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June 16, 2021 | America’s Middle Class Will Pay the Price

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

YOUGHAL, IRELAND – We’re in a rush this morning. No time to write a short message. We’ll have to send you a long one.

First, here’s Business Insider with a news update:

Michael Burry said markets were in a bubble of unprecedented scale.

The “Big Short” investor tweeted his dire warning after a 10-week break from Twitter.

Burry has flagged reckless speculation on Tesla stock, bitcoin, and other assets.

“People always ask me what is going on in the markets,” the investor tweeted. “It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360.”

Meanwhile, a dear reader in Canada, Luke K., sees inflation in action:

Hi Bill, inflation is definitely here. And it came with a massive bang. Our pool heater went on the fritz the other day. We called to have a heater technician come by for an inspection from our local pool company. $349 Canadian for one hour of his time. To clean the heater and get it going. Parts extra.

Instead, we called a private individual. Showed me the part that needed replacing. A small circuit board that might cost $10 to build. Local shops, and online ones, were selling the card for $600 CAD. After the tech left (which cost me $100 for his visit), I removed the card from the heater and found a spider had touched two live leads on the other side and virtually exploded all over the circuit board.

Cleaned the card with a toothbrush and reinserted. Heater was working again. Best $100 I ever spent.

As for new heaters? $2500 (used to be $1000-$1500) and not a SINGLE ONE in the entire city. Backordered until July. Welcome to the beginnings of hyperinflation!

That’s a shocker! We didn’t even know they had swimming pools in Canada.

No Choice

Another dear reader, Patricia M., wonders what to do:

I’m a very new investor in the stock market. I’m astounded at what I’ve learned in just nine months on the scene, which is that there’s no rhyme or reason to investing in stocks.

I know I’m failing to protect myself and my family, but there doesn’t seem to be much I can do to turn the tables without having an awful lot of money! I can see something really huge coming down the pike. I think I understand most of it; I’ve been reading like there’s no tomorrow, just trying to learn how to play. But every time I turn around, up pops another story to complicate, obfuscate, misdirect, and so on.

So, my big question is: How does an average Joe get a leg up on this situation?

Between Wall Street, governments, the International Monetary Fund (IMF), the 1%ers, and whoever else is “IN” the game, I don’t believe life will ever again make sense. I used to be an optimist, but how can one remain optimistic in a world that one just can’t relate?

I just can’t see a positive outcome for the masses.

You’re right. There’s not going to be any positive outcome for the masses. The game is rigged against them.

The feds (representing the entire elite of the U.S.) cannot expect to get much more from them in taxes. And their savings are not enough to cover the deficits.

Now, as we told you yesterday, its Inflate AND Die… meaning, the feds have no choice. They have to print money.

And this means the masses will pay – via consumer price inflation.

Dangerous Time

But let’s try to be helpful. What should a normal person do to protect himself and increase his wealth?

The quick answer: The normal person, in a normal time, should do the normal thing.

But this is no normal time. It’s a freaky… weird… and head-scratching time. And a very dangerous time.

But we still have to start with the basics.

The trouble with the average Joe is that he has only his time to sell. And the trouble with his time is that even in normal times, it may not be worth very much. It depends on what he does with it.

The average wage is about $25 an hour. So, if he works 40 hours, he makes $1,000 per week. If he does that for a full year, after taxes, he ends up with about $40,000. That’s not going to take him very far…

If he is a skilled professional, on the other hand – an accountant, dentist, surgeon, lawyer, engineer, or architect – he should do better. He might net out (after fixed office costs, insurance, and fees) $100 an hour. This would give him $200,000 a year… which might then be reduced to, say, $150,000 after taxes.

The trouble with time is that it is not scalable. Each hour clicks by exactly like the hour before it. And the hourly worker – no matter how skilled – cannot make more of it.

So, selling his time, the average Joe cannot increase his earnings easily.

He has to take some of his earnings and put them into something that is scalable…

Too Little, Too Late

Investing, for example.

He might, for example, buy a rundown house… fix it up on weekends… and rent it out. The house might go up in price, while he is collecting a decent rent. Then, he might be able to borrow against the equity in order to buy another house.

That is classic scaling. It works as long as he doesn’t get stuck with too much debt… and empty houses.

This approach also has the advantage of offering some protection against inflation. Typically, people try to escape inflation by buying real estate – something solid that won’t lose value. This pushes up property prices.

Plus, the landlord can raise rents to try to keep up with his rising costs.

But the poor renter is squeezed. He struggles to keep his wages in line with price increases. But he falls behind… the salary adjustments don’t come fast enough. They’re too little and too late.

Inflation makes time less valuable! Not only because the average wage-earner can’t keep up… but also because it destroys capital – which is what gives value to time.

Unhealthy Economy

In a healthy economy, people save… and invest their money to try to earn more money. They start businesses and hire workers. Wages go up.

But in an inflationary economy, nobody wants to save. Capital gets frittered away on meme stocks… NFTs… dogecoin… overpriced zombie companies… gambling… super yachts… and government boondoggles.

An air of Sha… na… na… Live for today takes hold.

And then it turns grim… and the masses are robbed.

We’ll be back tomorrow with more helpful comments!




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June 16th, 2021

Posted In: Bill Bonner's Diary

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