Stay Informed

stay informed

media library

media library

get involved

Register | Forgot login info

Benjamin Franklin Quote

I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.

ideas > Another great idea from Bill Bonner

Another great idea from Bill Bonner
We published an item from Vanity Fair a few weeks ago. It explained how the top 1% of US households now earns nearly a quarter of all the income...and controls 40% of the nation's wealth. The richest people have increased their incomes 18% over the past decade. At the middle and lower income levels, on the other hand, earnings have actually gone down. Many of the good jobs have gone overseas...while cost of living continue to rise.

The rich are getting richer than ever. The middle classes are having trouble making ends meet. Think about gasoline at $4 a gallon. To a rich s.o.b. in New York or San Francisco, it hardly matters. But it's a big deal to a truck-driving cracker from Alabama or Georgia.

But, if you're rich, watch out. Because sooner or later the mobs are going to figure out what has happened to them. Then, they're going rise up and go after you. It won't be pretty.

Eventually, people will figure out how it works. They'll see how the 'rich' -- or at least some of them -- colluded with the government to rip off the middle and lower classes. Not exactly intentionally. It involved more stupidity than cunning. But here's what happened.

The feds created the dollar-based monetary system in 1971. Wage gains ended three years later.

The Fed held interest rates artificially low...and undermined the purchasing power of the dollar. It made more sense to spend than to save.

This eroded the benefits of building capital -- either in the form of machinery or worker training. EZ money devalued the hard work, patience, and savings needed to create high value-added industry. Americans became good consumers, not good producers. And since they were not producing high quality products, they couldn't command high salaries. More and more, the labor force moved to low-paying service jobs that required little training and little capital investment...and shopped for cheap goods at discount stores.

Meanwhile capital gains tax rates were lowered, and business profits increased as jobs were outsourced to lower-wage economies.

The middle and lower classes were snagged in debt, particularly through federally subsidized mortgage lending. Then, the feds turned the financial industry into a vast hedge fund.

The genius of the hedge fund is in a trick of mathematics. If I invest your money and take 20% of the gains, it sounds like a decent deal. I only make money if you do. And you get the lion's share. But over time, I will eventually get all your money. Because you will take all the losses while I chip away at the gains, year in and year out.

When the financial industry's credits went bad, the feds stepped in to bail them out. Now, Wall Street is enjoying the "heads I win, tails you lose" life of a hedge fund. The dollar -- along with the yen -- has become the funding currency for speculations all over the world. If the speculations go well, the industry collects huge performance fees. If they go badly, the feds lend the failed speculators more money -- at zero cost.

Of course, here at the Daily Reckoning, we always take the part of the under-dog. Besides, we've been rich and we've been poor. Being rich isn't necessarily any more fun, but at least when you're a rich underdog, you don't have to worry about money.

Written by Bill Bonner,
for The Daily Reckoning

Contact us