now to the key dynamic of this era: socio-economic psychosis, as most people are incapable of making sense of the contradictory messages being given by the status quo. The next result is madness, as every attempt to reconcile the contradictory messages veers further away from reality.

The relentless rise of Wall Street is constantly presented as “proof” the status quo is “creating wealth” and is enormously successful.

It’s impossible to reconcile this claim with the decay and collapse visible in Main Street, and so people lash out at whatever they can identify as the proximate cause of their suffering and poor prospects.

Ask yourself these questions: What kind of system will we get if the vast majority of the trillions created out of thin air by central banks goes to financiers and corporations?

What kind of system will we get if these financiers and corporations use some of this free money to buy political influence?

What kind of system will we get if the really big money is skimmed by financial games that generate no goods or services, no jobs, and no productivity — in essence, they are completely worthless to the real economy and society?

What kind of system will we get if the stock market bubble is touted as “proof” the system is working splendidly and wealth is bubbling up without any limit thanks to the Fed’s magic money machine?

The answer is a system that’s crazy-making and doomed by its internal contradictions.

The Fed can create dollars out of thin air and sluice it to the super-wealthy to feed their skims and scams, but it can’t create jobs, oil, tools, collateral or productivity out of thin air.

The abyss between the Fed’s illusion of phantom wealth for Wall Street and the collapse of Main Street is bottomless, and our descent into the abyss is accelerating.

Regards,

Charles Hugh Smith
for The Daily Reckoning

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The Unraveling Will Accelerate

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Since the first news of pandemic in late January, I’ve been discussing potential accelerants to the unraveling of our fragile financial system.

The system appears stable until a catalyst pushes it off the cliff.

Catalysts come in a variety of forms, from the apparently modest “straw that breaks the camel’s back” to a broad awakening that the status quo simply isn’t capable of adapting successfully to new realities.

Financial catalysts tend to result in sudden, cataclysmic collapses in liquidity, solvency and sentiment.

While the Federal Reserve can “fix” liquidity crises by creating currency out of thin air, that doesn’t make bankrupt firms solvent or make employers hire employees.

Once complacent confidence slides into cautious fear, massive liquidity injections to keep the system from crashing are understood as last-ditch desperation.

Social-political catalysts are slower but much more difficult to reverse.

While the media’s attention has been focused on the protests, two other social-political catalysts are gathering momentum:

1. The failure of our education complex to provide workable childcare/learning solutions

2. The hope of a V-shaped recovery in employment collapses.

There is a class dynamic in these potential catalysts that few mainstream pundits follow to the logical conclusion.

When socio-economic distress is limited to the politically powerless working class — for example, the blatant exploitation of gig-economy and contract workers — the power structure can safely ignore the brewing crisis because the distressed workforce has insufficient economic-political power to threaten the rule of the Power Elites.

But when the top 20% of the workforce that accounts for 50% of all consumer spending and 80% of the citizenry’s political voice is in distress, the Power Elites better pay attention.

Nobody in power really cared if lower-income households struggled with juggling childcare and getting to work; but when Mr. and Ms. Technocrat are struggling, suddenly it’s an issue that can’t be ignored.

The same dynamic is also in play in the 21% unemployment that’s accelerating to 25% unemployment. As long as it was the marginal workforce that was losing jobs, the power structure reckoned unemployment was a solution.

But as the unraveling gains momentum, middle-class jobs will start vanishing and unemployment won’t be enough to pay bloated mortgage payments, property tax bills, etc., and the defaults of student loans, credit cards, auto loans and mortgages will start piling up.

As people awaken to the fact that the V-shaped recovery was a fantasy, sentiment will slide from confidence to angst.

The failure of institutions to adapt to new realities will be impossible to deny, and the choices may boil down to opting out (i.e. assemble informal groups of households that pool resources to hire a private tutor for home-schooling their children) to organized revolt (i.e. teachers’ union strikes).

Sclerotic, hidebound institutions optimized for stability and permanent growth are simply not designed to adapt to sudden, rapid change and disruption of permanent growth.

Systems stripped of buffers are fragile, systems stripped of feedback are fragile, systems that optimize doing more of what’s failed spectacularly are fragile, systems that are little more than fractals of incompetence are fragile, systems that rely on the artifice of denial and fantasy are fragile.

Fragile systems break. This is why the unraveling is accelerating.

Regards,

Charles Hugh Smith
for The Daily Reckoning

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A “Massive Welfare Economy”

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First the silver lining:

Second-quarter GDP did not collapse at the predicted 34.7% annualized rate.

Now the cloud:

Second-quarter GDP nonetheless collapsed at a calamitous 32.9% annualized rate.

Into the record book it goes — Q2 2020 turned in the severest quarterly plummeting in United States history.

Q2 1921 formerly claimed that inglorious distinction… nearly one century ago.

And so the United States economy officially enters recession — two consecutive quarters of contraction, as the standard definition runs.

Here is the butcher’s bill from the second quarter:

Personal consumption — down 34.6%, annualized…

Services — travel, tourism, restaurants, etc. — down 43.5%…

Business investment — down 37.7%…

New housing — down 38.7%…

Exports — down 64%…

Federal government spending — from a reduced tax base — up 17%.

This government spending spree in fact presents us with a deep and profound curiosity:

In a quarter of record GDP contraction… and record unemployment… disposable personal income skyshot 42.1%, again annualized.

Imagine it if you can: a fellow loses his job and his wallet fattens.

It is as if he stops eating and gains 30 pounds. Who ever heard of it?

Thus the United States presently runs a “massive welfare economy.”

Mr. Joel Naroff, he of the eponymous Naroff Economic Advisers:

“The only way you have personal income rising in a collapsing economy is if you turn to a massive welfare economy.”

Mr. Naroff estimates the Q2 plunge “might have been 50% or more” absent the government crutch.

But the crutch is presently being kicked away from many Americans. And their income is about to become far less disposable…

The Federal Pandemic Unemployment Compensation program concludes tomorrow. And millions of Americans will be thrown from the dole.

How will they eat? Purchase medicine? Make rent?

Rents come due this weekend, in fact. Absent the $600 weekly lifeline… how will they meet it?

29 million Americans could face eviction by year’s end, claims a bunch called the COVID-19 Eviction Defense Project.

Meantime, the Census Bureau’s latest weekly Household Pulse Survey is out.

23.9 million Americans, the survey revealed, had “sometimes not enough to eat.”

And so the angels sob.

The two parties at Washington have not yet agreed on a benefit extension.

Fortunately for the workless and sometimes-starved… it is an election year.

And neither party wants 29 million sometimes-starved, unmedicated evictees on its quaking hands.

But when agreement is reached, the government will have to expand the relief rolls…

Fresh unemployment claims increased to 1.43 million last week — the 19th consecutive week in which claims exceeded one million — crushing all existing records.

Not even the professional optimists can bellow about a V-shaped recovery any longer.

What do say the “experts” about today’s GDP issuance?

[It] “just highlights how deep and dark the hole is that the economy cratered into in Q2,” says Mr. Mark Zandi, chief economist at Moody’s Analytics.

“It’s a very deep and dark hole and we’re coming out of it,” he continues, “but it’s going to take a long time to get out.”

Jefferies economist Aneta Markowska peers into the same deep, dark abyss:

The only value in Q2 GDP data — which are obviously very backward looking — is that now we know how big of a hole we have to dig ourselves out of…

Even if growth averages 5% going forward, it will take 2 years to get back to pre-COVID levels… And, because of the continued growth in the underlying capacity of the U.S. economy — due to population and productivity growth — it will take even longer to get back to pre-COVID trend and full employment. Our best guess is 4 years.

You can therefore expect a full economic recovery… when Joe Biden’s vice-presidential pick is running for her second term in office.

But what about the third quarter? Can you expect a jolly bounce off Q2 lows?

After all, GDP cannot possibly match Q2’s abysmal record.

Yet you should not expect a dramatic Q3 rebound, argues Joseph Brusuelas, chief economist at RSM:

That premature reopening simply pulled forward activity and resulted in the release of one-time pent-up demand that exhausted itself on or around June 24. The probability of a greater than 20% rebound in the current quarter has declined significantly over the past month, and we think it will not materialize.

We hazard they are correct. And so the Federal Reserve will remain at its tricks…

Yesterday Jerome Powell insisted it will do “whatever it can for as long as it takes.”

More QE. More manipulation. More debasement. “For as long as it takes.”

The beatings will continue until morale improves, that is.

And we do not expect morale to improve anytime soon…

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post A “Massive Welfare Economy” appeared first on Daily Reckoning.

Deadlier Than Cancer

This post Deadlier Than Cancer appeared first on Daily Reckoning.

“The whole gospel of Karl Marx can be summed up in a single sentence,” argued economics journalist Henry Hazlitt long ago:

“Hate the man who is better off than you are.”

Continued Hazlitt:

Never under any circumstances admit that his success may be due to his own efforts, to the productive contribution he has made to the whole community. Always attribute his success to the exploitation, the cheating, the more or less open robbery of others. Never under any circumstances admit that your own failure may be owing to your own weakness, or that the failure of anyone else may be due to his own defects, to his laziness, incompetence, improvidence or simple stupidity.

“Hate the man who is better off than you are…”

History is a detailed diary of this very hatred…

The French Revolution, Russia’s Bolshevik Revolution, China’s Cultural Revolution — perhaps America’s unfolding cultural revolution of its own.

We cite but some examples.

They all set out to correct wrongs. But they mostly end up stripping rights.

The right to life itself is often among them.

Today we study the acid emotions of jealousy… and envy.

Man’s False Vanity

Men fancy themselves thinking creatures ruled by hard, icy logic.

Yet we maintain it is a false vanity, a mere conceit.

Men lasso reason and logic primarily to serve their hormones, their vanities… and their delusions.

That is, men enlist logic to affirm their emotions.

Men are capable of thought, it is true. But they are infinitely more capable of emotion.

Has logic ever plunged a man into love… or into war?

Has logic ever written a poem… or elected a president of the United States?

Has logic ever torn down a statue?

Is it logic on nightly display in Portland, Oregon — or is it emotion?

It is the emotions of jealousy and envy that fetch our attention today…

Jealousy Is Not Envy

Jealousy and envy are not identical. They are siblings — yet they are not twins.

No less a luminary than Aristotle clarified the distinctions between them. Jealousy even has its high and legitimate purposes, said he.

It pricks a man’s pride…  and spurs him on to higher attainments.

Envy — in contrast — only spurs him to evil. For envy is “base”:

Jealousy is both reasonable and belongs to reasonable men, while envy is base and belongs to the base, for the one makes himself get good things by jealousy, while the other does not allow his neighbour to have them through envy

“More men die of jealousy than die of cancer,” argued a lesser luminary than Aristotle — Joseph Kennedy.

Perhaps he meant more men die of envy than die of cancer.

And is not envy one of the seven sins that are deadly?

But let us turn now to jealousy…

“The Sparrow Knows Its Place Is Not Among the Eagles”

It is said a man is jealous of his betters. But it is only partly true.

The average man harbors no jealousy towards the great man.

He has no jealousy for the Alexanders… the Caesars… the Napoleons of this world.

These are men stamped from a finer metal, a nobler metal. And the average man recognizes that it is not his metal.

The sparrow knows its place is not among the eagles.

We speak of course as a sparrow. We are no eagle.

No, the subject of the average man’s jealousy is his peer — the average man.

True Jealousy

The average man is not jealous of the champion golfer who once shot 60… but the fellow duffer in his weekend foursome who once broke 80.

He is not jealous of the movie actor who hauls in the unattainable beauty… but the insurance salesman who hauls in the pleasant-enough looking gal — the 7/10 gal.

Nor is the average man jealous of a Jeffrey Bezos with his billions. He may envy a Jeffrey Bezos with his billions. But he is not jealous of him.

He is instead jealous of his neighbor who is moving up to a nicer neighborhood.

The Sage of Baltimore — H.L. Mencken — once defined a wealthy man as “a fellow who earns $100 more than his wife’s sister’s husband.”

Be assured… that $100 burns the wife’s sister as acid might burn her.

Poverty Is Relative

Today’s poorest Americans wallow in greater opulence than all but richest Americans 100 years ago.

Before air conditioning — for example — even the industrial titan hemorrhaged sweat on furnace summer days.

Today, 80% of “poor” households enjoy the kindly, cooling influence of the air conditioner.

Automobile ownership set the rich apart through the 1930s. Not until the 1950s did mass auto purchasing spread to the middling classes.

Today, 75% of America’s poor roll around in automobiles. 30% of the same poor own two or more.

And television? Television was once a luxury, a luxury consisting of grainy images delivered in five channels.

Nearly all of today’s poor own a television. 40% own televisions with wide plasma screens. All are dizzied by endless viewing options wired in by cable or satellite.

“A Smartphone in Every Hand”

Half the poor own a personal computer… offering today’s poor a “wealth” of information that would stagger yesterday’s rich.

And FDR’s chicken in every pot is today’s smartphone in every hand.

Meantime, obesity was once a hallmark of wealth. Today it is largely a scar of poverty.

Slate’s Jordan Weissmann in summary:

When it comes to consumer goods, low-income families might have it better off than ever. The poor can buy cheap cellphones and televisions that would have seemed like fantastical luxuries to yesteryear’s rich. Microwaves and air conditioners are standard. Food is relatively inexpensive, as is clothing.

That is, the poor have advanced materially on a hundred fronts. And America’s poor are enveloped by luxuries that would marvel yesteryear’s rich.

Yet men focus not on what they have… but on what they do not have…

“Poverty Often Has a Rich Imagination”

The poor man of today does not compare his lot with the rich man of yesterday. He compares his lot with the rich man of today.

And compared with the average poor, today’s rich live in exotic luxury, flamboyant luxury.

They soar on wings of leisure… jet from one good time to the next… have life by the snout.

This the poor man sees. His imagination doubles and triples what his eyes take in — and multiplies his jealousy.

Poverty often has a rich imagination.

He may watch the rich at play on a 50-inch plasma television screen. This, as he luxuriates in air-conditioned comfort and munches microwaved meals.

That is, he feels poverty’s sting surrounded by amenities yesterday’s rich could scarcely conceive.

Yet it brings him no comfort. For man is a creature eternally grasping…

The Next Rung of the Ladder

His eye is forever glued to the next rung of the ladder… the prettier plum just out of reach… the greener grass on the yonder side of the fence.

A poor man may set his cap for the middle class.

If by grace he attains it, he soon develops an itch. And discontentment bubbles within him.

For he becomes uncomfortably aware of the floor above him. And so he begins another merry chase up the ladder.

There is always another rung.

Here we do not criticize. We merely observe.

After all, it is man’s ceaseless striving that accounts for all material progress.

And we have our eyes on a grail or three beyond our outstretched grasp.

But maybe, just maybe, on some distant tomorrow… a fellow can take ease in his own inn, however modest… wherever he finds it.

It seems he will find it in no other.

We all might recall the wisdom of ancient Greek philosopher Heraclitus:

“Our envy always lasts longer than the happiness of those we envy.”

Regards,

Brian Maher
Managing editor, The Daily Reckoning

The post Deadlier Than Cancer appeared first on Daily Reckoning.

The “Government Put,” Is a Tailwind for Gold

This post The “Government Put,” Is a Tailwind for Gold appeared first on Daily Reckoning.

Gold recently crested $1900, where it is today as of this writing. For some, the $1900 price level is an important indicator of momentum building. I’ll share with you some advice on the gold price offered by my zoom interview this week, George Gammon, Rebel Capitalist, below.

In an effort to help you sort things out, I’ve invited George to help us put the macro picture into perspective given the pandemic, shutdown of the economy, a bizarrely resilient stock market and prospects for your investments now and in the future.

Gammon’s own story — from serial entrepreneur to global real estate developer to macroeconomic guru — uniquely positions him to help put the current state of affairs into perspective. On top of that he’s a heckuva good guy, entertaining, approachable; he has a talent for making complex ideas easy to understand.

He’s well versed in my late obsession with collectivism, which I’ve been exploring deeply since the protests started. He also explains how the Fed will monetize the $26.5 trillion in debt racked up during the crisis; the secret vehicle the Treasury will use if Fed efforts fail; how and why the dollar remains strong; what shenanigans the data wonks to white wash important economic data.

We further discussed prospects for reopening of the economy; why the economy and the stock market have diverged so dramatically; what signs to look for in the capitalist endgame; where the heck all that stimulus money is going; and more.

Frankly, my conversation with George was one of the more interesting, informative and entertaining I’ve done since starting the Surviving and Thriving series for Agora Financial Platinum Reserve members.

You’ll definitely want to see the “lightning round” at the end where we cover his thoughts on real estate, stocks, tech, commodities, bitcoin, gold, silver and precious metals; including a look under the hood at some of his own investments. Go here for a full transcript of our interview.

Now, let’s play with a hypothetical…

Let’s say we have another wave of lockdowns in various geographic locales in the economy. Here in Baltimore the mayor is about to close restaurants again, for example. The restaurants close. Bars close. Gyms close. Schools don’t reopen… yada, yada.

Institutional traders get spooked, again — still speaking hypothetically — and start selling stocks. The hoi polloi see the numbers tanking in their 401(k)s. And so on. We know what happened during the initial lockdown. February and March of 2020 account for 8 out of 10 of the largest single day point losses in the Dow Jones’ ever.

IMG 2

Source: Standard and Poors

By March 11 the Dow had lost 6,004 points — down 20.3% from the Feb. 12 high. What if bad news causes this, still jittery, market to drop 20% again?

“The whole U.S. economy is so tied to asset prices,” George Gammon suggests, “I just cannot see the Fed and or Treasury not stepping in and trying to prop up the market. Fact is, they have to step in and try to do something.”

I can’t argue with that.

“When you trap people in a system of debt,” said lefty linguist Noam Chomsky, “they can’t afford the time to think.”

I’m not sure I’d agree with Chomsky on too many things, but I think he nails that one.

For the first time since WWII the interest on the debt — which grows daily — is higher than the nation’s GDP. If that isn’t a trap, I can’t think of what would be… and so much of the hole the country is digging itself into is entirely out of your hands.

What’s an individual investor to do?

Back in the Crisis of ‘08 I often referred to the “Fed Put” — a friendly colloquial term describing the Fed practice of buying mortgage backed securities to put a floor in the market. So many banks were leveraged into those moribund financial instruments, without the Fed Put, the entire global system would have been kaput.

Fast forward 12 years and a fully re-inflated bubble, The ‘Fed Put’ may have expired. “If you want to think that one through,” George explains:

Remember when the Fed had that emergency meeting in March, where they were going to meet on Wednesday to decide the interest rate policy, but they had that emergency meeting on Sunday where they dropped interest rates by 100 basis points, took it down to zero and they announced QE Infinity and they’re committing a trillion a day to the repo market.

Monday, the market opens, it does go higher for maybe three or four hours, but then it just tanks, drops out of bed. Even though the Fed throws everything at it but the kitchen sink. And then the government comes in and announces all these stimulus programs. Then at that point, the market started to go back up a few days later.

So it seems like maybe, just maybe the Fed Put has expired and has been replaced by a government put. So now the only entity to prop up the market is going to be straight government spending.

What that means is not just bank reserves, but that means a direct M2 money supply — cash to folks like you and me — and an increase in velocity, the speed at which “getting and spending” happens.

Whether it will continue to work, or not, is anybody’s guess.

The “Government Put” could be the butterfly that unleashes a hurricane on the other side of the planet.

So… what should you buy? How about gold? And when should you buy it?

“I don’t even worry about the price of gold,” Mr. Gammon answers. “I don’t even look at the price. When I get an extra hundred grand, bam, 10,000 goes into gold.”

“As far as silver, I look at that more like a speculation, more like Bitcoin. But the ultimate speculation right now are the gold miners. And I was fortunate enough to buy a lot of those back in March as well. And they’ve had a good run, but again, I’m not planning on selling them at all. And if they go back down even further, I’ll buy more.”

“I think if you look at everything we’ve talked about in this interview, and the M2 money supply, the velocity, the deficits, not only that, but you’ve got oil that’s very low, which definitely helps the P&L for the gold miners because a lot of their expenses are energy.”

“Cheap oil benefits them tremendously. And with the Government Put there is already a huge tailwind for gold in general. They could go down. But if they do go down, I’ll happily buy more and just wait until I think they’re expensive, which probably is going to be a long bull run from now.”

Buy gold (and gold miners)… and enjoy the ride.

Regards,

Addison Wiggin
for The Daily Reckoning

The post The “Government Put,” Is a Tailwind for Gold appeared first on Daily Reckoning.

The Dark Side of the Cashless Society

This post The Dark Side of the Cashless Society appeared first on Daily Reckoning.

Real quick, grab a $100 bill from your wallet.

OK, humor me, any bill will do. What do you see?

I’d tell you what I see, but when I grab my Book Book, which serves as both a phone case and a wallet, there’s no cash in it. There rarely ever is. Please, keep that in mind for today’s foray into inductive reasoning.

I saw this makeshift sign over the weekend:

IMG 1

Seen at the Walgreens three miles from my house.

“At the airport. Very sparse here, ghost town,” reads an email from a colleague’s mom, “No coins.”

One of Agora Financial’s publishers, Doug Hill, had a similar experience flying to San Francisco last week for a meeting with a private equity fund. He couldn’t get accurate change for a pop rag he wanted to read. No coins.

“With the partial closure of the economy,” Federal Reserve Chairman, Jerome Powell says, “the flow of funds through the economy has stopped.”

Economically-speaking, the national coin shortage is a physical reminder of how slowly the nation’s economy has been; ‘velocity of money’ hit roughly zero.

“We are working with the Mint and the Reserve Banks,” Mr. Powell contends. ”As the economy re-opens, we are starting to see money move around again.”

Fair enough. What else is he going to say?

Back to the Benjamin burning a hole in your wallet. On it, you’ll see digits… a serial number for each bill.

As those bills are returned to the Federal Reserve from their journey around the country, the bills that have gotten too wrinkled, torn or worn thin get their serial numbers retired. The paper gets shredded.

Here’s what I was thinking while watching the film on Netflix the other day:

Wouldn’t it just be easier, and less expensive, if the Fed didn’t have to go through all the trouble of reclaiming and decommissioning the paper? Why not just track the serial numbers electronically?

Anyway, while fact checking the coin shortage story, a USA Today reporter included this little nugget: A Facebook post form including “a sign from a Texas-based grocery store chain H-E-B asking shoppers to use a debit card, credit card or correct change, if possible, due to the shortage.

The posts then warn against the potential of the U.S. becoming a ‘cashless society’.”

The Daily Reckoning has been on this “cashless society” story for some time.

Ideally, a cashless society is no big deal. As I mentioned, I rarely hold cash if ever. Over the weekend, I got a haircut and didn’t leave a tip because my Book Book was dry.

But it’s not an ideal world. And the mind does wander to dark places, doesn’t it?

Our own Jim Rickards has argued that elites are pushing for the cashless society so they can “herd” us all into “the digital pens.” Then they can impose negative interest rates on us.

But there’s another angle to the cashless society that hasn’t gotten much attention:

What if the powers that be can “cancel” people with unpopular political opinions?

The Walgreen’s sign says I can pay with credit, debit or gift card. I can use Apple Pay or Google Wallet. But here’s where the story gets spooky…

Ever since Mark Zuckerburg got summoned to appear before a Congressional committee over his backroom dealings with Cambridge Analytica prior to the 2016 election, Facebook is not so friendly to folks who don’t think like they do.

Google followed Facebook’s lead. We have reps at each place. Under their guidance, we try to abide by their rules. But the rules can, and have changed, without warning. It’s their platform, they make the rules. “You don’t like the rules,” their attitude goes, “you don’t have to post with us.”

Then there’s the federal government…

According to the U.S. Treasury site, since the pandemic began the Treasury has issued “more than 140 million Economic Impact Payments worth $239 billion to Americans by direct deposit to accounts at financial institutions, Direct Express card accounts, and by check.”

A prepaid card from the Treasury. Why not?

My kids, who strangely enough qualify, could hypothetically still use the card to procure sundries at the Walgreens down the street.

But what if, hypothetically again, that card doesn’t work because their dad is an ornery son of a b$tch who got in a spat with some readers over the Black Lives Matter movement… and some government bureaucrat didn’t like what I said?

That is, what if suddenly my EIP card doesn’t work at Walgreens anymore?

Or what if Facebook or Google don’t like what I write? What if Apple doesn’t like me either?

Hmm…I use gmail. I use a Mac. I shop at iTunes. I use my credit and debit cards for everything. I never have cash in my Book Book.

Boy, going down this rabbit hole is frightening. Good thing none of it could ever happen… right?

Gold is perhaps the best defense against negative interest rates and the cashless society.

Regards,

Addison Wiggin
for The Daily Reckoning

The post The Dark Side of the Cashless Society appeared first on Daily Reckoning.

How Secure Is Biden’s Lead?

This post How Secure Is Biden’s Lead? appeared first on Daily Reckoning.

The drumbeat of polls showing Biden with a big lead over Trump is unrelenting. The RealClear Politics poll (actually an average of many different polls; a good statistical technique) shows Biden with an 8.6-point lead over Trump (49.3% for Biden versus 40.7% for Trump).

Of course, national polls don’t mean much because the U.S. does not have national elections, we have state-by-state votes for Electoral College electors.

But a lead of over 8-points is significant; even adjusting for skew and other biases, that puts Biden firmly in the lead. At the level of swing states (where it really does matter), Biden also dominates. His lead is 6-points in Wisconsin, 6.4-points in Florida, and 7-points in Pennsylvania.

That last number is critical. It’s hard to see how Trump retains the White House if he does not win Pennsylvania. So, is it all over but the shouting? Should we just hand the keys to 1600 Pennsylvania Avenue to Joe Biden?

I’ll reveal the answer shortly. But first let’s look at the bigger picture…

There has never been any mystery about the Republican nominee for president — it’s Donald Trump, case closed. But the identity of the Democratic nominee was contested between Joe Biden and Bernie Sanders during the primary season as other contenders dropped out one by one.

Finally Sanders stepped aside and Biden became the presumptive Democratic nominee, although curiously, Biden never did win a simple majority of the delegates — the nominating process and primaries were brushed aside by the COVID-19 pandemic.

But no one cared because the competition dropped out and released their delegates to support Biden. Now, the world awaits Biden’s decision on who his Vice Presidential candidate will be.

An announcement is expected in a few days.

The candidate will definitely be a woman (Biden pre-announced this), but the identity is still unknown. Elizabeth Warren appears to be the frontrunner, and she would be acceptable to the Bernie Sanders wing of the party, which seems to be calling the shots.

But whoever it is, the VP pick will probably be president within a year if Biden wins. That’s because Biden’s cognitive impairment will render him unfit for office early in his administration. Biden is already surrounded by Sanders’s handlers. Some Obama retreads will make up the Biden cabinet.

Under the 25th Amendment to the U.S. Constitution a majority of the cabinet and the VP can declare the president “unable to discharge the powers and duties of the office.” In that case, the Vice President becomes Acting President.

At that point, the takeover of the White House by the radical wing of the party will be complete. It’s already well underway…

For example, the Democratic primary election was recently held in New York’s 16th Congressional District. Challenger Jamaal Brown defeated incumbent Representative Eliot Engel in a close race.

The district is safe for Democrats, so Jamaal Brown will likely be elected to Congress in November to replace Engel. The initial reaction of most readers might be, “Who cares?” If you don’t live in that district, you’re not directly affected, and even if you do live there, you’re just swapping one liberal Democrat for another so what’s the big deal?

Actually, it’s a highly significant development. Here’s why:

Engle was not just another member of Congress. He had been in power for 32-years and was Chairman of the House Foreign Affairs Committee. Engle was not in the running for House Majority Leader or Speaker, but he was definitely in the leadership ranks and was one of the most powerful Democrats in Washington.

Normally, when either party has a long-time incumbent in a safe seat, you just put that seat in your pocket and spend time and effort on other races where you can flip a seat from the other party or defend an endangered incumbent.

Why the challenge for Engel?

The answer is that Jamaal Brown is a radical progressive and will fit in nicely with “The Squad” of radicals led by Alexandria Ocasio-Cortez (AOC). By the way, AOC got her seat in New York’s 14th District in 2018 by defeating another long-time incumbent, Joe Crowley, who had been in Congress for twenty years and was being mentioned as a possible Speaker of the House.

What’s happening is that Democrats in safe seats are not being challenged by Republicans but are being challenged in primary elections by radicals in their own party.

These challenges are funded by far-left groups such as the George Soros’s Open Society Foundation (through hundreds of sub-accounts) and other outside money. This serves a dual purpose.

When the radicals win, the ranks of The Squad are expanded and AOC’s power grows. Even where no challenge is underway, regular Democrats kowtow to Soros and The Squad to avoid attracting primary opponents themselves.

So, whether by direct challenge or passive subservience, the radicals are taking over the Democratic Party from the inside and The Squad’s agenda is becoming the Party’s agenda.

Keep an eye on these internal party challenges. Once the radicals have enough power they will come for your portfolio in the form of tax increases, regulatory burdens and social justice agendas.

But getting back to Biden’s solid lead in polling, should we just cede the election to him — and his VP candidate who’d probably be in power within a year?

Not so fast. For over 80 years, pollsters have asked two key questions in election polling. The first is, “Who are you voting for?”

That’s the intention question. The second question is, “Who do you expect to win?” That’s the expectation question.

The answer to the intention question gets all the headlines. Those are the polling results we describe above. The answer to the expectation question gets buried and is scarcely discussed.

But guess what? In cases where the intention and expectation questions have different answers, (in effect, “I’m voting for A, but I expect B to win”), the expectation answer had the correct result 78% of the time.

The intention question had the correct result only 22% of the time.

And, Trump is leading the expectation question right now 55% to 45% for Biden. So, Trump actually is ahead in the polls. You just have to be looking at the right polls. That’s key. So don’t write Trump off just yet.

But let’s say for now that Biden does win. Does that mean that the riots we’ve been seeing across the country would end?

It would be nice to think that the violence would wind down. But that probably won’t be the case. It’s true that there is less violence now than in early June. That’s partly due to Biden signing on to the radical agenda and his big lead in the polls.

The radicals see that they may get what they want (including a radical VP selection) and reason that there’s no need for violence if they can advance their agenda through a Biden White House.

But that’s at best a truce. If Biden wins, the demands will ratchet up. They always do when you’re dealing with ideologues and revolutionaries.

If Trump wins, the radicals will conclude they have nothing left to lose (and won’t wait four more years) and will unleash a new wave of violence almost immediately.

The Trump-bashing has been a steady, never-ending 24/7 spectacle for the past four years. There’s no reason why the media, the Resistance and the Democrats in Congress can’t keep it up for another four years.

The Antifa crowd will use a Trump victory as evidence that “democracy doesn’t work,” which will validate their violent tactics at least in their own minds. They’ll find plenty of supporters.

Either way, there’s more violence on the way. It might not be as immediate if Biden wins, but it would still follow.

Are markets ready for this? Is your portfolio ready? Investors should get ready; the chaos is not ending anytime soon, regardless of the election’s outcome.

Physical gold bullion is a good way to preserve your wealth and profit as it all unfolds.

Regards,

Jim Rickards
for The Daily Reckoning

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