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If “Getting Ahead” Depends On Asset Bubbles, It’s Not “Getting Ahead,” It’s Gambling

Charles Hugh Smith
April 24th, 2019
Of Two Minds
Comments (25) Read by 1,358 people

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This article was originally published by Charles Hugh Smith at OfTwoMinds blog

Given that the economy is now totally and completely dependent on inflating asset bubbles, it makes no sense to invest for the long-term.

Beneath the endlessly hyped expansion in gross domestic product (GDP) of the past two decades, the economy has changed dramatically. The American Dream boils down to social and economic mobility, a.k.a. getting ahead through hard work, merit and wise investments in oneself and one’s family.

The opportunities for this mobility in the post World War 2 era broadened as civil rights and equal rights expanded. The 1970s saw a disruption of working-class mobility as high-paying factory jobs disappeared, leaving services jobs that paid less or required more training, i.e. a college degree.

The U.S. economy took off in the 1980s for a number of reasons, including computer technologies, federal stimulus (deficit spending) and financialization (a topic I’ve covered many times). With millions more college graduates entering the workforce and the Internet creating entire new industries, the opportunities to “get ahead” increased across the social and economic spectrum.

But something changed in the aftermath of the dot-com bubble bursting. The fruits of financialization–highly leveraged debt gambled for short-term gains in markets–were extended to everyone with a job (or a willingness to lie) via liar loans, no-document loans and subprime mortgages.

Just like bigshot financiers on Wall Street, J.Q. Citizen could leverage a couple thousand dollars in cash (or even better, borrow the closing costs via a 105% of value mortgage and put nothing down) and buy a McMansion worth $250,000 or even $500,000.The only difference between bigshot financiers and J.Q. Citizen was the scale of the leverage and gamble: J.Q. Citizen could leverage a few grand into hundreds of thousands, while the financier could leverage a bit of collateral into mega-millions.

The goal wasn’t homeownership, the purported “official” goal of subprime mortgages: it was short-term speculative gains via “flipping” the house in a few months. Just like the bigshot financiers, the subprime mortgage market enabled marginal borrowers to take control of assets far in excess of their actual capital and sell them to a greater fool for a quick profit far in excess of their earnings.

Wall Street loved this distribution of financialization to the masses because Wall Street made a fortune packaging (securitizing) this toxic debt and selling it to unwary, credulous investors as “low risk” (heh) assets.

After the mortgage-securitization-fraud-housing bubble popped, a secular trend– wages for the bottom 95% of wage earners stagnating–accelerated. “Getting ahead” via earning a college diploma, working hard and counting on merit no longer worked; families with privileges and capital got wealthier, and everyone else found the purchasing power of their earnings declined even as stocks and housing soared.

The only way to “get ahead” in a globalized, financialized economy is either 1) earn at least $200,000 a year from one’s labor or 2) gamble in the inflating bubbles of stocks and housing. In high-cost regions, even $200,000 isn’t enough to get ahead (i.e. buy a crumbling bungalow on a tiny lot for $800,000) if the wage-earner has student loans and/or children; the household needs two earners making top-5% salaries.

The more money the central banks throw at stock-housing asset bubbles, the higher they loft, a process that has pushed housing in high-cost regions out of reach of all those with average jobs and incomes. So much for “getting ahead.”The economy has changed dramatically for the worse: getting a graduate degree no longer guarantees getting ahead (millions of other workers globally have the same credentials); working hard is equally iffy, and traditional investments in one’s family either no longer yields gains (higher education) or they are gambles in the guise of “investments” (housing).

Given that the economy is now totally and completely dependent on inflating asset bubbles, it makes no sense to invest for the long-term: a short-term gambling mentality is required to avoid getting destroyed when the bubble-du-jour pops.

Everyone who believes bubbles never pop, they only expand forever and ever, has never looked at a chart of the S&P 500 (SPX), which illustrates that bubbles always pop, destroying the capital of all who neglected to sell at the top.


If “getting ahead” depends on playing asset bubbles, it’s not getting ahead, it’s gambling.

Charles Hugh Smith has authored several books, including Money and Work Unchained. This book drags the now-popular concept of Universal Basic Income (UBI) from the shadows of Pundit blather into a harsh, illuminating light, and in doing so presents an entirely new view of the future that upends our conventional understanding of work and money. This book lays out a practical pathway that realigns work, money and human fulfillment into a sustainable system that sheds the inequalities and injustices of the status quo in favor of a human-scale way of living.

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Author: Charles Hugh Smith
Views: Read by 1,358 people
Date: April 24th, 2019
Website: http://charleshughsmith.blogspot.com/2019/04/if-getting-ahead-depends-on-asset.html

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25 Comments...

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  1. rellik says:

    I was bored so I dug into this “sell a book” post. One guy on Amazon left a very detailed comment on the book “Money and work unchained”.
    I would not bother to buy Mr. Smiths book.
    I’m still looking for the answer to the question, “What do we do with everyone, when systems and machines( robots and AI) puts massive numbers of people out of work?

  2. The Deplorable Renegade says:

    Correction: there is one long-term investment that makes all the sense in the world and that is PREPARING YOURSELVES AND YOUR FAMILY FOR EVERYTHING THAT’S COMING. I’ve avoided credit and debt all these years and invested everything I could save on long-term food supplies, water, medical supplies, extra clothing and footwear, weapons, ammo, etc. I’ve been a great many steps ahead of the SHEEPLE and still stacking. not falling behind at all. There’s a certain advantage to being debt-free.

  3. The Deplorable Renegade says:

    Rellik, one thing Smith did get right was the statement, “If getting ahead depends on playing asset bubbles it’s not getting ahead, it’s gambling.” Staying out of debt and constant prepping is getting ahead in my book.

  4. Heartless says:

    the house – in this case, fate – always wins. It is the real reason why we all come here and other like sites. At least I’m hoping all of us realize that the best investment is in ourselves, what we know, what we fully possess. Would I like to be rich? It’d sure be nice to have a money tree, magic wand, rub a lamp or something…. from the lottery to some rich uncle (which I sure as hell don’t have); but, I don’t. And most here most probably haven’t that kind of luck. I’ll just stick to what I know. Live within my means, enjoy the small gains I achieve and swear to protect and defend to my last dying breath …. my life and those I care for.

  5. Jim in Va. says:

    Robots and AI? Governments will get rid of those that they have to take of(sick,medicare social security,SNAP) anything that drains the treasury. A virus,disease,war……whatever it takes to pare down the millions upon millions…….planet wide. They will keep the few needed to serve the elites.

  6. Kevin2 says:

    The solution GLASS – STEAGALL as originally codified.

  7. In the next twenty to thirty years most of the baby boomers will have died, leaving their aged children behind. The grandchildren of the boomers will be mature and in charge. Otherwise, they will be a small, and for the most part, hated minority of primarily white descendants of primarily white boomers, themselves born after 1946 and before the 1960’s.

    This generation of x, y, whatever people will have to decide whether to keep up with Israel and China.

    Both these Countries practice Eugenics.

    Israel has used fertility drugs to increase the population. But this caused loss of IQ.

    However China has learned how to avoid this problem by waiting one year before implanting embryos.
    By doing this, hormones normalize and the results are healthy smarter babies.

    So, Americans will lose out or they’ll have to get in the game.

    The problem is, America is mult-cultural. So, unlike China and Israel who are both homogeneous Countries, Americans will probably fight over whose progeny should get the opportunity to be enhanced; every ethnicity, only the dumbest to make them equal such as sub-Saharan Africans, only whites who are less than these new smarter Asians but lightyears smarter than other ethnic groups.

    It’s a problem that must be confronted. What to do?

    It’s a bigger problem because of the change made in 1965 to open up immigration.

    It would have been a big enough dilemma in 1946, but now, yowzee, it’s a duzey.

    .

    • rellik says:

      Hp,
      You mention China and Israel. I think you left out India. They practice a de-facto eugenics due to their Caste system. The Asian Indians I have ever dealt with are really smart people
      ( although like Chinese, they are racist bastards).

  8. Anonymous says:

    It’s not gambling.

    Either you have an autistic gift for seeing patterns, or there was a formal guarantee of a payoff.

    It’s not gambling.

  9. Somebody is bullshitting somebody. Another caravan is on the way from Central America. Thousands. I looked it up. From Guatemala City to Brownsville, Texas is 1300 miles. That’s about the shortest distance. Ain’t no fat ladies with babies walking that far. Most of the young guys aren’t walking that far, either. The media is full of crap. The politicians are full of crap. Somebody is driving them north. Most likely the charities that profit greatly from taxpayer money. Enough, already.

  10. Smoke says:

    During the next few years, there will be a slight correction, then the Dow will hit 35-40 thousand. Don’t be a fool.

  11. watching and waiting says:

    Just put it simply— it is just financial suicide to invest now.

    Best investment is to pay off all outstanding debts. Of course all of you know that. But now more than ever.

  12. Rellik:
    I don’t know which other Countries are currently using gene altering and creating super-babies. But I read about China’s success in that area. And Isreal now averages 7 children per couple due in part to the widespread use of fertility drugs. I’m actually referring to designer babies. It is no longer science fiction.

    .

  13. Bert says:

    And Israel now averages 7 children per couple due in part

    from the stupid American legal citizen working taxpayer sending over $4 billion every year to a ‘bottomless pit hole in the ground’

    Let Israel fend for itself and send me the $4 billion each year.

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