SGM Metals: FED's Easy Money 'Wealth Effect' Creates 'Poverty Effect' for 95%!

PALM BEACH GARDENS, Fla. - March 18, 2013 - PRLog -- Zerohedge.com reports: [ Central banks' attempts to boost borrowing, consumption & wages by inflating asset bubbles leads to the poverty effect, not the wealth effect.

Central bankers have been counting on "the wealth effect" to lift their economies out of the global meltdown. The wealth effect concept is simple: flooding the economy with credit & 0% money boosts the value of assets such as housing, stocks & bonds. Those owning the assets feel wealthier, & thus more inclined to borrow & spend more money. This new spending creates more demand which then leads employers to hire more employees.

Unfortunately for the bottom 90% who don't own enough stocks to feel any wealth effect, the central bankers got it wrong: wages don't rise as a result of the wealth effect, they rise from an increased production of goods & services. Despite unprecedented money-printing, 0% rates & vast credit expansion, real wages have declined.

The unintended consequence of inflating asset bubbles to drive an illusory wealth effect is that speculative bubbles inevitably pop, creating a pervasive poverty effect. The asset bubble creates phantom collateral that households borrow against. When the bubble pops, they're left with the debt & debt payments ("the poverty effect") while the ephemeral "wealth" has vanished.

In other words, a sustainable wealth effect results from the wage effect, as rising production of goods & services organically boosts wages. The Fed & other central banks have it backwards: inflating asset bubbles does not increase wages or create a sustainable wealth effect; increasing production of goods & services bolsters wages which then leads to a sustainable wealth effect.

Inflating serial bubbles as a means of boosting more borrowing & consumption only leads to the poverty effect: an erosion of wages' purchasing power & the inevitable deflation of asset bubbles that leaves unpayable debt once the phantom collateral evaporates.

The Fed has been able to maintain price stability but not wage/purchasing power stability. That dooms its entire intervention project.

Simply put, central banks' attempts to boost borrowing, consumption & wages by inflating asset bubbles leads to the poverty effect, not the wealth effect. ]

The wealth effect has only been applicable to the top 10% of investors who own roughly 50% of all stocks. For the remaining 99% its a grand theft of epic proportions as they are made poorer by the devaluing of the dollars in the bank. The brilliant idea of the FED has been to simply reward their rich friends by giving them free money so they may eventually feel like expanding their business or hiring more employees when they are eventually flooded with enough free dollars & cheap credit. But when the consumers, the remaining 99% of Americans, are made poorer, its safe to assume that the consumer will be less willing to buy things they don’t need to survive which in turn assures the fact that those who the wealth effect benefitted wont expand their business but instead invest those dollars where they will get a return, the stock & bond markets they 'influence'. So we have another stock market bubble that has nowhere to go but down when those who benefited the most by investing the newly printed money decide they better dump their holdings before the 99% sell their stocks first & get the profits for themselves. Their fear is that the average Joe, who has been fleeced in this ‘recovery’, will decide to liquidate their investments, even though they have only recouped 1/2 of what they lost in the housing crash before they get to sell, thus creating a Mexican standoff in stocks.

This DOW 14K+ bubble has manifested because of 50% devalued dollars Helicopter Ben has been shredding in value before he drops them by the metric ton onto his banker buddies balance sheets. This preferential treatment allows them to put the dollars to work first & control markets. This allows them to set the trap for the sheep who will follow with their money when the talking heads on TV read the Wall Street drafted scripts that direct the public to follow the 1%. It is the tragic nature of mankind that it takes an all out catastrophe & bankrupting of humanity to force them to look far enough back in history to see the solution to the common man’s wealth preservation & profit that always existed before the bankers redesigned the world under their rules & introduced usury to mankind, gold & silver bullion.

When people realize they have contributed 10% of their post tax income on a yearly basis for 30 years & only have about 14/15 years worth left, they quickly realize they need a way to preserve what is remaining rather than going back to the casino with the balance of their life savings. Only then do they see they have been tricked into taking a portion of their labor vouchers (dollars) & throwing them on the roulette table in a casino & they are walking away poorer than if they simple taken that same monthly contribution & bought gold & silver coins for the past 3 decades. They realize they would have been buying silver at roughly $1.65 per oz & gold at roughly $135 per oz! NOT ONLY WOULD THEY HAVE ALL THEIR MONEY INTACT, BUT THE MONEY IN GOLD WOULD HAVE MULTIPLIED ALMOST 12 TIMES OVER & IN SILVER OVER 18 TIMES OVER!

When will you realize the DOW is at 14K+ because all the money the FED has magically created to bailout the bankers has cut the value of the dollar in 1/2 & you are now paying $2 for $1 of stock as a result? Who will be the first to take what ever they have recouped by the inflated stock market bubble & run into hard assets like gold & silver bullion?  The current global currency war is now in high gear & reaching a desperate level while the EU banks are on the verge of collapse. Here in America millions of people are being reduced from full to part time status to avoid Obamacare mandates which will cut their income in 1/2. Pay roll taxes are taking away an additional $200 of consumer spending. Big box retailers are closing hundreds of stores across the country & unemploying millions. Food stamp usage has doubled & govt. dependency is at an all time high. Sequestor is threatening 850,000 jobs while another 3,500 people are being ‘furloughed’ which results in a 20% reduction in pay. Maybe that’s why the corporate insiders are dumping stock at a record rate of 50/1 & running into the metals market now as they setup for the inflation play of 2013 when those dollars flee the stock market when the selloff begins. After all, what kind of a knuckle head doesn’t sell out when a market not only retakes its prior bubble popping point, but then presses on to make 9 record highs in a row afterwards? Know this, when the stock market bubble pops this time around they will no longer be able to deny that America is in the Greatest Depression & the real panic will set in, causing far more damage than we have ever seen before. You have been warned!