If you have not yet read Part 1: Make Your Choice: Change By Pain Or Insight, available free to all readers, please click here to read it first.

I’m Calling BS On This

It’s perfectly understandable that nearly everyone holds a distorted view of wealth, financial assets and how the world works because the last 50 years have been the most unusual and deformed in all of history. So it’s more than half a typical human lifetime of things being completely distorted, and there’s been a concerted marketing effort by Wall Street and its paid shills (the MSM) to perpetuate the myth.

Seen on a longer-term chart the deception is easy enough to spot:

As we’re fond of pointing out, stocks and bonds and other tertiary forms of “wealth” are actually just claims on wealth. Real wealth comes from real things being made and distributed by real people. Or these days I guess I have to add real robots.

In other words there has to be some relationship between the real stuff and the claims on them. The above chart shows that the Fed has goosed asset prices 3 separate times in the past 20 years. This last and most extreme deviation simply can't sustain because…

If you have not yet read Part 1: The Pie Is Shrinking So Much The 99% Are Beginning To Starve, available free to all readers, please click here to read it first.

In Part 1, we reviewed the shift from the expanding economic pie of the second half of the 20^th century that enabled a parallel expansion in universal rights and entitlements. 

But here in the 21^st century, the pie is shrinking and the social movements that reduced asymmetries of wealth and power in the 20^th century are no longer effective. 

In Part 2, we’ll go deeper into the structural changes of the economy, and explore why social movements have slipped into ineffectual symbolic gestures that fuel fragmentation and frustration — and why that will lead to a dangerous boiling over of the 99% against the elites controlling the system.

The “Winner Take Most” Economy

An economy characterized by soaring wealth and income inequality is clearly a “winner take most” economy: Richest 1% Made 82% Of Global Wealth In 2017

Peak Prosperity has covered the structural changes that have created the WTM economy at length for many years, so we can quickly summarize the key dynamics:

Cartels, state-corporate governance. Structurally, large banks and corporations have aggregated wealth and political power to the degree that they can enforce cartels and quasi-monopolies with a combination of market heft and regulatory capture (a complicit state enforces monopoly under the guise of consumer protection or other cover). The owners/managers of the cartels skim enormous profits while providing poor-quality products and services to consumers who have little choice in a rigged market.

Systemic incentives favor speculation, debt and leverage: those closest to the cheap-credit spigots (corporations, banks and financiers) can outbid everyone else to buy up the productive assets of the economy—assets that generate income and capital gains. These perverse incentives fuel speculative asset bubbles, misallocation of national wealth and malinvestment in marginal projects that are originated solely to reap short-term profit by any means available, which in a rigged system includes fraud, embezzlement, misrepresentation of risk, etc.

This dependence on rising speculation, debt, leverage and opaque gaming of the system is financialization.  Where the entire financial sector once represented 5% of the economy, now it is over 20% of the economy once we include financialization that’s hidden inside firms such as Apple, GE, etc.

Together, these form what I call the Plantation Economy, an asymmetric structure in which(…)

If you have not yet read Part 1: Drowning In The Money River, available free to all readers, please click here to read it first.

In Part 1, we compared official rates of inflation with hard data from the real world, and found that it’s not just the cost of burritos that has soared over 100% while inflation has supposedly been trundling along at 1% or 2% per year. The real killer is the soaring cost of big-ticket essentials such as rent, higher education and healthcare.

So what can we do about it? There are only a few strategies that can make a real difference: either qualify for subsidies (i.e. lower household income), own assets and income streams that keep up with real-world inflation, or radically reduce the cost structure of big-ticket household expenses.

Assets & Income Streams

One strategy to avoid being crushed by real-world inflation is to earn enough extra income to keep up with higher costs. This is problematic in an economy in which wages/salaries are declining as a share of the gross domestic product (GDP).

This is a long-term secular trend that is affecting not just middle-income workers but the highly educated technocrat/managerial class. This reality suggests that trying to earn more income via wages/salaries is akin to pushing sand uphill: it is possible, but it’s running up against powerful secular trends.

The alternative strategy is to seek assets and income streams that might increase purchasing more than wages/salaries.

The data speak volumes about the difference between wealthy households and middle-class households: the middle-class households’ primary asset is the family home, while the wealthy households’ primary asset is business equity: ownership of an enterprise or shares in enterprises.

Developing a profitable enterprise is easier said than done (it helps to inherit a family business), and there is no guarantee a business that’s successful today will still be successful next year.

Nonetheless, it’s striking that the middle class is heavily indebted, house-rich and business-equity poor, while the top 1% has little debt and is business equity-rich and relatively house-poor.

This is not to say it’s a poor investment to own a home, but it does suggest that you can beat the erosion of inflation by…

If you have not yet read Part 1: The Great Oil Swindle, available free to all readers, please click here to read it first.

The "America Will Soon Be A Net Exporter Of Oil" Big Fat Lie

This brings us to the part where the oil myth has gone entirely off the rails.  Using the fraudulent oil recovery (EUR) estimates in play, the International Energy Agency (IEA) has built that into an outlook that might not only be wrong, but decisively and destructively wrong.

The IEA came out with a bombshell report recently that dramatically claims the US will not only become a net oil exporter in 2025 and remain as such for decades afterward, but that it will be able to increase its production by another incremental 8 million barrels per day above current levels:

US will become a net oil exporter within 10 years, says IEA

Nov 13, 2017

The shale revolution in north America means the US is destined to become a net oil exporter within 10 years, for the first time since the 1950s.

The International Energy Agency said it expected that American oil production between 2010 and 2025 would grow at a rate unparalleled by any country in history, with far-reaching consequences for the US and the world.

The last time the US exported more oil than it imported was 1953, and a ban on oil exports was lifted only in 2015.

Technological developments in drilling and fracking since the turn of this century have unlocked huge reserves of gas and oil trapped in shale rock, and redrawn the energy landscape.

 

(Source)

Well, I can assure you that if the IEA is using EUR’s that are off by 100%, then its projections are not only laughably wrong, but extremely dangerous.

Based on this sort of deeply-flawed analysis, anybody making plans off of this, which might include politicians, regulators, companies, or individuals deciding on whether or not to buy that F350 truck with a 15+ year lifespan, is relying on some very bad information.

And more than that, it's critical for us to understand how oil is about to violently…