Tuesday, August 16, 2022

Next Major Economic Crisis Will Redefine Real Wealth

The Shell Game Of Wealth Transfer
Today some market watchers claim that the stock market is being held at lofty levels while the smart money is rushing to the exits. Today tens of trillions of dollars are sitting in offshore banking accounts in places such as the Cayman Islands. Today governments and businesses are borrowing hundreds of billions of dollars each year by issuing bonds some of that will not be returned to investors for decades. Today homes, apartments, and buildings are being built, some poorly constructed, with loans guaranteed more or less by the American people. Today America's national debt stands at almost 31 trillion dollars and is rising. Today currencies such as the euro and yen that are even more fundamentally flawed than the dollar are weakening. I could do this a bit longer but I suspect I've made the point.
All of the above should give investors a reason for concern. Still, an even bigger issue is how much wealth will escape the next large economic crisis. This is very important because it helps set the bar for the rate of inflation or deflation that will affect us in the coming years. Most economists agree we did not solve many of our financial problems after 2008 but merely masked them with a huge amount of newly printed money. The fact is, wealth and how things are valued are not constant but fungible and constantly changing, constantly moving, and come in many forms. 
Wealth is defined as the abundance of valuable resources or valuable material possessions. An individual, community, region, or country that possesses an abundance of such possessions or resources to the benefit of the common good is known as wealthy. Defining wealth is one thing but it is important to actually delve into its nature to truly understand just how elusive it can be. Imagine your life as the poorest person in a very rich and wealthy society versus how you might live as the richest person in the poorest and wretched place. When you do the former might be preferable.
Wealth can be held in the form of paper, promises, or as something more tangible and real such as property or goods. Some items such as a tool hold "utility value" and its value may be based on how much work it can perform or the revenue it can produce. Replacement cost, supply and demand, and factors such as whether something can spoil or might grow obsolete over time also help determine its value as a place wealth can be stored.

Children Say The Silliest Things
Pensions, annuities, and even investments in stocks and such all fall into the area of paper promises that are often recorded somewhere far from sight as a digital entry on a computer. These intangible stores of wealth based on faith have grown at a massive rate during the last several decades. Prior to that wealth tended to be stored in tangible items such as land, buildings, and things such as gold. Currencies, also known as fiat money, are also just IOUs or paper promises. The idea of a currency-free society in my mind tends to break the bonds that link us to wealth but that is for another post.

In the past, I have written several pieces about subjects such as writing off the rising amount of bad debt, how debt is like a mirage moving into the distance, and how bad debt is resolved. In short, the vessels where we store our wealth are often weak and fragile, however, the crux of this article centers around what will or might be left after stress pushes the global economy to the brink or into total collapse. Of course, a great deal will depend on how such an event unfolds. This means what kind or type of value and wealth is the first to vanish. I will be the first to admit the answer is unknown.

Be Skeptical, Be Cautious, Get Smart!
Much like a shell game, wealth is transferred in our modern society from one area to another. Wealth is always on the move. It zips across borders at the click of a button and just because you deposit it with a local institution does not mean it stays in your community. An example of this took place during the savings and loan crisis in the 1980s when huge beautiful buildings were constructed in certain areas from wealth transferred in from other parts of the country. Needless to say when the dust settled the big winners were the areas with the new buildings. The losers were those forced to pay for them when the loans used to build them went into default.
We must never forget the world is full of crooks, evil politicians, and judicial systems where true justice is a rare commodity. What is indeed important is what or how much wealth survives an economic crisis and in what form. When that wealth comes out of hibernation it will soak up all the tangible assets on the planet. This will be the determining factor of whether we face inflation, deflation, or some crazy mix of the two. 
The next major economic crisis will totally redefine real wealth providing it is what some people refer to as the "Forth Turning" which would totally reshape the economy for decades to come. Remember it is the nature of those in charge to throw the masses under the bus when things go sideways. This means the average person should expect little in the way of protection in any coming storm. The economic landscape we face following such an event will without a doubt be shaped and depend on what wealth survives and how much vanishes following a tsunami of defaults and /or monetization of debt where government debt disappears and inflation takes its place.
As a mental exercise, I am asking you to consider and question such a possibility. Taking a "follow the money" approach think about the many or multitudes of places your wealth might vanish into or how it could slip away. Sadly, this also blows a hole in the idea that you can safely tuck your money away in an offshore banking account. We must ask, where all the money deposited in the Caymans really is. Banks do not just sit on deposits and keep them safe. We need only look at the current economic chaos in China to see how elusive wealth can be. A word to the wise should be sufficient and cause any person prudent or interested in protecting their wealth to consider the many ways wealth can vanish and that it can without a doubt happen to you.
(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)

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