In the last piece, we sort of left off in the 1970’s, when OPEC raised oil prices, and auto imports were increasing. By this time of course, taxes were so high, that moms everywhere had to go to work, in reality, just to pay the taxes. Not only income, but FICA and municipal sales and property taxes were going up pretty fast. Workers were bringing home less and less of what they were being paid. They didn’t realize that when they had $20 taken out of their pay for Social Security, their employer had to pay an equal amount. This is still the situation. Most employees don’t realize that their employer has to pay an equal amount for his or her Social Security, and on top of that, he must usually pay for the employee hospitalization, vacation, sick leave, unemployment insurance, worker’s comp, and a host of other things to stay “legal.”
In other words, not only were the workers bringing home less and less of what they earned, but their bosses were paying through the nose to keep them on the payroll. Corporate taxes added to employers’ burden as well, plus the factory property taxes were going up, as were the utility bills. As inflation hit, due to the ever increasing supply of money, no sector was exempt. As oil went from a couple of bucks to $40 per barrel, less and less spendable dollars were left after commuting to and from work, and now the baby sitters’ expense for mom going to work to help out. The cities were going, going gone, and working class America had to leave them and move to suburbia. Homes which had been owned for decades, and even passed down from parents to sons and daughters, were virtually worthless, due to crashing neighborhoods. Businessmen and women, who had operated neighborhood groceries, restaurants, filling stations, theatres, and dry cleaners were out of business, and their properties were virtually worthless also. The government was issuing no money down loans to just about anyone, and the money supply increased at an alarming rate.
In 1950, America got involved in the Korean conflict, which cost us 50,000 lives, and a short time later, Vietnam cost us close to 60,000. The costs of these foreign ’adventures’ cost a pretty penny, and the money supply to fight these wars, was obviously printed, as was the case in virtually all wars in history. Even our revolution was fought with printing press money, and George Washington was unable to get supplies at times because of it. Both the North and South resorted to it, and their currencies reached zero as a result. A look at newspaper advertising for groceries, autos, real estate, and all items bought with currency, indicated that during Korea and Vietnam, prices went up in direct relationship to the costs of the war. As the money supply went up, so did the things America seems to love the most, and that is the automobile. In 1970, the average price of a new car was $3542, and 14 years later, in 1984, it was $11,220. Now, 21 years after that, a new car can cost several times that. Are cars better than they were in 1984? Probably not, but their prices reflect the money supply.
By 1980, after a few years of Jimmy Carter, Iran hostages, giving away the Panama Canal, and Bunker Hunt attempting to corner the world’s silver supply, we had 13% prime rate, 21% mortgages, and a general unrest in the populace. Ronnie Reagan was elected, and he made America happy again, but he quadrupled the national debt, and oh boy, did the money supply and prices grow! The Japanese were our economic threat by then, and the Japanese auto imports had overtaken the European imports by hundreds of percentage points. The Japanese imports were having a really bad effect on the American economy, and the Japanese stock market was close to 40,000, so busy were the Japanese factories turning out TV sets, cars, computers, and all sorts of consumer desired products. The America economy slumped, and the money supply grew.
Eventually, the Chinese and Koreans discovered that they could make stuff to sell to America also, and with very cheap labor costs. What this process in Japan, Korea and China was doing, of course, was killing the American manufacturing sector. Factories which used to make Disston Saws, Philco TV’s and radios, Botany 500 men’s clothing, Stetson hats, and God only knows what else in Philadelphia alone, were abandoned, empty, and choices for arsonists. Allegheny Ave, used to have the route 60 trolley line which was filled with happy workers going to and from the many factories along that busy thoroughfare. Today, the trolley line is long gone, and no one goes to work in a factory on Allegheny Ave. any more. Other major cities share the same outcome from foreign manufacturing. Why? Because it costs a lot of dollars to have an employee. If a man makes $10 an hour, he is lucky if he can take home $6 after all the deductions. The employer pays probably $18 per hour for his $10 per hour employee. The difference goes to Uncle Sam for his taxes, plus various state, county, and municipal taxes. The employee has to pay taxes on everything he buys, every call me makes, every kilowatt of electricity, therm of natural gas, and gallon of gasoline he uses. 50% taxes? I only wish. They are much higher than 50%, if all taxes paid are figured in. A long time ago, I wrote a piece for Gold Eagle on how many taxes we actually pay. It can be accessed at the end of this one, by clicking on other columns I have written.
Recently, the one single English speaking country in the far east, India, got on to the band wagon. By coaching employees on the correct accent to use, the Indians have taken even the office staffs and phone answering sections of our economy. They figure our taxes, and have been educated on the IRS forms extensively. Call any financial institution about anything, and the chances of the call being answered in India are very good. Does that take care of the so called “service economy?” It isn’t so much that they pay low wages, because they do. The decline of manufacturing and clerical employment here, is because not only of their low wages, but besides low wages, their employers have to follow few if any government rules and deductions. Remember, 50 years ago, 75 cents an hour was an acceptable wage! The Japanese lost out to the Chinese and Koreans. The Mexicans have lost out to the Chinese also, and now even South Africa is seeing an influx of Chinese merchandise.
Why don’t we have competitive wages? Why do we have to buy virtually everything from overseas? Because our dollars buy very little, and the decline of the dollar, has had world-wide repercussions. Fewer and fewer nations in the world are loaning money to America, because America has proven to be a risk they increasingly feel is unacceptable. Since America basically runs on credit, if the credit reserves of not only the citizenry, but the government as well, runs out or has reached its limit, what will be the results? Not pleasant, I can assure you. Did you ever notice that things seem to happen suddenly? As an example, this week, precious metals prices went up quite a bit, and I had a lot of calls bemoaning that fact. “I wish I had called you last week,” was a common phrase. Ono one knows what will happen tomorrow, and for that matter, often why things happened in the past. As an example, the dollar went from a bit over 80 to close to 85, compared to other currencies in the world, and nothing that I can see caused an increase of optimism about the buck. Now it has gone down again, and of course metals prices responded nicely. But between last Friday and Tuesday (Monday the markets were closed), gold shot up $5 and silver 12 cents. Could I have predicted it? No.
Can anyone predict an earthquake? Wags say that a severe earthquake will hit the west coast between Feb 22 and 24, but it didn’t. No one knows what will happen tomorrow, but we do know certain facts, which will make us decide what to do, even though we may not know when these facts will cause actions. Beginning in 1995, the Social Security Trust Fund began inserting government bonds into the “trust” account, printing an equal amount of dollars and placing them in the general fund. Now there are 1.5 trillion dollars of paper bonds in that fund, with an equal amount of dollars more in the money supply. All created out of thin air. We give hundreds of billions of dollars each year to various nations who usually vote against us in the UN. This increases the money supply by that much. The M3 measurement of the money supply has gone up 250% in the last 14 years. ( I thought I could wrap this up in two sections, but I can’t. We still haven’t touched on real estate, welfare, retirement, and the like. More next week). Protect yourself.