The primary reason why the unraveling of our global Ponzi scheme economy will be so painful for many people is because of the incredible wealth disparities within our society. Globally, the top 0.5% of people control close to three times the combined wealth of the bottom 90%. The average total net worth of a person in the bottom 70% is less than the median American monthly income. Just spend a moment to think about these numbers. They truly are astounding.
Within developed nations themselves, the situation is not much better. As shown on the left, the wealth distribution within the United States is also incredibly skewed with the top 1% controlling 43% of the wealth and the bottom 80% controlling only 7%. A large part of the reason for this is related to the characteristics of our modern economic system discussed in the two previous pages on profiting from system inefficiency and speculation instead of production.
Another very important part of the problem is discussed more thoroughly in another series of pages starting here. The reason given there is simply that current monetary policy and our entire modern culture of consumerism encourages people to borrow and spend at ever-increasing rates. In doing this, unthinking consumers totally destroy their financial resilience and become incredibly susceptible to any kind of economic misfortune. In addition, such a crazy consumption binge greatly increases the velocity with which money flies around in the system, thereby allowing those selling certain consumer goods to become crazily rich. Completely spend-crazed consumers also give rise to regular price bubbles which market speculators can enhance and make tremendous unearned profits from.
But regardless of the way in which we got here, we have to start with where we are. And yes, at the moment we are at a point where the vast majority of consumers in the developed world (and even greater numbers of people in the world as a whole) have close to zero financial resilience. Zero financial resilience implies zero capacity to absorb economic misfortunes. And unfortunately, economic misfortunes will become increasingly common in the years ahead.
In the developed world today, our welfare states are supposed to take care of those who are unable to take care of themselves. But unfortunately, due to the lack of financial resilience within the general population, these welfare systems are in danger of being overloaded in the near future. And yes, the old argument that the very existence of a welfare state puts more and more people on welfare is getting more valid by the day. The US food stamp program is given below as an example of how the lack of financial resilience within the US population has been painfully exposed as the housing bubble burst in 2008.
In poorer countries, however, massive economic problems lead to starvation and bloodshed. The food price spike in 2008 gave a clear example of what can happen when people lose their ability to buy the most basic of commodities. Indeed, the massive populations and almost total lack of financial resilience characterizing the developing world today is a ticking timebomb now that our global Ponzi scheme economy is unraveling.
The more you think about it, the more tragic this becomes. In the developed world, the lack of financial resilience is just painfully embarrassing. A person who started investing just 15% of the median American income in the stock market 40 years ago would have been a millionaire today, completely secure and insulated against almost any economic misfortune. The average American could therefore have been totally financially resilient by this time, but unfortunately western consumerism has decimated saving rates over the past couple of decades, leading to the very unfortunate situation we face today. Just one glance at the graph below should give you a clear idea of the total lack of financial resilience among American consumers.
In the developing world, the great demand caused by western consumerism has also given rise to significant increases in the standard of living and large decreases in infant mortality. This is a very good thing, but unfortunately no meaningful efforts were made to encourage responsible family planning. To illustrate the importance of this observation, the world population growth forecast is given below. It is clear that it is not the world population that will be increasing, but actually the African and Asian population. Africa is an especially large worry simply because this continent really has zero financial resilience and is therefore extremely sensitive to large economic or ecological shocks. And yes, the greater the population, the more these shocks will be magnified and the greater the potential societal disaster becomes.
But OK, that is enough disaster talk for now. Let’s get a bit more positive with a look at the solutions.