In the interest of background, in the early 1930s at the outbreak of the Great Depression many banks failed when too many depositors came looking for their money at the same time. This was a predictable consequence of the fractional reserve banking system, a scheme that is dominant to this day. The applied fix under FDR’s administration was to transfer this risk element to the federal government, think FDIC (somewhere along the line the government decided to have taxpayers cake and eat it too). Seventy five years later, the system blew up in spectacular fashion in 2008, although in the wholesale not retail banking sector. The fix this time was to put the U. S. economy on life support where it remains today. Detractors from this theory might consider what happens when our political/money masters allow interest rates to normalize along with the federal government living within its means. I for one have not heard a convincing explanation of any benefit from rewarding borrowers while punishing savers, especially pensions.
With this in mind, the Social Security/Medicare trust funds, which are invested in special treasury securities, would be approximately $1.3 trillion higher under a normalized interest rate scenario over this period. The bottom line: we would have a more sustainable Social Security System even though the public debt side would be less sustainable. How’s that for a modern American dilemma? Of course some are inclined to believe there is no problem as long as the stock markets are riding high and real estate prices in gated communities are strong. Barometers, this reporter believes, that will leave some highly disappointed, for the third time in 20 years.
An aside, a recent report pointed out that the average S&P 500 CEO has to squeeze by on a $1 million a month income. Another recent report tells us that in the 1950s the median house was two times the median income. Today the ratio is 10 times. And yes, this includes the 1950s house, an otherwise depreciating asset. If they only knew in the ‘50s what we know now.
There are lies and half-truths born and raised in Washington, D.C., that got us to this point. An easy one to spot was the origination of the above mentioned FDIC. The reported idea as I recall was to protect depositors, when we can plainly see that it was/is to protect banks. Protection for mega banks, by the way, that during 2008 and after has been needed.
Plainly put, the gravity of the rise in economic growth, liberty, and the expanding middle class cannot be overstated in world history. All of this was accomplished under a system of sound money. Which post-1971 is simply not the case. If President Trump truly wants to let the MAGA dog hunt, here is where he should start. America can draw from its past only so long.
Andy Wahrenbrock is an independent investment adviser from Bakersfield. He can be reached at email@example.com.