By David Treece
The stock market is hitting record highs. At last check, the Dow Jones has reached over 19,500 points. The end of the bull run is closer than most people want to believe. Fundamentals do not work any longer because everything is fake. The Keynesian economic model of throwing more money at problems has been put in overdrive. The result will be that the system collapses under its own weight.
The national debt has doubled in the last eight years, and little is said about America’s inability to balance its federal budget. It is propelled forward by the ability to print money ad infinitum. But let’s be honest… Most people understand these arguments and won’t even try to refute them. However, many people still want in on the market because it appears to be booming. What they don’t think through is that with each boom there is inevitability a bust. As the stock market creeps higher and higher, the bust is going to get larger and more severe.
There is much misinformation about what exactly the Donald Trump presidential administration will be able to do. One thing is certain, though. The gravity and severity of our economic mess can’t be fixed by one man. And frankly, most people do not even understand what needs to be fixed, so they depend on politicians to mediate for them. How often does that work out well for taxpayers?
When the market crashes, people will be wiped out. Today those chasing the dream of higher and higher stock market numbers do not want to ponder the idea that they could lose it all. They’ve been told the market always comes back, but the fact remains that constant increases in a portfolio without losses are always a less stressful approach.
So what’s the alternative? Well, saving money at a bank should never be an alternative. Leading up to the Great Depression, banks were dealing in securities or stock market products. This gray area led to massive losses for many investors. Read Chapter Four of The Shadows of Power to understand this more.
In 1933 the Glass Steagall Act was signed into law. This prohibited banks from working in securities markets. This created a clear separation between bank products and stock market products. In 1999 Bill Clinton repealed the Glass Steagall Act. This ultimately led to the mortgage meltdown crisis in 2008. Congress said they would fix things by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. However, this was a big fat juicy lie.
Dodd-Frank was 848 pages, and as of July 2012 an additional 8,843 pages of rules had been added. These pages represent only 30% of the rules that need to be written as a result of the passage of this bill. The water has never been murkier in regards to banking interests versus securities interests.
Title II of Dodd-Frank created an “Orderly Liquidation Authority” to conduct bail-ins. We all remember the Too Big To Fail Banks getting taxpayer bail-outs, but what is a bail-in? In simple terms a bail-in is when a depositor (read: your money) is used to support a failing bank. But don’t fret, says the government, you will receive stock in your failed bank.
“Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay… Under the FDIC-Bank of England plan, our IOUs will be converted into ‘bank equity.’ With any luck we may be able to sell the stock to someone else, but when and at what price?”
There has never been a more important time to have your money out of the stock market and the lion’s share out of the bank, outside of maybe 1929. However, with the way the American economy is leveraged, some economists believe the eventual implosion will send out shrapnel for 25 years. Can you wait for 25 or 30 years to recover your losses in the stock market? If you can’t wait that long, call us today to schedule a free consultation to discuss your unique situation.