So you thought the SovereignDebt Crisis was over?Bonfire of the Real Wealth

Bonfire of the Real Wealth

O you thought theSovereign Debt Crisis wasOver?

As they say, you ain’t

seen nothin’ yet! Why anyone is surprised that

Greece is still in trouble is beyond me. AdamSmith wrote in his 1776 Wealth of Nations,Book 5, Chapter III,

Of Public Debts

Like an improvident spendthrift, whose pressing occasions will notallow him to wait for the regular payment of his revenue, the state is inthe constant practice of borrowing of its own factors and agents, and of paying interest for the use of its ownmoney.

This is the single greatest driving force that willnot merely provide the support to a long-termbull market in non-public assets, but will beessential to understanding the shift ininvestment strategies from public debt toprivate assets. We are facing the greatest threatto the preservation of wealth for the SovereignDebt Crisis is truly a

Bonfire of Real Wealth

.I am no supporter of Marx. But I must say hisgreatest mistake was assuming that removingwealth from the people and unleashing trulylimitless power in the hands of government wasno different than transferring all wealth to theso called hated rich. It is NOT the possession of wealth that is evil. It is the thirst for limitlesspower in the hands of petty governmentofficers, or the behind-the-scenes oligarchy.Of course the consequence of a

Bonfire of Real Wealth

has been the rise in private asset valuescontrasted against the decline and fall in realvalue of public debt. Some call it inflation.

But the general definition of inflation is the risein the price of goods and services. However, thisis a subtle shift in the blame the same asMarxists yell about the rich to justify takingyour wealth to pay for the state employees. Intruth, it is the depreciation in the purchasingpower of the currency and NOT the rise in theprices of goods and services. Likewise, the rich

don’t have tanks and cannot enact laws to

confiscate your wealth. The above chartillustrates the decline in the real value of government bonds. This has been the

Bonfire of Real Wealth

.Unfortunately, the general outlook of allgovernment bonds (

irrespective of the country

)is about as naïve as was the expectations in realestate and the leveraged mortgage market.Governments just keep borrowing with NOintention of paying anything off. Government isconsuming real wealth at unbelievable recordproportions. There are periods of regroupingwhere it will appear at first glance thateverything will be alright. This is merely the eyeof the storm. We have gone through the firstpart of building the debt, and now comes thehard part; confronting the debt.

ALL

government debt is in serious troublebecause they just never fund a damn thing. Thesolution is to always borrow and there is noplan to ever pay anything back. The behind thecurtain reasoning is they are burning money forfuel because they are always reducing the valueof prior debt that is never indexed to inflation.The US trillion dollar national debt in 1980under Reagan was the accumulation of costs fortwo world wars and social programs, has nowbecome

less than a single year’s expenses. So

past debt is always debased in valueperpetually.