Can a Gold Bull Market Narrow the Wealth Gap?
Article originally submitted to subscribers on 12th December 2006...
I was sitting down to write this letter when my 76 year old neighbour knocked on the door and invited me over for a drink.
Not wishing to disappoint I took him up on the offer and found myself toasting on Johnny Walker Blue at 11 in the morning.
Whilst sipping the smooth blend our discussion turned to the Good Old days back in the Old Country (Germany). Seems as though, back in the late '50s, a man could quite happily make ends meet whilst his wife stayed at home to raise the family. I got to asking myself, what happened?
Ok, the markets haven't done anything material in the last 10 days so I'd like to talk about something which has been on my mind for a while - Wealth Inequality ...
I grew up in South Africa during the bad years of Apartheid. During those years it was clear who the have's and have-not's were. It was institutionalized, it was the law! It was obvious and sickeningly open.
Contrast with today where wealth confiscation is totally invisible to the masses. The theft is constant and accepted. And I'm talking about the ability of a Private Organization (the Federal Reserve) to print paper they call money with wild abandon. The fact is the Dollar has lost over 96% of its purchasing power since the Fed was formed in 1913.
Asset inflation has hollowed out the middle class
Over the last 20 years the effects of massive money printing has resulted in a near collapse of the purchasing power of paper versus Asset prices such as Property. With the result that we are forced to take on ever more debt to afford to buy houses, cars or a business.
The problem has become so acute that just to 'get by' today both husband and wife have to bring in an income. And that's with interest rates at generational low levels!
We are in effect working double as hard to afford what one of us could have supported 50 years ago.
Not in my books.
The net effect has been to hollow out the middle class by transferring wealth to an Asset Rich minority.
Gold and Wealth Inequality
The difference between wealth inequality in America today and the apartheid days of old - thankfully consigned to the history books - is that today discrimination is not institutionalized. There is no law against success because of the color of your skin or your religion. We are all free to act and protect ourselves from wealth confiscation by owning the only real wealth that exists - Gold.
Unfortunately, the great majority of the middle class is oblivious to what is happening and doesn't have the capacity to purchase a non-income producing asset. Tragically, as Gold revalues higher, as this Bull market evolves, the wealth gap will grow ever larger.
Take it from someone who saw the effects of disorganized wealth redistribution post-apartheid - it ain't pretty. If the current inequality is not addressed soon. If the asset rich are not willing to give up some of their wealth to the less fortunate, a rising Gold price can bring about violent and wholesale State sanctioned redistribution!
More commentary and stock picks follow for subscribers...