Anyone close to my age will remember how, as teenagers, we drove jalopies and couldn’t afford to upgrade our car stereos to one with a CD player. So, we bought cheap adaptors that allowed us to plug our portable CD player into the car’s tape deck. 

Instant music. 

I have no interest in bringing that back, mind you. I’m happy with my Apple Music subscription that brings me just about every song ever recorded in the history of music… instantly and by voice command. 

But is the experience fundamentally different? 

My primitive jury-rigged CD system probably brought me more pleasure than my state-of-the-art system today. It certainly wasn’t materially less. 

The technology got better, but there was little real impact on my living standards. 

I thought about this as I read the essay from Bill Bonner that I’m sharing below. As he points out, the average worker actually has to work about 20% longer to buy a Big Mac today than in the 1980s. And houses, education, and the basic necessities that used to define middle-class living are all vastly more expensive.

What happened? 

More importantly, what happens next? 

Bill has kindly given us permission to reprint his essay today, in which he answers those questions. 

Read on for the details.

To life, liberty, and the pursuit of wealth,

Charles Sizemore

Chief Investment Strategist, The Freeport Society

P.S. As always, if you’d like to read more from Bill, click this special link for Freeport readers: https://www.bonnerprivateresearch.com/freeport. 

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Poverty on a Slow Burn

By Bill Bonner, 

The gist of the Big Boom of the 40-plus years from 1982 onward was this: 

Wealth left the consumer and Main Street economy (thanks to lower prices on foreign-made goods and a loss of jobs in the manufacturing sector) and went into the financialized economy (thanks to ultra-low interest rates). 

Stocks soared. 

Wages stagnated. 

The next period is likely to be the opposite. Money will be taken out of the capital economy (absorbed into U.S. bonds)… and put into the consumer economy (via deficits).  

Higher Rates, Lower Stock Prices

How helpful is that insight? 

We don’t know… but we’re just trying to understand how the primary trend in the markets — higher interest rates, lower real stock prices — connects to the patterns of U.S. policies.  

We’ve seen how the feds pushed the primary trends of 1980-2020 to extreme levels. Now we look to see how they could exacerbate or moderate today’s market trends going forward. 

To do this, we watch. We wait. We listen. 

You cannot understand how an ant colony works by becoming an ant. Nor can you understand modern American politics by becoming a Democrat or a Republican. You have to stand back and observe… like an anthropologist trying to study a never-before-contacted tribe. He can build a McDonald’s restaurant… or set up a child welfare office in their midst. But he’ll distort behavior and he won’t learn much. 

In the world of finance, too, it pays to be invisible. Nonpartisan. Unprejudiced. 

We bring it up because there are many news teams who insist on saying “the Fed should do this.” Or, the “government should do that.” 

We don’t really care what the Fed should do. What we want to know is what it will do.  

Inflation appears to have become embedded in the system. It’s no longer fueled primarily by monetary policy (ultra-low interest rates) but by fiscal policy (ultra-high deficits). 

Each year the feds take $1 trillion to $2 trillion more (in deficits) out of the financial economy. Investors buy bonds. This goes to the “nondiscretionary programs,” such as Social Security and Obamacare.

It also goes to discretionary programs, such as the $100 billion that President Biden has spent on weapons to be used to kill Russian soldiers and Palestinian civilians. This money finds its way into earnings and wages… and eventually into consumer prices.  

Poverty on a Slow Burn

The process is insidious. Forty years ago, you could buy a Big Mac for $1.60. Today it is $5.99, almost 4x more expensive. Big Macs were the cheap, fast way for the working class to eat. 

Statista gives us an average hourly wage in 1986 of $6.20. At that rate it took about 15 minutes of work to buy a Big Mac. 

Today, Statista tells us that the average wage per hour is $19, which works out to about 18 minutes to buy a Big Mac – three minutes more. 

That’s not just inflation… that’s poverty on a slow burn. 

Over 38 years, working people got poorer. 

Charlie Bilello shows us how the feds’ inflation figures further distort the real story:  

According to the U.S. Government, the cost of health insurance in the U.S. has declined 15% over the last year and is 3% lower than it was five years ago. 

How is that possible when we know that the cost of health insurance is certainly much higher today than five years ago?  

The government is not using actual premium data to determine the cost of health insurance, but instead using changes in the retained earnings of health insurers. So when their retained earnings decline as they have over the past few years, the government says that the cost of health insurance has declined as well. 

Government policy has now changed. The Fed can no longer boost the financial economy with ultra-low interest rates. Lower rates would increase capital flight out of the bond market and make it more difficult for the feds to borrow the trillions of dollars they need. Unable to support the stock market, it will have to let stocks fall.  

But our guess is that falling stock prices and rising interest rates will bring a crisis that the Fed won’t be able to stand. It will turn on the printing press and go “Full Sh*thole.” 

Even that, however, will not reverse the trend… it will only make it worse. 

Stocks will go up — spectacularly, as investors ditch bonds to protect themselves from inflation. But in real terms… adjusted for inflation… the value of America’s capital stock will go down as it becomes harder and harder to make long-term investments and innovations in a high-inflation economy. 

And that’s not all. 

There are other policies — neither monetary nor fiscal — that will help keep the primary trend toward lower real stock prices and higher interest rates in gear.  

Regards, 

Bill Bonner 

P.S. Thanks again, Bill. If you want to read more, go to https://www.bonnerprivateresearch.com/freeport. .