YOUGHAL, IRELAND – Yesterday, we looked at what the U.S. republic has become: a vast swamp of idlers, chislers, cronies, and insiders… all angling for the meat in someone else’s burger.
Politicians and public servants no longer retire to their hamlets and farms once their tour of duty is over. Instead, they sign up for a post-career money-grab as consultants and lobbyists… scheming with the feds to get favors for their clients.
But how come? Aren’t the insiders always eager to take advantage of the outsiders? What’s new?
Politics is usually best ignored. But there are times when, like a rusty gas tank at an abandoned garage, it seeps into the groundwater and poisons the earth.
One of those times, we believe, is at hand. Because, the Swamp has become so deep… so wide… and so toxic… that it endangers everything.
How this came to be is our subject today.
We begin with staggering news from our fellow kibitzer, David Stockman: The average working person in America has made zero wage gains in the entire 47-year period since the new money was introduced in 1971.
It is well known that real hourly wages are no higher than they were in the mid-’70s.
But now, the figures show that the stretch of zero growth reaches back to 1971… and – in the fraudulently precise figures of the Bureau of Labor Statistics (BLS) – annual real wage gains of 0.01%.
That’s not 1%. That’s not even one-tenth of a percent. It’s one-hundredth of a percent! Nothing, in other words.
And that overstates progress. Most people have only one real asset – their time. They sell it by the hour or by the week. The figures show that their time is worth no more today than it was nearly half a century ago.
We stop in our tracks. We hold our breath. How could that possibly be?
How could eight centuries of progress, from the depths of the Dark Ages to the end of the Johnson administration, suddenly come to an end… just when it seemed most promising?
Today, there are far more people with PhDs, more engineers, more patents, more technology, and more people all over the world striving, straining, and stressing out over how to make their time more valuable.
How could they fail so spectacularly?
But it’s worse than the numbers suggest. First, these are averages. So high wages for a few pull up the average for the low-wage many.
Second, instead of looking at the money, with the phony-baloney BLS adjustments, let’s look at the time.
In 1971, you could buy a new Ford F-150 for $2,500. At $4 an hour, it took 625 hours to buy the truck.
Today’s model costs $30,000, and the average hourly wage is $26. So the wage earner has to work for 1,154 hours to get a standard F-150. Put another way, he has to sell almost twice as much of his time to get a set of wheels.
But wait, say the feds. The truck today is not the same as the one from 1971. Technology has improved. This new one has GPS, Bluetooth, and seat warmers. Therefore, you’re getting twice as much truck.
Yes, we agree, technology has improved. But the truck is not twice as good as it was back then. And the fundamental task of the truck is the same. It still moves stuff from here to there.
It doesn’t matter anyway. The guy needs a truck. It now costs $30,000.
Third, since the feds have discouraged saving with artificially low interest rates, he’s not likely to have $30,000 on hand.
So he’s forced to borrow. His loan, with interest, then becomes part of the financialized economy, to be sliced and diced, leveraged, and hypothecated, until the money shufflers earn more on the loan than Ford did on the truck.
And now… the poor working man is not only forced to sell twice as much time to buy a truck… his time is now the asset “underlying” not only Motor City, but Wall Street, too.
And there’s the weak link in the whole claptrap system: It rests on a limited asset of declining value.
The finance industry loans to the working man at 5.5%. On a loan for a $30,000 F-150, this gives the lender a gross profit of $5,290.
And it leaves the poor man paying $490 a month – equal to 19 hours of work – for six years. Altogether, the fellow works 1,356 hours over a six-year term to get, more or less, the same pickup he would have had for 625 hours of his time in 1971.
You can do the same calculation for housing. An average man paid about $24,000 for the average house in 1971. Today, he pays $371,000. Priced in time, the house cost 6,000 hours in 1971 and 14,269 hours today.
Is that progress? Not in our book. Time is life. It’s all we have. It takes more than seven years of work for the average guy to buy the average house today – four years more than it took in 1971.
So what happened?
The simple answer: A huge supply of time flooded the market.
Approximately one billion people from China, India, and Southeast Asia – willing to work for $1 to $5 a day – entered the world economy. Naturally, the competition sank the raw cost of time.
And it set the stage for Donald J. Trump, who argues that we need to “build a wall” and set up tariffs to keep these people and their products out.
But wait. It’s not that simple. You don’t get richer by shutting out people who can produce goods faster, cheaper, or better than you can.
You get richer by doing what you do better… and trading for what you don’t do.
Also, cheap foreign labor should have dragged down the cost of goods and services imported from overseas.
Even if his own wages went nowhere, the average American working man should have seen an increase in his real standard of living. Adjusted for negative inflation (deflation)… his real wages should have gone up.
But they didn’t… because something else was going on…
The Swamp was growing. The U.S. economy was becoming less productive and more “financialized”… and chockablock with cronies, zombies, and win-lose hustlers.
The insiders and the rich navigated through the Swamp and continued to make money. But the typical working stiff in the Main Street economy sank.
More on how that happened… tomorrow.
Editor’s Note: Some dear readers recently ordered some of Bill’s Tacana Malbec from his vineyard in Argentina. The entire supply was gone in less than three days. As Bill prepares for next year’s harvest, he’d like to hear from you. Should he plant more grapes? Send your feedback with this brief survey.
By Joe Withrow, Head of Research, Bonner & Partners
It might soon get even harder to buy that F-150 pickup truck Bill described above.
That’s because the 10-year Treasury yield just shot past 3% once again…
Today’s chart tracks the 10-year Treasury yield – the global benchmark for interest rates – from September 2017 through today.
As you can see, the 10-year Treasury yield has risen 49%, or 100 basis points, from its September 2017 low. It’s now at 3.07%.
The 10-year Treasury is the most widely tracked instrument in finance. Borrowing rates on most other debt instruments – corporate and municipal bonds… mortgages… consumer loans – are priced in relation to the 10-year Treasury yield.
In other words, when the 10-year Treasury yield rises, so do borrowing costs throughout the economy.
And as Bill has suggested before, it appears the long-term interest rate cycle shifted from “down” to “up” after the 10-year Treasury yield bottomed at 1.37% in 2016.
If Bill is right, we can expect interest rates to move steadily higher in the coming years and decades.
That means consumers hoping to buy that pickup truck or new home will likely be paying more in interest… and giving up more of their limited time.
– Joe Withrow
Passive Investing Has Made Us Dumb
We’re in a golden age of passive investing. In recent years, billions of dollars have flowed into funds that passively track an index or sector. Investors have been rewarded with lower fees and, more or less, reliable returns. But there’s just one problem: It’s making the stock market less efficient.
California’s War on the U.S. Dollar
A new American civil war may be brewing. And the epicenter of the coming crisis could be in California’s Bay Area, where a local government initiative is poised to undermine the power of the U.S. dollar.
The Right to Repair
Farmers in America are facing a curious problem. Corporations like John Deere are barring them from repairing certain parts of their complex farming equipment. It’s leading to a showdown in a small Nebraska town, and the outcome could have consequences far beyond just farming…
In the mailbag, dear readers consider Bill’s Irish history lesson…
Dear Bill, have a closer look at the war memorials. Many Irishmen (not Anglo-Irish) fought in the British Army in both World Wars. And note that it’s the British Army, not the English Army.
– Bernard O.
Your synopsis of Irish history is a bit off in some places. The landed estates were not broken up principally after self-government in 1923. They were broken up principally as a result of the “land wars” from 1870 to 1900, when tenants were virtually given fixed tenure for their lands. The coup de grâce came around 1902, when tenants were given the right to buy out their holdings from landlords when the landlords did not live on the estates – which was the majority of the landlords.
The money to buy their holdings was given to the tenants by the British government as a loan repayable over some 70 years. As a result, the landlords disappeared almost overnight. There was no forced appropriation of land at self-government in 1923.
– Patrick K.
Meanwhile, Bill’s Diary, “How to Get Rich in the Swamp,” gets one Dear Reader thinking…
I had a customer who grew up with Hubert H. Humphrey in rural Minnesota. He followed his entire career, dollar by dollar. He claimed to make almost the same amount each year, and complained that while Humphrey died a multimillionaire, he only had $25,000 in the bank. Table scraps compared to the Clinton Foundation: zero to $300 million in less than two decades. And that’s only the amounts we know about. What about the secret brokerage fees charged for deals with foreign governments and corporations, i.e., Iran? I believe most self-serving Swamp critters have learned to look past any guilt they must feel for screwing Main Street.
– Steve B.
Is this Trump’s promised infrastructure boom?
The president campaigned on a promise to provide America with an infrastructure project to jumpstart the economy. Most assumed that would mean new roads, bridges, or tunnels.
But leaked White House documents suggest the White House might have something else in mind entirely… Details here.