The Real Reason You're Not Rich

“The river, which runs and winds about in its bed, will not flow with double the speed when the amount of water is doubled.”

— Richard Cantillon

Dear Reader,

It’s hard to save a buck these days.

Rising rents…

Sky-high mortgage rates…

Inflation in every sector of the economy, from groceries and gas to automobiles…

We all know stocks are overvalued as well…

But somehow with each passing month, the rich get richer while the rest of us suffer.

According to the Lending Club, 60% of Americans are living paycheck to paycheck. With rents rising and wages staying stagnant, working Americans can’t afford to live in major metropolitan areas. And U.S. Census data confirms 40% of Americans are struggling to afford household expenses like rent, transportation, and food.

Meanwhile consumer spending is at an all-time high, which feeds this unsustainable cycle. Consumers keep buying the newest everything… iPhone, SUV, laptop, you name it.

It’s just one of the habits that keeps money out of our hands.

Meanwhile, the people at the very top are richer than you can possibly imagine.

We got word last week that Google CEO Sundar Pichai received an astronomical compensation package last year.

You might need to sit down for this…

According to TheStreet, with salary and stock grants, Pichai was paid a mind-blowing grand total of nearly $226 million. That’s 808 times the median salary at Google!

The compensation comes at a time when the Big Tech company just laid off more than 10,000 workers. Not to mention, the company’s stock price fell nearly 40% last year, leaving investors in the lurch.

The irony and poor optics of this shouldn’t be lost on anyone.

Speaking of out of touch, according to The Hill, in Biden’s upcoming fiscal 2023 budget, the administration is proposing an annual 20% tax on unrealized gains for taxpayers with more than $100 million in stocks, real estate, and collectibles. The Senate Budget Committee is openly debating whether to tax unrealized asset gains as we speak. Sure these are the super wealthy we’re talking about here, but I thought Americans all agreed that more taxes equal more problems.

The article says there would be significant compliance and administrative issues with this tax, not to mention a loss of capital here in the U.S…

Many assets cannot easily be valued, so both the taxpayer and the federal government would be required to hire armies of accountants and lawyers to determine valuations.

A tax on unrealized gains would harm the economy. Taxpayers impacted by the tax on unrealized gains will be incentivized to move overseas in order to avoid the tax, moving much-needed capital outside the U.S. For those who keep their assets in the U.S., this tax would still lead to a reduction in new investment in the economy, harming working families via wage reduction.

The Biden tax will create new complexity in the tax code and expand the power of the IRS. It will wreak havoc on the economy and likely grow to hit far more Americans than intended.

At the end of the day, trying to value assets without real market transactions simply doesn’t work, nor does it make any logical sense.

But it also shouldn’t come as a surprise given the way money flows through our economy.

The Cantillon Effect

This is something you’ll be hearing more about as money troubles continue here in the U.S. and we possibly enter a recession, if anyone admits it.

For all the reasons mentioned above, Americans just aren’t saving any money. And if the rich are liquid, the government just wants to tax it all away.

So we need to look at what happens to an economy when the money supply increases but savings do not, especially with the ongoing debt ceiling debate.

Modern economists and politicians tend to agree that in order to maintain a prosperous society, you need to print more and more money. But Richard Cantillon dispelled this myth in his 1730 Essai sur la Nature du Commerce en Général.

In it, he wrote, “The river, which runs and winds about in its bed, will not flow with double the speed when the amount of water is doubled.” Just because there’s more money doesn’t mean it will trickle down in a meaningful way.

Cantillon describes money in the form of gold and silver, as that was the standard in the 18th century. He posits that when a new gold mine is discovered, it increases prices and changes who has the wealth. The owners of the mine and miners will receive the wealth first and spend it on luxuries like cheese and wine (food of the rich) instead of bread and beer (food of the poor). This in turn will cause the prices of all items to rise and even shut down many businesses. This injection of new wealth disrupts the economy at the injection site and creates inflation.

The Cantillon effect shows that when there’s an increase in money supply, the first recipients (i.e., the wealthy) always benefit the most. Proximity to the new money matters. Those with access to it will spend it when goods are cheap, which will cause prices to rise, but once the money finally trickles down to the masses, it’s too late and prices have already risen. The masses rarely benefit. In other words, those closest to the king will prosper.

Fast-forward to today and we can see this effect very clearly throughout our current society…

Those closest to the money printer will benefit the most.

The bank bailouts of the 2008 financial crisis…

The measly COVID checks while Big Pharma made millions off the pandemic…

Congressional stock trading before the pandemic, Ukraine War, and Silicon Valley Bank collapse…

It’s no wonder Cantillon isn’t part of the mainstream economics literature.

Now, it's a fair argument that Bitcoin could step in and save us from centralized, non-neutral money printing.

Bitcoin Magazine made this compelling argument for the coin…

We are all very aware of what a closed and centralized monetary system leads to because we live through it every day. Centralization certainly has its use cases, but not when there is a lack of accountability for the dilution of an individual’s labor. Creating money from nothing continues to plague a person’s productivity and ability to get ahead in life. With Bitcoin, the accountability is placed on the individual rather than an institution or on self-appointed bureaucrats who are too far removed from the realities of most people’s situations. There are very few people who understand how money is created and how governors within Federal Reserve branches decide on “acceptable” inflation rates. How much is too much inflation versus how little is too little? Fiat becomes more akin to improv theater than actual science. Rules are broken when deemed necessary by those in power, while citizens of nations have no say in what is best for their monetary interests.

I couldn't agree more, but tell that to everyone who bought Bitcoin at $60,000.

No, a different form of money isn't the savior; the same problems will exist.

Humans are just as greedy as they were in the 1700s when Cantillon was around.

Get the money out of politics, because until we do, those closest to the money printer will continue to profit — even through a recession.

Stay frosty,

Alexander Boulden
Editor, Wealth Daily

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After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing.

Alexander is the investment director of Insider Stakeout — a weekly investment advisory service dedicated to tracking the smartest money on the planet so that his readers can achieve life-altering, market-beating returns. He also serves at the managing editor for R.I.C.H. Report, a comprehensive service that uses the highest-quality investment research and strategies that guides its members in growing their wealth on top of preserving it.

Check out his editor’s page here.

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