The great unwinding

Some of you grew up during the Great Recession. Others were fully grown adults when it started. I was one of the latter. I watched the collapse Bear Stearns, AIG, Countrywide Financial, and eventually Lehman Bros. as it happened - because I was working in an office building on Madison Avenue at the time. I remember waking up one morning in September 2008 and hearing that Lehman had declared bankruptcy.

It was an incredibly eerie moment for me, because not quite two years earlier, I had sat in the Lehman building on 7th Ave and been interviewed by a financial controller and a trader in Singapore. (I failed that second interview extremely badly, by the way.)

And just two years after its collapse, I sat in that same building again, when it was owned by Barclays Capital (as it was known back then), on the fixed-income trading floor, watching some of the very same people who had done so much wrong during the Crisis itself, going about their business one day, and then they were gone the next - because they had been fired over their role in the manipulation of the benchmark LIBOR rate during the crisis.

Looking back through those crazy days, more than 11 years ago, I have to tell you that I don't think we've learned a single damned thing in the entire period in between:

Despite all of the great good that the God-Emperor has done for the US economy, let us be under NO illusions about one very important fact.

The global financial crisis absolutely IS NOT over.

Global debt levels have absolutely exploded. We aren't looking at a mere catastrophe now - we're looking at the complete destruction of every major government.

In order to understand why, you have to know a little something about basic economics - and it is basic, you don't need a PhD to understand this stuff.

Essentially, governments and monetary authorities are significantly limited in terms of how much they can do for an economy in times of crisis and turmoil. When economies go into severe recessions, governments typically respond by increasing spending in order to cushion the impact of the drops in private spending, investment, and consumption.

Economic history over the past 10,000 years - not just the past 150 or so, but over a much longer span than that - has shown us that these big public works projects don't really do much to improve an economy, because the money has to come from somewhere. And, inevitably, the money has to come from the people in the form of taxes, or from future generations in the form of debt.

A far more effective way of reducing the impact of an economic downturn is to cut taxes - but any fiscally responsible government will then have to cut spending as well, because otherwise, a new tax will be imposed on future generations, again in the form of debt.

By the 1970s it became clear that, outside of significant and permanent income tax cuts, fiscal stimulus wasn't particularly useful and didn't accomplish what its biggest advocates believed it would.

So the world's economic pointy-heads turned to monetary methods instead - essentially debasing the currency in order to control economic output.

This does work, because the method that monetarists use to control the economy effectively involves changing people's time preferences.

By altering short-term and eventually long-term interest rates to encourage consumption, central banks and monetary authorities essentially alter people's preferences for deferring gratification and consumption.

I don't have the time or ability (or, quite frankly, desire) to give a lecture about Austrian Economics 101, but think of time preferences this way:

Would you prefer a cup of coffee right now, with no effort? Or would you prefer to put in a bit of work and save some money and have two cups of coffee tomorrow?

To most Westerners, and virtually all East and South Asians, the answer is simple: you'll take the two cups tomorrow and work today.

But this is not a universal attitude. In much of the world - most of it, in fact - the attitude is radically different. Live for today, screw tomorrow.

That difference in attitude largely separates the civilised from the barbaric.

The mechanism by which you "save" money from your efforts and reward yourself for your labours, is the rate of interest on money that you earn. If the rate of interest on your money is sufficiently high, you will prefer to save it for tomorrow rather than consume it all today.

But if you look at the markets and realise that the rate of return on your money is too low to bother with saving it, then you will spend it today - and to Beelzebub with the consequences.

That is an entirely non-Biblical, non-Scriptural, non-sensible attitude. And that is PRECISELY what the world's central banks have encouraged, not merely for 10 or 12 or 20 years, but for FIFTY years.

Ever since the USA, and therefore the world, officially decoupled itself from the gold standard in the 1970s, the world's central banks, led by the Federal Reserve, have debased their domestic currencies to the tune of ninety percent or more. That is to say, a dollar today can (barely) buy the same amount as ten cents could fifty years ago.

What does this mean for us in terms of financial crises and stability?

Nothing good, at all.

You see, there is a limit to how much central banks can do to encourage people to consume. Sooner or later the bill ALWAYS comes due, because every time a central bank lowers benchmark interest rates to encourage short-term and long-term debt, that debt itself has to come due eventually.

And when it does, the results are spectacularly horrifying.

Right now the world is in the midst of the biggest debt-driven bubble in human history - far, far greater than the debt bubble of 2008. This time, though, the debts are not private or corporate in nature, because if you look at the balance sheets of most of America's biggest companies, they are actually flooded with cash. They have so much damn cash that they don't even know what to do with it. Never mind the Teslas and Netflixes and Ubers that all burn through billions of dollars every year and don't make a profit (Netflix is the exception), many of America's biggest corporations are quite cash-rich.

No, the problem right now is government and central bank insolvency.

The US government alone is completely insolvent no matter how you look at its future liabilities. It is still paying interest on bonds issued 30 years ago that bear a coupon of 10% or so. And its interest payments are ballooning, because the US government has to keep issuing debt in order to finance its spending - and much of the revenues gained from issuing new debt to the markets, is simply going to servicing the interest from existing debt.

And that is before we get to the fact that the US government faces some $75-150 TRILLION in unfunded liabilities over the next 100 years.

Nobody actually knows what the true number is, because nobody knows exactly what goodies the government will give away next. While His Most Illustrious, Benevolent, August, Noble, and Legendary Celestial Majesty, the God-Emperor of Mankind, Donaldus Triumphus Magnus Astra, the First of His Name, has done a tremendous job thus far of reducing regulations and reorienting government priorities to what the people actually what, he has made virtually no progress whatsoever in the crucial task of cutting government spending and getting a budget passed.

That isn't his fault. It is not his responsibility to pass a budget. That is on Congress, which has singularly failed to perform this most vital Constitutional duty for years.

The plain fact is that the government can't do much to prevent another financial catastrophe of the kind that crippled the entire world economy in 2008. The next crisis will be worse by orders of magnitude than what we saw before, and next time, governments will be virtually powerless to stop it.

What should scare the shit out of us, each and every one, is the fact that central banks will also be virtually powerless to stop the next crisis too.

Think about it. There isn't much room for them to manoeuvre anymore. Central banks cannot really lower rates much, because you can't really go below zero - if you do, you end up with the situation that you have in parts of Europe, where people get charged money to park their own funds in the bank.

This is a galactically stupid thing for central banks to do, because if people don't put money in the bank, the bank can't lend money out to others, and an absolutely critical element of the transmission mechanism of capitalism is simply destroyed.

But central banks can't raise rates either. The Fed tried to do so in 2018 and got absolutely hammered by the God-Emperor and the markets for doing it, because this resulted in a slowdown of (debt-based) economic growth. So they had to climb down from that policy, and long-term interest rates are now at... about 2% for a 30yr Treasury bond.

Imagine saving your money for THIRTY YEARS, and getting a pathetic 2% return on it. Once you account for inflation, you've ended up with precisely zero growth. Your money may even have shrunk in value.

When you combine this fact with the fact that 30 years ago, the same interest rate on the 30yr bond was about 10%, you will realise what a dreadful situation we're in right now.

I am as delighted as anyone else is to see the God-Emperor doing so well to push the American economy forward. He is doing exactly what is needed to give power and wealth back to the people who generate it. But that does not mean that he alone can fix the deep-rooted problems within the American, or world, economy. Those problems are beyond his ken.

Those problems start and end with you, and me.

Our lifestyles have been financed almost entirely through debt. (When I say "our", I use this in a global sense. I have made a LOT of stupid mistakes in my life, and I'm paying a very high price for them right now. But one stupid mistake that I never, ever, EVER made, was to go into debt.) And that debt-based living has allowed us to buy lots of nice things.

But life is about far more than just having nice things. And once you go into debt, make no mistake - you are a slave.

Walk away from the debt-based economy. Insulate yourself from the horrendous shocks that will come when, not if, that false construct comes crashing down. And be ready for the day it happens, because when it does, you will probably realise it only when you wake up one morning and realise that the very same titans of industry and capitalism that promised you that they were strong and healthy, have gone bankrupt.

Just like I realised it, on that September morning in 2008.


  1. I still say that a currency shift is in order between 2020 and 2024. I am betting 2021. The Trumposaur has made clear his lack of faith in the petrodollar, and I am expecting the dollar to be revoked entirely... Yes, it's technically a default, but he actually has the constitution on his side for issuing congressionally-implemented money, and the current unchaining of American staples like energy from the Petrodollar makes that a strong possibility.

    I understand that some people hope that the new currency will be crypto, but I doubt that very much... a statement he made two years ago about us 'having our gold back' implies strongly that he intends to follow a gold-backed currency model, which, with our current level of self-sufficiency, would make a NEW dollar the power model in the world market....much like the fiat dollar was the power model 70 years ago.

    I am no economist, but I consider economists to be as 'smart' about economies as Jungian psychiatrists are about the human brain... which is to say, the more they supposedly know, the less useful and relevant they become.

    I am betting (literally, there is a pool in Wendover, which won me big bucks when the GE won the 2016 primary) that the US, Mexico, Certain European countries that have discarded the EU, and Russia will be the BIG winners when the Global crash hits, by shifting their currencies and cutting loose the (((Banking Cartels))) debt cycles.

    Change is coming, and cyclical theory implies that it is NOT ten years down the road... It is August, 2021. barely a year and a half away. The world is not going to end, but there are more than a few people , including 'political' wealthy families, that will wish it had.

  2. I expect that the central banks will just mint as much money as they need.Normally this risks hyperinflation or at least severe inflation but this is a lot less likely do to lower demand issues.

    There really isn't anywhere to go besides dollars. Also the same issues that have made growth not a thing also suppress inflation .

    re: the budget, I hate to defend Congress but when 535 people have very different ideologies and priorities its hard to achieve consensus.

    The usual idea is to get rid of the State but I can promise you if that happens, the US and than the global economy will be deader than a coffin nail in a month . Th e last thing the world needs is one of the largest consumer nations moving to super high savings. This would put hellish deflationary pressure on every economy.

    Frankly with family formation and child birth at ultra low levels and so many goods virtual, its too hard to goose an economy into anything passing for growth. There isn't anything out there to buy that anyone wants or needs beyond consumables. And yes birth rates up, not gonna happen for decades if ever. The developed world is grossly overpopulated in areas with employment.

    I'll use myself as an example, excluding a nice house somewhere I like and maybe a truck, my demand for stuff is nil. I have all the goods I'll need for any reasonable purpose. I am far from the only one out there like this. Even an increase in money which I'd like , isn't highly useful since I have no wife, no kids and nigh anything I could want.

    The caveat there is housing where there is work but that is ,limited by the terrain and we can fit everyone into small towns and rural areas.

    To use an example, Korea .people living in a banjiha, and there are 350,000 of them in Korea are in no condition to raise children.

    There was a reason Henry Ford wanted to spread out the population. cities kill population growth

    There are solutions but they are very central planning like and might not work.

    So the easiest workable solution is to put severe limits on immigration, repatriate as many people as plausible and allow the population to decline till its meets the level of available work . If you can combine this with marriage reform and if needed, work sharing (i.e a lower work week) you might be able to make child bearing plausible

    Also this is a bit ranty, people complaining about interest rates have to understand that being paid for the use of your money is a luxury and you have no right nor any expectation that you can live on interest . If no one wants or needs to borrow, tough. You need to find something useful to use it for, start a business, pay off a house, whatever you want but without demand , no easy mode.

  3. Pay off your debts, then save and invest your money. Buy some gold. Set yourself up for success. Don't be a fragile.


Post a comment

Contact the Didact:

Popular Posts