American Debt: Americans Are Getting Poorer as the World Gets Richer

Mergers and acquisitions are booming – up to $2 trillion worth of deals this year.

Stocks are soaring – especially in China, where widows and orphans line up to put their money into the hands of people they don’t know, who run businesses they don’t understand.

The rich are getting richer. And as fast as people get money, nature creates ways of redistributing it. Luxury markets – watches, cars, houses, antiques and art – are all soaring. Even in unlikely places.

“Oh, yes…you wouldn’t believe the amount of money in India today,” says a colleague from Bombay. “There are just a lot of people with a lot of money. If you want to buy space in the good part of town, it’s going to cost you $1,000 per square foot.”

But pity the poor people. At least in America, they are getting poorer…but don’t seem to realise it. Instead, they buy more stuff! On credit, of course.

And in America, the People’s Market – the Dow – continues to rise. Some analysts – namely Richard Russell – have come to believe that we are at the beginning of a new phase, the final phase, of the great bull market that began way back in 1982. The NASDAQ crashed in 2000-2002, he notes, but the Dow never went below the critical 50% level – leaving the bull market trend intact.

But America’s widows and orphans are still a little chary of the stock market. And if they’re not in, he reasons, and the major bull market trend is still in force, it means the final phase (in which small investors rush to get into stocks just in time to lose their money) is still ahead.

When Russell speaks, we listen. He knows more about the stock market than we do. He’s a quarter of a century older, so he’s seen more of it than we have. Besides, he takes it more seriously. And maybe he’s right about what lies ahead. Who knows? It is not given to man to know his fate.

So we make our bets and we take our chances.

And when we bet, we do not try to predict the future. We try to find the bet that gives us the best odds. And for that we need to know what other bettors are doing. Investors, bettors, speculators – they’re all humans. And humans are not solitary animals. They live in groups…and act in groups. They look to each other for ideas, beliefs, customs, emotions, taboos, and values. The man who thinks for himself is as rare as an honest neocon.

Instead, whether they manage billion-dollar hedge funds, or manage their egg money, they look to see what each other is doing – and do the same thing. In the investment world, the effect is obvious: some investments are favored, while some are ignored. Other things being equal, the favored ones will be expensive; the ignored things will be cheap. Other things being equal, the favored ones will be the bad investments; the ignored ones will be the good ones.

Russell says he believes most investors now ignore the stock market. He says the average investor is not in it, because the negative press has driven him out. The news is so gloomy, he says, the average person is frightened.

Here is where we part company with the man. In a sense, Russell is probably right. There is a lot of ‘negative news’ – Iraq, mass murder, deficits, subprime, and so forth. But beneath the news is a blind faith in modern, American-led capitalism that borders on delirium. They fret; they worry; they gripe – but perhaps never before have so many people been so positive about money.

When you are really negative and frightened, you do not go further into debt – but Americans have never been so deeply in debt…and they’re still digging!

When you are really negative and frightened, you don’t buy stocks when the Dow is at a record high – but the Dow keeps going up!

When you are really negative and frightened, you don’t pour billions into highly leveraged private equity funds, hedge funds, M&A funds and other speculative investments – but the money is still gushing in.

When you are really negative and frightened, you don’t buy houses at record high prices when the market seems to be headed down – but people are still buying.

House prices are off 1.8% from a year ago, according to yesterday’s report. The head of the National Association of Realtors says ‘the worst is over.’ But we beg to differ – in fact, the subprime time bomb ticking away under Wall Street will prove that the worst is yet to come…

But that’s not what you say when you’re negative and frightened; it’s what you say when a major housing slump has begun…but you’re so fat and sassy you can’t believe it.

When you’re really negative and frightened…you look at the facts and draw the worst possible conclusion: “The housing slump will NEVER end,” you say. “Housing, as an asset class, is dead. Finished. Over. Kaput. People will never again buy houses expecting them to go up in price.” We don’t hear anyone saying that. As far as we know, we’re the only ones who believe it. 

No, we don’t see people with their heavy shoulders slumped in despair and their heads hung heavily in defeat. Instead, we see them as light on their feet…light hearted…and lightheaded. They open their wallets to every bounder with a story to tell. And look for financial traps…just so they can fall in.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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