The World's Biggest Scam

The World's Biggest Scam

Founder Bill Bonner

We've been exploring the site of a disaster. The pieces of the wreckage are scattered far and wide. The survivors are many... but few without scars and open wounds.

If you measure inflation properly, the damage has been much worse than most people realize. At 10% a year, few middle-class families can keep up. They've lost income... buying power... and wealth over the last 20 years.

What caused it? Is it over?

You listen to the financial press and you might think the middle class is getting ready for a major comeback.

Manufacturing is supposed to take off, thanks to lower energy costs.

And housing – the No. 1 asset of America's middle-class households – is said to be in another upswing. From Reuters:

Home prices rose in November, climbing more than 5% from a year ago in the biggest increase since August 2006 when the housing market was starting to collapse.

Data on consumer confidence on Tuesday was less encouraging, with moods falling to their lowest level in more than a year as Americans became more pessimistic about the economic outlook and their financial prospects in the wake of higher taxes for many.

In a fresh sign the housing sector is on the mend, the S&P/Case Shiller composite index of 20 metropolitan areas gained 0.6% in November on a seasonally adjusted basis, in line with economists' forecasts.

Prices in the 20 cities rose 5.5% year over year, making for the strongest yearly price increase in more than six years when prices were on their way down.

The housing market became a bright spot for the economy last year as prices rose and inventory tightened, and the sector is expected to contribute to economic growth in 2013.

"What we're seeing is really a gradual improvement in the overall economy," said Anthony Chan, chief economist for Chase Private Client in New York.

Rising home prices and recent gains in the stock market should blunt the impact of tax increases for consumers and spending should improve by the second half of the year, said Chan.

And stocks? Yes, investors are coming back to equities, say the pundits. The S&P 500, the Russell 2000 and the Wilshire 5000 are all at new highs. And the Dow is zeroing in on its October 2007 all-time high.

Why? Because the Treasury markets stink. The Fed is committed to holding down yields. Why settle for 2% yield from bonds when owning the S&P 500 will deliver a yield of 2.5%... and you can get a much higher yield from individual stocks?

And so the middle class is all set. Jobs... housing... stocks – all going up.

Rip-Off Alert!

But wait. It's not another boom that the middle class is headed for. Instead, they're heading for another big rip-off!


Because the middle class is still the primary victim of the world's biggest scam. The feds create more money – more than $1 trillion a year. The money doesn't go to the middle class. It goes to zombies. Bad companies with good lobbyists. People on food stamps. Government employees.

The middle class doesn't have any idea what is really going on. But every dollar created by the Fed... and distributed to the zombie insiders... could cost the "outsiders" in the middle class 50 cents' worth of real wealth.

How could it be otherwise? If you double the money supply you cut the real value of the existing money supply in half. Grosso modo. That includes wages, savings, pensions, investments – anything that doesn't rise as fast as the tide of new money.

That's the tsunami that wrecked the middle class. When they ran into it – a huge wave of cash and credit – everything they had got smashed.

Wages stopped growing in the 1980s; the middle class turned to debt.

And now, it's counting on the government. The feds have promised more healthcare... better Social Security benefits... more bailouts... more stimulus... and a stronger economy with more jobs and higher salaries.

But how can the feds provide these things? By printing more money... and transferring more money from the middle class to the zombie class!

Don't believe it? See tomorrow's Rogue Economist at work.


Bill Bonner


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