The End of Truth

Screen-Shot-2014-06-02-at-4.54.06-PMI’m tired, both mentally and physically. We just finished our three-day Irrational Economic Summit in Palm Beach, Florida, and the event ran at breakneck speed. From Harry’s opening comments to the closing panel I moderated with Harry and Dr. Lacy Hunt, the ideas and information never stopped.

But the audience, both live and watching on our streaming service, needed it.

I needed it.

The conference served as a reminder of how things stand in our economy – low growth, exceptionally low interest rates, low productivity – instead of what we’re usually told to believe.

And it shows us how best to move forward.

Lacy put a fine point on the notion by referencing a work of F. A. Hayek, The Road to Serfdom. The book includes a chapter titled “The End of Truth,” in which Hayek explains how agencies (governments, etc.) use propaganda to shape the beliefs and actions of populations. To persuade the people, the agencies create a moral backstory or justification for their actions or view that offers opinions as facts. These creations often weave shared ideals into the narrative.

In the process, truth is killed to keep the propaganda alive.

It’s easy to see this from the outside when looking at countries like North Korea, where leaders portray America as the Evil Empire just waiting to invade, so all citizens must sacrifice to maintain a robust military that keeps the Americans at bay.

But it’s harder to spot when the same tactic is used in democracies because there’s not a single controlling interest. And yet, it still exists.

Borrowing Money from Tomorrow to Pay for Today

There are many examples in play today, but a main focus at IES was central bank action. It has become accepted truth that the Federal Reserve saved the nation from the next Great Depression, proven by the fact that, after they started intervening in the markets, the equity markets rebounded and the U.S. pulled out of recession. But does that really prove the point?

The Fed’s first quantitative easing (QE) program used $1.25 trillion to buy U.S.-guaranteed mortgage-backed bonds from banks. The move broke open a market that had become locked, which was good, but that’s why the Fed was set up in the first place. After that, successive QE programs were meant to foster economic growth, bring down unemployment and create inflation. Those all sound like great goals, so who would be against such things?

We’re in our sixth year of sub-3% growth, and most likely in the second year of sub-2% growth. Inflation exists in healthcare, housing and education, but deflation is the biggest risk. Sure, unemployment dropped, but can the Fed – or anyone else – prove that wouldn’t have happened anyway?

While the positive gains from central bank intervention are questionable, the unintended negative consequences are not. The international bond market is in a bubble, as are real estate prices, while savers are forced into risky assets to make ends meet. Government debt has exploded since the cost of carry (interest cost) makes additional debt seem inconsequential.

As Harry noted time and again throughout the conference: all bubbles burst. All of them. Without exception.

The Right Message, at the Right Time

U.S. economic growth isn’t about to explode, no matter how many times we’re told such a thing is just around the corner. Real estate prices from Vancouver to London are fading. Chinese growth is slowing and their own property bubble will cause shockwaves when it pops.

And yet, all of us must navigate our way through these times. We have to protect and grow our wealth the best we can. That’s why, in addition to global thinkers and luminaries, we also heard from Dent Research speakers who provided actionable ideas, like Adam O’Dell, Lance Gaitan, John Del Vecchio and Ben Benoy.

They got great feedback from the 400 to 500 people that joined us live at the event, and positive comments from the additional audience that tuned in online. (You can access the IES Digital Replay Kit here.)

It was the right conference, with the right message, at the right time. As long as we’re able to come together and share such information and ideas, we can fight to find the truth, and even plan a profitable way forward.

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Rodney

Follow me on Twitter @RJHSDent

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Categories: Central Banks

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.