One hundred and forty-eight years ago, a day like today was established for remembering all those who gave their lives serving in our nation’s armed forces.
But with markets closed and with the hyperactive news cycle temporarily subdued, it can also be a quiet time to remember today’s megatrends … and to contemplate the fatalities that may lie ahead in the financial or political realms.
We begin with …
The single most impactful megatrend of our era:
Massive, History-Changing Money Printing
By the World’s Largest Central Banks
We’ve talked about this before. I called it The Eight Trillion-Dollar Trap. Today, however, I will connect some dots to help you see it in a new light.
Since the collapse of Lehman Brothers on September 15, 2008 — the Big Bang of all financial disasters — the Federal Reserve has been expanding its money operations at a mind-boggling pace, creating a mammoth $3.6 trillion virtually out of thin air.
That was over four times more than the sum total of all the money printing since the Fed was founded 94 years and 9 months earlier.
The Bank of England, although smaller, was equally aggressive, expanding its balance sheet by $435 billion since 2008.
After the Lehman Brothers failure, their money printing also went ballistic; and during the European debt crisis, it went ballistic again.
But if you think all of the above is beyond belief, wait till you see what the Bank of Japan (BOJ) has done: Since the Lehman Brothers blow-up in 2008, the BOJ has expanded its balance sheet by a whopping $2.5 trillion. Adjusted for the smaller size of Japan’s economy, that’s the equivalent of a $9.4 trillion expansion in the United States, or over 2½ times more than the Fed’s.
Even excluding all the other central banks of the world, this big-bang expansion is absolutely unprecedented in all of recorded history:
The Fed’s $3.6 trillion … plus … the Bank of England’s $435 billion … plus … the European Central Bank’s $1.5 trillion … plus the Bank of Japan’s $2.5 trillion … add up to a grand total of $8.1 trillion in monetary expansion just since the Lehman Brothers Big Bang.
Here are the hard facts and the simple math:
For a while, all this money feels very good, like the initial effects of a painkilling narcotic: Cheap money and zero interest rates. More consumer spending. Rising real estate prices. Rising stock prices.
But in the long run, it’s the invisible side effects that are potentially more enduring.
The flood of money pushes investors to take big risks; and among those investors, only a small minority can be consistent winners.
It wipes out the interest income of average American families and retirees who want to live off their savings. Or worse, it transforms them into speculators who wind up losing a portion of their principal.
It encourages big companies to buy back their own stock … instead of hiring more workers or building more factories.
This is why we’ve seen a surge in stock buybacks by America’s largest companies.
And this also helps explain why we’re now seeing a plunge in capital investments — by those same corporations. (See chart.)
And in the end, all this supposedly free money contributes to …
The second most impactful megatrend of our era:
Extreme Wealth Concentration in the U.S. and Abroad
Consider again the consequences of the massive central bank money printing I just told you about: Zero interest rates. Virtually no safe yield opportunities for investors. A lot of big-stakes speculation. But only a small minority of winners.
All this has been a key factor helping to make the concentration of wealth in the world even more extreme. And now, this concentration of wealth is no longer just about the plight of the poor. Nor is it an issue limited to the nation’s middle-class. It is also hindering higher-net-worth investors from growing their portfolios.
In other words, we’re no longer talking just about the rich squeezing out the middle-class. We’re also talking about America’s billionaires squeezing out America’s millionaires. And as I’ll prove to you in just a moment, this trend has gotten a lot worse since the Fed began printing money in September of 2008.
Of course it didn’t begin in 2008. In fact, to get the full picture, I’ll take you back nearly one hundred years:
This chart shows how much of the nation’s wealth is held by the super-rich. Not the top 1%. Not the top 0.1%. But the top 0.01%! In other words, the wealthiest one in every ten thousand American households.
Step through time and you’ll see exactly how this progresses:
Roaring ’20s. In the 1920s, their share of the nation’s wealth also rises, from 5% to a peak of 10% in 1929.
1929 Crash and Great Depression. All that is ultimately reversed when the great crash of 1929 wipes out the fortunes of the super-rich, when the Great Depression drives their business enterprises into the gutter, and when World War II helps unite all social classes in a common goal.
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Late 1970s. Now fast forward to 1978. That’s when the concentration of wealth in America reaches an all-time low. And that’s when it begins to rise again — slowly at first, but then with gathering momentum over time … which, again, brings us to that same critical point in history we talked about in the first megatrend …
September 2008. This is not just the moment when Lehman Brothers fails. It’s also the moment when the wealth concentration in America matches the peak levels of 1929. It’s when inequality is close to what history tells us is a potential breaking point. And that also happens to be when …
The Great Recession begins. But there’s a big difference between the Great Recession of our era and the Great Depression of the 1930s. Back then, the Great Depression reduced the wealth share of the super-rich. This time, it doesn’t. Instead, thanks largely to the Fed’s money printing, it continues to grow more extreme. In fact, starting in 2008, the concentration of wealth surges to new, all-time highs, never before seen in this country.
I repeat: For seven long years, the Fed prints money nonstop. For seven long years, the Fed holds interest rates near zero percent. For seven long years the Fed takes away income opportunities for average investors. And for seven long years it encourages high-profit gambits for those who can best afford the risk. All this drives even more wealth share into the hands of the super-rich.
The result is what you see here in my chart — the great social and cultural divide of America today.
Think this is just a domestic phenomenon? Then, take advantage of this Memorial Day to study, with calm and care, our landmark studies — China on the Verge of Volcanic Eruption plus Anti-EU Forces Surging; Euro Doomed.
Everywhere, the big picture that emerges is one of economic extremes. And everywhere, it’s accompanied by equally extreme political schisms.
So regardless of your personal opinion of this megatrend, don’t be surprised if the great social divide fuels powerful emotions in the U.S. and abroad — pride and shame … greed and envy … fear and anger.
And regardless of your political persuasion, you should also not be surprised when this concentration of wealth helps foster …
The third most impactful megatrend of our era:
Extreme Political Division and Dysfunction
The black portions of this chart are the same ones I showed you a moment ago to illustrate the record inequality in America today.
Now, I’ve added a red line to the same chart — a scientific, quantitative measure of political division and dysfunction in the United States. It’s based on an exhaustive study of voting patterns in the U.S. House of Representatives. (Similar data for the Senate shows essentially the same pattern.)
Here’s the key:
- When this red line is lower, it means that Republicans and Democrats in Congress vote more by the issues. In other words, they cross party lines and draft legislation together.
- When this red line is higher, it means that our elected officials usually disregard the substance of the issues. They vote strictly along party lines. And they accomplish next to nothing.
We used to call that Washington gridlock. I call it the passive-aggressive phase of America’s power struggles. But that was just up until around 2008, when the political division and dysfunction in this country reached the same level as it did in the late 1920s.
Now it’s much worse.
What we’re seeing now is the beginning of outright political warfare that splinters the two major parties … tears apart the fabric of society … and provides the fuel for black swan events in America’s politics.
According to the Pew Research Center, in the last 20 years …
- The share of Americans expressing consistently conservative or consistently liberal opinions has doubled.
- Partisan antipathy has soared. The proportion of Republicans with negative opinions of Democrats has jumped from 17% to 43%. And among Democrats, the proportion with negative opinions of Republicans has more than doubled from 16% to 38%.
- The vast majority on each side now views the opposing party as a threat to the nation’s well-being, almost like enemies of the state.
- The extreme believers on both sides are drowning out the moderates, participating far more actively in every stage of the political process. They speak louder, organize more, vote more often, and donate about double the money of the average American. Plus, they do all of this far more today than in the past.
This column is my memorial for future fatalities in both the financial and political realms. With it, my hope is that you will be neither overwhelmed nor unprepared when shocking or unusual things happen in the months ahead.
Possibly more shocking than the terrorist attacks of 9/11 or the failure of Lehman Brothers in 2008.
Possibly more unusual than the meteoric surge of a self-declared socialist directly challenging the entire Democratic establishment.
Maybe even more unusual than Trump.
Good luck and God bless!