The Stock Market's Shaky Foundation

According to the stock markets in the US and in Europe, the world’s economy is not just in good shape, but is in the best shape it’s ever been

The S&P 500 hit an intraday new record high of 1,858.71 on Feb 24, 2014, and is now 18.6% above the peak it hit in 2007, a moment everybody now recognizes was heavily overvalued.

An almost 19% gain above the prior all time high is an enormous and unusual event. Surely, you are thinking, there must be an equally compelling story and loads of fundamental data to support such a bull market?

Well, there really isn’t. 

Not a lot has changed between the prior 2007 peak and today. From a fundamental standpoint, not much at all. Per capita income is only up 8.1% between now and then, and yet the equity markets are rallying like the biggest income boom in all of history has occurred. 

Worse, the per capita income data is obscuring the fact that what little income gains have been recorded went almost entirely to the top ten percent of the population. So there’s no broad prospering middle class to drive an economic expansion of the sort that stocks seem to be pricing in.

Of course, the main narrative right now has nothing to do with anything fundamental. Rather, it centers on the idea that as long as the central banks of the west and Japan continue to print, everything financial will just continue to go up in price while -- somehow -- price inflation will remain tame.

Our view here at Peak Prosperity is that this narrative is wrong in every respect; except, perhaps, for those using a highly compressed speculation timeline that ignores both fundamentals and history.

In the immediate term, stock prices gyrate based on various assumptions that are often completely disconnected from reality.

But over the medium and longer terms, fundamentals drive prices; as it is ultimately corporate income and ultimately dividends that determine the value we ascribe to equities, and it's the prospect of future earnings growth that drive the price multiple.

We’ll show in a moment just how far equity prices have diverged from the fundamentals.

But First, The Big Picture

Over the long haul, which we think needs to be kept front and center at all times, equities are nothing more than a means of sharing the wealth that companies create, which itself is a product of the extraction and processing of real things from the real world. 

Everything we think we know about the ‘fair value’ of equities was developed over a period of time when the future could always be counted upon to expand exponentially. 

You know, sayings like "Over the long haul equities return 10%".

Such a statement can only be true in an exponentially-expanding world where exponentially more things are being extracted from the real world as time goes on.  In a world where there is only so much 'stuff,' it's not possible for said 'stuff' to always be present in expansive and expanding quantities.

[Wonk note:  Equities could also advance via productivity gains, assuming more utility was derived from the same amount of resources. Perhaps we might assume a world where productivity climbs by 10% per annum to deliver our desired equity gains – but that’s never happened, and certainly will never happen for very long because it implies a 100% improvement every 7 years.]

A huge enabler of the economic expansion of the past century has been oil. Without a doubt, petroleum is the master resource for a global economy. And it is no longer cheap.  The reason why it is no longer cheap, and never will be again, is a larger story than we have time for here, but recent data should suffice to show that global oil has averaged more than $100 per barrel for more than three years. That's 4x higher than the 1987-2004 average of $23 per barrel:


To me, the anemic economic growth in the OECD countries, with their horrible job creation statistics and generally tepid recoveries (at best), is the very predictable result of what you get when oil becomes expensive.

If you hold the view, as we do at, that the future economy cannot possibly grow at the same rates as it did in the past (and that likely someday all growth will cease), then equities are in for a serious correction at some point.

Perhaps that day is still far in the future. But there must always be an eventual reckoning between the number of claims on the world's wealth world and the actual wealth itself.

Further increasing the risk for equities is the fact that, as claims on wealth, they are the least senior of the lot.  The holders of bonds and preferred shares come first.  So when we wander over to that other, and much larger, corner of the financial universe where debt resides and note that all forms of debt, but especially corporate debt, have continued to grow exponentially both before and after the great 2008 credit crisis, we see that equities are whistling past this part of the story too.

Of course, a huge proportion of all the new corporate debt taken on since that little hiccup in 2009 has been used to buy back shares and thereby goose (through accounting, not by value creation) the earnings per share numbers so widely reported by the financial press. 

Eventually, though, all that corporate debt will have to be paid back, and that activity will drain future cash flows and earnings. Again, steadily rising – nay, exponentially rising – levels of corporate debt are a massive collective bet that the future will be exponentially larger than the present.

The only narrative I can imagine that can accommodate a long-term decline of per capita resources coupled to steadily worsening net energy from petroleum, AND simultaneously support the continued exponential expansion of claims against those resources, is one that steadily transfers this wealth into fewer and fewer hands.

After all, if relatively few people end up owning most of the remaining wealth, does it really matter to them that there’s less of it to go around on a per person basis?  No, not if they have plenty for themselves.

As the recent travails in Ukraine have showed us, there’s only so far that such a deranged, kleptocratic view can go before it breaks down.

Alternatively, and far more likely, there’s no actual rational narrative of any sort in play right now -- and so the center mass of the investing world is simply operating off of untested and unexamined beliefs that mainly rest on the notion that a prompt and perpetual return to exponential growth is what the future holds.

Again, we see this as dangerously myopic. But sadly, this view is not only rampant on Wall Street, but it's also prevalent with our government as well as endowments, pensions, and insurance pools -- entities with long-term fiduciary responsibilities that really aught to be asking themselves some hard questions these days.


In summary, over the long haul -- by which we mean the next ten to twenty years -- current equity prices are making a colossal bet that exponential economic growth (which itself is linked to cheap oil) is going to quickly resume and persist long into the future. Are you comfortable making that bet? I'm not.

Of course there are a lot of variables in this story; but one could do worse than to simplify one's economic prediction down to this: Until and unless the global supply of oil gets a heck of a lot cheaper, anemic economic growth will persist and therefore the holders of expensive financial assets that are priced for perfection will be badly disappointed.

Spoiler alert:  There are no new sources of cheap oil. We've already tapped the easy stuff.

So, there's lots to be concerned about for those holding stocks for the long term. But what about the short term?

In Part 2: The Time To Short The Market Is Approaching, we explain why 2014 is beginning to look an awful lot like 2008; only worse. The ability of stock prices to deviate further from the fundamentals appears to be topping, and a heck of a mean-reversion looks in the cards. 

Click here to access Part II of this report (free executive summary; enrollment required for full access).

This is a companion discussion topic for the original entry at

“Dear future generations: Please accept our apologies. We were rolling drunk on petroleum.”

― Kurt Vonnegut

"And it is no longer cheap.  The reason why it is no longer cheap, and never will be again, is a larger story than we have time for here, but recent data should suffice to show that global oil has averaged more than $100 per barrel for more than three years. That's 4x higher than the 1987-2004 average of $23 per barrel"
I would say that oil is expensive in terms of peoples (and nations) affordability, but extremely cheap in energy terms and usefulness to society. I think it was Nate Hagens who wrote that 1 barrel of oil is equal to 5.7 million BTU's which translates to 1700 kwh of potential work. It takes 11 years for a human to work (digging ditches etc) to generate the labor of one barrel of oil (assuming an average of .6 kwh per work day and 260 working days). I costs us today $100 to substitute $500.000 worth of labor! What a trade! 

Also, to me it looks like (for now) governments (through the central banking system) in most OECD countries are subsidizing peoples lack of oil/energy affordability and industrys rising energy extraction costs (EROEI) through low interest rates and credit creation (who knows how long that can continue…). We have an overshot financial situation, but in energy terms we still have a heck of a lot of energy and it is cheap!      


That's a good statistic to remember.  There's just one correction, though.  I believe your figure for oil does not account for the efficiency of the engine/turbine while your value for humans already accounts for the efficiency of people in turning food into work.  Let's apply an efficiency of 20 to 40% for most engines.  Even then, it's still 2-4 years of human labor per barrel.  At that rate, our labor is worth $25-50 per year!

I don't understand this (the bolded bit):

[quote] Until and unless the global supply of oil gets a heck of a lot cheaper, economic growth will persist and therefore the holders of expensive financial assets that are priced for perfection will be badly disappointed. [/quote]


Is "persist" the right word here? Am I missing something?

Good catch, Yoxa. It should read "anemic growth" (we've added the missing adjective back in).

But…but…but Janet Yellen is saying that this most recent downturn is due to weather! Thank God! I thought that maybe there was some underlying structural problems, but it was just the cold and snow.

Even though that only affected half the country.


And even though it was still the fourth warmest January on record, globally speaking.


drinks more cool-aid But hey, if Yellen is yellin' it, it must be true!



Is it possible that the U.S. market can also continue to rise, similar to how others have risen during hyper-inflationary, money-printing times? At least for quite a while longer?
Here is what I mean: Zimbabwe's Industrial Index during the hyperinflationary period of the last decade:

German stock exchange during Weimar Period:



First of all, anyone expecting hyperinflation out of a debt bubble pop is likely to be disappointed, unless and until the Fed starts tripling the amount of money they print, and then handing that money to the government which (presumably) spends it into the economy.  Neither Zimbabwe nor Germany (nor Argentina) had the world reserve currency, so they couldn't borrow - they had to print.  We can still borrow so, no hyperinflation.
Now why is the market rallying?  Profits.  The various cartels are quite profitable - low cost debt, low wage pressure, overseas production, limited competition via regulation make for a very nice environment.  Add in the widespread skimming and regulatory capture from the financial industry and its a pretty happy picture.  As long as that environment persists, most likely the market will continue to move higher.

While the vast majority of the US people aren't doing so well, the top 10% are actually fine - and the top 10% are responsible for 50% of consumer spending, and they own 81% of the equities.  So the thinking goes, encourage the stock market to go up, and that 50% of consumer spending is locked in, and even growing.  Support the rest with various levels of social spending via deficit financing + money printing, and there's your recipe for success.

Likely, "new home purchases" are by those same top 10%.

Will this continue forever?  From a historical standoint, I think it is likely that the corporate profits won't stay at their all-time-high % of GDP forever.  Likely they will mean-revert.  When that happens, the pins will get knocked from under the market, and down we'll go.

As to when to jump in short - keep an eye out for that magical "lower high".  So far, that hasn't happened.  I thought it might happen this last time, but the rally back was too strong.  I went short, but bailed out - stops keep you from losing too much when you are wrong.  We still might double-top, but I'm going to wait for that lower high.

To short:

  1. Option #1: the ETF "SH" - a non-leveraged reverse bet on the S&P 500.  It has some unfortunate counterparty risk (all the TBTF banks are taking the other side of the trade via "swaps" - so if one of those banks fails, that portion of your bet will be defaulted on) but short of a bank meltdown, SH should be great in either an IRA or a regular taxable account.

So SH is both a bet against the equity market, and a bet FOR the TBTF banks.  Its important to know who is on the hook to pay off your bets.

  1. Option #2: go short the "SPY" ETF.  It is holding actual stocks, so you aren't exposed to the TBTFs.  But you can't short in an IRA, if you are so inclined, and you also have to have your trading account set up for short sales.   And you have to pay the dividend.

  1. Option #3: sell short one or more ES contract (e-mini futures) which exposes you to $50 per 1 point of SPX change.  Market drops 40 SPX points = $2000 profit.  but…those are too exciting for most people: just one contract gives you a $92,500 exposure to the S&P 500.  One virtue of them is, they're traded 24 hours a day.

  2. Option #4: buy puts.  They're insurance - however they decay in value over time, plus their price varies based on how volatile the market is perceived to be.  They can result in a big payoff for a small investment, but most of the time they expire worthless, so you end up losing 100% if you don't bail out quickly when you're wrong.  So unless you understand options, and/or you are dead certain you are right - and you'll be right within a specific timeframe - it is probably best to avoid them.

And remember stops.  Bail out if you're wrong.  There's no shame in being wrong and bailing out - but there IS shame in grimly hanging on watching your losses grow in spite of market signals to the contrary!


Hyperinflation? Nope. All the major economies have printed so much and nothing, not a tick of Inflation. Do we need more proof than that? For 5 years! We will get a Deflationary event that may rival any before in history. From demographics to mountains of Debt layered on a Mountain of Debt will cause a cascade event that will destroy all in its wake. My quick 2 cents worth. Dollar rises, Gold (?)…


Hyperinflation? Nope. All the major economies have printed so much and nothing, not a tick of Inflation. Do we need more proof than that? For 5 years! We will get a Deflationary event that may rival any before in history. From demographics to mountains of Debt layered on a Mountain of Debt will cause a cascade event that will destroy all in its wake. My quick 2 cents worth. Dollar rises, Gold (?)…
Not a tick of inflation?  Do you shop or go to restaurants or live in a condo?  Serving size smaller and/or price rise.   Quality less.  Certainly in a big crash the speculative assets will nose dive.  Debt obligations (e.g. margin debt) will be defaulted on but the FED will surely jump back in with uber QE.  So I think we can expect initial asset deflation with secondary effects on the economy but then as the future obligations come due the fire hose of money goes into the economy and that will be the massive inflation.   So replace German war obligations with baby boomer retirement obligations and do the math.

well, of course, pretty obvious that isn't going down, maybe. People must eat. How much is what may drive down the cost. Remember, cash is tight so food intake is lessoned and that means demand drops, and that usually means lower prices. Inactivity means less calories and less need for food. Corn to fuel would most likely end, leaving corn to feed livestock cheaper, people, cheaper, other food stuff that relies on corn, cheaper. Supply and demand is a fundamental for all things. Everything is fair game. I just don't see where we disagree, except, QE has never worked and 4 Trillion or so later and zip, nothing, a little food inflation and if you cut coupons and shop for sales you can work that out too. Especially if you have a productive summer garden and buy in bulk. Besides, we have a great opportunity to stock up for nearly a year and that is a major benefit. Get prepared is a priceless activity. 
Their tapering because QE hasn't done a thing. Additionally, the Fed will not be able to get on a knee again and beg like the last time, and precious time to save what the Fed has accomplished just may be lost as congress dilly dallies. They will you know.
Now, hand me my last 5 years income tax in a jubilee then we can talk a bit about inflation. This is just a for instance and not something I actually believe will happen.
Personally, I have every reason to believe that 10,000 Baby Boomers a day is going to have its day. China will have its day, Europe and Japan too, and simultaneously. That looks and smells like a mess to me. Way, way worse than 2008 are my thoughts.
From the greatest spending generation ever on the planet to spending very little during retirement will have its impact. I would invest in food and adult baby diapers after the bottom has settled out somewhere below that 666 figure. I'm not kidding either. All drugs and health care will see a boom after the dust settles. Oh, for sure!  78 million drooling people and all that sugar will cause aches and pains, plus the drugs of the 60's will play havoc on the brain. Oh yes, invest in pharmaceuticals.
Who really knows, right? I know that you, myself and no one here have the date and time written down but we do know this correction is near. Massive Deflation is next and it could be a woozy, I know that much.
Not only the Retail investors are a little skittish as talked about in todays podcast but every investor of the last 14 years will hit the exits sure as sh… "watch your mouth". I cannot believe the dash hasn't happened especially since the upside is so minimal and extremely risky.
How long ago was China's policy on one baby per family implemented? 40-50 years ago? Bad planning.
Kug, I eat at home, mortgage is paid off, and yes, I do the grocery shopping. I am aware and appreciate what you said, I am just a little bit more concerned with this coming storm first, and not the sunny skies after.
The part that truly bothers me is when this thing hits, the blame game will begin, and it just may be the Fed who gets slapped. Congress has an approval rating of 10% or less, and they will need to get their house in order or the Elite won't have anyone to do their bidding for them. It may be that congress will have to even throw the rich/elite under the bus to actually save the rich/elite. These will be interesting times and Shelby, Corker and the bunch won't be bamboozled this time or should I say they will be more measured to benefit the politicians and gain the support they need for their own wealths sake. They must survive for their own greedy legacy sake, and to insure that the rich/elite still are protected as well. Besides, if the rich lost half their cash to forced give backs they could still pick everything up on the cheap. Win, win.

Otherwise, run!
Chris, a very careful and well-argued thesis for the potential for a market correction.

Dave, Colleen, Kugs, all, very good discussion.  I thought I'd throw my hat into the ring.

Chris lays out the case very well for correction (to me = deflation).  Colleen agrees, sees no inflation.  Dave seems to sort of agree, expecting fundamentals to catch up,  Eventually.

Allow me to take the other side of the trade.  

First and foremost- psychology, pride and pathology.  These people, Obama, Geithner, Lew, Yellen, like all statists and central-planners, think they are the smartest people in the room.  They are hard-core Keynesians, worshipping with the high priest Krugman.  They really believe they can eliminate the business cycle.  They really believe if they gather enough data, with supercomputers, with big data and 8 core microprocessors and n-dimensional models, they can run the economy like a thermostat.  Please understand that.  They really believe that.  I believe they are pathological.  

They think they are 'progressive' geniuses, but they are garden-variety tyrants.  Low on intelligence, high on hubris and sociopathy.

Rickards thinks they are dialing in a nuclear reactor, not a household thermostat, and that's a good analogy.  Throw in the fact that these are mere mortals, some with low intelligence and low intellectual curiosity (Obama, Biden), and we're ready to bake the melt-down cake.

Because of the pride and socio-pathy, they will stop at nothing.  Please understand that.  Proven over and over in history.  Hilter and the invasion of Russia.  Mao and the glorious Great Leap Forward.  King George and the Revolutionary War.  Most of the Roman caesars.

Chris, that's one thing you must keep in mind.  You've said it over and over 'if you told me 5 years ago we would be printing a trillion dollars a year and get no inflation, I wouldn't have believed you"

Chris, I think your fundamental analysis is spot-on correct and so well reasoned, but I don't think you really understand the pathology here.  Maybe you do and you don't want to.

I agree with you, the fundamentals are wrong and deteriorating, but that has been happening for 25 years.  Just accelerating now.  

Why can't companies keep up the charade of cheap loans, and some profits (see Dave's analysis), to buy back shares to infinity?  I know it's absurd, but P&G could buy back all but 10 shares and dwindle down to 1 dollar of profit and voila, we maintain a P/E of 10.  Great valuation, eh?

Personally, I think what's coming next is a bailout of the consumer.  It's an evil plot, but it could be tried.  What I mean is that the government could install big tax cuts (Republicans happy, no?), which would almost certainly stimulate consumer spending.  Now the federal deficit will explode (even more than it's doing now), and the bond market runs the risk of running away.  But the Fed has shown the resolve to buy up to 100% of the bond market, so problem solved.

Other variations- Fed buys back 1 trillion of student loans and refinances them at 1% interest (v. 8-9%).  Perhaps not as stimulative as the above across the board tax cut, but pretty good, now that Biff and Tiffany are now out buying new Mustangs and Abercrombie T shirts.  We all know this is madness and immoral, but it will support the stock market, the economy for a while.

I also think the Fed has the resolve, and level of immorality, to buy every market, from copper to stocks, from USTs to Bunds, to JGBs, to MBS.  It's only money and it's effortless to print to get magical aggregate demand.

What's the point of war-gaming these scenarios?  It's just to be very careful with the thesis that "corporate balance sheets are deteriorating, so get ready to short".  I gotta be honest, I don't know what happens next.  Chris, again you make good sense.  But I think I make good sense too.  In that environment, I want out.  If I play, I have to be like Trader Davefairtex, with my finger on the sell button 24 hours a day, and I simply can't live that way.

So like the movie war games, 'the only way to win is not to play'.  Which you may not completely dismiss, Chris.  Buy things I understand without counterparty risk.  Gold, Silver, food, tools to make energy and grow food.  Land (maybe the glorious government won't take it away).

I do think this will all end with a dollar collapse.  Either hyperinflationary, deflationary, whatever.  I'm anxious to read Rickards new book, "The Death of Money", to get his highly informed take on what the endgame will look like.

The world will get tired of the dollar sooner rather than later, and likely replace it with a global reserve currency of gold-backed SDRs,  This is kind of a variation on Rickard's fiat SDRs- but there is good case to be made that the Chinese (and perhaps Russians and other ex-US countries) will like it because 1) they have gold, so they will have wealth and power (God only knows how much gold US actually have, but no doubt JPM will emerge after the reset with a 'surprise' horde), 2) they manufacture things, so they can continue their strong position, and 3) they don't want the downside and burden of shouldering a world reserve currency.

What are you going to do about it US?  Start a war?  China and Russia can certainly take care of themselves, and this would not go well.  I am very worried that the sociopaths in power, will suddenly find themselves very impotent, with an angry population on their hands.  These mental defectives and character midgets have the corruption to tell provable lies to our face day after day, aided by the utterly corrupt main stream media, under what I would characterize as mild to moderate stress.  Let that sink in before you have faith that this will end well.  They will have no problem starting a war.  Because the ends justify the means.  Except, as Chris and recent guests have chronicled, we are in a new era of alternative information, and great mistrust in our leadership.  Well-deserved mistrust, I might add.

So this could end up with a President saying "charge!" and nobody following him.  See Syria. I think this endgame will most likely turn into a domestic mess (highly technical word).  With domestic disruptions, government chaos, red state, blue state constitutional crises.  Boys and girls, we are going to do a lot of improvising in the next few years.

When the world repudiates the dollar, the stock market could still go higher nominally, due to high/ hyper inflation, as will the nominal price of everything else, but as we all know, that's in reality a default and it will be a very, very painful one at that.  Think Great Depression with 2000's civility and values. I have this nagging feeling we will look very much like Argentina.  If we are lucky.  Hopefully, I'm wrong.  I would really like to be.


 one question though: When everything starts to fall apart where will wealth go? All over the world it goes to the core, right? On this planet where is the largest core with the ability to secure your funds? It goes where you are comfortable, familiar, right? So, does the dollar really go to zero or does it keep everything together until some other system is put in place without literally throwing gasoline on a ragging inferno. 
Good night H, and incidentally, your thoughts are as good as anyone else. That was covered in todays podcast too. So many differing and diverse opinions bordering on paranoia and reality, must be the top, don't you think? I bet the HFT gets out the door first and is why I am shocked anyone would risk this market. We are not that smart. This is to those as befuddled as I: "This is your brain, this is your brain on drugs, don't do drugs". Stress kills, so be happy.

Thanks, Poet, Dave, Colleen, Kugs, and Hrunner, for the discussion on inflation and deflation.  Here is a link to some questions I have had about that topic in the Q&A thread.  As this is the biggest fiat money experiment in history, there may be a lot of unexpected results.  
I think we're eventually looking at inflation in US dollar terms, as the US tries to solve structural problems with liquidity, and resources continue to be depleted.  The dollar as a reserve currency is already starting to erode as well.  But, more importantly, unless we re-develop a manufacturing base or some other large export sector, then it's just a matter of time until the dollar loses its reserve currency status because declining economic powers always lose reserve currency status.  However, the timing on that is way above my pay grade.
One thing the US has on its side, that might be a negative feedback in terms of USD inflation, is our capacity to export food.  As food prices rise, food exports may increase demand for dollars.  (On the other hand, costs of agricultural inputs and transportation will also rise…)
Gail the Actuary seems to expect more deflation so I'm interested in learning more about this question.

Aloha! I am convinced when the House of Hubris collapses that it will be like Saddam's Palace in that nobody can even come close to fathom what market reality in terms of value is when there are so many unknowns. By unknowns I mean everything from hypothecated liabilities to hedge fund shadow bank fraud to derivative toxins. I believe, try as we do, that the central banking cartels are only letting us see the tips of the icebergs. Just go back to 2008, and it was not that long ago and recall that the entire banking system nearly collapsed when we had these venerable 100 year old investment banks like Lehman Bros and Bear Stearns collapse within days out of the blue. We even watched Mad Money expert Kramer place a very pricey public bet on Bear Stearns share price to rise on a Friday and by Monday his bet was a worthless $2 a share. Next thing we know this Goldman Sachs alumni is apologizing to America on Oprah!
The question we must ask ourselves is "what has changed since 2008"? Has bank leverage and high risk diminished? Are derivatives contained or have they been rehypothecated into death spirals waiting to happen? Since 2008 we have watched every major global bank defraud LIBOR, SIBOR, HIBOR and MIBOR in exchange for day old sushi! Let me remind you what was at stake there …

Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to Libor. At least $350 trillion in derivatives and other financial products are tied to the Libor. -

Then we have a huge assortment of major mutli-billion dollar disasters like the London Whale and robo this-n-that where major global banks are expending hundreds of billions in legal fees and fines is insane. We read these scandals every day and then assign them to a box in our brain labeled "ho-hum"! We have been anesthetized to trillions in scandals and trillions in spending and trillions in QE and trillions in debt and quadrillions in derivatives. Its Alice in Algorithmland!

So what was oil at when Lehman Bros collapsed and took the entire financial system with it? Lehman Bros filed Chapter 11 on Sept 15, 2008 and crude oil was at $87. While I understand that high crude oil prices have a repressive effect on the overall economy I see that the collapse of Lehman Bros and all the other dominos that were triggered have had a far greater effect on the economy and our government. In fact an effect that we have yet to recover from on an economic basis.

What monopoly has ever been ethical and honest and totally transparent? Right now we have two gigantic all-powerful monopolies that control America. One is the two party political monopoly and the other is the US Fed, unregulated, unaudited and all powerful above Congress. What favorable outcome do you expect for the Middle Class under those circumstances?

Now even Keynes during Bretton Woods said that a USD reserve currency was a huge mistake and he even lobbied for a basket of currencies as a reserve currency,but he lost out. The US Military was Supreme and the world owed us plenty for the Marshal Plan. Keynes was no match for Eisenhower and McArthur! In that photo of the Japanese surrender on the Missouri deck I saw no economists, certainly not a British one! Going even further back Karl Marx feared the worst possible form of capitalism. He feared a bank dominated capitalist system … like what we have now. While I never really supported all Keynes teachings or liked Marx or Communism it seems each of them had valid ideas, but valid economic and monetary ideas, like great trading strategies, are useless without one important component on your side. T-I-M-I-N-G!!!

My ultimate fear is that one day not even profits will have value …



You are all wrong.
What we are witnessing is the demise of the very concept of money. My definition of money is that it is a labour debt that society has to the holder of the note. I work for society today, as say a nurse, and society owes me all the labour that went into making up a tank-full of gas.

Let us make this clear- gold is free. Oil is free. Expenses start when you mine it.

So what happens when products have less and less labour content? (Labour -> 0). The death of money.

Confused? Of cause you are. Why would you not be? Labour has always been a big component of goods and services. But we are not talking about the past.

I was discussing this very topic with Young Blood this morning. I said that the Port could be automated. He said I was wrong because few ports were automated. His error (which I did not have the energy to debate) was to fail to complete his sentence. "Few Ports are automated Now".)

The poor dear has a very small horizon. Which brings me to my final point- don't expect a resolution for at least 40 years. These things take time to work themselves out.

Did I mention the Limits to Growth Report? That thing makes a mockery of everything I have said. It is my Nemesis.

 Automated or robotics imply strongly a Deflationary future (my thesis). My gosh yes, and with every year you subtract more and more labor and add it to the list of all the not counted laborers. This is not inflationary are my thoughts. The "status quo" is on the long (?) descent.
Without any doubts if you impede labor from spending cash (no jobs) into the economy is a failed policy. Yet, production or rather productivity is still based in greed so automations growth will be rapid and most certainly Deflationary. An aside, automation will have the effect of removing cars from the road as no jobs means even less demand for fuels or transportation.
I so agree that demand for money will wane into a future more automated.
I am also looking at  debt here, and world wide, debt needs to be paid and growth must happen, and neither will happen. So by default (literally) the destruction of digits and bits will occur and lots of digits and bits. Further, there really is not that much paper in the system is there? Nope.
I still feel that we are creatures of habit and do not do well with change. So the dollar will rise and the dollar as world currency will be a long time coming before being replaced. When we do lose the reserve currency status it will be as orderly as possible. Just my thoughts, don't know for sure.
OT: I stated earlier that corn would probably be eliminated as fuel because its use as food will be crucial going forward. Not to mention that there is a price where it is not profitable to process corn for fuel.


 I want to do the math but I have no clue what will be negotiated out of entitlements. The world is going to change here and tough choices will be made so any data I try now will just be futile in helping me/us draw conclusions.
Thank you everyone, this has been very stimulating and so needed as talking to myself is tough sometimes.

After every currency crash in history it didn't take long for the economic forces to start on the currency path once again: precious metals banked then paper written on those assets and traded.  Then rehypothecated (i.e. fractional reserve banking), then fiat paper enforced by the gun.  Humans will never have a stable money because the psychopaths always rise to the top and institute policies that favor them (think politicians).