The Goldman Sachs of Poor White Trash
PROTECT YOURSELF FROM THE END OF AMERICA
BY PROFITING OFF THE POOR.
(YOU’LL DENY YOU EVER OWNED THIS BUSINESS!)
Is it possible to be “canceled” twice? We’re about to find out.
We’re certain parts of this letter will be used – out of context – to condemn us and label us as bigots. Just as we’re sure that if we hadn’t already been “canceled” in 2017 because of our previous skepticism of “structural racism” – this letter would do the trick.
The whole story is just ahead. Including why America is heading for an economic catastrophe. And why it’s the fault of poor people and democracy itself. After all, a country can’t vote — or print — its way to prosperity. Economic realities always triumph over political delusions. And as always, it’s the poor who will suffer the most.
In 2014 our friend Doug Casey visited Harare, the capital of Zimbabwe.
Doug, an experienced global investor, knew the country well. He’d become familiar with several of its largest estates, dating back to the 1970s when the country was called Rhodesia.
We should tell you, Doug is a romantic with a sense of humor. He would jokingly say, I’d like to be able to tell people, “Once I had a farm in Africa”.
In the 1970s Rhodesia’s farms were among the most productive in the world. Politically though, the country was deeply troubled.
Rhodesia was an international pariah because it resisted the “decolonization” trend of the 1960s and 1970s. Its white minority population, led by Ian Smith, refused to give up political control to the black majority. Painted as racist, Ian Smith and his Rhodesian patriots rightfully feared the consequences of majority rule in Rhodesia.
Not because the majority was black, but because they were led by violent Marxists and uneducated tribal leaders who had no concern for the rule of law or fair elections. But, Smith’s patriots were fighting the tide. Rhodesia’s white ruling class finally ceded political control in 1980.
Robert Mugabe, a Marxist rebel backed by North Korea, won the first general election. And just as Ian Smith feared, his ZANU party began a civil war to eliminate a rival tribe. They killed an estimated 10,000 people and ensured one-party rule, making Mugabe dictator for life.
One economic calamity after another ensued, with extreme poverty growing rapidly after 1985. Beginning in 1999, to mollify the growing criticism of his regime, Mugabe launched a policy of outright confiscation of white-owned farms. As a result, food production fell in half. Unemployment soared to over 80%. The economy completely collapsed.
During the economic collapse, Zimbabwe’s central bank, led by economist Gideon Gono, engineered the greatest hyperinflation in modern history, by printing vast sums to support government spending (and corruption) while making retail price increases illegal. Soon there was nothing in the stores. Wages were rendered worthless. Civil society was destroyed.
Inflation grew from around 50% in 1999 to over 500% annually by 2005. Then hyperinflation took off, reaching 1,200% in 2006 and then into numbers which simply have no meaning in 2007. At that point, there was essentially zero value to anything printed with the word “Zimbabwe” on it, no matter how many zeros they lopped off which each new iteration of their dollar. But, officially, by 2008, one U.S. dollar was worth 2.6 trillion Zimbabwe dollars.
Finally, in 2009, the central bank threw in the towel and stopped issuing any local currency. The country became “dollarized,” which involved the government and the private sector using the U.S. dollar as the primary means of exchange, inflation was over, but the economy had been destroyed.
In the wreckage, our friend Doug smelled an opportunity.
He subsequently visited Gideon Gono at his home in Harare, looking for assurances that the ruling junta had learned its lesson and would maintain a more stable economic footing. During the meal, Gono insisted that Doug watch a 77-minute economic documentary on YouTube…
“This young economist from America is a genius, Doug. He is showing Americans what will happen next.”
Gono smiled broadly at Doug.
“Mugabe made me do these things to my country. We are poor. And our leaders are extremely corrupt. We believed we had no other choice. But why are your leaders doing this to your country? You are the richest and most powerful country in the world. If you destroy your economy, you will bankrupt the whole world.”
Gono turned his laptop towards Doug and a familiar voice began to narrate The End of America...
Written and recorded by Porter Stansberry in late 2010, The End of America is one of the most watched presentations on economics in history, with well over 100 million views. Millions of copies of Porter’s End of America books (The Battle for America, The American Jubilee) were also printed and continue to circulate on Amazon and used bookstores.
The documentary described the inevitable economic, moral, and civic collapse that’s underway in the United States. Because of out-of-control government spending financed via the monetization of debt by the Federal Reserve.
As early as 2010, Porter predicted America was approaching a crisis that would “change everything about your normal way of life,” including, “where you vacation, where you send your kids to school, how and where you shop.”
The End of America predicted inflation in America would eventually soar, sending energy and food prices higher and robbing the middle class of their purchasing power and their savings. These problems would lead to tremendous political upheaval and a decline in civil society.
What Porter did not anticipate was that a global pandemic would trigger many of these events. Or as he likes to say, “I didn’t even know they ate bats in China.”
But perhaps the government’s and the public’s response to Covid says far more about the moral and cultural decline of our country than it does about “science” or medicine.
There’s virtually zero evidence that any of the government-mandated shutdowns (and the accompanying $6 trillion money-printing spree) did anything, at all, to protect anyone from the flu — ahem, the virus. But it did open the flood gates to future government-control of the economy and still more inflation.
Plus, there’s now a precedent for total government control of society — without any Congressional approval or judiciary oversight. Stay in your homes. Wear a mask (even on private property). No interstate travel without permission. Close the banks. No more First Amendment (freedom of assembly).
And that — greater and greater government power in the face of a decline in civil rights and the private sector — is all part of the End of America hypothesis.
Once government begins monetizing debt, it never stops voluntarily. The ongoing inflation requires more and more debt — or else the system collapses completely. More and more “emergencies” must be discovered, and more and more parts of the private sector must become politicized. The result is more and more power for the government over civil society.
Witness the latest industry to be “graced” with hundreds of billions in government spending — the already profitable semi-conductor industry! Why? Because of China of course!
Meanwhile, there’s zero evidence or rationale to believe that China has any desire to invade our country or to even fight a proxy war with us anywhere. Instead, it is our country that maintains ground troops in virtually every country in the world and continues to intervene in China’s nearly 100-year civil war (Taiwan.)
What’s the problem with inflation, with massive government deficits, and with the ongoing manipulation of our economy by the government?
There are two fatal flaws to government-led efforts to print prosperity and manage the economy.
First and foremost, the invisible hand of an economy works both ways.
Where money is sound and private property rights are enforced, the invisible hand of the market directs scarce resources to where they are needed most and ensures a high price is paid for wasteful investment.
Sound money and the information it conveys through accurate prices are critical for this process. The invisible hand, when given the right data, ensures growth, supply, and increasing prosperity. But, when prices are manipulated, and money corrupted, the invisible hand is misled. Misdirected, it will take away prosperity with the same inevitability.
When governments attempt to regulate prices or profits, what happens? Supply disappears.
What do you think will happen to cheap and reliable transportation and cheap and reliable grid power as the government continues to manipulate the price of renewable power and electric cars via tax credits?
As sure as the sun rises, reliable supplies of on-demand energy (fossil fuels) will disappear and the price of reliable energy — both on-grid and at the pump — will soar. Just watch what happens in Europe this year, where gasoline prices have already soared and where natural gas will soon have to be rationed.
Maybe the Germans can burn their solar panels in their fireplaces this winter.
(By the way, industry friend and financial newsletter savant, Brian Hunt, remarks with notable schadenfreude the ongoing German power disaster will cost at least $200 billion — this year: “Who could have guessed it would go wrong for Germany? They outsourced their military to the U.S. They tied their economic policy to the EU. And they outsourced their energy needs to a gangster state. Totally solid way to set things up.”)
Another example? Government regulations (like residential fire sprinkler requirements) make building new homes extremely expensive or economically impossible due to permitting uncertainties amid endless NIMBY lawsuits.
Then, to make those expensive homes “affordable,” the government creates a rigged market for mortgages, which permits far too much credit to be created against too little income. What could possibly go wrong? Asset bubbles form making housing all but unaffordable and creating a massive housing shortage.
Given these economic realities, it’s inevitable that homebuilders with access to land will make a killing — which is why we recommend investing in them. It is just as inevitable that homes will become increasingly unaffordable, leading to big problems for our society.
THE BIGGER PROBLEM WITH INFLATION:
MIDDLE CLASS MISERY
The more obvious problem with debt monetization and massive government deficit spending is outright inflation.
Printing money to finance government spending has an extraordinarily negative impact on real wages over time. Printing money destroys the middle class. It steals their wages and their savings. It makes a mockery of American family values — like hard work and diligent saving. And it is that middle class work ethic that is the ultimate source of our society’s stability.
The $6 trillion that was given out, for free, during the Covid lockdown resulted in a huge increase in money supply. The chart below shows how this massive increase in money supply, led directly (13-months later) to a matching increase in inflation — the largest amount of inflation we’ve seen since the late 1970s, early 1980s.
Whether it’s war, a banking crisis or the flu, democracies with fiat currencies have never failed to find reasons to expand their banking systems until they collapse in an inflationary spiral. The record of fiat currencies is unblemished by success: there’s not a single paper (fiat) currency in history that survived.
The U.S. dollar will not be an exception.
Societies suffering from fiat currency collapse and rising inflation all have the same societal trends — from Roman coin shaving to today’s digital receipts – when government plays an ever-increasing role in the private sector, there’s a vast increase in war and war-like activities to gain access to more resources (take for instance the Iraq war)…
Then people abandon traditional values… there’s a huge increase in gambling and other forms of speculation. Violent crime increases substantially. And alternative monetary schemes flourish (crypto anyone?!)
There’s no question all of those things are happening in our society.
More worrisome for us is that the rate of the decline of our currency (and thus, the growing instability of our society) will continue to accelerate as past excesses contribute in a collective way to the problems. Debts mount. Interest payments grow.
And, inevitably, more printing is the only politically viable answer. So, it must continue.
TRACKING THE DEMISE OF AMERICA
How long can the current system last?
As long as people don’t understand the underlying economic reality that’s best explained by the following chart, we promise no one else will explain this to you. If this was widely understood by the public, there would be a revolution tomorrow.
In an honest marketplace with real private property and a legitimate currency, the value of wages always rises to meet growth in productivity. This is a key feature of the invisible hand of the free market.
Why would anyone voluntarily pay higher wages? To maximize earnings. That might be confusing at first. Often, it’s easier to see the invisible hand at work when you “invert” the question.
So, what happens when governments mandate minimum wages that are in excess of prevailing productivity? Unemployment soars of course: entrepreneurs can’t afford to pay wages that are not economically viable.
The opposite is also true: when productivity increases, entrepreneurs increase employment and wages. They do so because of the invisible hand: to maximize their own profits.
Think Henry Ford. He famously doubled the wages of his huge workforce from $2.50 per day to $5.00 per day in 1914. It was a pay raise that cost him $10 million. Why did he do it?
Because gains in productivity made producing more and more cars vastly more profitable. But to increase production he needed a reliable labor force. The year before the pay raise Ford made 170,000 cars. In 1914 he was able to increase production to 202,000.
The details matter when it comes to pay and incentives. Most historians leave out that Ford’s pay raise came in the form of a bonus paid at the end of the year. And only paid to those workers who lived their lives in an “American” way. They had to speak English. Their wives couldn’t work outside the home. And they had to avoid drinking and gambling. Sound money and a free market promote a stable and orderly society.
[Interesting historical footnote: The cotton gin was patented in 1793. It, along with innovations to industrial scale weaving, greatly increased productivity in cotton farming and the garment industry. As a result of the increase in labor productivity, slavery as an institution no longer made economic sense in most of the British Empire. Shortly thereafter, in 1807, the British banned slave trading and, a generation later, in 1833, made slavery itself illegal. Today it’s fashionable to see the abolition movement as a moral crusade. But the reality is that slavery only became illegal when it no longer served society. And that change was based on economics, not morality.]
Historically in the U.S., “real” wages (after tax, after inflation) continuously rose to match the rising productivity of the U.S. economy. This is exactly as economic theory would predict — in a free market, with sound money.
As the productivity of our economy grew, thanks, at first, to the industrial revolution, then to the electrification of our country, and finally to the information revolution, real wages rose at virtually the exact same rate. No need for unions or strikes. Just the invisible hand.
But all of that changed, suddenly in the early 1970s. As the chart below shows clearly, wages and productivity “decoupled” about 50 years ago.
That’s when the U.S. abandoned the gold standard. By untethering our currency and banking system from a foundation in gold, credit was able to expand far beyond savings — setting the stage for a massive inflation and ever-increasing government borrowing.
Ever since then, most of the gains we’ve experienced in productivity have, sooner or later, been erased from real wages by periods of inflation.
The most recent spike in inflation will probably reduce real wages by 10% to 20% over the next five years, even as productivity continues to grow.
That’s why, for more and more Americans, no matter how hard they work, they will not be able to avoid slipping into poverty. That’s why, for more and more Americans, our government, our economy, and our “system” seem completely illegitimate.
They are not wrong: they have been defrauded.
The root of this problem isn’t the private sector or “greedy” corporations. It is simply the ongoing rising (and massive) government deficits, which are financed, more and more, by inflation. Ironically, it is typically poor Americans who continue to vote for yet more government spending and intervention in the economy. And, sadly, it seems virtually certain that their gullibility will only increase, thanks to the growing influence of the government over the media.
Sooner or later, a massive — and possibly violent — crisis will strike.
JAMIE’S WARNING — LIKE MERRILL’S?
Jamie Dimon, CEO of JP Morgan, is so far the only major Wall Street figure who has offered any substantial warning about what’s happening.
He said on a recent earnings call, “You’d better brace yourselves… a hurricane is coming.” And he’s so concerned he’s having his bank stockpile reserves in the hundreds of millions. This isn’t business as usual.
Right before the Great Depression, in the spring of 1928, a young stockbroker advised his clients to get out of debt – completely. Back then, virtually all investors in the stock market used margin loans to finance their holdings. Telling his customers to get completely out of debt was tantamount to telling them to sell virtually all their investments.
This young broker also warned his clients to strictly avoid owning any corporation that was financed, in any way, with debt. He repeated this advice month after month for more than a year until the market crashed in the fall of 1929.
His advice saved the fortunes of his clients. And it made him, and his firm, Merrill Lynch, the most famous and successful stock brokerage in the country for nearly 70 years.
Dimon’s warning is essentially the same. And for the exact same reason.
What’s happening right now is the big “unravel.” Since the financial crisis of 2008/2009, the U.S. economy has been completely dependent on the creation of massive amounts of additional debt.
Most of the debt that’s been created (in the U.S.) is federal government debt, which now totals $30.5 trillion, up 200% since before the financial crisis.
Lots of other forms of private debt have grown too, like student debt. Today 44 million Americans owe a total of $1.7 trillion in student debt, overall up 183% since before the financial crisis. These debts are virtually all held by the U.S. government, which has suspended repayment since the onset of Covid and now seems determined to forgive most, if not all of this debt — another massive form of inflation and a severe blow to the kind of middle-class work ethic that sustains our society.
Going back to the huge stock market bubble of the late 1990s and early 2000s, over roughly the last 20 years, total debt in the U.S. economy has grown from 2.6x GDP to 4x GDP. Today that total debt is an incredible $91 trillion.
That’s a number that’s impossible to conceptualize. But it’s basically $1 million per household. Meanwhile, the average U.S. family has under $10k in savings.
This level of debt is, as should be obvious, completely unsustainable. And the only way it can be financed is by continued increases to the money supply, via the Federal Reserve.
Our central bank has been printing new dollars, by the trillions, and buying government bonds and mortgage bonds to keep interest rates low, and fixed income (bond) prices high. This is, on a much, much bigger scale, “third world finance”— just as Gideon Gono recognized.
And this kind of manipulation will produce a booming economy… until… eventually… inflation soars. Once people begin to realize that the entire economy is built on a house of cards, everything changes. People began to horde resources and shun financial assets. Everything collapses. That’s what’s happening. It’s happening right now. And you have to get ahead of it… or you risk losing everything.
That’s why Jamie Dimon is so worried. And I know, in time, Dimon’s warning will be remembered as virtually identical to Merrill’s.
He warned us: A hurricane is coming.
That storm will see rising interest rates, rising debt defaults and, most importantly, declining real wages, because the inflation that’s begun will prove very difficult to reign in. This recession will probably be “mild” for most affluent Americans-whose relatively high incomes, investments, and real estate will shield them from the worst impact of inflation. But for the middle class, the coming recession will be worst since the 1970s.
The working poor / lower middle class in America largely vote Democratic. They vote for more government spending, imagining they won’t have to pay for the benefits. And they are about to get what they deserve, good and hard.
What should we do about the poor? We suggest taking a cue from philosopher Ayn Rand, who famously advised her followers: “Don’t be one of them.”
That why in this issue of The Big Secret on Wall Street we recommend investing in a business that’s found a nearly fool proof way to profit on the growth of poverty in America.
It’s a trend that’s inevitable: more and more of the middle class will slip into the working poor over the next five years…
And when they do, we will make a lot of money.
Isn’t profiting off the poor immoral? Mmn, well. It’s economics.
So let’s dig into it…
THE GOLDMAN SACHS OF POOR WHITE TRASH