Kyle Murphy's Blog

Only wars, royal marriages, coups and a few other major occurrences have caused large redistributions of wealth over history--think of the American revolution taking wealth from the United Kingdom or the Hapsburg royal family gaining wealth and land through marriage. But a redistribution of wealth on an unparalleled scale will start to occur in about 10 years and last for about 20 years. There will be lot's of dead bodies in this redistribution scenario but there will be no wars or coups. About 77% of the wealth in the US will be redistributed and probably similar amounts in other developed countries. 

The sky is falling, the sky is falling...if you believe what some economists are saying about future inflation in the US rising exponentially due to the government's large injection of money into the economy. But since most economists haven't really got much right recently, why should we listen to them this time? The fact is, we shouldn't.

Now that Wall Street is drinking the kool aid of recovery and dreaming of glory times past, Main Street and Joe American would be wise to avoid the party. Yes, the worst of the recession is probably behind us, but that doesn't mean we're on the fast track back to where we were economically.

It seems every week there is a new acronym for a group of nations cooperating economically--from the G7 or is that G8, and the G20 to ASEAN, APEC, CAFTA and CONCACAF, not to mention NAFTA and the EU. While most of these groupings are logical from a geographic, political, or economic synergy sense, another national grouping getting significant press is the BRIC, which makes no sense.

When you eat too much food, the body stores those extra calories in fat cells. If you keep overeating the body becomes obese and starts to break down with diabetes and other nasty ailments. If those symptoms don't deter the overeating, the body will eventually fail...game over. Our economy and society is like a living body, it requires a balanced diet of saving/investing and consumption to remain healthy. Two much saving/investing (like eating too little) will starve the economy's growth and lead to unemployment. Conversely, too much consumption (like eating too much) will over inflate demand and increase debt leading to economic bubbles (sound familiar). So too much of either and the economy becomes like an unhealthy malnourished or obese body.

No doubt you've heard that the finance system is broken (sic). Banks, hedge funds, investment banking...the list goes on and on of those in the finance ecosystem that have broken business models, economics, and portfolios from taking on excessive risk. But there is another very important finance player that is broken but for the complete opposite reason. Venture capitalist firms have been an important player in spurring innovation and creating successful companies for more than 40 years; helping to early-stage fund companies such as Intel, Apple, and Google, just to name a few. 

"Le laisser-faire, c'est fini." Capitalism is dead, long live capitalism, so declared French president Nicolas Sarkozy. Socialist believers and capitalist naysayers are celebrating the collapse capitalism. If you believe that, then we'll all be farmers soon. The collapse, or really seizure of the credit markets and financial system is real but capitalism continues to survive and thrive. While credit and finance is the lubricant for modern capitalism, it is not capitalism itself. Just like an engine, if you put too much oil in it, it damages the engine. The situation we see now in the economy is directly a result of too much lubricant (credit). As credit is reduced to healthy levels, capitalism will continue to thrive and evolve.

Yes, the Irish famine did occur, but it didn't need to. On this coming St. Patrick's day when everyone celebrates the glory of the Irish, I felt it necessary to help spread the real story of the Irish famine of the mid-1800's. In 1847 alone, 400,000 Irish died and a total of almost 1,500,000 died due to starvation (not to mention the 2,000,000 or so that emigrated to North America), but it wasn't due to a shortage of food. Yes, there was a potato blight that damaged much of the crop but there was plenty of food produced in Ireland to support the population. The famine was brought about by the British and their supporters who from 1845-1847 took 26 million bushels of corn, 257k sheep, 481k pigs, 186k Ox, 10k cattle, 4k horses, 1 million gallons of butter, 1.7m gallons of grain alcohol, and 4k ships of peas, beans, rabbits, salmon, honey and potatoes from Ireland to British ports. The forced starvation of the Irish was a culmination of several hundred years of effort by the British to wipeout the Irish, starting with Oliver Cromwell--the Hitler of Britain. Cromwell started this well-documented genocide effort in the mid-1600's. The Irish are not fully innocent in this debacle as some middle-class and wealthy Irish made loads of money exporting the goods to British even while their kinsman were dying. The Irish famine was avoidable but this type of genocide and class warfare still occurs in our "civilized" society today. Why else would the richest nation in the world have millions of homeless people starving on the streets? Instead of raising our beer glasses this St. Patrick's Day we should lower our heads in shame for humankind's history of treating so many living creatures, now and in the past, so poorly due to our greed.

I can't believe the number of people that have lost everything by investing with Madoff. While I feel empathy for those who lost money, who puts all their money in one place and doesn't know what the investment is backed by. The first rule any amateur or professional investor learns is to diversify. Never put your money in one stock, bond, company, industry, sector, etc. This includes your house. If people are so lazy they can't even handle the simple oversight of their wealth and investments, than maybe they don't deserve it. We should all learn several investment lessons from the Madoff debacle...diversify, don't invest in anything you don't understand, and if it always goes up and sounds too good to be true, it is.

The first step is to acknowledge our problem...America, we're addicted to growth. I started writing this entry over a year but never finished it, until now. Now I find myself feeling some level of personal satisfaction as the U.S. convulses and hemorrhages as it begins detoxing itself from it addiction to growth and debt. No, growth and debt are not bad, but the debt and growth abuse we put our economy and culture through was unhealthy and was going to eventually kill us. Thank goodness the credit market seizure served as a wake-up call and intervention in one shot.