Monday, October 21, 2019

No Fear at the Top Over the Next Recession

Recessions are simply a short intake-of-breath for the rich and there’s a reason why.

They invented a heads-I-win, tails-you-lose economic environment when we weren’t looking. It’s the nearest we ever came to alchemy—the turning of base metals into gold.

Let me explain.

In a recession—or even a major crash—two things happen.
1.  Things lose their value. Stuff like houses and cars and shoes for your kids are cheaper.
2.  Money doesn’t do that. Money increases in value. The cash you stashed under the bed, because you didn’t trust the banks, will buy more after a recession.

But you and I, along with other ordinary folk aren’t able to buy more, because our beds have feathers inside, so it doesn’t help us. We’re having trouble enough paying the mortgage and keeping our kids in school.

But the rich, the wealthy, whatever you choose to call those dudes at the top, have lots of money—or access to it, which is pretty much the same thing.

Those in this favored class always buy heavily when a market bottoms out and if you own real-estate or heavy machinery, there’s no better time to buy more. Recessions bring enormous amounts of goods at auction and lots of good stuff is on the block, from private jets to underwear.

Here’s another interesting thing. Warren Buffet’s been recently criticized for hanging on to $122 billion in cash at Berkshire Hathaway rather than investing it. My take on it is he sees a serious recession coming on and, unsure of its timing, is holding on to the dough. If things are worth less and money is worth more, he’s simply patiently waiting, like a frog on a lily-pond that knows a big bug will soon come along.

So the Dow Jones keeps going up and the banks announce record earnings, because it’s not their money they’re playing with. After all, what happened the last time? Those on the bottom lost their homes and jobs, while those on top played various versions of “Happy Days are Here Again.”

No hedge-fund manager or bank CEO is going to lose his multi-million dollar a year job, so you’re not likely to find much panic in that rarified atmosphere.

Too big to fail finally has a corollary…

…it’s called too rich to fail.

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