It seems they would like to implement a kinder and gentler version of feudalism. What is really going on here, and what is the end game?

Doug Casey: The middle class, the bourgeoisie, emerged with the death of feudalism, the inception of the Renaissance, the Enlightenment, and finally, the Industrial Revolution.

“Middle class” has been given a bad connotation in recent times. Leftists want everybody to believe that the bourgeoisie is full of consumerist faults. They’re mocked for being concerned with material well-being and improving their status. The elites feel threatened by them. Unlike the lower class plebs, grunt workers who don’t expect more from life.

Bourgeoisie simply means city dweller. Starting in the late Middle Ages, city dwellers were independent, with their own trades and businesses. Living in towns got them out from under the control of the feudal warrior elites.

Cities became intellectual centers, where the growing wealth of the bourgeoisie—the middle class—gave them the leisure needed to develop science, technology, engineering, literature, and medicine. Universities expanded the idea of education beyond the realm of theology. Commerce and personal freedom attracted the best of the peasants, who rose to the middle class. Cities ended feudalism, a system whereby everyone was born into a class and occupation, and was expected to stay there for life, obligated to pay taxes—protection money—to his “betters”. The rise of the bourgeoisie didn’t suit the ruling classes, who liked dominating society.

Capitalism developed as the bourgeoisie became wealthy. The rest is well-known history, but the point must be made that the creation of the middle class, capitalism, and bourgeois values elevated peasants from poverty and created today’s world.

But, then and now, a certain percentage of the population wants to control everyone else. The types who go to Bilderberg, the World Economic Forum, CFR, and the like see themselves as elite new aristocrats who should dominate the others. Even though most of them came from the middle class, now that they’ve “made it,” they like to pull the ladder up. And if not eliminate, at least neuter or defang the remaining bourgeoisie.

So what’s the end game?

I think it might look something like the movie Rollerball. Keep the plebs entertained while the elite, in the form of a corporate aristocracy, controls society.

International Man: Yuval Harari is a prominent World Economic Forum (WEF) member.

He suggested that the elite should use a universal basic income, drugs, and video games to keep the “useless class” docile and occupied. What is your take on these comments in the context of Feudalism 2.0?

Doug Casey: A nasty little fellow, Harari is what might be termed a court intellectual for the World Economic Forum. He’s there to provide an intellectual patina for the power members, who are basically the businessmen, politicos, and media personalities. They’re not thinkers or interested in ideas but philistines concerned with money and power. Harari gives them an intellectual framework to justify their actions and plans.

As far as his books are concerned, they amount to a lot of generic truisms, obvious observations, justifications of current trends, and a projection of how the world will evolve. As an author and thinker, he’s knowledgeable and intelligent but grossly overrated. He owes his success to promotion from the new wannabe aristocracy and their hangers on. He illustrates the advantages of being hooked up with power people.

Harari has gone from being just another college professor, living with his husband in Israel, to being an internationally famous multi-millionaire pundit.

He expects the “useless eaters” will be maintained on a subsistence basis until they die out. I’m not sure how much the Covid hysteria, followed by the vaccine, has to do with that. It’s becoming quite clear that Covid itself was an artificially constructed flu variant, mainly affecting the very old, very sick, and very overweight. The vaccine is useless in preventing Covid but has caused significant increases in morbidity and mortality among healthy recipients. Was it a trial run to cleanse the world of useless eaters?

I don’t know. But, based on what people like Stalin, Hitler, Mao, and Pol Pot—among many others—have done in recent years, I don’t think it’s out of the question. No doubt, the new aristocracy wants to cement themselves in place. They certainly don’t like rubbing shoulders with the hoi polloi when they visit Venice, Machu Pichu, and the like.

International Man: How does the WEF’s vision of “you will own nothing and be happy” compare to the previous feudal system of medieval Europe?

Doug Casey: Serfs, unlike slaves, had some rights; they owned tools and huts. But their position in society was fixed, they couldn’t easily move—rather like a medieval version of today’s 15-minute city. They had to recognize their betters, and not say anything challenging—like today’s increasingly draconian limits on free speech.

I expect that the gigantic amount of debt in society today will be the means of turning middle-class Americans into serfs. The lower classes are already welfare recipients who produce very little; they’ll soon be replaced by robots.

The better educated ones are buried under their college debts. But everybody is buried under growing credit card debt, auto debt, mortgage debt, and sometimes even tax debt.

If someone makes a lucky capital gain in the stock market or by selling his house, he might spend that money only to find that the government wants 20%, 30%, or 40% of the gain. So the gain, instead of a blessing, becomes a disaster in disguise.

Many people today are burdened by debt, living paycheck to paycheck. They’re barely getting by, under immense pressure to cover food and rent. They’d probably be quite willing to take a deal offering essentially “three hots and a cot,” a tiny apartment, internet, and some extra money to hang around Starbucks.

International Man: How do you see Feudalism 2.0 developing over the coming months and years? What can be done to resist this agenda?

Doug Casey: Trends in motion tend to stay in motion until they reach some type of a crisis—when anything can happen. Let’s look at some economic systems, as spelled out by Karl Marx.

In Communism, the Marxist ideal, the State owns both the means of production (factories, farms, and such) as well as consumer goods (houses, cars, and theoretically, even your clothes). Mao’s China is as close as anyone’s come.

Socialism is a way station to Communism. The State owns the means of production, but individuals can still own consumer goods. There are lots of countries with socialist ideals, but no real socialist countries. Cuba probably comes closest.

Fascism is an economic system where both the means of production and consumer goods are privately owned, but they’re both 100% State-controlled. Most of the world’s countries are fascist. The word was coined by Mussolini; he meant it to describe the melding of the State, corporations, and unions.

Few people know that Marx coined the word “capitalism”. It’s a system where everything is both privately owned and privately controlled. There are no purely capitalist countries.

In feudalism, a lord owns everything but grants fiefs to subordinates. An aristocracy is supported by the plebs through taxation. Feudalism is based on the plebs providing service and taxes to the lord in exchange for “protection” from other lords.

Now for some pure speculation on my part.

Most of the world’s governments, including that of the US, are terminally bankrupt. They’ll prove unable to meet their obligations. Meanwhile, the prospect of wars, secessions, and crime is growing. I suspect wealthy corporations and individuals will wind up supplanting most traditional governments.

The result could be called neo-feudalism.

The average person is looking for someone or something to save him, to kiss everything and make it better, when times get tough. With governments bankrupt and dysfunctional, solvent and powerful individuals and corporations could take their place.

Harari and his pals want to see the plebs given a guaranteed annual income, a place to live, and entertainment until the useless eaters fade away. But it won’t be as neat as Harari’s wet dreams imagine. The world will be chaotic. We may be on our way to an idiocracy as well, where the populace is dumbed down so they don’t get dangerous ideas.

No matter how things sort out, I think we’re looking at a chaotic and dangerous situation in the near term.

I don’t see voting as a solution. Notwithstanding the differences between Harris and Trump, it just amounts to choosing the lesser of two evils, which in this case would certainly be Trump. But even if you elected Mises, Hayek, Ron Paul, or Harry Browne, I’m afraid the tide of history would wash them away.

In any event, your vote doesn’t really count. Or perhaps I should say it counts about as much as a grain of sand on a beach with hundreds of millions of grains of sand. And even then, as Stalin said, it’s not who votes that counts. It’s who counts the votes.

What can you do to resist the shape of things to come?

It’s an uphill fight because if you’re liberty-oriented, you’re part of a tiny minority at odds with the views of most of your fellow citizens, who’ve been indoctrinated by years of schooling, media, and entertainment. Collectivist memes are cemented in their minds. And when they talk to their contemporaries, they tend to mutually reinforce their beliefs.

When you’re in a group, it can be dangerous to have different beliefs, in much the same way that it’s dangerous for a chicken in a flock to have a feather out of place. The other chickens will peck it to death. Reigning ideas tend to be brutally enforced.

What can you do about this?

Other than trying to maintain your personal integrity, there’s not much you can do to roll back the tsunami. There wasn’t much that a freedom-loving Russian could do in 1917, a freedom-loving German could do in 1933, or a freedom-loving Cuban could do in 1959. Or a freedom-loving Venezuelan today.

The best you can do is to try to save yourself, your family, and your like-minded friends. Changing society for the better is a long shot. Although I hope Milei in Argentina proves me wrong.

International Man: What do you suggest individuals do to ensure they don’t become modern serfs if Feudalism 2.0 emerges?

Doug Casey: There are two types of freedom: physical and financial.

From a physical point of view, it’s important not to be tied down the way a serf might be. You don’t want all your possessions to be in one place where they’re easily controlled by the powers that be. Don’t act like a plant. Staying rooted in one place is not an optimum survival strategy for a human in tough times.

The powers that be are interested in controlling other people. It’s best to be a moving target, which makes you much harder to hit.

This is a problem for those of us who think that the US is still the land of the free. It’s not. It’s been devolving for decades. My guess is that over the next few years, perhaps starting with this election, the US will evermore closely resemble the other 200 nation-states that cover the face of the globe like a skin disease.

The single most important thing you can do is internationalize and make sure that all your assets aren’t in one bailiwick, under the control of one government.

From a financial point of view, it gives you the freedom to travel and move, especially with the coming FX controls and CBDCs. Use gold and Bitcoin. You should already have a good stash of both. If you don’t, it’s not too late to start accumulating and transferring assets into them.

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For want of doubt, go straight to the most basic economic metric we have—real compensation per labor hour. The latter metric not only deletes the inflation from the pay figures, but also measures the totality of worker compensation, including benefits for health care, retirement, vacation, disability, sick leave and other fringes.

Needless to say, the purple line below makes crystal clear that historic worker gains have ground to a complete halt.

Per Annum Increase In Real Hourly Compensation:

• Q1 1947 to Q1 2001: +1.79%.
• Q1 2001 To Q1 2020: +0.71%.
• Q1 2020 to Q2 2024: -0.01%.

It doesn’t get any cleaner than this. No matter how the White House, the Fed and the fawning financial press cherry pick the “incoming data” you flat-out can’t say the US economy is “strong” when the growth of the inflation-adjusted pay envelope of 161 million workers has deflated to the vanishing point. Indeed, it has literally been dead in the water for the last 52 months running.

Real Nonfarm Worker Compensation per Hour, 1947 to 2024

Moreover, the above graph covers all workers, from the bottom to the top end of the wage scale. But when you look at the most recent trends for the highest paid jobs in the durable goods manufacturing sector, the stagnation has been even more dramatic. There has been zero net gain in real compensation per hour in this high-pay sector during the last 15 years; and an obvious contributor to that baleful outcome has been the surge of inflation since 2020 when Washington went off the deep-end with fiscal stimmies and upwards of $5 trillion of newly minted central bank credit.

And we do mean deep-end. During the one-year pandemic stimmy bacchanalia, Washington spent $6.5 trillion on a one-time basis or 150% of the regular Federal budget for war, welfare and everything else as of 2019. At the same time, the Fed printed $5 trillion of new credit during the 30 months between October 2019 and March 2022, which was more than it had printed during the first 106 years of its existence!

In any event, these reckless fiscal and monetary policies had long since caused much of the high productivity, high-pay industrial sector to be off-shored. Yet that happened not because free market capitalism has a death wish in America. It happened because Washington policies generated so much internal cost and nominal wage inflation that vendors of goods to the retail markets had no choice except to source from far lower dollar cost venues abroad, and most especially China and its associated supply chains.

Inflation-Adjusted Compensation in Durable Goods Manufacturing, 2010 to 2024

Nor is this just a manufacturing sector issue. The fact is, stagnation and shrinkage has afflicted the entire goods-producing sector of the US economy, including energy production and mining and gas and electric utility production. As shown below, during the heyday of American economic growth after WWII, these sectors were the motor force of prosperity. Between 1947 and 1978:

• Real hourly earnings (purple line) in good-producing doubled, rising by 23% per annum.
• Total hours worked (black line) increased by nearly 20%.

Since that late 1970s peak, however, no cigar with respect to either pay rates or total hours worked. In fact, by 2023–

• Real hourly pay was down by 2% versus 1979, meaning it had stagnated for 45 years!
• Total hours worked were even more debilitated, having been rolled all the way back to the late 1940s level.

That’s right. There were once 24 million high paying jobs in the good-producing sectors, which represented more than 28% of total US employment of 90 million in 1979. But by 2023, total hours worked in the goods-producing sectors have fallen to levels first achieved 75 years earlier.

Goods-Producing Sector: Index Of Real Hourly Wages Versus Index of Total Hours Worked, 1947 to 2023

In light of the above, all of the Biden-Harris palaver about a “strong” economy actually gives the concept of humbug a bad name. Like the claims of the Trump Administration before them, it is based on such egregious manipulation and cherry-picking of the data as to amount to the classic Big Lie, if there ever was one.

The fact is, neither every job counted by the BLS nor every dollar of GDP computed by the Commerce Department is created equal when it comes to economic significance. And it is exactly low pay/low productivity “jobs” and government-fueled “GDP” which has accounted for much of the ballyhooed “strength” of the US economy in recent years and decades.

For instance, at the time that good-producing employment peaked in 1979, jobs in the low-pay, minimum wage, episodic employment Leisure & Hospitality sector were just beginning to attain lift-off. During the next 45-years, hours worked in the later sector rose by +128%, even as the index for goods-producing hours per the black lines (both above and below) fell by -18%.

Needless to say, the economic weight of the purple line is only a fraction of that implicated in the black line. For instance, hours worked in the Leisure & Hospitality (L&I) sector average just 23.9 per week and average wages currently stand at $19.66 per hour. This computes to an annual pay equivalent of just $24,400 per L&I “job”.

By contrast, the equivalent figures for the goods-producing sector are 40.6 hours per week, $31.26 per hour pay rates and an annual equivalent of $66,000 in gross pay. That is to say, in terms of economic throw-weight a L&I “job” is equal to only 37% of a goods-producing “job”.

Index of Total Hours Worked: Leisure & Hospitality Sector Versus Good-Producing, 1978 to 2023

Not surprisingly, therefore, the Biden-Harris claims about 15.9 million jobs “created” on their watch should be taken with a grain of salt.

In the first place, about 9.1 million of these purported new jobs or 58% were actually “born-again jobs”. That is, jobs that were lost during the massive lay-offs triggered by UniParty lockdowns during 2020-2021 that have been subsequently recovered. Specifically, the total nonfarm job count peaked at 152.05 million jobs in February 2020 versus the 158.78 million total posted in August 2024.

So the net gain of 6.73 million jobs is a far cry from the nearly 16 million gain ballyhooed by Biden-Harris, which includes all the born-again ones.

But that’s not the half of it. When you look at the net gain of 6.73 million jobs, only 763,000 or 11% were in the good-producing sector. By contrast, 2.54 million or 38% of the net new jobs on the Biden-Harris Watch were in the low-pay or low productivity L&H, retail, government or private education and health sectors.

Indeed, these data remind that the GDP numbers reflect the same misleading distortions. Since Q1 2007, for instance, the health care sector has expanded in real terms by 57.4% compared to just 35.7% for the balance of real GDP. Likewise, since Q4 2020, the health care sector has expanded by 17.2% in real terms or nearly double the 9.8% gain for all other components of real GDP.

Then again, the health care sector is overwhelmingly a ward of the state via Medicare/Medicaid and upwards of $300 billion per year in tax subsidies for employer-sponsored health plans. So it’s a case of “if you spend it, it will grow.”

Index Of Real Health Care PCE Versus Total Real GDP, Q1 2007 to Q2 2024

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First, let me put some crucial numbers and concepts into perspective. You often hear the media, politicians, and financial analysts casually toss around the word “trillion” without appreciating what it means. A trillion is a massive, almost unfathomable number.

The human brain has trouble understanding something so huge. The image below shows stacks of $100 bills and a human for reference.

Suppose you had a job that paid you $1 per second, or $3,600 per hour. That amounts to $86,400 per day and about $32 million per year. With that job, it would take you 31.5 years to earn a billion dollars. With that job, it would take you over 31,688 YEARS to earn a trillion dollars.

Suppose you earned $75,000 a year, which is the typical household income in the US. It would take you over 13 million years to make a trillion dollars. If you had a trillion one-dollar bills, you could cover the surface area of Delaware twice over. If you stacked a trillion one-dollar bills on top of each other, it would reach 67,866 miles high, about one-fourth of the distance from Earth to the moon. If you took that same trillion one-dollar bills and instead stacked them end-to-end, the length would exceed the distance between the Earth and the sun.

So that’s how enormous a trillion is.

When politicians carelessly spend and print money measured in the trillions, they are in dangerous territory. And that is precisely what the fiat currency system has enabled the US government to do.

Today, the US federal debt has gone parabolic and is over $35 TRILLION. To put that in perspective, if you earned $1 a second 24/7/365—about $31 million per year—it would take over 1,109,080 YEARS to pay off the US federal debt. And that’s with the unrealistic assumption that it would stop growing.

In short, the US government can’t repay its debt. It can’t even pay the interest expense without going into further debt. Default is inevitable.

It Will Not Be an Explicit Default

The US government is out of options and cannot repay what it has borrowed. Therefore, the question is not whether the US government will default but how.

Consider the recurring debt ceiling farce in the US Congress, which has been raised over 100 times since 1944 to avoid an explicit default. When faced with a choice, politicians always choose the most expedient option.

In this case, that means issuing more debt rather than making tough budget decisions or explicitly defaulting. That raises an important question: who will buy all this debt (Treasuries)?

Historically, there has been a vast foreign appetite for Treasuries, but not anymore. In the wake of Russia’s invasion of Ukraine in 2022, the US government has launched its most aggressive sanctions campaign ever.

The US government and its allies froze around $300 billion of the Russian central bank’s reserves—the nation’s accumulated savings.

It was a stunning illustration of the political risk associated with the US dollar and Treasuries. It showed that the US government could deny access to another sovereign country’s reserves at the flip of a switch.

Then, in April 2024, President Joe Biden signed the REPO Act into law. It allows the US government to seize frozen Russian state assets and transfer the funds to Ukraine.

In short, the US dollar and Treasuries have become weaponized in a way they had not before. They are now clearly not neutral assets worthy of forming the bedrock of the international financial system but political tools for Washington to coerce others.

The rising political risk attached to Treasuries has made them even less attractive as a store of value. Many countries are undoubtedly wondering if the US government will seize their savings if they run afoul with Washington in even the most trivial ways.

China is one of the largest holders of US Treasuries, and it indeed took note of what is happening. Since 2022—when the US froze Russian state assets—China has sold about 25% of its Treasuries, an enormous change in such a short period.

Even US allies, like Japan, have cut their Treasury holdings. There are numerous other examples. The bottom line is that it’s clear the world isn’t hungry for US debt right now as supply is exploding.

In the bond market, when demand for a bond falls, the interest rate rises to entice buyers and holders. However, the US government cannot allow interest rates to rise because the skyrocketing interest expense has become an urgent threat to its solvency.

The interest expense on the federal debt is already bigger than defense spending and is set to become the largest item in the US government’s budget in months.

If higher interest rates are off the table and cannot entice more natural buyers, who will buy all this debt? The only entity capable of doing this is the Federal Reserve, which buys Treasuries with dollars it creates out of thin air.

Here’s the bottom line.

The US government can’t pay off its debt. They won’t explicitly default. They can’t entice a meaningful amount of new Treasury buyers by allowing interest rates to rise. That means currency debasement is their only practical option.

Fed Chair Powell’s recent pivot to monetary easing and rate cuts is compounding the situation. That means the Fed has given up on bringing inflation down… even though it remains well above their target. It’s an incredible failure and will have ENORMOUS investment implications for the US dollar and gold.

If the gold price is already hitting record highs, imagine what will happen when the Fed flips back to easing with even more currency debasement than the previous rounds of stimulus.

I think the gold price could skyrocket. The last time the US experienced runaway inflation was in the 1970s. Then, gold skyrocketed from $35 per ounce to $850 in 1980—a gain of over 2,300% or more than 24x.

I expect the percentage rise in the price of gold to be at least as significant as it was during the 1970s. While this megatrend is already well underway, I believe the most significant gains are still ahead.

You have to start with the most fundamental concept here: central planning doesn’t work. That’s the first principle. Central planning of shoes doesn’t work. Central planning of wheat doesn’t work, and central planning of (fake) money doesn’t work.

Central banks in general—and the Fed in particular—are on a mission impossible. They don’t know what the interest rate should be. Nobody does. That’s an exclusive function of a voluntary market of savers and borrowers.

A politburo can’t centrally plan interest rates any more than they can potatoes. They’re inevitably going to fail and cause significant damage.

It’s also important to remember central banks have NOTHING to do with the free market. They’re actually the antithesis of the free market. In Karl Marx’s Communist Manifesto, central banking is the 5th plank.

The lying media portrays central bankers as selfless bureaucrats who are just trying to save the economy. It’s a load of BS. Central bankers are the enemy of the average person.

Now, back to the rate hiking charade.

The Fed had embarked on one of the steepest rate hike cycles in history in 2022. They did so because price increases were spiraling out of control after the Fed inflated the money supply by around 40%—a staggering amount—amid the Covid mass psychosis starting in 2020.

In other words, they were forced to embark on this steep rate hike cycle to combat the inflation that they caused in the first place.

At the time, I knew they would never be able to tame inflation because of the skyrocketing federal debt load. If the Fed was able to raise interest rates to the point where it would actually defeat inflation, the rising interest expense on this exploding pile of debt would have bankrupted the US government.

The federal debt’s interest cost is already higher than the defense budget. Soon, it could exceed Social Security and other entitlements and become the number one item in the federal budget.

For context, the last time inflation was raging, Fed Chair Paul Volcker needed to raise interest rates above 17%. However, that was in the early 1980s, when the US debt-to-GDP ratio was around 30%. Today, it’s north of 123% and rising rapidly.

Today’s higher debt load and accompanying interest expense are why the Volcker option is not on the table. There’s no way the Fed could raise rates any near 17%. They barely took rates above 5% this time before capitulating—not even 1/3 of what Volcker did.

In short…

1. The federal interest expense exceeded $1 trillion for the first time recently.
2. The federal interest expense has recently exceeded national defense spending for the first time and is poised to become the largest item in the budget.
3. The US government is now borrowing money to pay the interest on the money it has already borrowed.

Considering all of this, Fed Chair Powell’s recent announcement that the rate hike cycle is officially over shouldn’t have been a surprise. Now, we’re going back to monetary easing.

The Fed’s Propaganda Victory

The Fed and its apologists in the lying media are trying to gaslight you and tell you inflation has been defeated, which is absurd.

The Consumer Price Index (CPI) is the most politically manipulated statistic in all of government. That is saying something because a lot of government statistics are completely manipulated, but inflation, as measured by the CPI, is probably the most manipulated.

The CPI is a basket of prices trying to measure the average price changes for 340 million Americans. It’s an impossible task because every individual has a different price basket. Consider someone who lives in New York City compared to someone who lives in rural Montana. They have totally different price baskets.

Using the CPI as a measure of price increases for 340 million people is even more preposterous than taking the average temperature across 50 states in the US as a meaningful statistic to determine what clothes you should wear today.

Further, the government gets to cherry-pick what items go in the CPI basket and their weightings. It’s like letting a student grade his own paper.

In short, the CPI is a worthless statistic. It’s misleading government propaganda intended to conceal the government’s atrocious currency debasement. So, according to their own rigged CPI metric, has the Fed accomplished its inflation goal? Nope.

They didn’t even reach their totally arbitrary 2% CPI target before they declared a fake victory. By the way, targeting 2% inflation is a nonsensical concept. Inflation is poisonous at any level. Think of it like a bucket that continuously leaks 2% of the water it carries.

That’s the kind of outcome the clowns at the Fed are trying to engineer for the economy—but they couldn’t even do that.

In short, the Fed’s narrative that inflation has been defeated is so laughably ridiculous that the only explanation is deliberate deception.

Here’s a way to think of it.

Imagine you used to weigh 180 pounds in 2019. In 2020, you gained 10 pounds and are now 190 lbs. In 2021, you gained 25 pounds and are now 215 lbs. You tell concerned friends and family not to worry about your weight gain because it’s just “transitory.”

In 2022, you go on a diet but still gain 20 pounds. You are now 235 lbs. In 2023, you continue on your diet and gain 10 pounds. You are now 245 lbs. In 2024, you have gained 5 pounds so far and are now 250 lbs.

The rate at which you gain weight is down, but your weight has increased around 40%, from 180 lbs to 250 lbs. You now declare victory, end your diet, and go back to the lifestyle that caused the weight gain surge in the first place.

This is the same kind of “victory” the Fed is declaring with inflation and the money supply, which also grew around 40% over a similar period.

In short, they are gaslighting people and spewing propaganda. So, why are they attempting to deceive people? Nobody knows for sure except them.

But if I had to guess, they are desperately trying to conceal the massive economic destruction they have already caused and the coming destruction they will cause, which could be much worse than anything we’ve seen so far.

It could all go down soon… and it won’t be pretty. It will result in an enormous wealth transfer from savers to the parasitical class—politicians, central bankers, and those connected to them.

Unfortunately, there’s little any individual can practically do to change the course of these trends in motion.

The best you can and should do is to stay informed so that you can protect yourself in the best way possible and even profit from the situation.

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Needless to say, neither household incomes nor the overall US economy have grown at anything near those magnitudes. For instance, nominal GDP is up by 24X or less than half the gain in housing values since Q2 1971. As a consequence, the value of owner-occupied housing relative to GDP has climbed steadily higher over the last 50 years:

Market-Value of Owner-Occupied Housing As % of GDP Since 1971:

• Q2 1971: 79%.
• Q2 1987: 117%.
• Q4 2006: 172%.
• Q1 2024: 175%.

Market Value of Owner-Occupied Real Estate And % Of GDP, 1970 to 2024

Here’s the thing. The US economy was downright healthy in 1971. During the 18 years between 1953 and 1971 real median family income rose from $38,400 to $62,700 or by a robust 2.8% per annum. So the fact that residential housing represented only 79% of GDP at that point was not indicative of some grave deficiency or structural malfunction in the US economy.

Indeed, when you note that real median family income rose by only 0.8% per annum during the most recent 18 year period, or by just 29% of the 1953-1971 rate, you might well conclude that it would have been wise to leave well enough alone. Not only was the main street economy prospering mightily, but it was being accomplished with honest interest rates owing to Fed policy that was constrained by the Breton Woods gold exchange standard and also by the sound money philosophy that prevailed in the Eccles Building during the William McChesney Martin era.

As shown below, the 10-year UST benchmark rate during that period exceeded the CPI inflation rate by more than 200 basis points most of the time, save for brief periods of recession. Yet the US economy thrived, real living standards rose steadily and the residential housing market literally boomed.

Inflation-Adjusted Yield On 10-Year UST, 1953 to 1971

The subsequent period between 1971 and 1987, of course, was racked first by the double digit inflation of the 1970s and then the brutally high nominal interest rates that issued from the Volcker Cure during the first half of the 1980s. But by 1986 consumer inflation was back to just below 2% and heading lower, thereby paving the way for interest rates to normalize to a low inflation economy.

But the new Fed chairman, Alan Greenspan, had other ideas. Namely, the notion that “disinflation” as opposed to no inflation was good enough for government work; and also that the Fed could actually improve upon the jobs and income performance of the main street economy via what he labeled the “wealth effects” doctrine. That is, if the Fed kept Wall Street percolating happily and the stock indices rising robustly, the increased wealth among households would kindle capitalist animal spirits, thereby fueling enhanced spending, investment, growth, jobs and incomes.

Notwithstanding Greenspan’s mumbling and opaque messaging, what he was doing actually amounted to monetary humbug as old as the hills. He launched an era in which real interest rates were pushed steadily and artificially lower to the zero bound and below on the theory that rates well below what would otherwise prevail under honest supply and demand conditions on the free market would elicit an enhanced level of economic growth and prosperity.

It never happened on a sustained basis, of course, because below market interest rates only cause an accumulation of above normal debt levels in the public and private sectors alike—along with widespread economic distortions and malinvestment on main street, unsustainable leveraged speculation on Wall Street and, at best, the swapping of more economic activity today for reduced activity and higher debt service tomorrow.

In any event, the inflation-adjusted benchmark US Treasury rate marched virtually downhill for the next three decades, ending deep in negative territory by the early 2020s. The ill-effects were widespread throughout the economy and in this instance turbo-charged by the deep tax preferences for home mortgages. So the inflow of cheap debt into the residential housing market was massive and sustained.

There is no mystery as to why: Economic law says that when you subsidize something heavily, you get more of it. And the implicit Fed subsidies depicted in the graph below were heavy indeed.

Inflation-Adjusted Yield On the 10-Year UST, 1987 to 2024

Needless to say, economic law had its way with the residential mortgage market. Big time. Household mortgage debt (black line) had stood at $325 billion or just 50% of household wage and salary income (purple line) back in 1971. But by the peak of the subprime borrowing spree in 2008-2009, mortgage debt had risen by 33X to nearly $11 trillion.

Consequently, the mortgage debt burden soared to 170% of household wage and salary income before abating modestly during the period since 2009. But the point is, the Fed’s severe interest rate repression during that period caused a financial arms race in the residential housing market—with ever more debt pushing housing prices ever higher.

In short, it wasn’t the free market or even steadily rising, albeit more slowly growing, GDP that caused residential housing values to go from 79% of GDP in 1971 to 175% of GDP at present. Instead, it was a sustained, fiat credit fueled tidal wave of housing price inflation—a financial torrent that bestowed large windfalls on earlier period buyers (i.e. Baby Boomers) while progressively squeezing later comers and income and credit-challenged households out of the so-called American Dream of home ownership.

Indeed, the housing inflation tsunami was by no means an equal opportunity benefactor. One study based on the Fed’s periodic survey of consumer finances, in fact, showed that between 2010 and 2020 upper income households, defined as those having an average income of $180,000, saw their collective housing investments rise from $4.5 trillion to $10.3 trillion. That was a 130% gain in just one decade!

By contrast, the housing investment value held by lower income households, defined as having an average income of $29,000, rose from $4.46 trillion to, well, $4.79 trillion. That’s a piddling gain of just 3.5%, which amounted to a double digit lost when you account for the 19% plus rise in the CPI during the same 10-year period.

Household Mortgage Debt and Mortgage % of Wage and Salary Income, 1971 to 2009

To be sure, the Fed heads were not explicitly trying to redistribute wealth to the top of the economic ladder, although that’s most surely what happened. Instead, the whole theory of interest rate repression was that it would stoke a higher level of spending and investment than would otherwise occur, and especially so in the residential housing sector.

Needless to say, no cigar on that front. Residential housing completions per capita and residential housing investment as a % of GDP have been heading relentlessly southward every since Nixon rug-pulled the dollar’s anchor to gold and unleashed the Federal Reserve to foist monetary central planning on the main street economy.

As depicted by the black line, for instance, residential housing investment as a percent of GDP dropped from 5.7% in 1972 to just 3.9% in 2023. The only deviation from this steady downward trend was in 2003-2006, which is to say the very interval during which Bernanke’s first experiment with 1% money fueled the subprime mortgage and house price inflation disaster.

In fact, the chart below paired with the first one above with respect to nearly $50 trillion value of homeowner occupied real estate tells you all you need to know about the folly of Keynesian central banking. To wit, artificially cheap money does not stimulate higher levels of real output and income over time; it merely causes existing assets to be bid-up and inflated in the secondary markets.

In turn, the systematic and relentless inflation of existing assets confers windfall gains and losses on the public in an entirely capricious manner but with the perverse effect of redistributing wealth to the top of the economic ladder. The Fed’s entire financial repression model is therefore not only pointless and ineffective—it’s profoundly iniquitous, too.

Per Capita Private Housing Units Completed and Residential Investment % of GDP, 1972 to 2023

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