When Will Things Be "Normal" Again?
People are starting to understand that things are not normal. I think the prevailing sentiment right now might be driven by unemployment - not just unemployment, but the "sticky-ness" of it. People just don't see any relief so far.
The other thing that might reinforce the "not normal" state of things is the increase in people who are questioning the government's handling of the growing deficit and national debt. And some subset of these people understand how this has undermined the U.S. dollar. I'm not saying most people get all this, but I do think the numbers are growing.
So if things aren't normal now, when will they ever be? Well, here's one way to look at this question. I'll quote fund manager John Hathaway as recently quoted in King World News:
This takes things to another level. Its saying that what we thought was "normal" for at least the last 50 years (since 1970) has been based on a "mirage." Think about the last 50 years and the increase in wealth that surrounds us: more people owning bigger and "better" homes, owning more than one ocar, taking fancier vacations, sending their kids to expensive private schools and colleges - you know the drill.
And it's not just "the rich." Even if you're not rich, you probably own a much fancier late-model car than your father ever did. And how was that possible? Well for many people, it was because of the increase in the availability of "leasing" cars. Or the ease of getting an auto loan. (So you don't actually own the car. You drive it with borrowed money.) Same for lots of people's houses. They're bigger and nicer than their parents - but they've got a much, MUCH bigger mortgage.
Read Hathaway's statement again. He's saying that the "fiat" money produced by the government (actually the banking system) resulted in the availability of lots more credit. It's that credit that let us all own nicer cars and homes. The party was fun (I suppose) while it lasted.
Of course, we're seeing some of the down side of that credit creation now.
Now notice how lots of folks mortgages are worth more than their actual house. They're "underwater." In fact, as many as 25% of homeowners with mortgages are underwater now. So that's an example of how the credit got out of hand and how people are now paying the price for that "unreal" increase in "wealth."
So is that what we took for "normal" for the last 50 years?
It kind of looks like we're left with a bunch of wealth that was concocted from nothing, based on the creation (aka "printing") of fiat money, which made so much credit available to so many people on such easy terms that they simply couldn't avoid - or stop themselves from - borrowing to make themselves look and feel richer.
But in the end, what's based on borrowing isn't really wealth at all. If, as Hathaway says, no one wants the paper (the fiat money, i.e., the U.S. dollar) that the wealth is denominated in, then its really not "worth" as much as we thought.
Okay, so the dollar's not dead (yet). But if people are questioning its value, if people aren't so sure it's worth what they thought, if people don't want to hold onto something that's questionable, then what's all that "wealth" really worth? Did we get rich on what may turn out to be the equivalent of "monopoly money"?
So if things aren't normal, then what is? What is the normal that people want to get back to? It seems like we know something's wrong, but many of us aren't so sure what's right.
The other thing that might reinforce the "not normal" state of things is the increase in people who are questioning the government's handling of the growing deficit and national debt. And some subset of these people understand how this has undermined the U.S. dollar. I'm not saying most people get all this, but I do think the numbers are growing.
So if things aren't normal now, when will they ever be? Well, here's one way to look at this question. I'll quote fund manager John Hathaway as recently quoted in King World News:
"Since the demotion of gold to non-monetary status by the Nixon administration in 1970, fiat money and credit based upon it have been a fundamental source of global wealth generation. What is the value in real terms of the $200 trillion of wealth denominated in currency if nobody wants the paper?"
This takes things to another level. Its saying that what we thought was "normal" for at least the last 50 years (since 1970) has been based on a "mirage." Think about the last 50 years and the increase in wealth that surrounds us: more people owning bigger and "better" homes, owning more than one ocar, taking fancier vacations, sending their kids to expensive private schools and colleges - you know the drill.
And it's not just "the rich." Even if you're not rich, you probably own a much fancier late-model car than your father ever did. And how was that possible? Well for many people, it was because of the increase in the availability of "leasing" cars. Or the ease of getting an auto loan. (So you don't actually own the car. You drive it with borrowed money.) Same for lots of people's houses. They're bigger and nicer than their parents - but they've got a much, MUCH bigger mortgage.
Read Hathaway's statement again. He's saying that the "fiat" money produced by the government (actually the banking system) resulted in the availability of lots more credit. It's that credit that let us all own nicer cars and homes. The party was fun (I suppose) while it lasted.
Of course, we're seeing some of the down side of that credit creation now.
Now notice how lots of folks mortgages are worth more than their actual house. They're "underwater." In fact, as many as 25% of homeowners with mortgages are underwater now. So that's an example of how the credit got out of hand and how people are now paying the price for that "unreal" increase in "wealth."
So is that what we took for "normal" for the last 50 years?
It kind of looks like we're left with a bunch of wealth that was concocted from nothing, based on the creation (aka "printing") of fiat money, which made so much credit available to so many people on such easy terms that they simply couldn't avoid - or stop themselves from - borrowing to make themselves look and feel richer.
But in the end, what's based on borrowing isn't really wealth at all. If, as Hathaway says, no one wants the paper (the fiat money, i.e., the U.S. dollar) that the wealth is denominated in, then its really not "worth" as much as we thought.
Okay, so the dollar's not dead (yet). But if people are questioning its value, if people aren't so sure it's worth what they thought, if people don't want to hold onto something that's questionable, then what's all that "wealth" really worth? Did we get rich on what may turn out to be the equivalent of "monopoly money"?
So if things aren't normal, then what is? What is the normal that people want to get back to? It seems like we know something's wrong, but many of us aren't so sure what's right.
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