Your
skills, knowledge and social capital will emerge unscathed on the other side of
the re-set wormhole. Your financial assets held in centrally controlled
institutions will not.
Longtime
correspondent C.A. recently asked a question every American household should be
asking: which assets are most likely to survive the "system re-set" that
is now inevitable? It's a question of great import because not all assets are
equal in terms of survivability in crisis, when the rules change
without advance notice.
If you
doubt the inevitability of a system implosion/re-set, please read Is
America In A Bubble (And Can It Ever Return To "Normal")? This
brief essay presents charts that reveal a sobering economic reality: America is
now dependent on multiple asset bubbles never popping--something history
suggests is not possible.
It isn't
just a financial re-set that's inevitable--it's a political and social re-set
as well. For more on why this is so, please consult my short
book Why
Our Status Quo Failed and Is Beyond Reform.
The
charts below describe the key dynamics driving a system re-set. Earned
income (wages) as a share of GDP has been falling for decades: this means labor
is receiving a diminishing share of economic growth. Since costs and debt
continue rising while incomes are declining or stagnating, this asymmetry
eventually leads to insolvency.
The
"fix" for insolvency has been higher debt and debt-based spending--in
essence, borrowing from future income to fund more consumption today. But each
unit of new debt is generating less economic activity/growth. This is
called diminishing returns: eventually the costs of
servicing the additional debt exceed the increasingly trivial gains.
What
happens when the bubbles pop, despite massive central bank/state interventions? The
entire socio-political/financial system goes through a "system
re-set" in which all the fantasy-based valuations, political denials,
false promises and fraudulent claims collapse in a heap.
In a
crisis, the privileged Elites will change the rules in a desperate attempt to
expropriate the income and wealth of the bottom 99.5% to
preserve their own power.
The
trick is to do so in ways that won't spark an immediate political insurrection.
We can
better understand their policy choices by asking: What's
easy to expropriate, what's difficult to expropriate?
Those
assets that are easy to expropriate will be expropriated first. Those that are
difficult to expropriate are far less likely to be grabbed, due to the high
costs of expropriation and the high risks of sparking a political insurrection.
History
suggests the privileged Elites will pursue two basic strategies to expropriate
the income and wealth of non-elites:
1.
They will expropriate what is easy to expropriate: financial assets in
centralized institutions the state controls: banks, brokerage accounts,
insurance policies, etc.
2.
They will use the time-honored "stealth expropriation" methods:
inflation and taxes.
Any "money"
held in a centrally controlled institution can be expropriated overnight. The
rules will change without warning, so there will be no opportunity to escape
the system.
Direct
expropriation takes many forms. Your funds could be
"bailed-in" (transferred to the bank). Large currency bills could be
declared worthless. IRA and 401K accounts could be transferred into government
bonds, to "protect the account owners from risky investments."
(Naturally, any expropriation will be presented as "for your own
good.")
Or a new
currency could be issued that strips away 90% of the purchasing power of the
old currency. It could be a New Dollar, an SDR global currency, or a
state-issued cryptocurrency. The point is to strip away 90% of the wealth held
in the old currency.
Indirect "stealth"
expropriation has several forms: slow currency
devaluation, also known as inflation, or higher taxes and junk fees (not called
taxes, but you receive no additional value for the higher fees).
The
end result of these policies is you may receive the $2,000 monthly pension you
were promised, but after inflation, currency devaluation and taxes, your real
purchasing power is $100 in today's currency.
So what's
difficult to expropriate? I present some answers in my
books An
Unconventional Guide to Investing in Troubled Times and Get
a Job, Build a Real Career and Defy a Bewildering Economy.
It's
impossible to expropriate one's skills, experience and social capital. These
are intangible forms of capital and so they cannot be confiscated like gold,
currency, land, etc.
Land and
homes are difficult to expropriate for two reasons: private
property is the backbone of capitalism and democracy, and the state
confiscating private property would very likely spark a political insurrection
that would diminish or threaten the power and wealth of the privileged Elites.
Secondly,
it's very costly for the state to maintain the productive output of real
property it has confiscated. Guards must be posted, sabotage repaired, and the
immense difficulties of coercing a rebellious populace to continue working what
they once owned for the benefit of the state and its privileged Elites must be
solved and paid for.
The
state can expropriate farms, orchards and workshops for back taxes (or some
similar extra-legal methodology), but how do you force people to work these
properties productively?
As a
general rule, whatever the super-wealthy own will be protected from
expropriation. Private real property is the foundation of the Elites'
wealth, and while the land of debt-serfs may well be confiscated for back taxes
(the wealthy will buy exemptions from rising taxes), those who own land and
buildings free and clear constitute a political force to be reckoned with.
As I
discuss in my book Resistance,
Revolution, Liberation: A Model for Positive Change, there's one
other asset the state and its ruling Elites cannot expropriate: community.
The state
will also have difficulty confiscating assets that are outside its reach.This
explains the popularity of owning assets in other nations, and the debate over
cryptocurrencies: will states be able to confiscate all cryptocurrencies at
will, or is that technically unfeasible?
The main
takeaway is this: your skills, knowledge and social capital will emerge
unscathed on the other side of the re-set wormhole. Land
and real property you own free and clear (no debt) is likely to remain in your
possession, as long as you can pay soaring taxes/junk fees during the crisis
phase. Your financial assets held in centrally controlled institutions will not
make it through unscathed; they are simply too easy for central authorities to
expropriate.
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.
Check out
both of my new books, Inequality and the Collapse of
Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is
Beyond Reform ($3.95 Kindle, $8.95 print). For more, please
visit the OTM essentials website.