Dear American Consequences reader,
Dozens of you have written in, asking for more details about the idea of a “jubilee.”
We’re dedicating a significant portion of our November issue to debt… including some specific advice on how to protect yourself and survive such a controversial event.
In the meantime, if you enjoyed the article “A Lottery Nobody Wants to Win” in our October issue, you may be interested in this follow-up essay, written by Justin Brill.
Managing Editor, American Consequences
There’s no denying it…
Whether it’s violent protests in major cities across the country… soaring rates of drug abuse and suicide… or even the recent national anthem controversy in the NFL, it’s clear…
Something is wrong in America.
You can’t open a newspaper or turn on the nightly news without feeling as though the fabric of civil society is being torn apart.
And in the October issue of American Consequences, feature contributor Porter Stansberry introduced a controversial idea…
What if America’s political and social upheaval wasn’t quite what it seemed? What if these problems were a symptom of something much bigger… and much more important? He wrote…
When you watch the news and you see people rioting about race in Charlottesville, Virginia… when you see the inner cities burning in Baltimore… when you see more and more radicalized politics – like resurgent neo-Nazi groups, the rise of Black Lives Matter protests, and college students embracing violence to protest at any conservative speaker – what you’re really seeing is the beginning of the jubilee.
These protests may nominally be about race. Or about Donald Trump. But what they are really about is hopelessness. What they are really about is economics.
You see, while most Americans believe our debt problems were “solved” during the 2008 financial crisis, it’s not true.
Yes, vast amounts of bad mortgage debt were wiped out. But American consumers – to say nothing of corporations or the government itself – never stopped borrowing. Our economy never really deleveraged.
In essence, we simply replaced mortgage debt with vast amounts of new consumer debt. Americans ran up our credit cards, bought fancy cars we couldn’t really afford, and borrowed insane amounts of money for college degrees of questionable value. And we now hold more total debt than ever before in history.
But it gets even worse…
Even during the peak of the housing bubble – when lenders issued lots of subprime mortgages without even checking a borrower’s income – most mortgages were well collateralized. Even then, most people had the income required to pay the loan.
But that is not the case today. Most of this consumer debt has been concentrated in the poorest segments of our society. More from that article…
Credit Suisse Chief Global Strategist Jonathan Wilmot published some debt research that looked at debt-to-income ratios across different segments of the population. In the late 1980s, the 20% of Americans with the least amount of income held little debt, when measured against their income levels. Today, however, this segment of the population is the most in debt when measured against income.
The poorest Americans now hold debts in excess of 250% of their incomes, or about five times more debt than the wealthiest 20%.
This massive change in the character of our household debts came about because of “innovations” in lending – like subprime auto loans, pay day lenders, and, most important, student loans. Today total household debt is almost $13 trillion. That’s higher than the previous all-time high of $12.6 trillion, set in the third quarter of 2008 – immediately prior to the last crisis.
In other words, a huge number of Americans have borrowed more money than they can ever dream of repaying…
They have little of value to show for it. They have no way out. And they have no hope that things will get better. So what you’re seeing on the news is just the tip of the iceberg…
Tens of millions of angry Americans increasingly feel they have nothing to lose.
Worst of all, this is happening despite some of the lowest interest rates in history. Debt-service costs have never been cheaper.
But interest rates are already moving higher. How many more Americans will join the ranks of their fellow indebted citizens as these massive debts become more and more costly? What happens then?
The likely ‘end game’ is clear…
Sooner or later, the U.S. government will have no choice but to appease these folks. They will wipe out these debts and redistribute trillions of dollars in the process. That’s what Porter was describing when he referred to the “jubilee”…
The jubilee is a Jewish economic tradition. It is part of the Old Testament. You’ll find it described in the Book of Leviticus, Chapter 25. The idea was simple. At the end of 49 years, all debts would be wiped out and collateral property returned. It was a way of completely “resetting” the financial order, of making sure the wealthy didn’t become too dominant… of making sure their economy didn’t collapse… of making sure there was never a violent revolution.
The jubilee has started. You haven’t seen it yet. But it’s there. Mark Zuckerberg (founder of Facebook) recently toured all 50 states. His message: We should forgive all student loans and offer a guaranteed income to every American. Likewise, both the Hillary Clinton and Bernie Sanders campaign pledged to forgive student loans and make college “free.”
Again, there’s no denying this problem or the likely ‘solution’…
But Porter left one question unanswered:
Why on Earth did so many people borrow so much money they have no hope of ever repaying?
You might assume it stems from a lack of personal responsibility, or a decline in moral standards in recent years. And that certainly played a role… There is always a segment of society that wants something for nothing.
But this doesn’t explain how this problem could grow so large.
The real reason is something else…
Real wages for most Americans have been stagnant or falling for decades.
The real (adjusted for inflation) median household income in the U.S. has been flat since at least 1980. And even this figure is misleading, as there weren’t as many families with two wage-earners then as there are now.
In other words, despite the boom in the economy and financial assets over the past 30 years – which boosted the wealth and incomes of the wealthiest Americans like never before – average Americans are actually worse off than they were decades ago. And they’ve been forced to borrow more and more simply to keep up.
Now, you may already be familiar with this fact… But it’s almost certain you don’t know why this has happened.
Again, the reason is simple. But it’s one most folks will never understand… and one you’ll never hear an economist or government official admit. The underlying economic cause is simply that wages are no longer connected to gains in productivity.
Here’s a chart based on research from the Economic Policy Institute that describes the problem. As you can see, productivity in this country grew nearly 250% between 1948 and 2014, but median wages only grew 109%…
You’ll also notice that the divergence begins around 1971… the year President Nixon removed the U.S. dollar from gold.
Why? Because paper money doesn’t transmit gains in productivity like real, sound money should.
In short, when the dollar was unlinked from gold, the government was granted the ability to create unlimited amounts of new money. But this money doesn’t flow to everyone equally. It is created in the banks, and then works its way through the financial system before eventually trickling down through the real economy. The result is that asset and consumer prices have risen far faster than wages.
Simply working harder – or working smarter – isn’t benefiting employees anymore. On the other hand, Americans who own assets and businesses have seen their wealth soar over the last 40 years.
And it is this massive gap that is ultimately fueling today’s problems.
So where is this debt crisis and the Jubilee taking us?
Porter recently released a brand-new presentation detailing all of the facts and the inevitable consequences of our historic debts… and the measures our government will have to take to wipe them away. And he and his research team have put the finishing touches on a series of reports for Stansberry’s Investment Advisory subscribers that lay out all the tools individual investors need to protect themselves and their wealth from what’s coming.
To see the video and learn more about Stansberry’s Investment Advisory,click here.
Editor, The Digest