This article first appeared on 25 July 2012 on News24
We may very well be entering the most challenging time since 1939. I am not trying to be melodramatic, but the world economy is in turmoil. When the economy takes a turn for the worse, the political and social environments turn sour as well. You see, government is ceremonial. What we often fail to understand is that the prosperity of a nation, and its form of government, whether it be a democracy, autocracy, technocracy etc. is a consequence of its economic structure (capitalist, socialist, fascist) – and not the other way round. Currently the world economy is run by central banks who can manipulate interest rates and money supply, and big bureaucratic governments who are spending money they don’t have, whether it is to bail out banks, provide welfare or fight wars. The premise that capitalism and democracy go together is completely false. China, the world’s most capitalist country has no democracy. Most people don’t really want freedom, because the flipside of freedom is responsibility.
Presently we are in a depression, not some form of recovery as
most many mainstream ‘experts’ claim. To understand what is wrong with the global economic system, we need to understand
There is probably no such a thing as a free market anywhere in the world today, almost all markets are regulated by governments and central banks, whether in the form of a minimum wage not allowing full employment, fixed interest rates destroying the price finding mechanism in a market and in this way creating bubbles (periods of artificial and unsustainable growth) or governments’ intervention in healthcare which will lead to crowding out the private sector and pushing up prices. Ironically, the bigger a government is, and the more it forces itself onto the economy, the less prosperous a country becomes. At this stage it is important to differentiate between economic regulations forced onto an industry (which ALWAYS has unintended consequences) and the legislation which is required to protect the public from the inherent dangers in certain industries. The alleged criminal practices of some large banks and corporations are the result of the absence of the rule of law, and the absence of regulation that protects the free market.
The US central bank is called the Federal Reserve. The role of the Federal Reserve is to monitor money supply (print money) and set the price of money (interest rates). (Was it ever its intention to absorb the toxic assets of the Wall Street money junkies onto its own balance sheet?) The American constitution states that only congress has the authority to issue money, which means that the Federal Reserve does not adhere to the constitution. It answers to no one, has never been audited, and unknown to most, it is privately owned, by other banks. So how can we trust the Federal Reserve to have the best interests of the American people at heart? Founded in 1913, Woodrow Wilson, the president at the time later said about the Fed: “I have unwittingly ruined my country”. The official mission of the Federal Reserve is to create a smoother economy, to minimise volatility and clear out chinks in the system. Ironically, a century of central banking has seen the wealth gap diverge and greater inequality than ever.
“It is no coincidence that the century of total war coincided with the century of central banking.” – Ron Paul
What the financial architects at the central banks have achieved is to re-engineer the economy to allow asset prices to rise without allowing corresponding wage increases, hence the growing inequality we have today – meaning that in real terms the income of the average person has decreased.
The wealth gap (In the US) between the top 5% and the rest of the population started to diverge noticeably during the early 1970s when the US defaulted as a result of President Nixon removing the last remaining links between the dollar and gold. It was also Nixon who famously said “we’re all Keynesians now” – implying higher taxes and more government interference in markets. A “heavy progressive income tax” is the 2nd point on Karl Marx’s communist manifesto. Breaking the dollar’s links to gold of course gave the Federal Reserve and their special interests virtually unlimited power.
“Give me control over the supply of money and I care not who make the laws” – Lord Rothschild
The last US president to dare question the Federal Reserve System’s authority was John F. Kennedy. In fact, he signed an executive order to start the disbanding of the all-powerful central bank. Unfortunately in 1963, before the process could be completed JFK died in an assassination attack under circumstances still questioned by many.
If you ever hear someone blaming capitalism for the problems we face in in the world today, (whether it is filmmaker Michael Moore, or an ill-informed communist member), ask the following:
· Does capitalism mean having interest rates set by a central bank?
· Does capitalism permit indiscriminate printing of money by a central bank, leading to inflation and impoverishment of citizens?
· Is capitalism about rewarding failure and reckless trading through bailouts with taxpayers’ money?
No, the system we are currently governed by is not predominantly capitalist. There seems to be an alliance state and corporate powers with boundaries becoming more obscure by the day, with ever-decreasing respect for the plight of the general population. This system is called fascism.
A world run by incompetence and greed will soon lead to revolt by the masses.
The Arab world is in chaos, communities are being destroyed. But will anything change? In Egypt, when the military finally let go of control, a radical new Islamist party came to power, and in Libya, when things settle down, we’ll most probably have the same outcome. The more things change, the more they stay the same.
All over the world too many people can’t find jobs and have an unacceptably low standard of living and very little prospects. There is increasing disillusionment with corruption at the top. Hence the unprecedented social unrest/outrage we are seeing all over Europe, the Middle East, the US and lately even Canada (in response the Canadian government passed a law effectively banning demonstrations, which only resulted in making it worse), and it is spreading worldwide. Greece and Spain are likely to see more citizen unrest resulting in more clamping down from government.
Indeed this might well be the beginning of world war 3. And I don’t say that lightly. Let’s go back to 1932, when fresh from a global depression followed by a hyperinflation nightmare, the people of the Weimar republic were angry, and wanted change, change they could believe in. As a result, to show their disdain for the old system and in a quest for economic change, Hitler was elected to power. Hitler was even Time magazine’s person of the year in 1938. Eventually, their charismatic new leader turned out to be a radical racist sociopath.
This begs the question, was it desperation for change that allowed a rational and sophisticated nation such as the Germans, to elect a man like Hitler to ruin their country?
Presently, we see radical far left and far right (there is no difference) parties getting record support, with the new French president promising tax rates of up to 75% (high taxes are bad for the economy).
Radical ‘nationalist’ parties are receiving record support, because the people are fed up. In troubled times the naïve and fearful are often drawn to charismatic radicals.
The Euro project was doomed from the beginning; how could the same set of economic and monetary policies could work for countries as economically diverse as Greece and Germany for example. In real terms, the European Central Bank does not have the money to keep on bailing out banks and countries. In fact, the EU constitution does not allow for the bailing out of countries, or quantitative easing.
The US Government’s income is from taxes (only 50% of the US population pay income tax), and by issuing bonds – debt to countries like China and Japan. But of all the debt the US treasury has to sell each year to cover its $1.5 trillion dollar budget deficit, the Federal Reserve buys 60%. There is not sufficient demand for US debt, so they have to buy 60% of their own debt to fund their welfare state and ludicrous wars. It is absurd when you think about it.
Many people have already forgotten about the Iraq war. A country ruined, a million Iraqis dead, countless American lives ruined (US military veterans returning from the Middle East are committing suicide at a rate of 1 a day), a trillion dollars wasted. And have they anything to show for it?
Why shouldn’t Iran have nuclear weapons? It’s only natural that they would want these weapons, as a deterrent. They are surrounded by countries with such weapons: India, Israel, China, Pakistan etc. And how dare USSA tell SA who we can and cannot buy oil from (India by the way is now paying Iran with gold, not American paper for oil).
If America attacks Iran we might see the advent of a third world war for the following reasons:
· Firstly Iran is not Iraq or Libya; these are the Persians, 80 million people with a really long and proud history.
· Secondly China and Russia are backing Syria and Iran on this one, and have warned against such aggression.
· There is a similar pattern emerging in the run up to each of the two previous world wars: recession, depression, trade wars, currency wars, regional wars, world war. We have had a recession, we are absolutely in a depression (Spain currently has a 23% unemployment rate, 30% of the US population use food stamps, among countless other economic statistics supporting this). Currency wars? Well the Europeans, the Americans and the Chinese are printing money as fast as they can to stay competitive, and prevent the massive deflation. Middle eastern and some European countries are having social unrest the likes of which we have never seen before. Lack of jobs lead to poverty and people are being subjected to harsh austerity. History is repeating itself, and at the very least we will have face hyperinflation and a deluge of social unrest.
In an attempt to stimulate their economy, the US, the Chinese, the British and the ECB engage in ‘quantitative easing’ – which boils down to the printing of more money. The aim being to boost inflation, cheapen the currency and create jobs through stimulating the economy. This policy has largely been ineffectual, because it has failed to produce any real growth domestically, and if all the other central banks do the same thing, it has no effect internationally. We call this practice currency wars. Interestingly, the Roman Empire collapsed because they debased their currency to fund conquest and wars. The silver coins used as currency went from consisting of 100% silver to 2-3% silver.
The reality is that gold has been used as money for the past 6000 years, and although all kinds of other systems have been introduced, their longevity and resilience depend on being directly linked to a tangible commodity such as gold or silver. (The average life expectancy of a fiat currency is 27 years; it has now been 41 years since the Dollar has become a debt-based FIAT currency).
Paper money systems don’t last, because the seductive temptations of the printing press means politicians can spend more on welfare to garner votes, and failing banking systems can be bailed out for the wrong reasons.
We are entering this new depression on very shaky ground:
· Median household income in the United States is down 7.8% since December 2007 in real terms.
· There are 5.6 million less jobs in the US than there was when the last recession began.
· In 2007, the unemployment rate for the 20 to 29 age bracket was about 6.5 percent. Today, the unemployment rate for that same age group is about 13 percent. (These are the official government numbers. The actual numbers are much worse)
· Total consumer debt in the United States has increased by a whopping 1700% since 1971. (Isn’t that when they went off the gold standard?)
In America, a 76 year old congressman, Ron Paul is leading a revolution. In my opinion, he is the most principled, honest politician alive today. Unfortunately he is seen as a threat to the establishment, and the mainstream media has tried to mute him. But an idea whose time has come cannot be stopped!
I believe that we are entering a very tough time. Not only SA, but the whole world. Too few people know enough about what is really going on globally and especially the political and economic situations in America and Europe. All indications are that we are about to enter the toughest and most turbulent era since the Second World War.
It is simply not true that the US and Europe have recovered from the 2008 recession.
What is makes the situation even more serious is that people look up to people like Barack Obama, or David Cameron to somehow fix things, or improve their lives. These people aren’t ‘great leaders’, they aren’t ‘exceptional people’, they are ‘career politicians’. The only people who put their faith in politicians are the undereducated. People who believe that they need someone else, a politician, to speak for them, and who cannot distinguish between political subterfuge and real leadership in candidates are the downfall of a nation.
How many people know who the prime minister of Switzerland is? This is because Switzerland, the most heavily armed and educated country in the world has a small government, with direct democracy, the people get to vote on all the major issues, and they are too sophisticated to either glorify or be misled by politicians.
In America, interest rates are currently at 0.1% – negative in real terms. This is just another bubble waiting to burst. In fact the artificially low interest rates in the US are what are keeping the stock market artificially high. Because people can’t leave their money in the bank and expect a reasonable return, they invest in stocks and bonds instead. Without savings there is no capital means
money to start new business ventures, especially in manufacturing, where it is needed
The virtually free money from the Federal Reserve is also great for the bankers who can continue to gamble in with highly leveraged derivatives for free, at no risk. The post dotcom bubble low interest rates caused the housing bubble; every Joe Soap and his dog could get low interest rate loans to invest in property. This caused house prices to increase in (double and even triple in some cases) – very unsustainable.
The low interest rates are also necessary to keep the US’s bond market alive and its rates low, they would lack the fiscal control to be able to service the $16 trillion debt. In fact, if interest rates were 6%, by 2020 a gigantic 45% of revenue would be spent on paying interest on the debt.
Money supply in the US has tripled since the start of the crisis, yet inflation is officially at a modest 3% indicating a fundamentally weak and unproductive economy. Relative to gold, and the huge amount of money in circulation, we are in a major deflationary nightmare. This is because oil prices are falling due to a lack of demand in a fundamentally unstable economy. Any economist will tell you that deflation is extremely dangerous, and is virtually unfixable. Typically hyperinflation succeeds the deflation when central banks intervene. The frantic stimulus by central banks around the world and the crisis in Europe is what is keeping the dollar afloat (an apparent safe haven). However, if and when Ben Bernanke next announces more stimulus (QE3), we are likely to see a decline in this confidence, and the markets could very well react strongly upon the realization of this imminent and unsolvable crisis.
As a result we could see very high inflation, even hyperinflation, causing gold prices to rise rapidly.
This is likely to happen after the US presidential election. Obama will do everything possible to make the economy look good during the run up to the election. When US bondholders start selling their bonds, interest rates will be forced up, and realistically the Federal Reserve won’t be able to pay the interest. They will either have to default, or print enormous amounts of money to buy back all the debt. In theory, a dollar crisis will cause other currencies to appreciate, but it is likely that other countries, especially export fuelled economies will also start depreciating their own currencies. Remember, if America and Europe don’t buy, China doesn’t sell, and Africa and South America don’t export resources. At this stage all confidence will be lost in FIAT (paper) money, and effectively if it’s written on a piece of paper, it will be worth the paper it’s written on. At this stage the world will go back onto some form of gold standard, de facto or officially. This would make the ‘price’ of gold irrelevant. Instead of saying “I have $1600 of gold” you will say “I have 1 ounce of gold”. When the crisis hits, there will be a bank holiday, during which the government will try to enforce price controls, capital controls and withdrawal limits to try manage the hyperinflation.
Derivatives are complex financial instruments, but they are basically just debt insurance. They can be piled on top of each other, that is why there is an estimated $1.5 quadrillion ($1500 trillion) in derivatives. The world GDP is $80 trillion. If one of the parties to a naked credit default swap contract (type of derivative) defaults to pay, it could set of a domino effect, with more derivatives based on that contract. The fact is, that if things go wrong in this market, they will go badly wrong, since there isn’t enough money in the world to pay off all the obligations. Recently JP Morgan (one of the biggest American banks) announced a $2 billion derivative trading loss. It has since been estimated that this loss might have grown to $30 billion. JP Morgan is a $100 billion company. Many of these banks are technically insolvent. A large run on the banks will expose their weakness.
All the stimulus and devaluing has barely had any effect, interest rates will rise when there are no more investors. Nothing is too big to fail, and you can’t create false prosperity without serious repercussions. In the same way that you can’t regulate markets, you can’t regulate behaviour and morality.
Politically, the Obama administration has been worse than its predecessor, he has launched unconstitutional wars, signed the national defence authorisation act, set up the framework for martial law under a ‘potential threat’, and effectively repealed the posse comitias act of 1878. This means that the military can take up police duties, and operate domestically. Only recently, the secretary of the military said in front of the Council of Foreign Relations that troops should patrol the streets of major American cities. The department of homeland security is rumoured to have ordered 600 million rounds of hollow point ammunition, and the federal emergency management agency (FEMA) to be stocking up on body bags. The implication is that the US is rapidly turning into a police state leaving one to wonder how all these facts and occurrences are subsequently going to play out on the local US scene politically and the global stage economically.
Will Obama get re-elected? Although his support is fading, Obama, and his puppets that run the economy will do all they can to window dress the economy until the election. This includes spending more money, more quantitative easing, promising free lunches and making up statistics. Depending on the polls, Obama may even start a war, or fabricate some sort of crisis (no president has ever lost an election during a war). Obama, once re-elected will start a serious crackdown on civil liberties, through executive orders, and radical constitutional amendments which will include crackdowns on freedom of speech, freedom of movement, gun ownership, and draconian financial regulations.
The word “conspiracy” has a negative connotation to it. It has been targeted for ridicule. We have been trained to reject anything called a “conspiracy” instinctively, without considering the facts of the information presented. Typically, we believe it is in our best interest to be sceptical, ask questions and not make decisions based on face value. Yet if somebody suggests that many of the problems presently facing us are down to the influence of a highly secretive banking cartel, we instinctively dismiss this idea with no further investigation.
When a politician comes along who differs with the narrow Right-Left, he is ridiculed or ignored.
My prediction is that we are going to see another attack of some sort, false flag or real to create the pretext for another war – possibly Iran. This will serve as the distraction, distracting people from the real war, the financial war. When interest rates start rising and the derivative market starts to collapse, it will be clear to all that the financial implosion is underway. Then the real wars start.