Tag Archives: money

No Worries, “They” Will Keep It Up

Facebooktwittergoogle_pluslinkedinmail

To the World of 2024,

The title of this post will sound strange to everyone living in 2024. How could people all over the world come to believe that a small group of powerful bankers, central banks, could use their “tools” so that the nations of the world could eventually reach a point where the public at large did not need to be concerned about a major change in prices? No matter what negative event shook global financial markets, these “money fireman” were always standing ready to pour on MORE debt and/or use various manipulative tools to “assist” investment markets until things “returned to normal”.

Let me illustrate with a recent event for us, which by 2024 will be studied as history. It is called the Brexit. This was a public referendum where the British people voted to leave the European Union on June 23rd.  Friday the 24th produced big drops in stock markets around the world.

July21_LossesJune23

Yet the monetary fire hoses were ready, as demonstrated by comments from the big central banks listed in this article on that same Friday.

Central Banks Ready to Pump Billions into System to Calm Jittery Markets After Brexit Shock, Financial Post, June 24, 2016

[US Federal Reserve, European Central Bank, Bank of England, Central Bank Governors and Finance Ministers from the G7, Swiss National Bank, Bank of Japan, People’s Bank of China, Reserve Bank of India, and the Central Bank of the Russian Federation]

July20_Gains.SinceJune24

Four weeks later, not only have the events of June 24th been quickly erased, but they and other high risk developments over this period as seen through “the markets” can be viewed as no big deal. Risk? What is that?

This global “rescue” did not take place during the Great Recession in 2008. This did not take place in 2009 when the Federal Reserve started “temporarily” buying up toxic assets (mortgage backed securities) from the banks in order to free up credit.

This is July 2016, the 89th month since the March 6, 2009 low. It is impossible to believe that “stability” was the goal of central bankers. If the objective was to calm markets, they failed. The view of risk has now become, “This is great. Central bankers will drive up my stock investments very quickly, and if U.S. stocks, push them to new all-time highs!

Declines? What is that? ‘They’ will always keep prices up.”

July21_SPBiggestDrops

The problem, as you know, is that these major central banks have been “rescuing” the nations of the world with more debt since the Great Recession, than any time prior to 2008.

July21_Waiting

So why are there still millions of investors sitting in US stock funds at the highest prices ever recorded, when with each passing week there are myriads of reasons the dominoes should start falling?

Why Italy’s Banks Could Ignite a Eurozone Crisis, Marketwatch, 7/21/16

UK Property Funds Suspend Trading, Freeze Assets, Investopedia, 7/6/16

(Bank of Japan governor) Kuroda: Helicopter Money is Illegal, FT, 4/28/16

Something Big Is Coming: Bernanke to “Secretly” Meet With Kuroda; “Helicopter Money” on the Agenda, Zero Hedge, 7/7/16

Yen Soars, Stock Slide After Kuroda Says “No Need or Possibility for Helicopter Money”, Zero Hedge, 7/21/16

The financial industry was taught, and thus passed on to Main Street investors, the idea that no matter what happens, the American stock market ALWAYS comes back. Why study lessons from 400 years of financial history? What’s wrong with US and world debt loads’ soaring?

We have seen interest rates drop since the 1980s. In the US, the highest levels ever seen were in 1981 when the yield on 10 year US Treasuries reached 15.84. Now this month, on July 5th, the yield on the 10 year hit a low of 1.37. This low was the lowest ever in American history.

If we can all look back and agree that it was obvious that rates would fall from the highest levels on record in 1981, can we not also agree that rates at some point would rise?

While this 36 period has rewarded bond investors who have seen prices rise as yields have fallen, are these same investors considering this piece of history?

July22_HistoryofInterestRates

“The greatest of all secular bear bond markets, which began in April of 1946, and probably ended in September 1981, carried prime long American corporate bond yields from their lowest recorded yields to their highest. The yield index rose from 2.46 to 15.49% for seasoned prime issues and up to 16.5% (industrials) and 18.0% (utilities) for high-quality new issues… If a constant maturity thirty-year 2 ½% bond had been available throughout this second bear market of the century, its prices could have declined from 101 in 1946 to 17 in 1981, or 83%.” – A History of Interest Rates, Third Edition Revised (1996), Sidney Homer and Richard Sylla, pg 366-367

Having become a world where our own experience supersedes the lessons from history, how should public perception change when stocks go down, and rates rise?

July22_Dow

July22_USTreasuries36Years

In 2024, the answer will be yet another story from the annals of financial manias. Everyone will understand that “the state” could never stop investment prices from deflating, since they were the very ones whose actions and polices over inflated them since 2008.

Sadly, this has created not only enormous financial problems across societies, but reduced the critical importance of ethics in a sound financial and economic system.

“Dishonesty wasn’t really a solution, it was simply easier.” – Charles Hugh Smith, economist

“It’s not just the political system that’s rigged, it’s the whole economy.” – Presidential Candidate Donald Trump at the Republican National Convention, July 21, 2016

 

A Curious Mind

 

Facebooktwittergoogle_pluslinkedinmail

A 4,000 Year Old Lesson: Joseph & The Costs of A State Rescue

Facebooktwittergoogle_pluslinkedinmail

 

Over the last 7 years we have watched the largest expansion of debt and the powers of central banks ever on record. Not a month goes by that I do not ponder how we could have surrendered so much authority to these entities.

McKinseyGlobal

After the Great Recession in 2008 one would have thought that we would have learned something about pouring trillions of cheap debt into highly leveraged financial deals as the “rescue” from the most recent financial collapse.
Yet the chart above from McKinsey Global Institute makes it clear that the financial wise men of modern finance only took us deeper into debt, making the entire global structure even more fragile.

So what could happen when we reach the bottom of the next global deflationary bust?

Rather than looking to the same group, drunk on the “eternal” riches of more power from more debt, let’s journey back almost 4,000 years to the Egyptians.

SenroswetI_Dynasty12_1961.1917

[Relief of Senwosret I, 12th Dynasty, 1961-1917 BC, The Metropolitan Museum of Art]

7 Years of Plenty, 7 Years of Famine

In the Hebrew writings of the Tanakh or Old Testament we find the story of Joseph and his interpretation of a dream by an Egyptian Pharaoh. The book of Genesis describes the dream’s meaning.

“That is the thing which I spoke unto Pharaoh: what God is about to do He hath shown unto Pharaoh. Behold, there come seven years of great plenty throughout all the land of Egypt. And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land; and the plenty shall not be known in the land by reason of that famine which followeth; for it shall be very grievous.” – Genesis 41: 28-31, A Hebrew –English Bible

Desert.Pyriamids

Whereas Joseph’s plan during the 7 years of plenty was for the Pharaoh to appoint overseers to collect 20% of the gain and store it up in the communities across Egypt in anticipation of the coming famine (Gen 41: 34-36), anyone looking at the actions of central bankers and government leaders since the Great Recession in 2008 can easily see that all “the grain” was used up and even more spent, as the public was lead to embrace the idea that the borrower is not the lender’s slave, but the basis of “experiencing” prosperity!

Famine? Pain? You must be joking; debt based money could always be created at a moments notice to overcome such obstacles, and without long term consequences. Right?

With global markets hitting record highs in 2014 and 2015, the real lesson we need to consider today, is what we could learn from the actions of the Egyptians and surrounding people as the famine changed their lives.

1) They first ran out of money to buy back the grain collected by the Pharaoh during the years of plenty.

“There was no food, however, in the whole region because the famine was severe; both Egypt and Canaan wasted away because of the famine. Joseph collected all the money that was to be found in Egypt and Canaan in payment for the grain they were buying, and he brought it to Pharaoh’s palace. When the money of the people of Egypt and Canaan was gone, all Egypt came to Joseph and said, ‘Give us food. Why should we die before your eyes? Our money is all gone.'” – Gen. 47: 13-15, NIV

As this headline from 2008 reminds us, our money today is really credit. When things get tough, credit tightens, meaning there is less available from the banks.

U.S. Banks Tighten Lending Standards, NY Times, January 7, 2008

2) As a solution to this financial crisis during the famine, Joseph established plan #2, and the people sold their livestock, or what we might see today as the businesses of the people.

“’Then bring your livestock,’ said Joseph. ‘I will sell you food in exchange for your livestock, since your money is gone.’ So they brought their livestock to Joseph, and he gave them food in exchange for their horses, their sheep and goats, their cattle and donkeys. And he brought them through that year with food in exchange for all their livestock.” – Gen. 47:16-17, NIV

CreditRiskMonitor_Dec15_BusinessRiskRising

While the Dow and S&P 500 stand at almost the same level they did when arriving here for the 1st time in history last December, giving the impression that American business is healthy, the chart above reflects the fact that the risk from bankruptcy has climbed for 2 years and is already at late 2008 levels (the sampling is based on 10,000 US businesses).

Clearly, the illusion from Wall Street is not reflecting the reality of Main Street. Based on the Wall Street view, we have not even started “the financial famine” yet.

But based on the rising risk of bankruptcies, the state will gain less and less from Main Street businesses in the period ahead. In fact, if more emphasis had been placed on start up and small businesses in the last 7 years, rather than pouring debt into larger global corporations so they could inflate their stock through constant buybacks, the economy would be healthier today. In other words, we would have had more stored up to cushion the severe slowdown that must come from all the money spent on the now even larger debt loads worldwide.

3) When the year was over, the people returned to “the state”, seeking another solution.

“When that year was over, they came to him the following year and said, ‘We cannot hide from our lord the fact that since our money is gone and our livestock belongs to you, there is nothing left for our lord except our bodies and our land. Why should we perish before your eyes—we and our land as well? Buy us and our land in exchange for food, and we with our land will be in bondage to Pharaoh. Give us seed so that we may live and not die, and that the land may not become desolate.’” – Gen. 47:18-19, NIV

4) And another solution to purchase food was found.

“So Joseph bought all the land in Egypt for Pharaoh. The Egyptians, one and all, sold their fields, because the famine was too severe for them. The land became Pharaoh’s, and Joseph reduced the people to servitude, from one end of Egypt to the other.

 

So Joseph bought all the land in Egypt for Pharaoh. The Egyptians, one and all, sold their fields, because the famine was too severe for them. The land became Pharaoh’s, and Joseph reduced the people to servitude, from one end of Egypt to the other.

 

Joseph said to the people, ‘Now that I have bought you and your land today for Pharaoh, here is seed for you so you can plant the ground. But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.’” – Gen 47:20-24

Today, it is impossible for most Americans to consider being in a situation where even buying food would require selling assets and working in servitude to the state just to survive. Yet, whereas the average American spends approximately 6% of their budget today on food, the average Iranian, Indian, and Chinese spends about 25% on food, and the average Russian and Indonesian spends about 33%. For this reason, when their currencies plummet in value against the US dollar or other major currencies, it can place the people of those nations under extreme stress, and working under very harsh conditions are expected as part of surviving in that environment.

The US Spends Less on Food Than Any Other Country In The World, International Business Times, January 23, 2014

Food Prices in Russia Soar As Ruble Tumbles Further, The Moscow Times, Dec 16, 2014

Of course demographic changes like shown in the headline below remind Americans that finding money for some of our most basic needs is becoming more and more difficult.

Record 94,610,000 Americans Not In Labor Force, Breitbart, Oct 2, 2015

One of the most sobering documents I have examined in the 10 years of researching global markets and the global economy, is the US State Department’s annual Trafficking in Persons Report. As the global economy continues to slow from the largest and fastest increase of debt in world history, even more painful stories will follow. Labor conditions are already abominable in various nations around the world today, much like the sons of Israel experienced under the Egyptians a few centuries after Joseph had died. I hate to think how global working conditions could deteriorate even more.

Let’s return to the famine that struck Egypt and Canaan.

At the end of this period of time the people were now in bondage to “the state”. The people had sold everything to “the state” in order to buy food. Because they had food, “the state” had rescued them from the famine.

In Genesis 47:25, the people saw their current juncture as a good thing, much like the public at large has seen deep interest rate cuts and massive bailouts as policies that “returned things to normal”.

“’You have saved our lives,’ they said. ‘May we find favor in the eyes of our lord; we will be in bondage to Pharaoh.'”

The problem, like parts of today’s world, was that people had given up their money, their businesses, their private property, and agreed to work for the state, paying the Pharaoh 20% of what they earned and keeping the remaining 80% for their daily needs.

Happy Ending?

“No one was unhappy in my days, not even in the years of famine, for I had tilled all the fields of the Nome of Mah…thus I prolonged the life of its inhabitants and preserved the food which it produced.” – Ameni, a providential governor under Senwosret I

As anyone knows from reading the book of Genesis and Exodus, the descendants of Jacob (Israel)[Gen 35:10] prospered during the famine while raising their livestock in Goshen [Gen 45:1, 47:6,11, & 27] , land given them by Pharaoh, a few centuries later the Egyptians felt threatened by them, and work conditions for the descendants of Israel became very hard and like slaves.

“Now a new king arose over Egypt, who did not know Joseph. He said to his people, ‘Behold, the people of the sons of Israel are more and mightier than we. Come, let us deal wisely with them, or else they will multiply and in the event of war, they will also join themselves to those who hate us, and fight against us and depart from the land.’ So they appointed taskmasters over them to afflict them with hard labor. And they built for Pharaoh storage cities, Pithom and Raamses…. The Egyptians compelled the sons of Israel to labor rigorously; and they made their lives bitter with hard labor in mortar and bricks and at all kinds of labor in the field, all their labors which they rigorously imposed on them.” – Exodus 1: 8-11, 13-14, NASB

So with today’s financial bubbles starting to burst worldwide since 2014, while the “overseers” of modern finance continue promising even deeper negative interest rates or more intervention into our economic life and markets, we have come to a point in history where the “years of plenty” illusion is quickly running out of steam.

china-index

As the financial famine continues setting in, will we turn to answers outside the gods of modern Keynesian finance and unlimited debt solutions of the past? Once everyone knows we are at another major crisis, what will we be willing to sell or pledge to the state in order to stop the pain? As power centralizes at the global level, will we eventually say, “You saved our lives”? At what costs to us and future generations?

One World, One Bank, One Currency, Daily Reckoning, Addison Wiggins, Oct 1, 2014

 
In Joseph’s time the people came to see the Pharaoh and “the state” as the only solution to their situation. John’s writing in Revelations seems to reveal that the past could have a connection to the future.

“And he causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand or on their forehead, and he provides that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name.” – Revelations 13:16-17

Since 2008, the powers of central bankers and governments have only grown, thus whether seeking funds from the state through social safety nets or the greatest intervention by central banks into financial markets ever seen, we have already watched the public at large accept that this form of financial socialism has brought things back to “normal”.

However giving over so much power to this small group has reduced our motivation to seek solutions at the individual and local level. The national and global level has become the highest authority in the life of the people. Could this worldwide story be headed into a time of bondage as well?

 

A Skeptical Mind

 

 

Facebooktwittergoogle_pluslinkedinmail

The Unlimited Mammon Master

Facebooktwittergoogle_pluslinkedinmail

Money“No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon.” – Matthew 6:24 , NKJV

To The World of 2024,

In 2010, I wrote a public article titled, John’s Economic Worldview. In the opening pages, I discussed what is known as one’s worldview. Every individual has one, whether they can describe it or not.

The following are four traits of one’s worldview, as presented by Belgium philosopher, Leo Apostel:

1. A futurology – “Where are we headed?”
2. Values and ethics – “What should we do?”
3. A methodology – “How shall we attain our goals?”
4. A theory of knowledge – “What is true and false?”

Since 2010, I have watched with frustration and yet fascination, at how much “faith” most Americans place in our money, a substance that all major nations have been creating through the expansion of their debt loads since the US removed the dollar from the gold exchange standard in 1971. Most individuals have little or no understanding of the history of money, or the fact that the more money is created, the larger the debt load and the greater the drag on the entire economy long term.

Thus, the question, “Where are we headed?”, is most often based on one’s personal experience, rather than a close examination of the history of money.

Since the historical data is the same for every person, and modern money is created by the expansion of debt, let’s take a quick look at the question “How shall we attain our goals?”, and how this has worked since WWII.

Getting Rich Quickly By Rapidly Going into Debt

When my father returned from WWII in 1945, the US national debt stood at $250 billion. It would continue to rise, reaching $394 billion in 1971. During this 26 year period, the United States would exchange its gold for any nation desiring to exchange their U.S. dollars for our gold.

However, as of August 1971, this option was closed to every nation worldwide, and the world’s major industrial powers were no longer willing to exchange their paper money for the gold they were holding. This had NEVER happened in history prior to 1971.

From that point on, it was paper debt based money for paper debt based money, controlled at the highest levels by the most powerful central banks in the world.

Between 1971 and 2000 – the top of the first stock/debt bubble – the US national debt grew by $5,206 billion (1,321%) to reach $5,600 billion.

Remember, under the gold exchange standard between 1945 and 1971 (26 years), the US national debt only grew by $144 billion or 57%. Once the gold exchange standard was removed, the US national debt exploded $5,206 billion (1,321%) in 29 years!

Now what individual or corporate leader would say that growing their debt by 51% is WORSE than growing it by 1,321%? Yet as a society all of this new debt had to go some place, and thus became the fuel to inflate prices everywhere.

For those who had wealth, the new debt became the most powerful source for growing that wealth. How could devaluing our money be bad? For those who did not have wealth, or whose lives were impacted by loss of capital and/or job, the rise in prices caused by this new debt which was devaluing their money moved them more and more down the economic food chain.

Record 93,175,000 Americans Not In the Labor Force, Breitbart, April 3 ’15

The answer to the question, “Where are we headed?” should have seemed obvious in 2000. It should be even more so in 2015, when the US national debt has more than tripled from 5.6 trillion in 2000 to 18.1 trillion today.

However, it wasn’t then, and isn’t today. While most individuals would never encourage an individual or company to rapidly grow their debts in order to become richer, our “faith” in unlimited national debt as the basis for unlimited money boggles the mind.

Once again, our main barometer seems to return to our own personal experience, versus the financial history of the entire nation.

 
Two Bubbles Popped; Waiting for Third One

StockWealth.DebtLevels_May2015

As more and more debt can give an individual an image of wealth, without examining the growing debt levels, one is never looking at the entire picture. The same for a nation.

The chart above uses two metrics; the stock wealth, based on the value of the market capital of the Wilshire 5,000 at any given time – the broadest measure of publicly traded US stock wealth, and the national debt of the United States.

While an individual or group of individuals can say that they are wealthier today than in 2000, comparing the wealth/debt ratio based on these two variables, we find that the stock to debt ratios are substantially lower today than they were 15 years ago in 2000.

By asking the question, “ How do we attain our goals?”, we must differentiate between short term and long-term views. Twice since 2000, US stock bubbles have burst, completely wiping out wealth that took years to build. NEVER since 2000 has the amount of debt carried by the nation gone down. ALWAYS, the solution for a market decline was cut interest rates and print up more money (i.e. debt) to kick start the “recovery”. With 2015 being the seventh year of a zero interest rate policy by the Federal Reserve, cutting rates is out of the question for future slowdowns.

NASDAQ_Stocks.Debt.2000

SP500_2007top

Andrew Carnegie and Jesus

In 2003, a friend suggested I read the book, The Call: Finding and Fulfilling The Central Purpose of Your Life (1998), by Os Guinness. Guinness challenges his readers through the lens of two lives in the chapter, More, More, Faster, Faster.

The first is Andrew Carnegie, one of the wealthiest men in American history.

Andrew Carnegie wrote this famous memorandum in 1868, when he was thirty-three and stuffed it away in a drawer: ‘Man must have an idol – the amassing of wealth is one of the worst species of idolatry – no idol is more debasing than the idol of money.’
But in 1905, President Theodore Roosevelt wrote reluctantly of Carnegie himself, ‘I tried hard to like Carnegie, but it was pretty difficult. There is no type of man for whom I feel a more contemptuous abhorrence than for one who makes a God of mere money- making.’

The second was a closer examination of the words Jesus presented in the Sermon on the Mount, specifically Matthew 6:24, as stated at the opening of this post:

“Jesus’ use of Mammon (Aramaic for wealth) is unique – he gave it a strength and precision that the word never had before. He did not usually personify things, let alone deify them. And neither the Jews nor the nearby pagans knew a god by this name. But what Jesus says in speaking of Mammon is that money is a power – and not in a vague sense, as in the “force” of words. Rather, money is a power in the sense that it is an active agent with decisive spiritual power and is never neutral. It is a power before we use it, not simply as we use it or whether we use it well or badly.
As such, Mammon is a genuine rival to God.”

In 1906, Frederic Clemson Howe published his short work, The Confessions of a Monopolist. Howe, more than a century ago, could see the power of money, a power that could certainly rise to god like status over men and women.

“Long before my election to the Senate I learned two things pretty thoroughly. One was, if you want to get rich – that is, very rich – in this world make Society work for you. Not a handful of men, not even such an army as the Steel Trust employs, but Society itself. The other thing was, that this can only be done by making a business of politics. The two things run together and cannot be separated. You cannot get very rich any other way.”

It would appear that we have created the tools, where the idea of “unlimited debt based money” coupled with computers trading at the speed of light, have truly given individuals the sense that they have attained god-like status, and Mammon has provided a sense of power like nothing else. Yet that concentration of power, has already proven to be a huge negative at the societal level…. and we are still today watching financial markets recording “highest in history” price levels!

 

The Results of Unlimited Mammon

 
Virtu’s Second Attempt At Going Public Reveals Why FX Trading Is Now Impossible, Zero Hedge, April 6, ’15

“As Virtu Financial (a high frequency computer trading firm) stated (shortly before its IPO went public April 2015), ‘The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing day during 1,485 trading days.’
As we reported back in February, ‘not only did Virtu not have a trading day loss in all of 2014, but on its “worst” trading day, the firm made “only” $800,000 to $1,000,000.’”

5 Big Banks Pay $5.4 Billion for Rigging Currencies, CNN Money, May 20 ’15

“U.S. regulators hit five global banks with $5.4 billion in penalties Wednesday for trying to rig foreign currency markets in their favor.
Citigroup (C), Barclays (BCS), JP Morgan Chase (JPM), and Royal Bank of Scotland (RBSPF) were fined more than $2.5 billion by the U.S. after pleading guilty to conspiring to manipulate the price of dollars and euros…
The first four banks operated what they described as ‘The Cartel’ from as early as 2007, using online chatrooms and coded language to influence the twice-daily setting of benchmarks in an effort to increase their profits.”

Is it possible that Mammon has become the number one god we turn to daily, and if so, could there be severe consequences at the global level in the years ahead from placing so much trust in wealth that depends on ever larger amounts of debt?

Richest 1% To Own More Than Rest of World, Oxfam Says, BBC News, Jan 19 ‘15

 
Goldman Sachs Warns “Too Much Debt” Threatens World Economy, Zero Hedge, May 29, ’15

 
Keynes“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate secretly and unobserved, an important part of the wealth of their citizens….As inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and lottery.” The Economic Consequences of Peace (1919) John Maynard Keynes, pg 233]

“I think, increasingly, they (central bankers) are discomforted. More than anything else I think it’s not just the ex central bankers but increasingly the people that are still holding the levers. They are starting to ask whether they have somehow been backed into a place where they don’t really want to be. Now, I agree with you, Sean, that there’s an element in everybody, although some more than others, where they’re glad to be looked upon as the saviours of the day. But I rather sense that an increasingly large number of central banks are actually looking at what is going on and saying ‘We are being asked to do something that is effectively impossible.'” [William White, former economic advisor to the Bank of International Settlements, in an interview with Sean Corrigan, Chief Strategiest for UK based Hinde Capital, The Road To Nowhere, An Interview with William White, Page 1, The Hindesight Letters, March 2015, pg 5]

 

“You shall have no other gods before Me.” Exodus 20:3

I wonder how individuals and societies will change their views toward debt based money by 2024?

 

A Curious Mind,

Facebooktwittergoogle_pluslinkedinmail

Starting at the End of the Story

Facebooktwittergoogle_pluslinkedinmail

Shackleton's Ship in 1914Several years ago, I was told about a book called Endurance: Shackleton’s Incredible Voyage. The book is about Sir Ernest Shackleton’s epic adventure in August 1914 to  Antarctica. As you read these opening words, consider whether you think things are going to go well for these men. Remember, this is the world of 1914, not 2014.

“The order to abandon ship was given at 5 P.M. For most of the men however, no order was needed because by then everybody knew that the ship was done and that it was time to give up trying to save her. There was no show of fear or even apprehension. They had fought unceasingly for three days, and they had lost….

She (the ship) was being crushed. Not all at once, but slowly, a little at a time. The pressure of 10 million tons of ice was driving in against her sides.

Frank Wild, the second in-command, put his head inside the crew’s quarters. ‘She’s going boys,’ he said quietly. ‘I think it’s time to get off’.”

When I had read the first chapter I was ready to stop. Here was a crew of men, who in 1914, found their wooden hulled protection from the brutal outside world being crushed. The ship that brought them to Antarctica would not be taking them home.

Why read the rest of this story? How could anything good come out of this beginning?

Still, the title intrigued me. I quickly went to the final pages of the book and read the ending. Yes, victory!

Now I knew I could go back and read the rest of what today is one of the greatest stories of determination, faith, and courage against all odds to survive.

What Gets Inflated, Can Get Deflated: Remember 2008?

It is also a story, that most of us, including myself, can not relate to at all. We have so many safety nets around us; so many things we depend on every day as though its continuation were as certain as the air we breathe. Yet, if we see any article or news report that scares us, we merely “close the book”, and ignore a larger developing story.

The story coming is the next massive deflationary period of money and financial resources, due to trillions in debt at virtually zero interest, most likely followed by a shift away from the dollar in the global system. The international currency unit, the Special Drawing Rights issued by the International Monetary Fund has had many white papers written about it as a replacement on the global level for the US dollar.

Since the 2008 financial crisis, world central bankers have told us that with trillions upon trillions to “temporarily” assist global markets, things would return to “normal”. As we close out 2014, with history once again breaking many records in extreme behavior and a string of “all time highs” over the last 2 years, deflating financial assets is not the majority view.

Yet powerful forces have been underway during the 4th quarter, producing hundreds of billions in losses already. Let me illustrate my point with two examples. This should be a harbinger to everyone worldwide, that once the largest financial bubble is over, the largest financial bust must commence.

Oil and Argentina

Oil was $94 a barrel at the end of September, and now 11 weeks later, it is in the $50s. This is a massive loss of revenue for major nations around the world, and one of the largest industries in my nation, the United States.

Economic War Goes Mainstream – Oil’s Price Drop is Seen as Proof, Global Economic Warfare,      Dec 7 ‘14

Oil.Dec12.2014

Argentina has seen its stock market plunge 34% since the fourth quarter started.
How quickly the headlines changed from September to October.

Sizzling: Argentina’s stock market is up 100%, CNBC, Sept 10 ’14

Argentine Stocks Plunge As Oversight Tightens on Parallel Market, Bloomberg, Oct 9 ’14

Merv.Argentina

These developments impact so many lives, so many nations. For millions this brings cheaper gas, or is taking place in a country that we think has nothing to do with our own daily life. However, for millions this means a lost of revenue for an entire nation or industry that threatens their own day-to-day lives. These events are also large enough in and of themselves, that they have already started impacted other parts of the global economy and markets.

Where’s The Encouraging Ending?

So let’s jump ahead in this story. Let’s look past elaborate computer models, reams of statistics, and thousands of experts. Let’s look past a debt based currency system that connects us to events across the world, and is necessary for our daily survival.

Is there any story from the ancient world for today’s complex world, that points to a time where headlines and book titles could be 180 degrees opposite of what we are seeing today?

They will hammer their swords into plowshares
And their spears into pruning hooks;
Nation will not lift up sword against nation,
And never again will they train for war – Micah 4:3

 

Thus says the LORD of hosts, ‘Old men and old women will again sit in the streets of Jerusalem, each man with his own staff in his hand because of his age. And the streets of the city will be filled with boys and girls playing. – Zechariah 8:4

I know, I know, none of us alive today have seen a time when the world has been at peace, and certainly not the most controversial religious city in the world, Jerusalem. I know that this is taking the discussion far away from a world the “money makes the world go round” dominant theme of today.

But remember, in 1914, influenza was life threatening, while most strands today are treated like a short term cold. In 1914, Shackleton’s men were closed from the outside world. Today, they would use satellite communications to send out a May Day signal.

So as frightening headlines keep increasing, telling everyone that man has not been able to create a nirvana world free from pain, is it not possible that the historical writings of several Jewish writers could provide hope of a time when the entire world finds what we really ultimately want, peace on earth and true unity between men?

For a child will be born to us, a son will be given to us;
And the government will rest on His shoulders;
And His name will be called Wonderful Counselor, Mighty God,
Eternal Father, Prince of Peace.
There will be no end to the increase of His government or of peace –  Isaiah 9:6-7

The writings of these Jewish men, translated into more languages of the world than any other writings, have been ones I have read repeatedly over the last ten years of my own life, as I have written about the many “first in history” events. They continue to give me peace, even when the world around me is not.

A path to a time of incredible world peace like no one has ever seen, is fraught with many painful scenarios none of us even wants to consider.  Yet without an ending that is more  triumphant than the frightening trends facing us all today, it is easier to close the book, and live in a world of illusion until the sound of breaking timbers forces us out on the ice.

Deep things to think about in a world that has taught us that the experts, thinkers, and planners will make sure our world doesn’t shake our own personal plans. But what if trillions more in debt, and legions of people to centrally plan life for the rest of us started breaking apart again? I know, this time it will be different.
A Curious Mind

December 15 2014

Facebooktwittergoogle_pluslinkedinmail

Why The Dam Can Not Break

Facebooktwittergoogle_pluslinkedinmail

To the world of 2024,

Today I am writing you as the year 2014 is coming to an end. I have been writing my thoughts publicly and privately for the past decade. It has been incredible to have had discussions with people around the world, brought together by a public writing. I have looked at the world through the lens of history, science, and crowd and individual behavior in regards to money and financial markets.

When the world of 2024 reads these comments, I believe we will ask the simple question, “How had entire societies come to the conclusion that doing things totally opposite at the system level than espoused at the individual level, would continue to lead to more ‘prosperity’, or at least return things to ‘normal'”?

Mises_CA_PrintingMoney Let me give you an idea that today is almost taboo and not open to public discussion in the world of money. If I were to tell you to pay down your debts, start living within your means, and saving for the future, this idea would be accepted across cultures around the world. Yet, as the greatest explosion of debt in human history has occurred in the last 6 years, we seem unwilling to consider how this could possibly have a massively negative impact on ALL of our lives in the future.

Debts Exceed $100 Trillion As Governments Binge

As individuals, we espouse one set of ideas regarding debt; as societies, we accept a totally opposite set of ideas. On the individual level, we have experienced limits to debt. On a societal level, for the last few decades the idea of “unlimited debt” has been commonly accepted as the means to correct the latest financial or economic crisis.

Bush Signs $700 Billion Financial Bailout Bill

Bank of Japan Unleashes World’s Biggest Burst of Stimulus in $1.4 Trillion Shock Therapy

I am certain by 2024 this will seem very odd. In fact, it will seem complete madness that entire societies could have accepted the idea of “unlimited debt” as the solution to bringing about “stability” and this being the main idea presented as necessary in order to return our lives to “normal”.  However, you must remember that this idea has been the most widely taught idea in economics and finance, embraced by political leaders, and experienced by the public since 1971. Many people know that in 1971, the United States removed it currency, the US dollar, from being backed by gold. Said another way, we were no longer willing to exchange our paper dollars for the gold we held at the national level if another country grew fearful of our spending and debt levels and wanted gold which can not change, versus the promise to pay with even more debt backed paper (now electronic) dollars. This event opened a period in history that no one had ever seen before, and the concept of “unlimited debt”.

Consider these comments from August 15, 1971: A Date Which Has Lived In Infamy in Forbes on  August 14, 2011:

In their impossibly good book Money, Markets, and Sovereignty (2009), Benn Steil and Manuel Hinds make the point that over the last four thousand years, the only period in which humanity has not consistently based its currency in metal, specifically gold, is the last forty.

More on this in the future. For now we return to perception, which is more powerful than reality.

In 2006, I read Dr. Jared Diamond’s book, Collapse: How Societies Choose to Fail or Succeed. Ten years earlier, I would have never read such a book. The stereotype of “that’s just doom and gloom stuff ” would have stopped me. Yet, between 2000 and 2002, my personal and professional life saw enough pain from the collapse of trillions in wealth, that it lead me to seek answers from many sources, whether economic theories or studies on human behavior in crowds. Studying history was always the common theme of these discussions, as it still is today.

Consider this idea from Diamond’s book, which focuses on the environment, not finance. I believe it will help the world of 2024 to better understand the world of 2014.

The final speculative reason that I shall mention for irrational failure to try to solve a perceived problem is psychological denial. …If something that you perceive arouses in you a painful emotion, you may subconsciously suppress or deny your perception in order to avoid the unbearable pain, even though the practical results of ignoring your perception may prove ultimately disastrous.

Then Diamond uses an illustration I have used many times in the last 8 years.

Consider a narrow river valley below a high dam, such that if the dam burst, the resulting flood of water would drown people for a considerably distance downstream. When attitute pollsters ask people downstream of the dam how concerned they are about the dam’s bursting, it’s not surprising that fear of a dam burst is lowest far downstream, and increases among residents increasingly close to the dam. Surprisingly, though, after you get to just a few miles below the dam, where fear of the dam’s breaking is found to be highest, the concern then falls off to zero as you approach the dam. That is, the people living immediately under the dam, the ones most certain to be drowned in a dam burst, profess unconcern. That’s because of psychological denial: the only way of preserving one’s sanity while looking up every day at the dam is to deny the possibility that it could burst.

This seems to be the easiest way, to understand why we have one view of debt for our personal lives, and yet a totally opposing view at the societal and system level.

We have experienced two financial “dam breaks” since the year 2000 in world markets. It has impacted hundreds of millions of lives around the world. Yet, after both breaks, the consensus belief continues even today that, “unlimited debt will bring things back to normal”.

As I write more, I will share with you why I grow more confident that the world of 2024 will be much brighter and different from the world of 2014. I am not merely thinking solely about money, but about our way of life across the globe.

I know, after this post, this may sound like a person in denial. However, after reading so many stories about the pain that has come to people all over the world since the idea of “unlimited debt” began in the 1970s, I have found incredible hope in the writings the Jewish race in ancient history left our modern world today.

Sincerely,

A Curious Mind

Facebooktwittergoogle_pluslinkedinmail