I have placed focus on The Banks solely because they fare well in all Economic Climates.- both good and bad and are viewed by their governments as being too important to fail.
In that regard, the most egregious action on the part of Banks in my living memory took place only a few years ago in Cyprus where its Banks arbitrarily seized 10% of their depositors' money. Wink, wink, nudge, nudge - so you think this could only happen in a backwater like Cyprus - Dear Reader think again - the G-7 nations are now in the process of legislating these self-same confiscatory powers to our own Banks. Add this to the Negative Interest Rate Trend and the old mattress with a hole in it is looking better and better all the time.
But again I have digressed.
So let's first summarize what a perfectly running economy would look like:
- 100% of a Nation's Workforce would actively participates in its Workforce;
- Investors would be adequately compensated for their hard-earned investments - that is to say, they would receive a return on their investments which would exceed inflation, pay all taxes due on the return and leave a sufficient amount to be used by the investor for his or her own purposes (e.g. retirement or more investing or whatever)
- Interest rates would be such that they would neither encourage nor discourage spending / investing;
- Governments would get out of the way of private enterprise and in so doing, balance their budgets (i.e. refrain from incurring debt).
Now contrast the Perfect with our Economies as of the beginning of this 21st. Century:
( * I am going to primarily refer to the United States of America not only because it is still the World's largest economy but because the other nations tend to mirror it)
- The U.S.A. has a Workforce Participation Rate(W.P.R.) of only 62% - some 75 Million Americans are missing in action. And as discussed in my initial blog, some 100 million Americans ( 1 in 3) are on permanent Social Services (i.e. Welfare). Simply stated, these people have opted out. Surprisingly, with respect to the W.P.R. America is in somewhat better shape when when compared to the world's other major economies - Japan (59%), France (56), Germany (60), and the United Kingdom (60).
- Interest rates are so low that savers not only are subsidizing borrowers but the interest rates they receive are so low that their investments are worth less as each day goes by. And now we are entering the age of negative interest rates where depositors are obliged to pay financial institutions for the honour of keeping their money. Reminds me of the Ant and the Grasshopper - 'far better to be the latter'.
- Governments are racking up debt at unhealthy rates - look no further than America's current $20 Trillion Dollar Debt - which exceeds its annual GDP. Japan is the G-7's worst offender with a Debt exceeding 250% of its GDP. The Emperor(s) has / have no clothes.
- And these National Debts do not take into account under or un funded pension plans which will only worsen as the Boomers reach their more senior years while at the same time the workforce has fewer and fewer workers. This of course is already unfolding but it will only get worse.
- And in the face of this what have our governments done - why they have printed money with zip to back it up. We laugh at the fact that Zimbabwe has the most Billionaires in the World due to the fact it takes 250 Trillion of Its Dollars to convert into $1 US Dollar. If we keep printing - the Zimbabweans may get the last laugh.
First, stop running up deficits and debts - it will take all of our resources to manage our nations' aging population.
Don't devalue our currencies by printing money willy-nilly.
Let interest rates be determined by the markets and not by the Central Bankers.
Start chipping into the large welfare contingent that has opted out of our economies - I do not know what a reasonable number for opt outs would be but I know instinctively that the American experience of 100 million or 1 in 3 is way out of line. If we are going to survive Baby Boom- we will need as many 'on deck' as possible.
We need to get rid of the useless unemployment rate - it tells us nothing. Rather we need to convert to the Workforce Non-Participation Rate and track that religiously. For example - since America's W.P.R. is 62% - its Workforce Non-Participation Rate (W.N.P.R.) is 38%. It is this latter number that should replace the old unemployment rate and I think that a healthy W.N.P.R. would be in the vicinity of 20%.
A final word of warning - if the West does not address these deficiencies - even investing in Banks will not prove a salvation and for those of you who think Gold and Silver is just the ticket - you cannot eat Gold nor Silver nor can you protect it from marauding gangs.
I would appreciate your comments.
As I see it...
'K.D. Galagher'
