America’s Alice-in-Wonderland Economy

Debt is good, dollar is gold, and stocks only go up—things are getting curiouser and curiouser.

The phrase “mad as a hatter” refers to the 19th-century use of mercuric-nitrate in the making of felt hats. Long-term exposure to mercury caused hatmakers to experience mood swings, tremors and emotional imbalances that made them appear mad.

We live in a world gone mad. Money printing—today’s mercury—has poisoned the whole financial system.

Trusted relationships have broken down. Fundamental truths appear suspect, and economic laws no longer seem to hold true. In America especially, it’s as if the whole economic system fell down a rabbit hole into a world where up is down, debt is good, and people exuberantly celebrate unbirthday parties every day of the year but one.

“The world of today is not the same world it was 50 years ago,” writes Agora Financial’s Bill Bonner. “We have a new kind of money. We have a new economy. And we have a different kind of government. All have been transformed over the last 40 years in ways that few people have noticed and fewer still have understood” (emphasis added throughout).

Consider debt. Most people’s grandparents viewed debt as immoral. Most people’s parents viewed debt as a tool to be used sparingly, in “emergencies,” or perhaps for a mortgage.

Today, most people can’t live without debt.

Today, total United States debt is nearly $60 trillion. According to the Federal Reserve, total debt soared by $658 billion during the fourth quarter of 2014 to a record high of $58.7 trillion. Federal government, agency, domestic and mortgage debt are all rising. Corporate debt jumped from $23.5 trillion in 2010 to $36.4 trillion as of 2014. That’s up an astounding 54 percent in less than five years!

Forty seven percent of Americans save zero dollars or go further into debt each year, according to Deutsche Bank analyst Torsten Sløk.

Credit is everywhere and inexpensive. Debt is now good?

We ate the magic mushroom.

You can trace this nonsense back to 1971, when the dollar became credit-based instead of gold-based. Bankers didn’t like gold-backed money because it is impossible to create more from nothing. In the new system, credit was theoretically unlimited. Dollars could be conjured out of thin air. According to Bonner, “As soon as the new money found its legs, it was off to the races. Credit raced ahead 50 times in about 50 years.”

America hosted a never-ending tea party. People substituted credit cards and bank loans for earnings and savings. They were able to buy more and more stuff they couldn’t afford.

In 2008, when the financial crisis struck, commentators thought consumers had finally eaten one too many cupcakes. It was obvious they couldn’t pay for all their giant houses and gas-guzzling pick-up trucks. The housing market collapsed. Wall Street banks went insolvent. General Motors and Chrysler had to be bailed out.

But then something extraordinary happened.

Central banks did something they promised they would never do—because it would potentially be so destructive to confidence in their currencies that the whole system might implode. They said they would create “unlimited” amounts of money by fiat to bail out the financial system.

As Alice said: “If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrariwise, what it is, it wouldn’t be, and what it wouldn’t be, it would. You see?”

You see?

The clearest thing I see is Alice got her wish. We increasingly live in a world void of logic.

The economy may look well dressed, and the headlines may say so, but underneath the coat and top hat is a mercury-poisoned mad hatter dancing a gleeful futterwacken that can only end one way.

With a masterful flop.

Full article: America’s Alice-in-Wonderland Economy (The Trumpet)

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