The Great Debt Transfer

How the government is robbing Peter to bribe Paul...

(The way forward. Source: Getty Images)

Bill Bonner, reckoning today from Poitou, France...

“Sometimes I'll start a sentence and I don't even know where it's going. I just hope I find it along the way.”

-White House Press Secretary Karine Jean Pierre.

This morning, Bloomberg broadcast another painful performance by White House Press Secretary, Karine Jean-Pierre. Asked how the administration can square student loan forgiveness with its other fiscal goals, Ms. Jean-Pierre gave a rambling, incoherent response.

The only complete sentence we could detect was this:

"We do believe it will be fully paid because of the work this president has done with the economy."

Of course, it makes no sense. The president has done no ‘work’ with the economy at all. He has only burdened it with more costs, more regulations and more claptrap. Between the infrastructure, Ukraine aid, silicon chip and ‘green’ energy boondoggles, the Biden Bunch added almost $2 trillion in new spending. Debt forgiveness can only make inflation worse. 

But it seems a little mean spirited for Bloomberg to show the video of Ms. Jean-Pierre; it is like laughing at old person running to the bathroom. She needs sympathy, not mockery. After all, she must be in some sort of program for people who are ‘differently abled’ or with ‘special needs.’ Besides, the real problem is not her, it’s that so many federal programs are inexplicable… except as schemes to rob the taxpayers.  

How it “Works”

Scam them… tax them… rip them off… herewith a Dummies Guide for Ms. Jean-Pierre; here’s how it works:

The long-suffering middle classes stand in line to give their support to politicians… and then get stabbed in the back by them. Not once… but over and over…

And after so many wounds, they still don’t understand how ‘the system’ works… how it is designed to separate them from their money. A subsidy to the solar hustlers… ‘canceling’ student debt to buy votes… a huge gift to one group of thugs in the Eurasian heartland so they can kill another group of thugs – and all the money has to come, yes, from ‘The People.’

The salt of the earth… the common foot soldier and Girl Friday; they are “The People.” They think they are in charge. They think the feds work for them. But their thoughts are as muddled and misshapen as Ms. Jean-Pierre’s sentences.

Meanwhile, the feds…

…send their sons and daughters to fight in stupid, pointless wars – Iraq, Afghanistan etc.

…use their money to back corrupt regimes overseas and incompetent bureaucracies at home…

….lure them into debt with ultra-low mortgage rates, student loans and “Green” subsidies…

…and then pass an “Inflation Reduction Act” that actually forces them to pay even more for everything…

But wait… we’re not finished…

…hit them with the ‘inflation tax’… lower their real wages… then, increase house prices so they can’t afford a roof over their heads.  

The Fed’s Fiasco

The Fed lent money at such low rates that Wall Street firms were able to turn single family homes into an asset class. The builder made money. The realtor made money. The mortgage lender made money. And now a whole new intermediary was in the picture – making even more money off the middle class.

Families looking for a place to live often had to bid against billion-dollar corporations. Not surprisingly, the Wall Street firm won the auction; it was backed by the Fed’s money. And then, if there were capital gains to be made, Wall Street made them, not homeowners.  

Prices rose higher and higher, to the point where, in 2022 as in 2007, the typical family could no longer afford the typical house. And now… even the pros are pulling out of the single-family real estate market. And house prices are falling.

Here’s the latest. Bloomberg reports:

Blackstone Single-Family Landlord to Halt Home Purchases in 38 Cities

Home Partners of America to press pause beginning Sept. Company cites home price growth, market demand, regulations

Another ‘rug pull’ by the Fed? No, this time they are tearing out all the carpets and the kitchen sink too!

Those who decided to rent rather than buy aren’t doing so well, either. Rents are still rising. CNN:

US rents hit a record high for the 17th month in a row

The national median rent hit a new record high of $1,879 a month in July, up 12.3% from a year ago, according to Realtor.com. While rents have been hitting new records for nearly a year and a half, there are some early signs that the market may be starting to cool off: July marked the sixth-straight month of moderating growth, retreating from a 17% year-over-year rent increase in January.

What a beautiful flimflam – press down on the brow of labor a crown of ultra-low interest rates so they have to stretch to buy a house… and then crucify them with falling house prices!     

Regards,

Bill Bonner

Joel’s Note: Dear readers who are concerned the student debt jubilee effectively cancels $330 billion worth of student loans can relax. The debts are not being canceled. They’re being transferred… to you. Payment will come in the form of higher taxes, including decidedly non-“transitory” inflation (sometimes called the “sneaky tax.”)

Some economists have suggested the bill may add as much as 0.3% to the consumer price index, itself already tickling 40-year highs. Former economic advisor to president Obama, Jason Furman, was slightly less mathematical when he took to Twitter yesterday to explain: “Pouring roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning is reckless.”

Your editor doesn’t claim such precise knowledge about future inflation as do the nation’s leading economists… but having grown up as the son of a fireman in Australia, we know what a rip-roaring bushfire looks like, and you don’t want to be near one when it gets out of control!

Alas, that’s the set-up investors face. It’s what Bonner Private Research’s investment director, Tom Dyson, calls “inflation volatility.” Here’s Tom:

“We’ve now entered a new era of high but capricious inflation. This is the single most important long term economic fundamental you need to understand. It changes everything, and will determine the big trends in the markets for decades to come. Maybe even for the rest of our lives.”

Tom believes there’s a “generational regime change” afoot in the markets, in which the era of low rates, low inflation and high stock market returns (relative to gold) are over.

“[T]he stock market-to-gold ratio must fall,” he wrote to BPR members a couple of weeks back. “The Dow/Gold ratio is just an expression of the stock market’s value in hard money terms. Higher inflation, a higher risk-free rate, and lower valuations must mean a decline in the Dow/Gold ratio.”

New readers can learn how the Dow/Gold ratio works, and how Tom’s using it to help them protect their savings, in his Gold Report, available to Bonner Private Research members.

BPR Members can expect Tom’s latest market research to hit their inbox later today…