Not much movement in the markets yesterday, so let’s turn to more important things.
Our friend Dylan Grice, an analyst with Société Générale, says he is more worried about the future now than at any time in his career.
His worry is not just the failure of the financial system, but a breakdown in the whole society. “Monetary debasement leads to social debasement”, he says.
We thought that society was already debased enough, but Dylan thinks it will get a lot worse. Once you begin to take liberties with the money, people begin to take liberties in other ways. When people can no longer trust the currency, trust in the whole of society, and in one another, begins to break down.
When the feds begin to cheat on the money, everyone else begins to cheat too. Here’s an item that came in yesterday. From Bloomberg:
Almost 2,400 people who received unemployment insurance in 2009 lived in households with annual incomes of $1 million or more, according to the Congressional Research Service.
The report was released after about 1.1 million people exhausted their jobless benefits during the second quarter of 2012, when more than 4.6 million filed initial unemployment claims. Eliminating those payments to high earners is one idea being considered as US lawmakers struggle to curb a projected $1.1 trillion deficit for the fiscal year that ended 30 September with the nationwide jobless rate at 8.1%. a “Sending millionaires unemployment checks is a case study in out-of-control spending,” US Senator Tom Coburn, an Oklahoma Republican, said in an email. “Providing welfare to the wealthy undermines the program for those who need it most while burdening future generations with senseless debt.”
The 2,362 people in millionaire homes represent 0.02% of the 11.3 million US tax filers who reported unemployment insurance income in 2009, according to the August report. Another 954,000 households earning more than $100,000 during the worst economic downturn since the Great Depression also reported receiving unemployment benefits.
Coburn found that 18 households reporting an adjusted gross income that exceeded $10 million received an average unemployment benefit of $12,333 in 2009. The average benefit for 74 households earning between $5 million and $10 million was $18,351. The average household making $1 million or more received $11,113, or about 37 weeks of unemployment benefits.
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Not that we’re criticising anyone. In their hearts, people are not really any more greedy or corrupt now than they ever were. But now, the whole system has gone sour.
When the money goes phoney, so goes everything else. Dylan Grice: "I am more worried than I have ever been about the clouds gathering today (which may be the most wonderful contrary indicator you could hope for...). I hope they pass without breaking, but I fear the defining feature of coming decades will be a Great Disorder of the sort which has defined past epochs and scarred whole generations."
Want more evidence of 'social debasement'? Dylan writes: "The 99% blame the 1%, the 1% blame the 47%, the private sector blames the public sector, the public sector returns the sentiment... the young blame the old, everyone blames the rich... yet few question the ideas behind government or central banks..."
We’ve been living through the largest hyperinflation in credit in history, he says. As we’ve pointed out many times, this programme is essentially a transfer programme, shifting assets from the middle classes to the rich.
We used the example of the WWII concentration camps and the gulags of the Soviet Union. Food was money there. And the closer you were to the source of the food, the more likely you were to survive. Even when rations were supposedly adequate for everyone, by the time they got to the people furthest from the kitchen, there was not enough to live on. Millions died.
Now, it’s the central banks and central governments who are handing out the food. Naturally, those closest to these institutions – the insiders, the Wall Streeters, the campaign contributors and the rich, generally – get the biggest portions. It is supposed to trickle down to the rest of society. But it never gets there.
Even Keynes himself recognised this effect: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some."
This monetary inflation, this credit inflation (not yet high levels of consumer price inflation – at least, not officially) is moving money to the stockholders and bondholders. The middle classes have made no progress in terms of income or net worth in nearly 20 years. And the poor are increasing with the highest number on food stamps in the US ever.
This is not the sort of thing that breeds social cohesion or communal happiness. Instead, it causes resentment, envy and mass cheating.
Get ready for it.
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