There is a very old and tested adage that has long been applied to booms and busts brought on, as they will inevitably always be, by government tampering with money and credit. The adage goes as follows: “In the washout of the bust which always follows the boom, real wealth returns to its rightful owners.”
To understand this truism, and it IS a truism, it is necessary to understand the cause and effect involved. It is universally said, especially in classrooms which purport to teach “economics”, that the business or “boom and bust” cycle is inherent in any “capitalist” or “free market” economy. Not only is this untrue, it is the opposite of the truth. A “business cycle” in which the prosperity of entire nations ebb and flow on a regular basis is possible ONLY when the economy and in particular the money is controlled by government. The extent to which governments exercise such control “governs” the extent of the cycle. The reason that boom and bust is said to be “inherent” is because throughout history, government has ALWAYS (to a greater or lesser extent) controlled the economy. Without such control, there can be no such thing as government “power” because without it, the government cannot control the people.
There are only two situations in which economy-wide “booms and busts” do not occur. One is in a nation where government has TOTAL control over the economy. Such a nation is in a state of perpetual “bust”. Its only buffer against outright collapse and famine is those nations around it which do not exercise complete control. The other situation is one in which the government exercises no control of the economy. In such a nation, individuals or businesses or banks can and will fail, but such a situation can never become general. Such nations do not necessarily “boom”, they simply get richer and richer in REAL terms due to a steady accumulation of REAL capital.
Capital Gain Or Capital Preservation:
Brush to one side all the government statistics which claim to measure economic “growth” and all the claims that borrowing and spending are the only way in which individuals or nations can achieve “prosperity”. Ask yourself one simple question. Who are the “better off” in today’s economy? Is it those whose debts are slowly choking them and who “trade” on paper markets frantically as their only perceived means of getting out from under, let alone “getting ahead” in life? Or is it those who are debt free, who are in the habit of producing more than they consume and who hold at least a part of their capital in the form of real goods and money which CANNOT be created (or destroyed) by government?
The vast majority of the population of the “developed” nations is in the first category. The tiny minority is in the second. Yet it is ONLY the people in the second category who will be left with the REAL means to provide for themselves and to invest in the creation of new wealth when the “tipping point” of the present global paper and credit based system finally arrives.
The closer that point comes, the more vital it is to preserve capital. But as long as the majority of people still cling to the adage that borrowing the future is the only way to prosper in the present, the bigger the bust will be and the fewer will be in a position to welcome real wealth returning to its rightful owners.
A Very Dangerous Form Of “Saving”:
For almost three decades now, the concept of “saving” has been inexorably changed to conform with the “needs” of a financial system based on debt and deficits. By the mid 1990s, the difference between “saving” and “investment” had been all but obliterated. The idea that one “saved” by putting one’s money in a bank and earning the interest available was gone. What had taken over was the idea that to “save” effectively, money had to be “put to work” and the best place to do that was the stock market. The last half of the 1990s saw the biggest boom in stock market “day trading” the world has ever seen. With the partial exception of Japan, the state of the stock market had become the one REAL statistic which showed people the true state of the economy they lived in – and of their “savings”.
That attitude still exists, despite the dot com crash a decade ago and the even bigger GFC crash which bottomed out in March 2009. All over the developed world, “main street” borrowing has declined but debt levels have not. All over the developed world, “capital gain” is seen as the only means to keep the debts serviced and the creditors at bay. This makes the “health” of global stock markets VITAL to the economy runners and the issuers of debt masquerading as money.
The real tipping point will come when stock markets, and the US markets in particular, run out of the ever increasing amount of “fuel” they need to keep rising. It has taken the first global currency intervention in more than a decade to keep that fuel supply going this time. It will take even more than that next time.