Four years ago, stock markets in the
major developed markets hit their final lows, many having fallen 50% to 70%
from their prior highs. Since that point all the policymakers in the world
have been huffing and puffing, trying to put things back together again. To
date their efforts have not met with sustainable success. If anything, they
have been digging themselves into even deeper holes while at the same time
dangerously inflating financial assets.
Our perspective has always been that
the great spectacular financial crashes at that time were signposts marking
the end of an era. The post-WWII period came to its Keynesian endpoint (to
use a technical term). That’s the point at which the weight of debt finally
broke the aging camel’s back. Factors such as changing beliefs about
families, deepening idolatries, deteriorating morals, heightening
corruption, and an extreme stratification of wealth were not supportive of
continuing prosperity or a continuation into even greater indebtedness. This
remains the case.
Yet, macro-economists and
policymakers continue to think that they can solve these problems and moral
issues by manipulating interest rates and printing money. It seems laughable
were they not so serious. Such measures do not deal with the underlying
causes or even the symptoms. The post-modern world indeed has its shamans.
In recent years, the most popular have been the central bankers. A clear
indication of this is the Bank of England’s (BoE) recent recruitment of the
Governor of the Bank of Canada (Mark Carney). He is expected to work magic
for the British economy. Just why would they pick him to be the first
foreign head of the BoE since its inception over 400 years ago? If anything,
confidence games such as these indicate the desperation of our times.
Were any lessons learned over the
past five years (since the Global Financial Crisis shook the foundations of
the world financial markets and economies)? Economists and scholars have now
had plenty of time to glean important lessons that would protect against
repeated errors in the future.
Rather not, it seems. The financial
sector is back to its old tricks, again parasitically sucking profits out of
the real economies. As a renowned professor (Dr. John Kay) recently
documented, most financial markets have served no important function other
than to reward financial industries themselves. Basing his study on
Britain’s stock market over the past 20 years, he discovered that it was
more a tool for people to cash out than to raise capital for industry. The
same conclusions would apply to America according to Dr. Kay.
As the graph on the front cover
shows, in the case of the U.S. financial sector, despite the supposedly
cataclysmic collapse and following reprimands urging reform over the past
half-decade (also necessitating many government bail-outs and mergers), the
great leeching by this sector continues worse than ever before. Not only are
profits (as a percentage of national income) now bigger than before, these
financial institutions are also even bigger and more concentrated than
before! The brazenous of this industry is astounding. (We quote
2:22 referencing swine and dogs on the front page in this connection).
Perhaps this must be expected during these times, as it thrives on the
utility and metaphysical properties of money, the idolatry of which (love)
is said to be the “root of all evil.”
While the big worry was that these
major financial institutions were “too big to fail” (TBF) they have since
also become “too big to rescue.” Lately, they have now literally become “too
big to govern.” How so? Read this recent statement made by Eric Holder, the
Attorney General of the United States:
“I am concerned that the size of
these [financial] institutions becomes so large that it does become
difficult for us to prosecute them when we are hit with indications that if
you do prosecute, if you do bring a criminal charge, it will have a negative
impact on the national economy, perhaps even the world economy.”
What he basically said was that the
government dare not prosecute any of the banks or other financial players
for fear that rocking the boat in this way may risk bringing down the entire
economy. That’s the state of affairs that we have today. The corruption and
crime is so big and deep that to uproot these tares would risk jeopardizing
the entire field. This admission of the real state of affairs in America
(and other countries), along with the new unorthodox inventiveness of the
world’s central banks, serves as a signpost of the times and forewarns of a
grim future. In the meantime, stock markets have been giving no indication
of concern, hitting new all-time highs in the U.S.
Have there been any efforts to
restore fairness and integrity to the financial and monetary sectors? No,
though there have been lone voices advising otherwise. As document in other
recent articles (see the most recent issue of
Eternal Value Review) ever
greater lawlessness and immoral principles are being endorsed by
policymakers. We anticipate that in the years ahead, we will witness even
greater confiscations and transfers of hard-earned wealth.
The problems have global dimensions.
Consider the Eurozone. Is Europe on the mend? Is it overcoming its
imbalances and corroding banking sector? The prevailing view is “Yes”
because a measure of confidence (induced by the words of Mario Draghi, head
of the European Central Bank, last year) has driven down interest rates in
the problem euro countries. Yet, in recent times we have seen again how even
a small Eurozone member such as Greece (and yet even smaller, such as
Cypress), can threaten to bring down the entire European banking system.
Speaking of which, the most recent
bail-out of the Cyprian banking system set new precedents, clearly
illustrating that no one’s deposits and assets (deservedly or not) are
beyond the grasp of the state. People forget that it is political economics
(there being no such thing as economics without a political framework) that
is at work. When it is deemed to be necessary and for the “greater good,”
assets can be so easily confiscated by fiat (even though much if not all is
of fiat value to start with.)
Are any countries on a steadier
course? Not really. While it took many decades for the Advanced Nations
(these being the most wealthy nations) to fall into their current unstable
condition, it is remarkable how quickly new entrants to the world of
“free-market” economics caught up. We are not referring here to comparative
standards of living, but rather financial conditions. Even communist
countries such as China wasted no time assuming the bad financial habits of
the Western nations. In fact, China boosted its national debt by an
equivalent of 40% of GDP in one year (2009) alone, in the belief that this
would help generate a rapid economic recovery. It certainly served to
provide a short-term boost. But now, it is again falling into a malaise,
this time with a much bloated financial system.
Most incredible recently is the
growing belief of many prominent economists that the U.S. and global
economies are now improving and on the road back to recovery. This outlook
is not certain at all…in fact, unlikely. Only in the financial world is the
expression of confidence itself taken as a sign of improvement. It is all a
process of the blind leading the blind.
There are many glaring facts that do
not fit the picture of ruddy confidence. These are conveniently ignored.
Why? Because to do otherwise would undermine precious “confidence.” (We show
some of these inconvenient facts in chart form on page 3 of the April 2013
Eternal Value Review.)
To name a few: the use of food stamps keeps rising in America; unemployment
continues to surge upward around the world; the gold price indeed continues
to rise in terms of weakening currencies (i.e. the Japanese yen); and
people’s retirement assets have not risen in 15 years.
There is a large array of structural
problems around the globe. We cannot mention them all. In the case of Europe
we will state that much greater challenges lay ahead. A big clash between
Germany and France is almost certain as the latter country (a key
heavyweight of the Eurozone) is also rapidly headed to a debt trap.
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is a global economist/strategist. Formerly a top-ranked global analyst,
research director for a major Wall Street investment bank, and head of
Canada’s largest global investment operation, his writings focus on the
endtime roles of money, economics and globalization. He has been quoted
around the world and his writings reproduced in numerous other publications
and languages. His 2002 book The Endtime Money Snare: How to live free
accurately anticipated and prepared its readers for the Global Financial
Crisis. His newest book, Global Financial Apocalypse Prophesied:
Preserving true riches in an age of deception and trouble, looks further
into the future.