THE CHANCES FOR BIG CHANGE or
REVOLUTION, called Reset
Your skills, knowledge and 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.
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THE CHANCES FOR BIG CHANGE or REVOLUTION, called System Reset
Which Assets Are Most Likely To Survive The "System
Reset"?
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.
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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 propularity of owning assets in
other nations, and the debate over cryptocurrencies: will states be able to
confiscate all cryptocurrencie at will, or is that technically unfeasible?
The main takeaway is this: your
skills, knowledge and 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.
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