RANTING ANDY – Past is not Prologue.
These four words have been inculcated into me over the past 20 years of academic and vocational pursuits. In other words, NOTHING is certain except death and taxes.
In financial markets, no matter how much research one does about historical correlations, causations, or technical formations, there is no certainty that such patterns will reoccur, even under seemingly identical circumstances. Of course, it is POSSIBLE that “history will repeat”, and frankly it often does. But “often” is not enough to bet on, particularly with other people’s money.
Today’s financial markets are exponentially more complex than a decade ago, let alone prior periods of economic stress in the U.S. and other Western nations. Derivatives, which are largely traded “off the grid”, have as much influence on asset (and liability) prices as organized exchanges. Moreover, nearly all markets are now heavily manipulated, particularly the stock market (President’s Working Group on Capital Markets), bond market (“Quantitative Easing”), foreign exchange markets (Exchange Stabilization Fund), and of course Precious Metals via the gold and silver Cartel.
As relates to the United States, the most common comparisons bandied about are to the 1970s inflationary recession and the 1930s Depression. However, except that both represented bad economic times, I see not a shred of commonality between those bygone eras and the crumbling America of today. In fact, despite what your grandparents tell you about their experiences in the 30s, I’d give anything to trade today’s (and tomorrow’s) horrors for the “good old days” of the Great Depression.
Back then, Wall Street and the Fed again created the problem with too much credit and speculation in the “Roaring Twenties”, once again causing an economic conflagration that injured Main Street and the middle class much more than themselves. But the dollar was gold-backed then, so inflation never a problem. There was no PPT, no IMF, no G-20, no gold Cartel – in fact, next to nothing artificial except for a few dumb laws such as Smoot-Hawley.
In a decade’s time, the excesses of the 1920s were completely cleansed, enabling the U.S. to commence a Golden Age of prosperity in the 50s and 60s. But alas, just two decades after Bretton Woods (1944), when the U.S. took its first step away from the gold standard, the power of unrestricted money printing got to its head. Lyndon Johnson’s “Guns and Butter” campaign of unlimited social and military spending marked the moment, in my view, that the U.S. turned to the dark side of the force. Since that era, EVERY single U.S. president has expanded both the military and global entitlement spending, up until the modern era when Bush and Obama turned the slope of the spending graphs parabolic.
Realizing the rest of the world not only was powerless to stop it, but a willing conspirator in America’s “naked spending” scheme, Washington and Wall Street created the bipartite axis of evil that has since destroyed the Western World financial system. What occurred in the late 1970s was for the most part a run-of-the-mill recession, exacerbated more by the Arab Oil Embargo than actual monetary inflation, which frankly was inconsequential compared to what it has now become.
Yes, the U.S. used an uncompromised CPI calculation at the time, which fueled fear in consumers’ hearts (the polar opposite of today, where a rigged CPI enables the populace to drown like lobsters in a slowly boiling pot). And yes, the zeitgeist of the time was more likely to prematurely worry about inflation, as opposed to today when the primary concern of society is texting, video games, and Lindsey Lohan.
But aside from that, not a single comparison at all. The U.S. had just abandoned the gold standard in 1971, so its external debt was only $700 billion or so when that recession hit, a pittance compared to America’s economic, industrial, and military dominance of the time, not to mention the backing of 8,000+ tonnes in Fort Knox, which had yet to be surreptitiously sold and leased out. That recession took just a few years to run its course, doing little if any damage to America’s fabric, and frankly not registering more than a blip in the nation’s long-term economic growth.
Unfortunately, in just a few short decades, the entire financial system has been left in ruins by the aforementioned “leaders” in Washington and on Wall Street. The 2010s will not represent a “chapter” of U.S. economic history, as was the case with the 30s and 70s, but the END of U.S. economic history. And no, I did not stutter or mistype, this is not just the end of the failed dollar reserve expirement, it will likely be the end of America as we know it.
In other words, what we are about to witness is UNPRECEDENTED.
A major contributing factor to the future of America, as is the case with Europe, is that it is NOT homogenous. This currently unrealized, or better put ignored, trait will become mainstream very shortly, as soon as the fires of inflation accelerate skyward in the coming years, or perhaps even months.
The Eurozone is comprised of 23 countries, each of which had its own currency, language, and culture centuries before creation of the Euro in 1999. When economic times were good in the early 2000s, the ruinous fiscal policies of the PIIGS were obscured by more responsible members such as Germany, Finland, and the Netherlands. Germany’s obsession with creating a unified monetary system clouded its judgment, allowing the PIIGS to rot the system from the inside out, and now that economic times have turned bad (is that an understatement of what?), they are realizing just how blinded they allowed themselves to become. Consequently, the Eurozone system is on the verge of collapse, and frankly I’d be shocked it if survives another 12 months.
During these bad (and worsening) times, the separate cultures of these disparate countries are shining right through, particularly as relates to their finances but also the myriad cultural rifts previously hidden under the surface. A perfect corollary is the vicious infighting we are now seeing in Congress, as neither Democrats nor Republicans are showing the slightest bit of interest in the institution, and even less the nation as a whole. THAT is what is taking place in Europe right now, and what will occur among the American people shortly thereafter, when the final leg in the global monetary stool, the dollar, is abandoned over the next year’s time.
What I am not so subtlely intimating is my belief that the U.S., like the Eurozone and the U.S.S.R. before it, will eventually break up into numerous countries. Nearly all foreigners view “Americans” as homogenous, and frankly many naïve, untraveled Americans believe the same. But anyone who has seen this nation, or simply read about it, realizes that California, Texas, Florida, and New York are as different as France, Spain, and Belgium, and Italy. Politically, economically, and socially, there are few if any similarities except for the aforementioned texting, gossip, and video games, while financially they are on different planets.
Think about it – California is nearly as indebted as CHINA, has a suicidal commitment to “preserving the environment”, and may soon have more predominantly Spanish-speaking citizens than English. Texas is as conservative as California is liberal, and one of the few states with long-term economic viability due to its enormous oil resources. Florida has little identity at all, a mishmash of transplants from all over the country, with its only real business tourism. Unfortunately, all positives benefits from tourism will be more than offset from the collapsed real estate bubble for decades to come. And then you have New York, supposedly the center of America’s wealth, but in actuality among its worst financial basket cases. Wall Street’s fortune determines the state’s direction, and thus the coming financial collapse will likely turn New York, already a pariah to many of the nation’s citizens, into the most hated state in the country (tied with the District of Columbia, of course).
Per the title of this RANT, everything we are witnessing today is UNPRECEDENTED, so one cannot assume ANYTHING about what the post-dollar reserve currency world will resemble. I may be totally wrong about what I’ve just written (although I highly doubt it), but irrespective the key takeaway should be to THINK about the ramifications of what’s coming, and thus better PREPARE ourselves to take the proper precautions.
Once again, I find myself going off on a tangent, so let me get back to the ORIGINAL REASON that inspired this RANT – the completely out-of-control nature of today’s global financial markets, where OVERT government policy, COVERT manipulation, and DERIVATIVES have combined to literally “break” the price discovery mechanism permanently.
Re: the stock market, the “official” commencement of widespread government intervention was shortly after the 1987 crash, when the “President’s Working Group on Capital Markets”, i.e. the PPT, was created as a failsafe in times of ‘extreme crisis.’ During the raging bull market of the 1990s, the PPT was barely ever needed; perhaps during one-off events like the Russian currency crisis or the LTCM collapse, but for the most part not at all. However, it started to delve into the breadth of its powers after the tech bubble crashed in 2000, threatening a nasty post-bubble recession. I still remember sitting at work in NYC during the collapses of Enron and Worldcom (the latter being a particularly sensitive topic since I worked at Salomon, right down the hall from Jack Grubman), when the Dow collapsed in the morning but miraculously raged back to close both days with GAINS. And that was the beginning of the end for free U.S. stock markets.
Re: bonds, there was never a need to DIRECTLY intervene in the 30-year bull-market until the 2008 global financial meltdown, although of course the Fed had been actively manipulating short-term interest rates for decades, particularly following the tech wreck in 2001-02. But the economic collapse of 2008-09, which continues unabated today, was based principally on the oversupply of credit on a global scale, ruining thousands of sovereign, corporate, and municipal bond issues the world over. Deregulation of U.S. financial markets, the product principally of heavy Wall Street bribery (sorry, lobbying) to Washington enabled banks to leverage themselves at an unprecedented scale, and by adjunct the creation of derivatives which turned the credit markets from harbors of safety to viper pits of risk. And then, of course, you have the exponential growth in unfunded government spending EVERYWHERE, led of course by the owners of the “reserve currency”, the United States.
Re: currency, all was well until the dollar index peaked in 2000, and since then the Fed (via the “strong dollar policy”, i.e. secretly selling gold) and essentially every Central Bank on earth have undertaken an unending trade war to weaken their respective currencies, causing irreparable damage to global investment and business flows and MASSIVE, widespread inflation that is only accelerating as we speak. The “beggar thy neighbor” strategy of weakening one’s own currency is among the greatest of human economic follies, producing what I view a NEGATIVE SUM GAME. Investment flows are misallocated, industrial strategies irrational, while increased “profits” are due solely to nominal inflation.
And re: commodities, the aforementioned “strong dollar policy”, spearheaded of course by the Fed but inclusive of ALL major players from the ECB to the BOE to the BOJ, have engaged in a level of illegal, surreptitious gold and silver suppression that puts the stock, bond, and currency schemes, on a COMBINED basis, to shame. The laughable, OVERT London Gold Pool of the 1960s, which lasted less than seven years before being ignominiously broken up by market demand, was just a prelude to the madness of the 2000s, when likely 50%-80% of all Central bank gold was secretly dishoarded in an attempt to screw the public at the expense of bankers and politicians.
These events are UNPRECEDENTED in history, and the cycle of Western economic death is only just STARTING.
One of the most obvious facets of an UNPRECEDENTED global economic collapse is the exponential growth of STUPIDITY, wherein the majority of the populace shrinks into obscurity, uncaring about current events in the slightest, even as it pertains to their own welfare. Demonstrations of public outrage, such as the civil rights and Vietnam war protests of earlier generations, are a thing of the past. The rape of the public accelerates each waking day, allowing government to grow larger and larger via modern-day Ministries of War, Truth, and Central Planning. No entity embodies this more than the Department of Homeland Security, created in the aftermath of 9/11 under a cloud of propagandized fear. This gluttonous, amorphous “being” is alive and growing, sucking up taxpayer funds and civil rights like “The Blob.” I’ve still yet to see a single, tangible benefit of this Big Brother horror, which spends nearly $60 billion per year “protecting” us, and nary a peep from the public about the loss of rights such as full-body searches of elderly woman at airports.
I’m currently reading “Atlas Shrugged” by Ayn Rand, a terrifying piece of fiction as I see the same thing happening here in America. This book is a printed analogue to the brilliant 2006 film “V for Vendetta”, only in the latter the populace showed at least a mild distrust of the TPTB, something sorely lacking in today’s America. Such blind following of one’s captors is nothing new to the human condition, having repeated itself countless times throughout history, from the medieval days of feudalism to 1940s Nazi Germany. But this dumbing down of the populace is UNPRECEDENTED in AMERICA, from the “serfs” to the media to the political and economic leaders themselves, and what scares me the most. Consequently, the only thing I can GUARANTEE is that the consequences will be as unpredictable as they are irrational.
Thus, for those with a keen eye on the big picture, think long and hard about the choices you make to PROTECT YOURSELF.
First and foremost, consider the sheer magnitude and UNRESOLVABILITY of the issues before America, and that the solutions may be just as painful as the causes.
Think long and hard about what you are trying to shield yourself against, and remember to think in terms of DEFENSE first, like a good soccer or hockey team. The goal is not to PROFIT from the demise of America, but PROTECT yourself from it. Inflation, food shortages, social disorder, and overbearing government decrees will be your major enemies, and cannot be defeated, only insulated from.
The time is running out, and this week’s global economic events should thus serve as a loud and resounding beacon call. Past may not be prologue, but the historical reaction of mankind to adverse conditions, contrary to what you watch in the movies, is decidedly reckless and unpredictable.