Hunger Games

By Dave Cantey © 2013 12-1-13

Someone said it, “Art presages history.” If so, then our future doesn’t look very bright. Take, for example, the wildly popular new movie, Catching Fire, the second in the Hunger Games series, where a centralized government attempts to control the masses through blood sports, a la Ancient Rome. Recent revelations about CIA spying on the homeland, and the centralization of power in Washington by the Federal Reserve, cause one to wonder. The Web is full of conspiracy stories that make interesting, and even hair raising reading, although most are simply not credible. Allow us to introduce you to certain actual vulnerabilities that make the US’s future quite fragile. Ours is a completely plausible scenario that has occurred elsewhere recently. To understand, one need only contemplate the graph below. Notice the dark exponential line, which depicts the wealth distribution in America today. Wealth is extremely concentrated in relatively few hands, which gives rise to the notion of the 1%. Wealth concentration is even more extreme now, due to the Fed’s money printing, which has benefited mostly only the super rich. Whereas, the Fed says it is concerned with the 7.3% unemployment rate, we suggest there is an even more important concern, which is the 15% of Americans living in poverty. These 46.5 million Americans (1 in 5 children) have received little benefit whatsoever from QE1, 2, or 3. These folks, living in poverty, are represented by Point A on the graph. What we wish to draw your attention to is Point B, which represents 60% of the US population. Notice that the difference between the two lines, P1 and P2, is not very great. Line P1 represents the poverty line at today’s price levels. Line P2 represents the poverty line as inflation moves higher. Currently, the Fed claims that the rate of inflation is less than 1%, but many economists say that if we calculate inflation today, the same way we did back in the 1980s, then the actual inflation rate is over 9% per year. The graph shows just how vulnerable we are to relatively small increases in general price inflation. What if suddenly the US found itself with 60% of the population (186 million people) living in poverty due to inflation, what do you think would happen? Answer: Just as in The Hunger Games, we would face revolution by hungry masses of Americans. Our cities would explode in violence. How likely is it that we will see serious inflation? Answer: Very likely! Why? Because all the money the Fed has printed in QE 1, 2, and 3 ($2.7 trillion) is locked up mostly in the debt markets (bonds). As interest rates continue to rise from their present artificially low levels, more and more bonds will be sold. As more and more bonds are sold, more and more of this trapped money will be released out into the general economy, and higher inflation will result. (Remember: Price inflation results when a greater money supply chases after the same quantity of goods and services.) Sound farfetched? Well, recall what happened during what is now called the Arab Spring, back during QE1. The Fed printed the money, the big banks lent the money out to the big hedge funds, and the big hedge funds chased commodity prices higher all around the world (Remember $150 oil back in the summer of 2010?). The Arab Spring started in Egypt later that year, when the cost of flour rose, causing the price of bread to double. Facing starvation, the people rebelled and toppled the government. In this country, when rebellion comes (and it will, and for the same reason), it will look like vandalism, looting, and retaliation against the rich. Humans will endure many things – a dysfunctional Congress, injustice in wealth concentration - but starvation, never.

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