“We need a revolution every 200 years because all governments become stale and corrupt after 200 years.”
— Benjamin Franklin
Good afternoon, my intrepid Energy and Capital readers. Thank you for joining me again today as we attempt to suss out the meaning of value, the economy, and Wall Street. Yesterday, we ventured down the hospitable and wholesome path of church picnics, politicians, and debt.
We discovered a number of things about the quality of potluck cooking and the soundness of our money. I proposed that there are two things that lead to the destruction of the middle class, an ever-shrinking slice of society that is an important aspect of a free and just country.
The Center Cannot Hold
Those two things that hollow out the middle class are inflation and debt.
Many people believe that empires are built by heroes, swords, and victories, and are destroyed the same way. In certain aspects, this is true. But much like those politicians who believed that if you gave everyone a house, they would all hold middle-class values, they put the cart before the horse, the causality before the cause.
What creates the middle class is hard work, thrift, stable families, and a growing economy.
What creates empires is wealth, and what creates wealth is sound money and low taxes.
History is replete with examples of this simple theory, just as there are many empires that were destroyed by debt and inflation. Rome and the French monarchy spring to mind immediately. There are also more recent examples, including the Weimar Republic, Argentina, the British Empire, Zimbabwe, and Venezuela. Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
Our analysts have traveled the world over, dedicated to finding the best and most profitable investments in the global energy markets. All you have to do to join our Energy and Capital investment community is sign up for the daily newsletter below.
There are also many examples of countries that rose to great wealth on the backs of sound money and low taxes. These include all of the ones listed above and, more recently, Japan, China, and South Korea. Not all of them are democracies or hold strictly to the rule of law, but they all had low taxes and sound money — at least in the beginning.
Do you ever wonder why some organization would lend you $800,000 at 3% interest over a period of 30 years to buy a house? It doesn’t even know if there will be a house there in 30 years, and, if you're my age, there's a good possibility you won’t be there either.
It seems preposterous on the face of it and yet the highly complex dance of home buying and mortgages, default swaps, and all the rest of it not only works but is a key to building wealth.
But it all depends on certain fundamentals, such as the fact that property rights have been enforced for centuries and the U.S. dollar is perceived as sound. Capitalists believe that the value of the house will go up and the debtor will have more than enough money to pay it back, or eles they will make money through foreclosure or insurance.
However, if taxes get too high or money gets wobbly, capitalists will seek returns elsewhere. Money goes where it is treated best. You only have to look to Greece, where taxes are so comical that no one pays them.
A few years ago when then-President Trump was laying on the debt, I did the math and wrote that the U.S. debt would hit $30 trillion by 2030. At the time, I thought it was a bit crazy. Well, we hit that number last year. The national debt is at almost $32 trillion today.
The gross domestic product is a little above $26 trillion, which puts debt-to-GDP at 120%. In 1980, it was at 34%, and in 2000, it was at 57.85%.
In a little over three years, the U.S. will celebrate its semiquincentennial — 250 years since its founding. We will probably make it that far, but 2076 seems a bit of a stretch.
All the best,