Politics & Economics:

Channeling The 1930's Again?

By John Schroder - August 11, 2016 

A few years back there was a television series titled connections.  I enjoyed the program because what they did was take something as unrelated and innocuous such as the use of cosmetics in ancient Egypt and tied it into say the development of modern aviation.  Ergo the name, demonstrating how things, products, societal trends and even economics are connected.  But of course the premise of the program mainly was the unintended, accidental or unexpected consequences of one thing leading to another.  But what about things, actions, policies and events that are connected but also intentional?  I guess we are diving into the realm of conspiracy theory here, but we would simply ask the one word question: WHY?


You Need Power Only When You Want To Do

  Something Harmful - Charlie Chaplin

Why are more than just a few central bankers in the so-called developed countries intentionally and deliberately destroying capital plus motivating businesses and individuals to favor debt over equity?  Why are governments producing falsified economic reports and permitting social disruption from foolish immigration policies?  Why are the middle class losing ground economically in the developed markets?  Why has poverty gone down from 34 percent to 32 percent in the Dominican Republic (an emerging market) and the poor (including the so-called working poor) now about 25 percent of the adult working aged population in the United States?  A recent report from Mckinsey claims that 81 percent of Americans are worse off than 10 years ago and today's younger generation will most likely end up being worse off economically than their parents (http://www.mckinsey.com/global-themes/employment-and-growth/poorer-than-their-parents-a-new-perspective-on-income-inequality).  Mckinsey goes on to report that: The real incomes of about two-thirds of households in 25 advanced economies were flat or fell between 2005 and 2014.  What is the end game to all of this?  Why is real and sustainable growth being suppressed in favor of destruction, socially and economically?

Orwell's 1984 Is Now: Truth Are Lies, Lies Are Truth

Mr. Arron Russo, an American film producer and businessman known for producing such films as Trading Places (1983 - Dan Aykroyd and Eddie Murphy), Wise Guys and a number of other films also produced a documentary back in 2006 titled America: From Freedom To Fascism.  Yes, many people have said Mr. Russo was a conspiracy nut case, but getting back to the connections program I just mentioned, is that really true?  The documentary was criticized for being filled with errors, unsubstantiated claims, ambiguities and innuendo.  However, considering we live in a world where governments produce bogus economic statistics released to juice the financial markets (constantly revised to reality after the fact) one needs to wonder who is really lying or taking liberties with information disseminated to the the public.  For example, Mr. Barnaby Martin from Bank of America is reported to recently opine that 45 percent of the buying done in the global bond markets is from the world's central banks (in other words, there is no longer a real free market for these bonds, negative interest or otherwise).  US stock markets hit another recent high yet who is doing the buying?  If they keep this up, there will be no market at all as the central banks will end up owning ALL of the securities on their balance sheets.  Mr. John Herrmann from Mitsubishi UFJ opines regarding the recent propaganda about the recent US jobs report claiming the job market is improving.  He goes on to say that: the jobs headline overstates the strength of payrolls (or lack thereof).  He claims the jobs report to be lukewarm and nowhere as strong as the headline. So why the phony statistics and headlines?  Sales for S&P 500 companies and private businesses have dropped almost 4 percent for the year ending 2015, and have been dropping since 2014. How is it possible that sales are down but employment rolls are up?  Mr. Paul Craig Roberts offers an interesting recent US economic commentary here:   (Mr. Roberts starts speaking in the second half, the first part discusses banking in Europe): https://youtu.be/kVUiNd-x3mQ.  Another video worth watching is Greg Hunter's recent interview with Mr. John Williams: https://youtu.be/4xAjR7-QHZg
As an example of very intended connections or consequences, one very intriguing past comment by Mr. Aaron Russo was his claim that the Rockefeller Foundation was behind the women's liberation movement 40 years ago.  Why would an entity such as the Rockefeller Foundation have such an interest in secretly supporting a group of angry ladies burning their brassieres?  Because, it was explained by Mr. Russo,  that  the end game was about getting women out of the home and into the work force so there would be a two income household and more tax revenue to collect accordingly.  More importantly and more sinister, the idea was to  minimize parental contact (and teaching) from the parents and more so done by the state.  With mom working a 40 plus hour work week along with dad, longer school days and after school programs means the state has more time to impact the children.  Not to mention of course state day care for very young children so that the primary care giver in the early years is a government paid teacher and not mom.  Does all this sound like crazy conspiracy quackery?  Perhaps, but it is logical for a certain agenda and end game if the stated or intended goals were true.  And along that line of thinking, we certainly continue to ask what are intended connections with respect to today's political, economic, monetary and fiscal policies?

What Kind Of Economic And Political System Is Coming?

One raging argument over the past 70 years or so has involved the question of which is better: free market capitalism or various blends of socialism?  To the extreme regarding capitalism, we have the argument for completely free markets and commerce with zero government regulation or oversight of any kind.  The more moderate version is of course a free market mixed in with government regulation and social welfare programs.  And even there we have different shades of how generous such programs should be and the issue of national government health care gets thrown into the mix as well (which effects the middle class along with the poor).  On the other side of the spectrum is the various degrees of the command and control economy, socialism and communism as the more popular vernacular.  In it's most extreme form, the state manages all aspects of the economy albeit usually not very well.  In fact, such an idea has been such a disaster that those countries utilizing this model have moved in the other direction towards free market capitalism.  Think the former Soviet Union, China, Vietnam and even the last stubborn holdout Cuba has opened up it's economy to some limited forms of capitalism (private enterprise, private businesses).  So, if these economic models are or were such a mess, why bring them back?

Who said publicly these kinds of models were being brought back?  No one, but what are the actions and deeds if not the spoken word?  It was Ludwig Von Misses of the Austrian Economics School that opined Communism, Fascism, Hitler's National Socialism and even the versions of Peron in Argentina plus Trujillo in the Dominican Republic were all basically the same thing.  The difference between the old Soviet Union's Communism and the rest mentioned were the fact that private business did exist as opposed to a complete and absolute command and control economy.  But, even if it was a sort of hybrid, what we had in these cases is a merger and somewhat vertical integration of corporate and state power.  The facade of a separate free market juridical entity that  existed and survived by the will and direction of government.  And this could include capital injections by government if need be (what we would call bail outs today), government buying or ordering of manufactured product regardless if it really was needed (what we might loosely correlate to quantitative easing), and direct or partial government ownership of equity, debt or both of the corporation.

What other attributes existed with these kinds of political – economic systems?  One thing I can think of right way is the manipulation of the mainstream media and outright false economic reporting.  Newspapers reported the economy was great because the government said so.  Reality had no place in the news dissemination process because reality, as far as the government was concerned, did not matter.  Only public perception mattered, propaganda rather than truth was the basis of the news.  Next up we have the so-called private sector or some parts of it directly dependent upon government as their primary customer.  Today defense contractors come to mind and the banking – financial services community as well.  In fact, there is such integration and collusion between the private banking sector and the public financial regulatory sector that senior employees of the two swap places interchangeably.  One may make the argument who better to guard the chickens against the wolves than another wolf, but when the wolf is actually making it easier for the other wolves to steal the chickens, then you have a serious problem.

Disregard for honesty and integrity, legalized theft of private property (bail-ins, new paradigms claiming fully paid for customer securities in a brokerage account is now part of the firm's capital, confiscation of a private citizens assets during a routine police traffic stop), optional accounting standards (FASB rules are now optional, mark to market optional and actually mark to fantasy the new norm) plus insiders and the politically connected exempt from criminal laws applicable to the masses – this is what we had under the 1930's Fascist economic – political model (and or it's similar cousins) and this is what we have today in 2016.

Interestingly enough, these economic and political systems were born out of economic crisis, the great economic depression of the 1930's to be more precise.  Was Mussolini able to take power because he was a nice guy and made a tasty homemade Bolognese sauce, or was it something else?  Would National Socialism have taken hold if the economic situation under the Weimar Republic was different?  Some would opine that things are different today.  Perhaps they are.  We now have people walking into telephone poles because they are too busy playing Pokemon Go.  We do not see people living in tent cities or selling apples on the street corner because we have various social safety net programs that did not exist back then.  However, what we do see in Europe especially are roving gangs of unruly immigrants raping women in Germany, Sweden and other parts of Europe (the Hungarians threw them out and the German government took them in).  The problem is so bad in Germany they are calling it a crisis, with German women now afraid to go out in public alone (https://www.gatestoneinstitute.org/7557/germany-rape-migrants-crisis). 

The Man Who Chases Two Rabbits Catches Neither

  - Confucius

So, some will tell you that things are different today as compared to the economic depression of 80 years ago, but many of the statistics and problems are quite similar.  Unemployment rates of 20 percent or more, insolvent financial institutions kept barely alive with government assistance of varying kinds, ever expanding government debt and deficits plus various statistics shouting economic contraction, yet again.  With all this said, I am not trying to disseminate gloom and doom.  However, things are what they are and the central banks in the developed countries will continue to prop up the banks (provide liquidity is the buzz term) to the detriment of everyone and everything else.  That is their primary mandate above all else.  But unfortunately they can try (try being the key operative word) and save the banks or they can try to save the overall economy, but they cannot do both (see above quote). And if Mr. James Grant is to believed, negative interest rates and negative bond yields will end up destroying the banking industry regardless so it seems questionable  if they will accomplish what they think (https://blogs.cfainstitute.org/investor/2016/08/08/james-grant-negative-interest-rates-will-end-badly/).   

Mr. John Williams predicts eventual hyper inflation in the US with the trigger or signal being a sell off of the US Dollar and rejection of the US Dollar as the world reserve currency including use for international trade.  Indeed we already see many foreign entities (such as sovereign wealth funds) refusing to add on new positions of US sovereign debt (US Treasuries) and in some cases are net sellers.  The US Federal Reserve very recently was basically monetizing all the new debt issuance due to lack of demand and we now have the European Central Bank loading up on negative yielding debt (a balance sheet bailout of the European banks).  Is the date nearby where China and other net exporters of goods and products insist on gold, silver or some other payment rather than the USD or Euro?  And what does such currency devaluation or inflation look like to the average citizen in the US (assuming Mr. Williams is correct)?  US$50 for a gallon of milk?  A jar of peanuts in the supermarket selling for US$200?  No one knows, and some governments will continue with the myth there is no inflation even though the average consumer knows better.

Economic End Game?

It is almost impossible to know exactly what will destabilize the current house of cards or when it will take place.  However, providing you still believe in gravity, the laws of physics and basic sensible economics (as opposed to say hallucinogenic economic theorems seemingly brought about by ingesting magic mushrooms) you will realize something has to give, sooner or later.  In short, what that means is one needs to consider a back up plan possibly involving gold, silver, banking and real estate in another jurisdiction as well.  But where?  We love Singapore as a jurisdiction for banking and ability to buy and hold physical gold but the cost of living and real estate there is outrageous.  Even other emerging markets such as Costa Rica have a cost of living 300 to 400 percent higher than that of the Dominican Republic (plus the real estate is much more expensive there as well). 

On the topic of real estate, legendary fund manager Mr. Jim Rogers (who lives in Singapore by the way) believes agriculture and farmland will be the smart investment going forward.  But both in terms of cost and to make sure you have an asset not directly correlated to the investment environment you are trying to protect yourself from, we would suggest real estate in one of the more stable and less costly emerging markets.  In terms of the Dominican Republic, such an investment can be a qualifier and conduit for residency and eventual citizenship. In addition, Dominican Republic real estate has not fallen prey to asset bubble central bank chicanery and although it certainly has appreciated in recent years, it still remains to be one of the best values (price wise) in the entire Caribbean.  So, one can accomplish two goals with one activity (asset protection and or wealth preservation plus another safer place to legally call home via residency and or citizenship).

In a recent interview with Mr. Paul Brodsky by Mr. Valentin Schmid of Epoch Times (http://www.theepochtimes.com/n3/2127853-back-to-square-one-why-the-financial-system-needs-to-reset/), Mr. Brodsky goes on to say that the total of US$200 Billion worth of global debt obligations simply cannot be paid back.  He also notes that the amount of so-called recent electronically created money is really credit and he compares that to the actual amount of physical printed cash and minted coins that are floating around (either in the pockets of citizens or being held as reserves).  In other words, if we compare these two numbers we find out that that many governments are actually leveraged 20 to 1, in terms of a sort of debt to equity ratio.  The entire global economy is being held up with debt and leverage.  As such, Mr. Brodsky thinks they will choose to devalue the currencies (read inflation) as the method to try and eradicate these debts, which honestly has been the tried and true preference of politicians for centuries.  As we already noted, Mr. John Williams is looking for hyperinflation as a real possibility, although Mr. Brodsky tells us why.  Regardless, such a policy is politically preferable because it is conducted in stealth, the general public unaware of the devaluation until it is too late (when it start showing up in higher supermarket and other prices later on).  Aside from that, we can foresee continued contraction in production and wages (wages never, ever keep up with inflation or currency devaluations).  So, the name of the game for individual investors seems to be wealth preservation and relocation insurance (read another citizenship, another hopefully more solvent and sane place to call home if need be).

In summary, how will this all end?  It is difficult to tell if even those in charge of governments and the central banks even know themselves.  But, we find it incredulous and amazingly irresponsible of the leadership in some of these countries to permit such economic and social unrest to occur and continue.  Regardless, one thing is for sure.  Individuals need to be prepared, be awake, read, investigate and most of all protect yourself from any possible mayhem.  No one else will do it for you.  In fact, it looks like what is good for the government finances certainly will not be good for you personally going forward.