Three weeks ago, I penned a column, It’s Later Than You Think, to discuss what I felt was a significant economic event likely to occur before the end of this calendar year. It appears that things are moving faster than I expected, as the unwinding of our global financial system is underway already.
I’m surprised to see this in the last couple of weeks of August. Typically, the Powers That Be do not allow significant events to unfold until we are well into September or October. I’m not going to list all the statistics here: these can easily be accessed by doing a little research on your own. Suffice to say, the Chinese stock market is down 40% since June of this year, the U.S. stock market is down 10% in ten days, and Canada just announced that we are officially in a recession . . . that was shocking news.
So where do we go from here?
Well, I think the future is clear. The U.S. Federal Reserve will defend the stock market to the bitter end. A sinking stock market is the final sign that an economy is imploding, therefore we will likely hear an announcement of further quantitative easing out of the U.S..
Now, I doubt they will simply call this QE4, since QE1, QE2 and QE3 all failed miserably. The Powers That Be are likely working right now on a fancy new patriotic name for this new round of money printing. I should mention this new injection of money will probably be bigger than all of the previous rounds of money printing combined. The result will be a rallying stock market, at which point the U.S. Government and U.S. Federal Reserve will point to the stock market and say, “Look, all is well, the stock market is rebounding . . . aren’t we brilliant”?
Of course, the unintended consequence of all of this money printing will be hyperinflation. Sure, the DOW may be be trading at 20,000, but that 20,000 will buy you less than a 10,000 DOW would have bought you ten years ago.
Yes, the final battle of the global financial meltdown will be fought in the currency arena. Who will win? Simple: The U.S.. But remember, the winner of a currency is the biggest loser, as the central bank has depreciated the currency more than all other central banks.
Many people and financial analysts will argue that hyperinflation simply cannot occur in the U.S.. The funny thing is, what the U.S. Federal Reserve is doing right now with money printing is exactly what Germany did in 1923, Zimbabwe in 2008, and hundreds of other countries have done throughout history.
Each time resulted in the same outcome: Hyperinflation. However, when the U.S. repeats these same actions, for some reason it is supposed to result in a different outcome. This logic is like saying that combining magnesium and water in any country in the world will have an identical chemical reaction. However, if you combine these elements within the borders of the U.S., there will be no reaction whatsoever.
That's financial logic for you.
I’ve been writing about the potential for an upcoming financial crash for the past two and a half years. It would appear that we are closer than ever to this event; we may even experience it before year end. On Monday of this week China experienced its second largest stock market crash in history; falling 8.5% in one day. This is just shy of the largest crash of 8.8% on February 27th, 2007. Remember what followed that? The truth of the matter is that Monday’s fall would have been far greater had the government not intervened and let the free market rule.
A couple of weeks ago the New York Stock Exchange halted trading in the middle of the day. The official story was this was due to technical issues. Yeah right, this market was in free fall. It didn’t happen on a calm day or even an upward trending day. To add to this, the vast majority of open sell orders were wiped out when the market reopened.
OK, let’s turn our attention to Greece. The Greek stock market is closed. That’s right; closed. And will likely not reopen until next week. This marks a five week shut down for the Greek stock market. In addition, capital controls have been forced upon the Greek people. Government imposed capital controls have banned foreign bank transfers. Greece is running out of medicine as Greece relies almost entirely on foreign imports for its pharmaceutical supplies. Thus supplies of medicine to Greece have significantly decreased. Greek credit is no longer accepted outside of the country. This has stranded Greek tourists outside of Greece. Food shortages are on the horizon. I’m not just talking about grocery store shelves. The Greek Association of Fodder Industries has warned animal feed shortages within days as Greek farmers depend greatly on imports to feed their animals. Basic agricultural products such as cheese, eggs, milk and meat could become scarce within a few weeks.
Global commodity prices are nearing a 45 year low. Global sovereign debt is at an all time high and grows significantly by the day. Personal household debt to income ratios are at their highest levels ever. This is all the result of a global Ponzi scheme spawned by worthless currency. Central banks around the world have been printing currency out of thin air at unprecedented levels for the past eight years. The time to pay the piper draws nearer.
This article is not intended to scare people. Goodness knows our media and government do a good enough job at that. This is simply stating facts that will precipitate an outcome. Is the outcome pretty? No! Is it real? Yes! What can one do about this eventual outcome? I can only state what those who are aware of the global financial situation are doing; paying down debt, owning things that have more value than paper and holding a significant portion of their wealth in precious metals.
I’m continually taken aback and appalled by government’s complete lack of understanding of markets and business in general. This is only exceeded by my shock and bewilderment of government’s misguided belief that they can grow an economy and create jobs. You hear it all the time from the Prime Minister, the Premiere and right down to our own mayor. At some point in these peoples’ lives they must have been taken aside and been told a most preposterous lie that politicians can positively affect an economy. The truth is simple: They can’t. Governments cannot grow economies or create employment. They can only steal money from one person and give it to another. It is only the private sector that can create an economy, grow an economy and create jobs. A government can no more create jobs than I can perform heart surgery. The difference is I know my limitations: Government has no clue about its limitations. I can’t perform heart surgery. Point of fact, government interference in economics is as dangerous as me entering the operating room with scalpel in hand.
In my first year in university I majored in biology. We studied the intricacies of ecosystems and how every bit of flora and fauna played a part in the success of an ecosystem. It was determined that ecosystems are so complex that we would likely never fully understand the interconnectedness of all of the factors involved. After studying economics and markets for the past couple of decades I am able to draw very similar parallels between ecosystems and truly free markets and the entrepreneurial spirit. Just like in an ecosystem, the free market is an absolute marvel. When a niche exists in a market, human ingenuity will fill that niche with people and companies that evolve to become exceptional in that field. It’s a brilliant thing. There is also another parallel to be drawn between wildlife management (a government entity) and government involvement in markets. They are both toxic to the system that they invade. We can be an arrogant species to think that we actually understand ecosystems so perfectly that we can manipulate variables and predict exact outcomes. For the most part, we don’t know what the heck we are doing. (i.e.; the mongoose in Hawaii, the wolf cull in British Columbia this year, countless examples of illuminating predators to protect prey which have ultimately backfired). Equally as arrogant is government and central banks that interfere with markets that they cannot possibly understand let alone provide benefit to. Further frustration about government involvement in markets is the lack of experience of those making the decisions. We see it all the time; one day a politician is the Minister of Health and the next day they are the Minister of Finance. Are you freaking kidding me?
The best thing to do in both ecosystems and truly free markets is to get out of the way. Both will find a balance far more advanced than either government or wildlife management could possibly fathom.
Just like ecosystems, markets will manage themselves brilliantly if government would just leave them alone.
Two days ago I drove downtown for a business meeting. When I returned to my car I had a parking ticket on my windshield. Being the critical thinker that I am, I began to mentally dissect the mythology behind the parking meter. Roads, streets, sidewalks, parking meters, street lights are all paid for by you and me, the tax payer. Not only that, the items that I have just mentioned all require a tax to be paid when they are purchased. In addition, the labour that installs this infrastructure is taxed on the wages they receive as well as the contractor paying income tax on revenue derived from constructing the project. Now when you park downtown to conduct business, you have to pay again for these items in the form of plugging the parking meter. To add salt to the wound, if you don’t pay enough for the use of something you already purchased at the onset, you will have to pay a third time via a parking ticket. Talk about legalized extortion!
It is a widely held opinion that government is a disease inflicted upon society. There are hundreds of examples of this, but I’m going to stick to my parking meter example. Governments are constantly barking about how they are working hard to grow the economy, create jobs and further economic activity. The big problem here, which is beyond the comprehension of government, is that they have absolutely no ability to create jobs or grow an economy. That control lies solely within the realm of the private sector. Government only has the power to hurt the economy through taxation, tariffs, quotas and other ill devised destructive tools of government.
So what’s my point? My point is after you have already paid for the infrastructure of downtown, and private individuals have taken on the risk, stress and volatility of creating a business, we then have to pay to go to this meeting area in an effort to grow the economy to pay more taxes. If government is true to their word, they should scrap every single city meter. (I must stress that I am not talking about privately owned parkades. (These are private businesses). This would promote an environment more conducive to commerce. To be completely honest, those traveling downtown to do business should receive some sort of compensation for their efforts. Instead of feeding the meter, the meter should feed us. Here endeth my rant.
More Economics 101 articles
- Have a heart Feb 20
- New boss same as the old boss Jan 23
- America has fallen Jan 9
- Long live gold Nov 28
- Got currency broker? Nov 14
- A wolf in sheep's clothing Oct 31
- Hidden inflation Oct 17
- Impeach Christy Clark Sep 19
- Show me the money Jul 25
- Patriotism = Blind Faith Jun 27
- Government shuns education May 30
- A day in the life of a Cdn taxpayer May 2