We need an alternate thread to the BTC one.
This is to discuss the many financial topics of our current once in a lifetime pandemic global shutdowns.
Money supply, inflation, deflation, unemployment, sharemarkets, property, rentals, metals, crypto.
I have debated with a number of friends that the demise of the current debt system results in a meltup of asset prices as QE gets pumped into markets to stabilise.
I guess it’s somewhat at odds of a collapse...... but what about employment? Wages? The downward pressure on wages yet all financial markets are telling us we are having a gangbuster of a year.....
Does the middle class vanish? Will we see a widening of the wealth gap? Will universal basal income save the middle class? Do we see a collapse of the consumerism lifestyle?
Lots of things to discuss so fire away!
Many good talking points. I'll jump in the game and address a few. Sorry for the long write-up, but I think I'll hit the most important details.
that the demise of the current debt system results in a meltup of asset prices as QE gets pumped into markets to stabilise
I think we are currently in one of the nation's biggest debt bubbles. We see these things emerge every 8-10 years or so. The last time we dealt with a debt bubble was back in 2008 with the subprime mortgage crisis that led to devastating effects on our economy and stock markets. Today, we have once again driven ourselves into a massive debt bubble on multiple fronts. Some of the factors contributing to this current debt bubble for both public & private spending is as follows:
- As a nation, the US Debt-to-GDP ratio is at a whopping 136% (as a nation we owe a lot more than we produce)
- Consumer debt in 2020 has hit an all-time high of $14.3 Trillion (whereas in 2008, the nominal high was $12.7 trillion)
- US corporate debt is at an all-time high of $10 Trillion, which is HUGE as it's essentially half of the US GDP of $21.16 trillion
- The government keeps monetizing the debt by selling US bonds to the Federal reserve in order to fund STIMULUS (which is just another term for printing and pumping money into the dollar currency, which furthermore leads to inflation)
Now, besides the many factors that are contributing towards our current US Debt Bubble, with regards to your statement regarding US assets losing value due to QE getting pumped into the market for stabilization purposes, let me address that. The Federal Reserve FUNDED the first Stimulus Bill/CARES act to the tune of $2.3 Trillion and now they are funding the second COVID Bill/Gov Spending Bill for a combined $2.3 Trillion. In other words, in just this year alone, the FEDS have loaned the US a total of $4.6 Trillion. These STIMULUS packages are just another way of dressing up Quantitative Easing (QE). We keep inflating the currency bubble, which will result in increases to the inflation rate. As a result of this, the value of our dollars will drop.
The flip side to this is that asset prices WILL in turn go up. A devaluating dollars helps support the prices of assets denominated in that currency. This gives the illusion of increasing wealth. In other words, if the value of the dollar goes down, the assets you were once able to buy with less of it, will undergo an increase in price because the nature of the asset itself hasn't changed (a great example of this is real estate during times on inflation, the actual value of real estate rises under these circumstances because the if the dollar is worth less, you have to pay more towards the real estate asset since it in itself hasn't lost any inherent value). The major caveat to this is that if our economy essentially crashes and we go into a depression, then YES, the value of all assets will suffer and drop, as people from all wealth brackets will try to massively unload these assets onto the market in exchange for currency/dollars in order to stay afloat with their basic needs (food, electricity, inelastic costs of living).
Does the middle class vanish?
Yes, there is a middle class determined by income levels, but a bigger argument can be made that the middle class is an illusion, a class with constant fluidity, dare I say a floating yardstick for classification. The only true classes that are constant are rich vs poor. In this Capitalistic system, the current tax code and federal government only helps the RICH & POOR. The middle class in the current state of affairs is the odd ball in the middle, the pimple that gets popped. The middle class helps to fund the lifestyles of the rich and poor. The middle class is the workforce for the rich & poor. The middle class is the hardest taxed demographic that helps to fund socialist US programs (welfare, medicaid, medicare, farm subsidies, corporate bailouts, social security, unemployment etc). In all honesty, it's the worst class you can be in. If you're a W2 employee making within the range of income that classifies you as middle class, I feel for you. I feel for you because you are likely an incredibly hard worker and the IRS is taxing you the hardest.
Will we see a widening of the wealth gap?
This has already happened over the course of many years, but has further widened during the pandemic of this year. Look to what happened after the first CARES ACT. Following the CARES ACT, the $1,200 checks sent out to the poor were merely chump change compared to the billions in tax breaks the CARES Act handed out to the country’s wealthiest. If anything, this year has magnified the widening wealth gap and made it much more obvious.
Will universal basal income save the middle class?
No. I think it will likely cause the idea of a middle class to fade away and desensitize Americans to the idea of a socialist practice.
Do we see a collapse of the consumerism lifestyle?
No. One thing I've realized when traveling throughout the world is that Americans are addicted to spending and consumerism lifestyle. John Steinbeck once said, "Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires". That continues to hold true. Think about what all the poor and low middle class of America did after getting their hefty one time $1,200 checks followed by their $600/week unemployment benefits. Many of these assholes went on a spending spree, literally buying shit they didn't need, all because they were doing that on free money handed out to them by the US government. As a result of this bullshit, those same people are now clamoring hard for the second stimulus to pass. These are the people that perpetually live paycheck-to-paycheck. So as long as these types of people have no sense of personal fiscal responsibility, consumerism will thrive. People will make peace with the fact that instead of stocking their pantries with food to last them a few weeks, they'd much rather stock up on Air Jordans and a few pieces of Jewelry.
The moral of my story here is that I firmly believe the USA is en route to the biggest economic crash of all time. I think we could very well beat out the great depression at the rate that we are going. If you're curious as to why I see that likely happening, let me know and I'll write you another paragraph or two.
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