Sunday, April 15, 2012

Update on the Road to Plutocracy

This is an update to the earlier blog entry in which there is a case to be made that there is a full-scale plutocracy in the forecast for the United States. More developments in the last several months strengthen the case for a coming plutocracy. The Unites States has clearly become more plutocratic over time on President Obama's watch, continuing the multi-decade trend that goes all the way back to the Reagan Administration Period. The case for a plutocracy is also compatible with the Elliott Wave Principle, as plutocracies fit the character of a large degree wave B in the economy, within a bear market of at least Supercycle degree.

Here are some of the latest developments that bear evidence of a coming plutocracy:

1 -- The wealth gap between the rich and the working class in the United States continued to widen during the Obama Administration Period, continuing the trend that also played out during the Bush 43 Administration Period. The gap between the rich and the working class in the Unites States is now comparable to places such as Serbia, China, and Rwanda. Even now, people on the low end of the top 1% make over 10 times as much ($250,000 a year) as a typical worker ($25,000 a year).

2 -- The top 1% have captured 93% of nominal GDP growth during the Obama Administration Period, compared to 65% during the Bush 43 Administration Period and 45% during the Clinton Administration Period. Working class wages accounted for 20% of the nominal GDP growth under Clinton, falling to 6% under Bush 43 and then dropping below zero (1% in 2010, dropping below zero in late 2011) under Obama. We are now seeing the effects of President Obama's economic policies, and the result is a larger chasm between the top 1% and the bottom 99%.

3 -- There is more evidence that President Obama has cast his lot with the top 1% -- in February 2012, he put up a proposal to cut the corporate tax rate from 35% to 28%. This is the same type of voodoo economics that was implemented by Reagan and Bush 43. Indeed, the advent of voodoo economics (also known as trickle-down economics) corresponds to the start of Cycle wave V (1974 - 2000).

4 -- The poverty rate continues its relentless rise with extreme poverty hitting record highs. This trend underscores the extreme weakness of economic fundamentals. The actual poverty rate in the United States is likely closer to 30% as the official poverty rate thresholds are not indexed to the actual inflation rate. This also reflects persistent weakness in the job market -- while the economy has created 2.7 million jobs from the low on December 2010, virtually all the jobs created have been part-time jobs that pay minimum wage with no benefits.

5 -- Another effect of the coming plutocracy is food hardship -- over a third of US households have had difficulty putting enough food on the table at some point in the last 12 months due to food prices rising relative to wages. This scenario is not surprising since commodities have been rising faster than stocks (It's all the same market in a deflationary environment and a robust bear market rally is unfolding now) and will continue to do so until the "Extend and Pretend" phase (Cycle wave x) ends. Couple this with persistent wage deflation and its no surprise that food is getting more expensive for the typical household.

6 -- Homelessness is on the rise with people that were previously successful ending up on the streets after losing their jobs and the subsequent long-term unemployment that followed. This trend is a precursor to what will come in the future -- every major city in the United States surrounded by "Obamavilles" in the suburbs as "The Great Deflation" continues to unfold, a parallel of the "Hoovervilles" that appeared during the Great Depression.

7 -- President Obama is also pushing for a "super-NAFTA" in which more free trade agreements are implemented extending all the way to South America. The effect of a super-NAFTA is quite predictable. Back in the 1992 election when Bill Clinton proposed NAFTA, Ross Perot warned about a "giant sucking sound" that would take place is NAFTA were to be implemented. Ross Perot's prediction was since fulfilled in the aftermath of NAFTA going into effect in 1994 -- slowly at first, but now a deafening roar as millions of living wage and family wage jobs continue to be outsourced every year. The effect of a super-NAFTA would therefore be the loss of all remaining living wage and family wage jobs as corporations find new places for cheap manufacturing and labor. The advent of a super-NAFTA would play a strong role in purging the last of the family wage jobs on Main Street by 2015 with the last of the living wage jobs on Main Street purged by 2020.

It is very clear that the United States is on the road to becoming a full-blown plutocracy. The trend has accelerated during the Obama Administration Period. Some people already characterize the United States as a plutocracy, but there is a case to be made that the country is currently in a transitional period where there exists a hybrid of democracy and plutocracy. The transitional period started in 2000, corresponding to the start of Grand Supercycle wave [IV] and the start of "The Great Deflation". The US economy stopped creating family wage jobs in 2000 and stopped creating living wage jobs in 2007. The transitional period will continue for the duration of Supercycle wave (a) until the nadir of "The Great Deflation" is reached in 2042. During Supercycle wave (a), everyone will take a massive hit from the deflationary collapse in the economy. The deflationary collapse will unfold in full force with the start of Cycle wave y in 2021 in which 90% of corporations and businesses implode by the time the bottom is reached. However, the bottom 99% will lose ground faster then the top 1% will, so the wealth gap will continue to widen.

Given the road that the United States is currently on, it does not matter whether Mitt Romney or Barack Obama wins the November 2012 election -- whoever wins, we (the 99%) lose. Both Romney and Obama have cast their lot with the top 1%, ensuring that the inevitable road to plutocracy will continue.

Every plutocracy has an engine, and the one that is coming in the United States is no exception. The driving force of the future plutocracy has already been identified -- Koch Industries and its extension, the American Legislative Exchange Council (ALEC). The structure for the coming plutocracy is already being built and the stage is already being set. ALEC was founded in 1975, just a short time after the start of Cycle wave V (1974 - 2000). Koch Industries was founded in 1940, but its political activism started in 1977 with the founding of Cato Institute, also a short time after Cycle wave V (1974 - 2000) started. The socionomic model explains why ALEC and the political activism of Koch Industries appeared when they did -- that was when the social mood of the United States population became favorable for the organizations to carry out their political agenda.

Big Oil will certainly survive through "The Great Deflation" intact. With the advent of Supercycle wave (b) in 2042, alternative energy will drive the "Green Technology Revolution" in Canada, Western Europe, Japan, South Korea,  Australia, and Brazil. However, alternative energy will never take root in the United States -- the Koch-ALEC cabal will have a strong enough stronghold on the government (both state and federal level with many lawmakers being members of ALEC) and the country to shut down all forms of alternative energy in the country through unprecedented lobbying power. At the beginning of Supercycle wave (b) in 2042, all the oil companies will be folded into Koch Industries and all the corporations and large businesses that managed to make it through the deflationary collapse of the economy will be folded into ALEC. With the merging of corporate power into the Koch-ALEC cabal in 2042, a full-blown plutocracy is born. The top 1% will pull away from the working class at a greatly accelerated clip with living and economic conditions on Main Street comparable to the 1930s.

The appearance of a plutocracy from 2042 to 2076 fits the character of Supercycle wave (b) as B waves are technically weak with weak breadth (only a small cross section of stocks take part in the advance in the stock market, only a small cross section of the populace will take part in the return to prosperity in the United States). Just as fifth waves are weaker than third waves, B waves are weaker than fifth waves by every measure. The nominal GDP of the United States is likely to hit new highs by 2076, but virtually all of the increase will go to the top 1%.

The Koch-ALEC cabal will be unstoppable until the plutocracy peaks in 2076, corresponding to the beginning of Supercycle wave (c). It is very likely that the Koch-ALEC cabal will start overplaying their hand in 2074, thereby sowing the seeds of their own destruction, as we approach the peak of Supercycle wave (b). Once Supercycle wave (c) -- "The Great Tribulation" --- starts, the Koch-ALEC cabal will suffer damage from their own seeds of destruction, exposing more and more cracks in the formerly impenetrable armor. A combination of the plutocracy taking damage from their own seeds of destruction and bearish social mood associated with Supercycle wave (c) motivating the 99% to take their country back will eventually bring about the downfall of the plutocracy in 2118 as the Grand Supercycle degree bear market reaches its epic climax.

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