The real cause of economic stagnation
In today's changing economy, it's no longer true that you get out what you put in
We think we’re onto a big story. A BIG story.Skip to next paragraph
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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This correction is aiming high…it’s going to take down the entire capital structure of the world’s developed economies.
Stocks…bonds…real estate — watch out…they’re all going down.
The dollar…the pound…the euro — look out below!
But that’s not all. No, if we’re right, this is bigger, much bigger than just a market correction.
It’s an economic correction…a monetary correction…and a political correction.
But we’ll come back to that in a moment. First, let’s look at what happened yesterday. The Dow lost 108 points. Not much information content there…
…but look at what happened to gold. It was down $35. Could gold be finally testing its admirers? Though still in a major bull market, could it be correcting…possibly falling back to the $1,000-$1,500 range?
Yes it could. Gold’s time will come. But we don’t think it is here yet. Gold has risen in anticipation of trouble. But the trouble gold buyers foresaw hasn’t come…not yet. There’s been massive money-printing. Still, in terms of the goods and services it will buy, gold has held up pretty well.
Gold will take off — when the anticipated trouble becomes real here-and-now trouble. And that probably won’t happen for a while. And part of the reason it won’t happen is this Big Story we’re following.
You see, our whole economy…and our society…and our government…and much of what we think…all were built on truths that are no longer true.
In a word or two, our modern economy — and our government — depends on growth. And growth may be a thing of the past.
You want to make money, you invest in profit-making businesses, right? Not necessarily. On the whole, investments in stocks only go up if the economy grows. Otherwise, companies are just fighting for market share. One goes up, but another goes down. Taken all together, investors go nowhere.
Well, at least you can always put your money in bonds. You won’t earn a lot of money, but over time you’ll receive safe, sure gains. Right?
Wrong again. Practically all the world’s major debts — private, corporate and government — depend on growth. Without growth, the debtors can’t pay. And if they can’t pay the debt is worthless.
Do you hold Japanese Government Bonds, dear reader? Good luck with that!
But those points are obvious, aren’t they? How about this: if you want healthier people, you just grow your health-care institutions, right?
Wrong again. In terms of a percentage of GDP, Chile spends only a third as much on health care as the US — much less in absolute dollars. Life expectancy in the US is 77.6 years. How long do you think they live in Chile? Well, we’ll tell you — 78.6 years.
Maybe there’s something in the water in Chile. But suppose you could take a group of Americans and give them all the free health care they want. Would they live longer?
Well, guess what, the Rand Corporation tried it. And guess what it found? Except for people who were extremely poor and had no access to health care previously, giving normal people more health care did not make them healthier. The group with free health care consumed a lot more resources from the health industry — about 25-30% more. But it was no healthier.