Ever convinced of its own unique immortality, the overconfident élite is in the throes of a gung-ho episode. Given the threats presented by empty monetarism, religious extremism, resurgent socialism, EU imperialism, consumer insolvency and a scientific step-change, this unaccountable optimism could not have come at a worse time.
Central banks are getting bullish about more rate rises, and withdrawing from asset purchases….except in Japan of course, where the BoJ doesn’t know whatTF to do.
Talking heads on Bloomberg and CNBC are treading a line that calls Western economies “not buoyant but certainly resilient”.
Corporate debt in China remains horrendous, but the PRC government says it knows this, and is “taking steps to contain the situation”.
Consumer credit across the Western world is now such that no economy can thrive without it, but low cost borrowing is not acting as a stimulant in the way suggested by the original monetarist script….which is, as we know, subject to frequent rewrites.
So too, bourses are – almost without exception – overvalued. Corporations have massaged their bottom lines (and thus share prices) and/or upped dividends, by borrowing cheaply under QE. Their costs have fallen as wages have either stalled (short term) or fallen in real value (long term). But lower personal disposable incomes mean lower levels of consumption and confidence.
Beyond these Sun-headline technicals (and to my old-fashioned mind, none of the technicals are natural any more) the left-field curved balls capable of evoking panic seem multivariate and ever-present. Another day, another North Korean missile test. Another day, another French cop attacked and London Tube station bombed by Islamists. Meteorologists are rapidly using up names to identify hurricanes, but this last six days, Irma has been anything but douce.
All this kind of stuff matters: I have spoken to US oil contacts who tell me the “no danger to oil equipment and the damage is affordable” as a narrative on Irma’s progress is complete drivel. And even if Kim Jong Un isn’t quite daft enough to actually fire a live missile at a US ally or territory, his potential for blackmailing his way into a share of South Korean wealth is real enough.
Similarly, no matter how much Brussels tries to dismiss the number of criminal and/or clinically mad migrants that have landed on EU beaches, the problem is real enough – as are the threat of Brexit, rebellion in Poland and Hungary, Italy’s deep malaise, Spanish independence movements and the continuing lack of dollar confidence in the eurozone.
Jean-Claude Juncker’s State of the Not-Really-A-Nation address last Tuesday was a classic of delusional indifference, but the truly notable thing about it was the mauling it got among a broad selection of business media pretty much around the world. Equally damaging (for both the EU and UK) is the obvious stalemate in Brexit talks – a product really of EC bullying tactics from pinheads like Verhofstadt on the one hand, and a lack of tough confidence from David Davis on the other.
On the edges of the “Union”, the deadly mixture of Erdogan bombast and NATO energy obsession is made worse still by the dangerous nature of the Turkish economy, which Recep the Rabid is flooding with credit in an attempt to up his falling popularity ratings. Both his stifling of domestic opposition and steady shuffle towards a Caliphatic stance will be worrying Washington (even Juncker made his opposition to EU accession by Turkey clear) but if and when PKK bombs, economic disaster and diplomatic isolation lead to the Turkish führer’s fall, the consequences for energy supply and market confidence are obvious.
What we have overall here, I think, is a scenario in which monetarist can-kicking, religious lunacy, giant energy shifts and A N Other climatological/geopolitical/military/Sovereign instability ‘event(s)’ will sooner rather than later ignite a barrel of gunpowder among the sandy pillars of financialised globalism’s cellar.
But the most disturbing part for me is overconfidence among those casting themselves as “in charge”.
Many observers point at the ‘Vix’ index of perceived danger, saying its relative calm makes a mockery of imminent disaster scenarios. I don’t know why they say that. For top-end, muscle-bound savvy investors, there is no danger at all: they will be tipped off or nimble when the time comes. The levels immediately below them are either too young to know what a bust is like, or too trusting of those who claim normality is steadily returning. These are the folks the Vix researchers interview, but their views are almost worthless. Before every panic, the vast majority of commentators insist there is no need to panic. The Vix is a viable hedging medium, but it is most emphatically not a guide to the future.
This time, in fact, there are unique factors that suggest collapse on a size beyond the experience of anyone active in business today.
The stock market reset should really have come in 2004. After 2008’s expensive close-call, both US and European banking rules seemed set for tightening and overall reform…but it didn’t happen on anything like the scale necessary. Today, a great many influential banks and banking firms across the world have a model riskier than Lehman Brothers’ just before it collapsed.
The last really calamitous capital screw-up was in 1929. In 1929, there was no shadow banking sector, no internet, no mass-scale computerised trading, no credit cards, no energy shift, no globalist banking dominoes, far less investment credit provision, no euro, no Chinese debt corruption, no dollar-borrowed Brics, almost no serious property bubbles anywhere, no European Central Bank, and no fractional reserve banking nonsense at all.
Beyond those industry-specific absences, there were in turn no nuclear weapons, little known oil in the Middle East, no European Empire nutters, and – apart from the lunatic fringe of Iranian Ba’athists – no Jihadists armed to the teeth by globalised weapons conglomerates. America was isolationist, Japan was self-confident, Britain had a stable Empire and Russia was cut off by Stalin’s Socialism in One Country. As a word, terrorism existed but was rarely coined: there were, after all, hardly any terrorists.
Against this backcloth of delayed punishment and dangerous instability, Janet Yellen, Mark Carney and Mario Draghi maintain the myth that normality is just around the corner. While not quite as far off with the fairies as President Juncker, this unholy trinity is nevertheless attempting to prop up confidence by predicting gung-ho actions that smack of confidence. The only problem here is the smack in the face emerging nations are going to get when they step upon the debt-rake.
There is an enormous amount of dollar-denominated debt around – especially in South America. The problem is not sovereign bankruptcy, because that doesn’t matter….unless you’re Greece, and being beaten by the Brussels baseball bat pour encourager les autres. The problem is what the lending institutions do when governments renege on the debt – and Washington threats of carpet bombing fall on deaf ears.
The idea of raising rates aggressively may be justified by “the data”, but that’s because the data lacks emotional intelligence, and is blind to curved balls. As a policy, given the landscape I’ve been sketching out – it is divorced from reality. The Fed has begun to believe its own spin.
The gneralised escape from reality has to be one of the most marked human trends of the last twenty years. Crazed religious fundamentalists, gamers, virtual reality fans, Leftist ideologues relaunching collectivism, Harder Left activists seeing Nazism in every act of individualism, economic free marketeers pretending not to see rigged trends and uncontrolled greed, celebs convinced that their fame has given them unique social insights, teenagers running off to fight for Stone Age belief systems, otherwise balanced people accepting flimsy evidence of racism, the constant desire to see the next two-dimensional politician as a Messiah, business news channels announcing ‘real recovery’ as if the $45trillion money-chucking exercise had never existed, finance ministers insisting that austerity can be an engine of growth…..the blacklist of delusional decisions is on a par with the rabid self-deception of mediaeval witch hunters.
That this torrent of cockeyed observation extends to the world’s investment markets cannot be denied. When stock values bear no relation to economic performance in general or margins in particular, when investment packages are related to seven types of junk, when hugely indebted Sovereigns are viewed as safe havens, when savers cannot get interest returns, when negative interest rates are accepted as a sane concept, when criminal deception is punished by tax bribes masquerading as fines, and when a tiny Greek surplus is lionised while an unrepayable debt is ignored….then you know that Reason has left the theatre.
So to sum up, Central banker overconfidence is to the fore, corporate and household debt is at an all-time high, any sense of real valuation has disappeared, élites and their media cronies are in chronic denial, geopolitics have never looked more accident-prone, ideological extremism is in the ascendancy, robotised techno-mathematical market trading has created a haven for false flags, there is a near total lack of fit between commerce on the ground and the scoreboards on the bourse, wealth disparities are greater than they were in France before the 1789 Revolution, and the legislators are making policy on the basis of rear view mirrors adjusted for focus on 150 year old socio-economic precepts.
But much of that wishful unthinking would be controllable were it not for the fact that humanity has, thanks to science and technology, reached a genuinely historic crossroad. Medical advance, high-quality robotic manufacture, and media digitalised by the internet have changed almost every rule there ever was….and there can be no going back. People are living longer, millions of jobs are disappearing forever, and both news and trading move faster than imaginable even thirty years ago.
Longer lives mean severe crises in the central government, pension and insurance sectors. Robot advance means high-pay unionised jobs being replaced by menial part-time jobs with little or no contract cushion. And higher speeds mean more confusion, less time to think rationally, and thus a much higher propensity to panic.
Less government spending, less consumer PDI or confidence, and built-in hysteria. This is not the stuff from which stable growth is made; rather, it’s similar in damage capability to the stuff of which icebergs are made. Sixty-five per cent of the Titanic’s progress towards the bottom took place in the last seven minutes: there is no such thing as a gradual panic.
Now the view taken by business opinion-leaders and their bought political Executives is that it would be counter-productive to talk too much about how the shock waves from inevitable collapse might create”collateral damage”. So I thought I’d leap into the deafening silence and toss a few spanners into the void.
I’m referring to small things like unsustainable African economies, the shock to Russia, the Arabs and Texas of oil being overtaken by mutivariate electric energy, Chinese financial implosion, Japanese hyperinflation, a 50% correction in the FTSE, civil war in Turkey, gold at $30,000 an ounce, ClubMed insurrections being put down by a NATO-officered EU army, an Islamic nuclear atrocity, Australia being dragged down by Chinese confusion, and South America leaving the already battered global banking system with a “Can’t pay, won’t pay” dilemma.
It could be that none of these potential outcomes will be realised. On the other hand, it is equally true that none of them are fanciful…and as a range of possibilities, they are far from being exhaustive. (I have not, for example, even broached the subject of climate change)
The creeping rise of corporate, military and surveillance powers to a point well above the Rule of Law is now so obvious in Western societies, one would have to be both mentally and visually challenged not to be aware of it. Major governments long ago eschewed public service for the benefit of the citizenry in favour of Protection of the Realm panic, grovelling to the politically correct, and taking the Multinational shilling. The net result of that rising tide of sleaze and appeasement is that democracy has already all but disappeared (we vote for the chosen, not for those of our choosing) and personal liberty is under attack from all points of the compass.
So it won’t take much to achieve the deconstruction of the Western State model we once knew. In a world full of Islamists, nuclear proliferation, and élites examining every event for its excuse potential, military and security budgets will go up, nationalism will be condemned as disloyal to power-bloc needs, and opposition to further (wholly unwise) integration will be crushed with consummate ease….after a certain point.
The only way to control the poorer 50% of giant blocs like the US, the EU, and Arabia will be full-on fascism. The best hope for an alternative (at every level) remains cooperation between Russia, China, Black Africa and South America: but if you can see a liberal democratic tradition on that second list, do let me know.
In time, I suspect, globalist monetarism will overreach itself and collapse. More national entities will break up, and gradually the devolution of power down to more manageable levels will be effected.
If all of that sounds good, remember that the chances of it happening peacefully are zero. There will be, along the way, hunger, migration, and sovereign upheaval on an unprecedented scale. At various points, geopolitical war, genuine poverty revolt, and civil wars will occur. In some places, the outcomes will be good, in others, appalling beyond belief. The struggle between radical Islam and everyone else, in particular, will be rendered infinitely more bitter by the privations suffered among the majority of atheist infidels.
Political correctness, identity politics and sexual orientation rainbows will be blown away and replaced by an era of zero tolerance, hard cynicism and bigoted goading….all of it in my view regrettable, but entirely self-inflicted.
If major nuclear exchanges can be avoided, humanity will come out of it better equipped to deal and cope with reality – and hopefully allow focused science to reach a deeper understanding of exactly what reality is in the first place. But three generations later, all of those who suffered through the catharsis will be dead, and new idiocies will arise. Longevity, a freak evolutionary event and major climate catastrophes might stop the inevitable process of repeated dysfunctional species history. I’m not confident on that one; but then, I’ll be long gone by then.
I wrote this essay, after much digestion and soul-searching, not to increase the sales of antidepressants but rather in the hope that it might prove – one day, perhaps – to be a self-denying prophecy. But I lack even a fraction of the audience necessary to achieve that. And as the eighth decade looms, to be honest I lack the energy.
Enjoy the rest of the weekend. ;-)