The Greatest Threat to Your Wealth Today: “Crater Lake” Speech II

Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

“What is the greatest threat to your investments? Inflation.” — Paul Abbott (p. 148, The Maxims of Wall Street)

In the summer of 1984, my wife and I visited Crater Lake in Southern Oregon, one of the seven natural wonders of the world. As the nation’s deepest lake, it is breathtaking to behold. (See photo.)

Afterward, we drove down to San Francisco, where I was a keynote speaker at an investment conference. In keeping with the depth and significance of Crater Lake, I felt impressed to give a warning to the attendees.

My assigned topic was “The Greatest Threat to Your Wealth Today.” Normally, the answer to that question was, “The government.” Between inflation and taxation, investors can lose up 40% of their capital.

But when I looked at the program, I saw that, for the first time, exhibitors were the main speakers promoting their products. So, I decided to change my talk. I told the stunned audience: “The greatest threat to your wealth today is this conference!” I warned them that they were not getting an objective, unbiased view of their investments because the speakers were exhibitors who had a vested interest in promoting their products and not telling attendees the potential negatives.

For example, one speaker spoke about diamonds. He was a diamond dealer and failed to tell the audience of the pitfalls of diamond investment (illiquidity, poor grading, and bear markets).

Needless to say, the audience was shocked, and so was the organizer of the conference, who abruptly told me, “Your time is up!” I was not invited back for several years.

The Biggest Threat Today is…

My 1984 “Crater Lake” speech was published and reprinted many times. It hit a nerve with investors.

If I were to give my “Crater Lake” speech again, how would I answer the question, “What is the greatest threat to your wealth today?”

Frankly, I think I’d go back to my original talk. “The government is the greatest threat to your wealth today,” specifically taxation and inflation. If Joe Biden is elected, watch for a massive tax increase on investors. See my Skousen CAFÉ here.

Inflation is Coming Back

Inflation could also rear its ugly head again. Most economists, including my friend Steve Moore, are more worried about deflation — falling prices — than inflation. After all, the Consumer Price Index (CPI) rose only 1% in the past 12 months and actually fell in April and May of this year. It rose 0.6% in July.

But there are several forces at work that are likely to cause the cost of living to rise sharply in the future.

First, we are witnessing the most reckless monetary and fiscal policies since the Civil War. In response to the coronavirus epidemic, the federal, state and local governments have increased spending at an alarming rate — government as a percentage of GDP is now over 50%, the highest in our history. Federal deficits alone are now over $5 trillion a year.

The chart shows that deficits should decline after the virus crisis is over, but don’t count on it. If Joe Biden and the Democrats take control of both houses of Congress and the presidency, the deficits may grow even more.

The Federal Reserve is doing everything it can to accommodate government out-of-control spending, by purchasing Treasury securities, mortgages and pushing interest rates back down to nearly zero. The 10-year Treasury rate is 0.69%. It was 3% back in 2018.

The broad-based money supply (M3) is now growing at a 26% annualized rate, the fastest in peacetime history.

At some point, inflation will make a comeback, including in consumer prices.

Many times, I’m asked the question: “With the money supply growing at double-digit rates, why is there little inflation in the US, as measured by the CPI?”

There are reasons for this: As one example, the United States can export inflation because the dollar is the world’s reserve currency.

Moreover, the new money is going primarily into investment assets — stocks, bonds and real estate — rather than goods and services.

That could change quickly if the dollar collapses and import goods rise in price. The dollar is already showing some weakness.

Also, if the economy continues to struggle, while the government stimulates the economy with more “stimulus” checks and bailouts, we will see more money chasing fewer goods — resulting in inflation.

The second warning sign that inflation is coming back is the price of gold. It is an excellent indicator of future inflation, and it has been rising lately, hitting a record $2,000 an ounce before retreating. It’s now at $1,950 and the trend is upward.

The third warning sign is the trend in Treasury Inflation-Protected Securities (TIPs). The yield is rising, forecasting consumer prices to rise by 1.41% a year over the next decade, up from 0.5% predicted in March.

All three factors — reckless government policies, the price of gold and the price of TIPS — suggest more inflation ahead.

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You Blew it!

Joe Biden Fails History Lesson: Lockdown Was a Disaster

By Mark Skousen

Virus cases and deaths in the United States are in a sharp decline, and the COVID-19 crisis may end soon. Sweden and other countries are completely over the disease. And, here, there are improved developments in a vaccine and low-cost testing.

The Wall Street Journal reported today, “New Thinking On Covid Lockdowns: They’re Overly Blunt and Costly.” It states:

“Many governments deployed draconian tactics never used in modern times: severe and broad restrictions on daily activity that helped send the world into its deepest peacetime slump since the Great Depression.

“The equivalent of 400 million jobs have been lost worldwide, 13 million in the U.S. alone. Global output is on track to fall 5% this year, far worse than during the financial crisis…

“Five months later, the evidence suggests lockdowns were an overly blunt and economically costly tool. They are politically difficult to keep in place for long enough to stamp out the virus. The evidence also points to alternative strategies that could slow the spread of the epidemic at much less cost. As cases flare up throughout the U.S., some experts are urging policymakers to pursue these more targeted restrictions and interventions rather than another crippling round of lockdowns.”

Nevertheless, the authoritarians are still in charge, with many governors shutting down schools, events and conferences for the rest of 2020. I’m on a family vacation in Oregon, and the motels/hotels won’t allow anyone to sit down in the breakfast areas.

In contrast, South Dakota, under the guidance of libertarian governor Kristi Noem, is one of the few states completely free and open for business.

The state allowed the Sturgis Motorcycle Rally this week, attracting over 400,000 bikers. The establishment media is trying to portray the gathering as a reckless way to spread the disease, but so far, they have found only 70 cases from the biker convention and no deaths.

This is Scary

Joe Biden announced over the weekend that as president, his first order of business would be to sign an executive order mandating the wearing of masks nationwide and, if necessary, a complete shutdown of the economy, all with the stroke of a pen.

Regardless of how you feel about wearing masks, a greater problem is afoot: the draconian use of executive order to bypass the legislative process. Let’s hope the crisis is over by then, but the real question is: How did we end up giving so much power to a single individual (the president) in a so-called democracy?

John Maynard Keynes foresaw our day and warned of “madmen in authority” in both political parties!

If there’s one lesson we have learned from this health care nightmare, it is that we must limit the emergency powers of our leaders — presidents, governors and mayors. Our democratic system must not be destroyed.


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Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

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