I have no formal training in economics, beyond what I picked up during undergrad classes in political science and history. But as I’ve watched the value of my 401(k) evaporate by a third in the first year of this current President’s administration, I’ve endeavored to educate my self on the subject. What I’ve learned has left me shaking my head with incredulity.
After watching dozens of hours of Youtube videos by “economists”, “financial analysts”, “investment advisors”, then reading books and articles on economic theory and history, I think I’ve come to terms with the sad reality of the subject.
Am I qualified to speak, as even an amateur economist? Absolutely not. Am I qualified to give investment advice? Oh, hell no! But I’m not sure the “experts” are either.
President Harry Truman is reported to have lamented that to effectively manage the nation’s economy he needed the advice of “a one-armed economist”, because every one of his economic advisors would tell him one thing only to then say, “but on the other hand…”
I share “Give ‘em hell” Harry’s frustration with that ambidextrous profession.
My own field of study, the law, can be arcane and confusing. But it’s clear and simple compared to the economy and stock market. Which explains, at least to me, why none of the so-called “experts” seem to have a clue what to do about our current economic crisis.
Following is some of what I’ve taken away from my crash education in the subject of why my retirement plan is being purloined by the current economy:
First, no nation in human history has ever incurred the level of national debt with which our government is currently burdened. So all past experience of governments dealing with national debt are useless precedents.
Second, going back to the 1960s, successive administrations from both political parties have repeatedly done the very worst thing possible to maintain a stable financial base. They have dealt with every “crisis” by printing money, and throwing it at the problem.
The more paper money in an economy, the higher prices will be.
Handing out trillions in free money over the past two years, in response to COVID, seems to have been the proverbial straw that broke the camel’s back.
Third, the Federal Reserve Bank (the Fed) is supposed to prevent the sort of inflation we are now experiencing. But because of our unprecedented debt, the method they’ve used in the past — raising interest rates — will only make matters worse. In fact they may be hoping inflation will reduce our debt (it’s complicated), so they aren’t going to do anything about it. And we the people pay the price.
Fourth, the recent downturn in the stock market is a reflection of the Fed’s decisions/indecision about how to deal with the debt and inflation. My 401(k), and everyone else’s, retirement plans are dependent on the stock market. If it crashes, our retirements crash with it – and whatever is left will be eaten up by inflation.
Fifth, the Fed is more concerned with maintaining the strength of the US dollar against the currencies of other countries which, since 1944, is the basis of US economic world hegemony – and (not coincidentally) of the wealth of our economic aristocracy.
It was in 1944 that a conference of allied nations was held at the Bretton Woods, Delaware resort where plans were made for the post-WWII world economy. Because the US would come out of the war with our industrial infrastructure in tact, as opposed to all the others, it was decided (by the US) that all national currencies would be based on the US dollar – which would be backed by our gold reserves in Ft Knox (the ‘Bretton Woods’ plan).
But then in 1971, President Richard Nixon took the US off the ‘gold standard’. The US dollar became ‘fiat’ currency — backed only by our government’s promise of its value.
It meant our government could print as much money as it wanted because the money wasn’t based on anything of intrinsic value. Thomas Jefferson and John Adams considered “paper money” to be “theft” because it had “no real value”.
150 years later, English author George Bernard Shaw wrote about the difference between gold and paper money. “You have to choose between trusting the natural stability of gold, and the natural stability of the honesty and intelligence of the members of the government… as long as the capitalist system lasts … vote for gold.”
Two years after Nixon took the US off the gold standard, he dispatched Henry Kissinger to Saudi Arabia to make a deal to solidify the US dollar as the international standard of value. He promised to protect the Saudis, with weapons and military intervention if necessary, in exchange for the their agreeing to accept only US dollars in payment for their oil (“petro dollars”). So any other nation wanting to buy Saudi oil would have to obtain US dollars to pay for it. That gave the US tremendous international power.
That has now changed. Within months of our disastrous withdrawal from Afghanistan in 2021, which undermined US credibility as an ally, Russia cut a deal with the Saudis to protect them in exchange for them agreeing to also sell oil for gold-backed currency from other countries — such as the Russian ruble!
Which is why imposing sanctions on the Ruskis because of Ukraine is turning out, from an economic perspective, to have been the equivalent of pointing a gun at our own foot and pulling the trigger. Other countries want to avoid being subject to sanctions against their currency if an American president takes a dislike to them, so they are de-coupling their currency from the US dollar (de-dollarization).
As a consequence, the dollar is weakening due to inflation — while the ruble is getting stronger.
Sixth, gold has been elevated to a “tier 1 asset” by the international banking powers that be, who basically run the international economy. I’m not going to try and explain what a ‘tier 1′ asset is, so here is an informative link.
The takeaway (Ugh! I hate using cliches…) is that physical gold (but not speculative “paper gold” futures stocks) has become a more valuable asset which the large international banks are stockpiling. Coincidentally (?) so are the Chinese and Russian governments, who’ve been the largest buyers of physical gold over the last decade.
Common sense would suggest that stockpiling would drive up the cost of physical gold (that supply/demand thing). But it’s not, because the price of physical gold on international markets (the “spot price”) is not determined by traditional supply and demand. Instead, it’s set by the value of “paper gold” — meaning speculative futures traded on stock exchanges. The bulk of that trading is done by computers based on algorithms — which can be manipulated, to make money for speculators whether the price goes up or down.
Based on traditional supply/demand, the spot price of physical gold should be considerably higher than it is currently, but the price is being suppressed by paper gold speculators, simultaneously with big banks and governments stockpiling it. I’m not a conspiracy theorist – but that does make me say “hmmmm…”
Seventh, many of the economists I’ve listened to are opining that the current US administration is deliberately tanking our economy. There is no dispute that the current administration is dominated by progressives, ie socialists. The middle class is the enemy of socialism. Socialism can’t prevail until the middle class is destroyed.
From the website, Marxist.org, quoting Russian essayist Bela Kun, writing in 1918:
“The lower middle-class is not fit to wield power, and a long government by it is unthinkable. This, first and foremost, for economic reasons: the small shopkeeper is the debtor of the great capitalist, and must remain in dependence on him as long as there exists the system of credit — which cannot be destroyed while the domination of private property continues.”
Inflation is destroying the savings of the middle class. It’s difficult to believe this inflation is not intentional. However, because I’m an adherent of Hanlon’s Razor (“Don’t attribute to malice what can be adequately explained by incompetence”), I’m not yet ready to buy into that theory. Particularly because socialists are notoriously incompetent — which is why it never works.
Eighth, a primary component of the current inflation is record high gas prices. Commentators from both ends of the political spectrum agree the current administration wants high gas prices .
Record high gas prices are a direct result of the administration’s hostility to fossil fuels. They want to price it out of our reach, without any viable alternative. “Let them drive electric cars!” is our ‘green’ administration’s version of french Queen Marie Antoinette’s apocryphal “Let them eat cake!” response to hearing the peasants had no bread.
The “greens”, having been educated in a contemporary American universities, are apparently unaware of what happened to Marie Antoinette — if they even know who she was.
Ninth, one consistent opinion among contemporary economists is that the international economic system is about to “reset” — meaning change dramatically to a single global economic system and currency. If so it could be a “fourth turning” in a historical cycle.
My conclusion. Given the worsening economic situation, how do I plan ahead? I don’t know — but neither, it seems, do any who are supposed to know. For every “expert” I’ve listened to who says one thing, there is another who says the opposite. Buy more stocks! Don’t buy stocks! Buy gold! Don’t buy gold!
All I know for sure is that I’ve reached the age where I’m required by law to spend my 401(k). Under the previous administration my plan was making more than I was required to withdraw. So my retirement that I worked for all my life was secure.
But under this current administration my 401(k) has consistently lost value at a rate, so far, that by the end of this four-year term it will have evaporated. That’s not partisan politics. The numbers have no agenda…
Gary Beatty lives between Florida and Pagosa Springs. He retired after 30 years as a prosecutor for the State of Florida, has a doctorate in law, is Board Certified in Criminal Trial law by the Florida Supreme Court, and is now a law professor.