Tens of millions of Americans will go to the polls tomorrow. Most will cast their ballot against the presidential candidate they hate. And they will wait in fear for America’s days of rage that are likely to ensue.
What’s behind this ugliness? Consider these questions and answers …
Q. What percentage of all voters, including many of her own supporters, distrust Hillary Clinton?
A. The latest polls place Clinton’s unfavorability rating at 60%, higher than for any presidential candidate in recent memory.
Q. What percentage of all voters, including many of his own supporters, distrust Donald Trump?
A. Almost the same — 59%, also higher than any unfavorable rating for a presidential candidate in recent memory.
Q. What percentage of Trump supporters feel disgust, disdain, fear and/or outright hatred for Clinton?
A. In prior presidential elections, 40% might have been considered huge. In this cycle, it’s 90%, the worst in recorded history.
Q. Same question for Clinton: What percentage of her supporters feel disgust, disdain, fear and/or outright hatred for Trump?
A. Also 90%!
Q. Based on these stats, how many adults currently living in the United States will be very upset when they hear the results of the election tomorrow night?
A. There are about 220 million citizens eligible to vote in the United States today. Whether they actually vote or not, the latest polls tell us that about half — close to 110 million — prefer one of the candidates who will lose the election. And as I’ve just shown you, 90% of them despise or hate the opposing candidate. This means that we will have close to 100 million angry, frustrated people when they learn the election results tomorrow.
Q. What will these 100 million angry people do about it?
This may be the most urgent question of all … and also the one for which the answers are the most complex. Still, we can safely say that …
- Many will forever remain passively disgruntled. They are not political activists. They have other priorities — their families, their personal finances, and their health — to deal with.
- But that still leaves tens of millions of people who will enthusiastically support aggressive efforts to…
- reject White House-sponsored legislation,
- investigate alleged criminal activities by the president, and
- pursue impeachment if possible.
- Moreover, the turbulent election also leaves an even bigger problem in its wake: A larger-than-ever group of people who are frustrated with elections, hate Congressional lobbyists, and distrust any other established venue for influencing the direction of the country. According to late-breaking poll results, more than 80% of voters are disgusted with current politics.
- Result: Many will resort to street demonstrations and other nonviolent protests.
- And unfortunately, the election aftermath will also create a growing minority that’s motivated to take up arms. No one can foretell when or how. But we can say with certainty that, like it or not, this country provides multiple opportunities for doing so — via militias, underground rebel groups, criminal youth gangs, and even terrorist cells.
- When will this last trend begin? The fact is it already has begun, as Larry documents in “What Rising Social Anxiety and Record Gun Sales Tell Us.” (To sign up for his free Election Day webinar, be sure to click here)
- The end result will be a distinct rise in domestic strife and rebellion … greater authoritarianism in government … plus still more divisiveness among ordinary citizens along social, ethnic and political lines.
The Latin Americanization of U.S. Politics
None of this is unfamiliar territory for me.
For many years I’ve been in Latin American countries that were exploited by corrupt elites, tormented by revolting masses, and ultimately torn by civil strife.
I was in Cuba before Fidel Castro came to power. We lived on the Isle of Pines, south of Havana Province. Castro was imprisoned nearby and later went back to rename it Isla de la Juventud (Isle of Youth), helping to transform paradise into wasteland.
|Top: On the roof of Brazil’s Congress during the military dictatorship; then, on the way home from Brasília to São Paulo with our VW bug. Middle: Elisabeth traveling with me and soldiers in San Miguel, El Salvador, prior to civil war. Bottom: Thumbing for rides in Uruguay during state of siege. But no need. Friendly soldiers with machine guns helped get us all the rides we needed at toll-booth barricades. Click here for full size photo.|
I lived in Brazil under a ruthless military dictatorship. Among other forces, the generals rose to power in the wake of economic disasters — and on the shoulders of a desperate middle class.
I was in El Salvador before a long, bloody civil war. One side was armed by the U.S., Israel and Taiwan; the other, by the U.S.S.R, Cuba, and China.
I passed through Uruguay during a state of siege. The entire country was shut down for a door-to-door search of Tupamaro guerrillas who had kidnapped an American CIA agent.
And I was in Chile during a socialist revolution. It later collapsed with a military coup and a presidential suicide.
Is the United States becoming a banana republic?
No. For the most part, our democratic institutions are far stronger and more deeply rooted. Yet there are many valuable lessons to be learned:
Each time I went to Latin America, I came home to develop a detailed political/social analysis of the events.
In each case, I found that civil strife first began in an atmosphere of civil peace.
And everywhere, I discovered that the underlying causes had a lot to do with the same two megatrends I’ve been warning you about right here in the United States.
This is so important — so critical to understanding the presidential election of 2016 and its aftermath — that I must explain it again right now, before we go to the polls tomorrow.
The two megatrends are:
- The biggest concentration of wealth in 100 years; and, at the same time …
- The worst political divisiveness since the Civil War.
Combined, these create some of the most worrisome risks for citizens and investors in recent history.
The last time we saw a similar convergence of these extremes in the United States was in the early 1860s … and then again in the late 1920s.
In the first instance, the only way a semblance of equilibrium was ultimately restored was with a bloody civil war and many years of painful reconstruction.
In the second instance, the extreme imbalances were ultimately resolved with a great depression, followed by the worst global war of all time.
Is today’s situation as extreme as it was during those historic turning points? Are we destined to repeat some of the consequences? Numbers alone cannot give us complete answers. But here’s a statistical analysis of each megatrend …
Megatrend #1. U.S. Concentration of Wealth
The richest one-thousandth (0.1%) of America’s households owned …
- 7.1% of the nation’s wealth in 1978,
- 22% of the wealth in 2012, and
- An estimated 24% of the wealth in 2015.
That means they’ve more than tripled their share of the nation’s assets.
But it goes beyond that. Zero in on the richest one-ten-thousandth (0.01%) of America’s families, and the changes are even more dramatic. This topmost tier controlled …
- 2.2% of the wealth in 1978,
- 12% in 2012, and
- An estimated 14% in 2015.
This means their piece of the asset pie is now more than six times larger. And it means these super-rich families control 14,000 times more than the average wealth-per-capita in the United States. Everyone else has much, much less.
This is not just a problem for the poor. Nor is it an issue limited to the nation’s middle class. It also may be hindering hundreds of thousands of higher-net-worth investors from growing their portfolios.
With controlling interests in the nation’s big corporations, with the companies’ massive stock buybacks that crowd out dividends, and with rampant collusion among supposedly separate centers of power …
The super-rich are now squeezing the rich!
All this data comes from an exhaustive study recently published by the National Bureau of Economic Research (NBER), encapsulated in the black bars of the chart below.
|Black bars: Wealth share of richest 0.01% of America’s households. Data: Emmanuel Saez and Gabriel Zucman. Red line: Distance between Republicans and Democrats in House of Representatives. Data: McCarty, Poole and Rosenthal.|
Look how the concentration of wealth reached a 100-year low in 1978 … and how it has grown virtually nonstop since then!
Plus, if you follow the chart through time, you’ll see four other, even more revealing, facts.
Fact #1. The last time wealth concentration was so extreme was back in 1929, just prior to the stock market crash. (The time before that, not shown on the chart, appears to have been prior to the Civil War.)
Fact #2. Except for a brief interlude during World War I, there has been only one event in modern history that caused the super-rich to relinquish their stranglehold on the nation’s assets: The Great Depression of the 1930s.
The suffering of that period cannot be discounted. But that’s also when the groundwork was laid for millions of average investors to build substantial wealth after World War II.
Fact #3. Unlike the Great Depression, the Great Recession of 2008-2010 did nothing to stop the ascent of the super-rich. Quite to the contrary, since 2008, the trend toward more and more wealth-concentration has continued unabated.
Why didn’t the Great Recession stop the near-vertical rise of the nation’s billionaires?
One factor was TARP, the U.S. Treasury’s bank bailouts in the wake of the 2008 debt crisis, helping to perpetuate a quasi-monopoly among the nation’s top five megabanks — JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, and Wells Fargo.
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Indeed, according to recent data provided by the Office of the Comptroller of the Currency (OCC), these five banks represent less than one-thousandth (0.1%) of all the commercial banks in the United States. But they control 46% of all bank assets and 94% of all bank-owned derivatives, or 940-times the average per-bank holdings.
This has helped boost still further the fortunes of their CEOs, their largest shareholders, their highly bonused traders, and their closest corporate clients.
An even bigger factor is the Fed’s relentless, nonstop push for near-zero interest rates for eight long years. This has squashed income opportunities for average investors and retirees. It has facilitated high-profit gambits for those who could best afford the risk. And it has driven even more wealth share into the hands of the super-rich.
Fact #4. The most shocking revelation of all: About six years ago, the wealth share controlled by the richest one-ten-thousandth (0.01%) in America matched that of 1929 almost to a tee. But with the bank bailouts and near-zero interest rates, it has now become even more extreme today than in that memorable year of that historic stock market crash.
Megatrend #2. U.S. Political Division and Dysfunction
Most economists would argue that, in a capitalist society, some concentration of wealth is necessary, even desirable.
The question is: How much is too much?
I get it. You’re probably thinking this second topic is strictly for cocktail-hour chitchat. Or maybe you’re wondering how I’m going to take this conversation beyond the typical tussles between Clinton and Trump?
Read on and I’ll show you how.
As you’ve probably noticed by now, the same chart I just showed you also has a red line that measures political division and dysfunction in America …
- When the red line is lower, it means that Republicans and Democrats in Congress vote more by the issues: They cross party lines and draft legislation together.
- When the red line is higher, it means they more often disregard the substance of the issues: They vote strictly along party lines, get nothing done, and throw bricks at each other.
(The chart is based on an exhaustive study of voting patterns in the U.S. House of Representatives, courtesy of political scientists McCarty, Poole and Rosenthal. Similar data for the Senate shows essentially the same pattern.)
The evidence is clear that what we’re witnessing now is worse than Washington gridlock. That was just the passive-aggressive phase of America’s power struggles. Instead, what we’ve seen in this presidential election cycle is outright political warfare that splinters the two major parties … tears apart the fabric of society … and may threaten future chaos in financial markets.
Has this ever happened before? Yes.
It was right after the American Civil War. And based on the measure I just showed you — of political division and dysfunction — it’s now even worse:
- Back in 1879, shortly after the post-Civil War Reconstruction years, the distance between the parties in the House of Representatives was a very high 0.79 (on a scale of zero to 1). That was bad.
- In 2010, it was 0.97. That was worse.
- And now, it’s probably even more extreme.
That doesn’t exactly augur well for the prospects of coming together to resolve the nation’s most intractable problems — massive deficits in the federal budget, Social Security, Medicare, or veterans’ benefits … a chaotic immigration system … the threat of domestic terrorism … or the rumblings of nuclear war.
Widespread Investment Consequences
For eight long years, a broad series of market trends have been steady and apparently unshakable:
U.S. stock averages have moved dramatically higher with few meaningful interruptions.
The U.S. bond market has done the same.
Short-term interest rates have hugged the zero line.
Despite the low yields, the U.S. dollar has reigned supreme, while foreign currencies slumped.
Commodities, especially crude oil, have taken one beating after another.
Gold has held up relatively better, but has still disappointed gold enthusiasts.
Here’s the key: The political and social turmoil that follows this unprecedented election is the kind of force that can potentially turn most of these eight-year trends upside down and inside out.
Fear and uncertainty are at an all-time high. And regardless of who wins tomorrow … the ensuing turmoil could have a devastating impact on your portfolio.
Larry Edelson is holding a briefing tomorrow afternoon — yes, on Election Day — to help investors plan how to navigate the crises ahead.
It’s free for Money and Markets readers. So just click here to register before 5 PM Eastern time tonight.
Good luck and God bless!
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