Former central banker: “[Bankers] are making it up as they go along.”

March 3, 2014
London, England

[Editors note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission.

And while we search for assets whose prices are less obviously distorted by malign government intervention, it’s refreshing to hear a mea culpa from a member of the economics “profession”.

White said:

“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.

“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.

“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.

“I’m becoming more and more convinced that all of the models we use are basically useless.

“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.

“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”

[End quote]

Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic.

But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.

Warren Buffett famously compared financial markets to the card table, observing that if you’ve been playing poker for half an hour and you still don’t know who the patsy is, then you’re the patsy. It seems we are all patsies now.

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“I haven’t seen anyone from the government in eight years…”

February 28, 2014
Sovereign Valley Farm, Chile

“Hey I just wanted to let you know, a guy from the local government was here today…”

That was one of the first phone calls I received from the manager of this place just a few days after I had taken over this farm a couple of years ago.

A visit from the government seemed harmless enough. My friends back in the US who were farmers always complained about incessant, nonstop visits from various federal, state, and local agencies ranging from immigration to census workers to food inspectors.

“How often do they come around?” I asked, hoping the answer would be something like ‘monthly’ or ‘quarterly’.

“I haven’t seen anyone from the government in eight years…”

Nice. And he was right.

In the years since then, there was only one ‘emergency’ instance in which some guys from the Agriculture Department came to warn us about a plant disease going around which might damage the grapes.

As they drove off I thought of that old Reagan quote– “wow, they’re from the government and really were here to help…”

In stark contrast, a rather depressing story emerged from the Land of the Free this week demonstrating how the FDA is taking a very heavy hand to American farmers.

The LA Times reports that federal agents are swarming onto private properties across the countries to regulate how Mom and Pop farmers grow their organic produce.

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Of course it’s all in the name of protecting the American people. Just like the body scanners they installed at airports, why they spend hundreds of billions on foreign wars, why they read all of your email, and why they’ve launched a government retirement program. For your protection.

So now there’s a bunch of bureaucrats dictating everything from how organic farmers are allowed to compost, to how close animals can be to the crops.

(Naturally the big guys like Monsanto get a pass…)

Unfortunately it’s pushing small farmers out of business. Don Bessemer of Akron, Ohio recently called it quits after the government bureaucrats proved too much to handle:

“We haven’t poisoned anybody with an ear of corn for 117 years and we’ve shipped it all over. . . I can fight the bugs, I can fight the lack of rain, but when the guy comes with a clipboard what are you going to do?”

This is central planning at its finest. And it’s a pretty sad state of affairs when the only options are (1) going out of business, or (2) dealing with bloodsucking bureaucrats who know nothing about your business.

The truth is, though, those aren’t the only two options. As we tell our students each year at our summer entrepreneurship camps, there’s an entire world out there full of incredible opportunities.

Colombia, where my team and I just came from, is a place with amazing undiscovered possibilities. Here in Chile is another that I discuss frequently.

The world is full of thriving nations with boundless opportunities where you don’t have to serve feckless bureaucrats.

This is a hard mental adjustment. We’re programmed to view anything outside of our home country as perilous and to fear the unknown. So many folks would rather suffer in a place they know rather than take a chance on a place they don’t.

Fortunately it’s rather easy to overcome this mental hurdle by starting slowly. I’ve seen hundreds of people take their first trips overseas and be shocked at how modern and civilized many foreign countries are.

They find out it’s not so scary after all. And it sure beats the slow grind of watching your freedom and livelihood erode.

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This city should definitely be on your radar

DSC 0008 150x150 This city should definitely be on your radar

February 27, 2014
Medellin, Colombia

$1 billion.

That’s how much the old Medellin drug cartel under Pablo Escobar used to lose annually to rats that would eat the currency stored in their warehouses.

At its height, the cartel was smuggling 15 tons of cocaine per year into the US. And its leader Pablo Escobar was one of the richest men in the world… so rich, in fact, he offered at one point to pay off Colombia’s $10 billion national debt.

At the time their home base of Medellin was the most violent city in the world owing to urban wars among Colombia’s rival drug cartels. The city’s people mostly stayed at home and there was hardly any social life.

But things started to change dramatically with the death of Pablo Escobar in 1993, and even more after 2002 when Colombia’s president Álvaro Uribe used the military to disband urban militias.

Today, Medellin is one of the most vibrant cities on the South American continent. The crime rate is now lower than in most US cities. Over the past 20 years it has gone through a remarkable urban renewal and revitalization.

The city’s parks have been brought back to life, urban transport is widespread and efficient, including a metro system and cable cars that ferry people up and down the hillside.

Most importantly, the people have shrugged off worries and dark memories of the turbulent past and now look into the future with excitement and optimism.

There is a very noticeable ‘can do’ mentality here, which stands in stark contrast to some other places in Latin America.

The city lies about 1,500 m high in the Andean mountains and the sky is quite literally the limit here.

In 2012 Medellin was named as the most innovative city in the world in a competition sponsored by The Wall Street Journal and Citi, beating New York and Tel Aviv as the other finalists.

It boasts 32 universities, a technological innovation hub, and a manufacturing cluster—it’s the top exporting region of Colombia. International companies are increasingly choosing Medellin as their Latin American headquarters.

Foreigners are slowly getting taken over by the charms of the city—its perfect climate with stable year-round temperatures of 16-28 degrees and no humidity despite being near the Equator.

Medellin has an exciting, vibrant culture and social life… not to mention tremendous opportunities as Colombia shrugs off its outdated stigma. The country is truly emerging as one of the most exciting investment and business environments in the world.

In fact, Medellin’s property market is one of the most attractive I’ve seen.

For a city of its size, its increasing economic might, and its allure for foreigners, it’s incredible that you can still find beautiful bargain-priced apartments and penthouses in the best areas of the city for around $1,000 per square meter.

If you’re in search for attractive and exciting investing, business and lifestyle opportunities, Medellin should definitely be on your radar.

[Note to Premium Members: We’ll be discussing all of these in an upcoming Alert.]

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Presenting the #1 financial haven for dictators and criminals

February 26, 2014
Medellin, Colombia

Pop quiz: When really nasty criminals and dictators want to hide their illicit gains, which country do they go to?

I’ll make this easy for you– multiple choice:

a) Switzerland
b) British Virgin Islands
c) Hong Kong

With all the drama, history, and stigma surrounding Switzerland, most people would choose (A).

Yet over the last few years, Switzerland has worked hard to shed this reputation, even going so far as to propose laws making it easier for them to freeze dictators’ funds.

But in reality, the correct answer to the question is (D), none of the above. It’s the United States of America.

Despite being at the forefront for every other country in the world to eradicate banking privacy, the US government has hardly done a thing about the huge cracks in its own banking system… at least when it comes to foreigners.

Many states ranging from Delaware to New Mexico boast corporate entities that can be completely private, especially for foreign shareholders.

Not to mention, attorney-client privilege laws in the US mean that a lawyer can be inserted between a foreigner and their Delaware bank account, making the funds virtually untraceable back to the original shareholder overseas.

Last– the US banking system is so large with hundreds of billions of dollars of inflows and outflows, it’s quite easy for several hundred million to slip right past the radar.

So if you’re a villainous dictator who has plundered your citizens’ wealth, you’d be a fool to stash that cash away in Switzerland. Wall Street banks are waiting with open arms, and Saul Goodman is just a phone call away.

None of this, by the way, is any wild conspiracy theory. It’s all fact… validated by the US government itself.

You see, the Financial Crimes Enforcement Network (FinCEN), an agency of the US Treasury Department, sent out a rather frantic email blast to banks across the United States yesterday about former Ukrainian President Viktor Yanukovych.

Mr. Yanukovych recently fled his home country and is on the run from mass murder charges. And as you can imagine, he has spent years plundering the wealth of Ukraine.

FinCEN recognizes that Yanukovych has substantial assets stashed away in the Land of the Free… and they’re keen to avoid yet another embarrasing public scandal in which the US banking system is caught financing a fugitive dictator.

So their email yesterday was a not-so-subtle suggestion to banks across the country that they should sound the alarm bells with respect to “suspicious movements of assets related to Viktor Yanukovych. . . and other senior officials resigning from their positions or departing Kyiv.”

It certainly begs the question– why would FinCEN send out such an admonishment to US banks?

Simple. Because while ordinary citizens are treated like dairy cows and medieval serfs, FinCEN knows that the United States is the #1 financial safe haven in the world for foreign criminals and dictators.

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Unbelievable. 55-year old widow fights against the North Korean government

February 25, 2014
En route to Colombia

Li Mi-Yung just wanted to be free.

This 55-year old widow in North Korea had spent the last 18-months building up an off-grid residential homestead. She was, for the most part, fully independent.

She collected rain as a source of water. She had her own waste disposal. She generated her own electricity from the sun.

Sounds pretty admirable, right? Especially in a place where so few people are independent.

Unfortunately, upon finding out about Ms. Li’s living situation, the local authorities in North Korea dispatched entire teams of government workers to Ms. Li’s home, attempting to evict her and haul her in front of a tribunal.

Truly despicable. You’d think that the North Korean government would be eager to learn from her so that everyone else’s lives could be improved.

But alas, what else can one expect from the government of North Korea…?

There’s just two minor corrections I need to make to this story before I go on, though.

Li Mi-Yung is really Ms. Robin Speronis. And she does not live in North Korea. She lives in Cape Coral, Florida… in the Land of the Free. Everything else is true.

Yes, rather than try to learn from Mr. Speronis in an effort to improve the city’s public services, she was apparently branded as some kind of criminal mastermind who must be stopped at all costs.

When they heard last November that she was living off-grid, the city posted a notice of eviction, citing numerous code violations. They concluded that her dwelling (which she had been living in since January) was “unfit for human habitation.”

Furthermore, she was told that continuing to live at (or even ENTERING) the property would constitute misdemeanor trespassing and subject her to arrest.

Days ago, the case was heard in front of a special magistrate. City officials read off a seemingly endless list of code violations, and expert witnesseses were paraded into the court to confirm her nefarious deeds.

Naturally. Someone who unplugs from the system can only be trouble.

At the end of the hearing, the judge waived his hand, finding her guilty of some violations, not guilty of other violations, and then ordered her to at least partially plug back in to the grid.

I wish I could use a word like “amazing”, “unbelievable”, or “incredible” here. But I can’t. Because this is now par for the course in the Land of the Free.

Collecting rainwater now constitutes a crime. Being free and independent gets you threatened with eviction and hauled into court.

In the Land of the Free, you are unfit to decide for yourself how you want to live. And the government has all the power in the world to forcibly bend you to its will, even if it means terrorizing citizens into using public utilities.

It’s quickly getting to the point where anyone who wants to take back any personal freedom is going to have to seriously consider heading overseas to places where governments leave you the hell alone to live your life in peace.

Yes, it’s a radical thought. But so many great civilizations before were founded by intrepid free men and women who left their home countries in search of liberty and opportunity.

Why not now?

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World governments agree to automatic information sharing

February 24, 2014
Sovereign Valley Farm, Chile

It’s like 34 drunken sailors holding each other up. That’s the best way I can think of to describe the latest product from the good idea factory that is the OECD.

Over the weekend in yet another cushy five-star hotel, representatives from this unelected supranational bureaucracy announced plans for world governments to exchange all their citizens’ tax and financial data with one another.

The 34 members states of the OECD are enthusiastically supporting this measure. And it constitutes the end of whatever remains of financial privacy.

The premise behind the OECD’s destructive pipedream is, as usual, to stamp out ‘tax evasion’. But this is a misnomer to being with.

Just about every multinational company out there employs strategies to reduce their current tax liabilities that are perfectly legitimate based on existing tax laws.

This is why companies like Google and Apple famously earn billions in profits but pay almost no tax. They’re vilified. But it’s legal.

These companies have shareholders from all over the world. And their solemn responsibility is to maximize shareholder value… not maximize the amount of funds that politicians in a single jurisdiction get to blow on wars and welfare.

There are also isolated individuals who are sitting on undeclared income stashed away in an overseas bank somewhere. But the aggregate amount is tiny compared to the $60+ billion that Microsoft alone has stashed away overseas, untaxed.

You’d think they’d get at the root cause of the problem and try becoming more competitive… lowering tax rates and streamlining government operations (shocker!)

But no. Instead they resort to even more Draconian tactics to lord over private citizens’ financial records and unilaterally set aside long-standing international treaties.

It’s a pathetic display of exactly the sort of tactics that governments embrace when they go broke. And most of these OECD countries ARE broke– Italy, Japan, the US, Spain, Greece, etc.

So what we have now are a bunch of bankrupt member states who think that they are helping the other bankrupt member states raise revenue by terrorizing citizens (rather than actually fixing the problem).

It’s genius. But what else can one expect from the OECD?

This is the same organization which said, in the same meeting over the weekend, that Germany should accept higher inflation so that the rest of Europe wouldn’t suffer from deflation.

The arrogance is astounding.

This is the same logic as borrowing your way out of debt and spending your way out of recession… brought to you by the same guys who completely missed all the warning signs of the Global Financial Crisis. Along with the IMF. The Federal Reserve (and every other central bank in the world). And every government out there.

Yet these are the rocket scientists who pull the levers that control the system.

It behooves anyone who can see the big picture to distance yourself as much as possible from this system.

This means, for example, keeping a portion of your savings in real assets that they cannot control, as opposed to paper assets that they conjure and manipulate.

Most importantly, it means not having all of your eggs in one basket. Bankrupt governments will resort to any measure they feel is necessary to maintain the status quo.

And if you live, work, invest, bank, run a business, own real estate, etc. all in one of these bankrupt countries, you are really taking on tremendous risk.

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Smoking cigars by a mountain of napalm

February 21, 2014
Sovereign Valley Farm, Chile

I need to caveat this missive and highlight that I am not a pessimistic person. I’ve traveled to so many places over the years– well over 100 countries. And I typically visit 30-40 each year.

So I’ve seen first hand the tremendous opportunity that exists in the world, and the incredible way that human beings innovate to overcome challenges.

But the reality is that the world is on fire right now. In some places, like Ukraine or Thailand, quite literally.

In many others (like Japan, China, and much of southern Europe), there are heaps of smoldering embers beneath a continent-wide funeral pyre.

And in the Land of the Free, it’s as if politicians and central bankers are smoking their back-room cigars at the foot of a mountain of napalm and thermite that grows ever-higher by the day.

If you step back and look at the big picture, there is cause for concern.

For one, the tiniest elite has achieved record wealth thanks to the endless money printing of central bankers. The richest 300 people in the world alone addded $524 billion to their fortunes in 2013, while billions of other people across the planet pay higher prices for food and fuel.

This gap between rich and poor has grown to its widest since the Great Depression… and I would argue in many ways since the feudal system.

Obviously this isn’t a tirade against wealth, but rather the massively disproportionate benefits realized by a tiny elite at the expense of everyone else. And it exists because there is no separation between Bank and State. As Henry Ford said,

“It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

Well, it’s happening. People might not fully understand how central banking works. But they know there is something very rotten in the system.

And they’re starting to realize that it doesn’t have anything to do with a single party, or an individual. Even in the Land of the Free, more voters than ever are disgusted by both parties and identify with neither.

This is fundamentally what’s happening in Ukraine. People understand the system is rotten to its core– that a band of criminals has taken control, and that ‘elections’ will only serve to put a new band of criminals in control.

It is precisely what will likely play out in southern Europe, where unemployment among the youth (i.e. those of revolutionary age) is astoundingly high. And potentially even in the Land of the Free.

It’s an uncomfortable and contentious notion, I know. But this rotten system is fundamentally the same in the developed west. The only difference is there is even more debt underpinning it.

Every living creature has a breaking point. It is in our instincts to rise up when threatened.

And rather than watching these kinds of events unfold on TV thinking, “That could never happen here,” I would suggest looking at the situation rationally, and historically. Many great civilizations before arrogantly assumed the same thing.

So the question to ask is, “Am I prepared if this kind of turmoil ever comes to my doorstep?”

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The one investment you want to avoid at all costs

February 20, 2014
Sovereign Valley Farm, Chile

4.1%.

I read it twice to make sure my brain had processed the number correctly. Yep, 4.1%.

This was the annual yield promised on a new 5-year bond investment that a private banker colleague had sent to me. I couldn’t believe it.

The bond issuance was by a state-owned company in India. And despite the Indian government having a -very- recent history of capital controls, price fixing, and asset confiscation, and despite the company being rated near JUNK status, the bond only carried a yield of 4.1%.

This is really amazing when you think about it. Central bankers have destroyed money and interest rates to the point that near-bankrupt companies in shaky jurisdictions can borrow money for practically nothing.

It’s an utter farce. The rate of inflation is -at least- 3% in many developed countries. Central bankers will even say they are targeting 3% inflation.

This means that if investors simply want to generate enough income so that their after-tax yield keeps pace with inflation, they have to assume a ridiculous amount of risk.

This is a really important point to understand given that the global bond market is so massive– roughly $100 trillion, with nearly $1 trillion traded each day in the US alone.

This is almost twice the size of the global stock market. And even if people never invest in a bond themselves, they’re directly connected to the bond market.

Your pension fund owns bonds. The bank that is holding on to your money owns bonds. The companies listed on the stock market that you invest in own bonds.

Yet bonds are some of the worst investments out there right now. And that’s saying a lot given how overvalued stock markets are.

Here’s the bottom line: adjusting for both taxes and inflation, bondholders are losing money, even on risky issuances.

Think about it– if you make a 4% return and pay 25% in taxes, your net yield is 3%. If inflation is 3%, your entire gain is wiped out… so you have taken that risk for nothing.

If inflation rises just a bit then you are in negative territory.

There are those who suggest that deflation is a much greater risk right now than inflation… and that bonds are great investments to own in the event of deflation.

But here’s the thing– even if deflation takes hold and prices fall, anyone who is deeply in debt is going to feel LOTS of pain. Instead of their debt burden inflating away, now they’ll be scrambling to make interest payments.

So while bonds are a sensible deflationary investment in theory, in practice deflation will only increase the likelihood of default. This puts many bond investments at serious risk.

Last, if interest rates rise from these all-time lows, a bond’s value in the marketplace will plummet. So not only will you have made zero income, you would be looking at a steep loss if you try to sell.

Longer term, fixed rate bonds in weak currencies are almost guaranteed losers and should be avoided at all costs. You would be much better off setting your cash ablaze in a bonfire. It’s at least a better story to tell and will save you years of anguish watching your position erode.

Premium members: watch out for an alert this afternoon in which Jim Rickards (author of the acclaimed Currency Wars and one of the smartest guys in finance) gives some really great investment advice and thoughts on how to structure one’s portfolio amid all of this insanity.

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“No, sire, it is a revolution…”

February 19, 2014
Sovereign Valley Farm, Chile

It’s pretty ironic that I have two visitors right now in my home– one from Ukraine and the other from Thailand.

Both of their countries are in the midst of chaotic turmoil right now, characterized by riots and violent clashes between protestors and police.

It reminds me of the old quote from Louis XVI upon being informed in 1789 that the French people had stormed the Bastille. The King asked, “Is it a revolt?”

“No, sire,” the duke replied, “It is a revolution.”

People in both of these countries have reached their breaking points. In Ukraine especially, economic conditions have deteriorated in almost spectacular form.

History is packed with examples of how people rise up in the streets whenever economic conditions deteriorate.

The French Revolution in 1789 is one famous example; the French people finally reached their breaking points after nearly starving to death.

The 2011 Egyptian Revolution and entire Arab Spring movement is a similar example.

In fact, a 2011 study from the New England Complex Systems Institute showed a clear statistical correlation between social unrest and (specifically) food prices. The higher food prices get, the greater the chances of riots and revolution.

This is not a condition exclusive to the developing world; it is a fundamental human trait to provide for one’s family.

And while human beings will take a lot of crap from their governments– stupid regulations, higher taxes, erosion of freedom, and even inflation– the moment that a man is no longer able to put food on the table for his family, revolution foments.

Europe and the US are not immune to this. And with deteriorating wealth gaps, 50%+ youth unemployment, unchecked government power, and a system that disproportionately favors the elite, the conditions are ripe.

The main difference is that Westerners have been brainwashed into believing that the civilized people voice their grievances in a voting booth rather than doing battle in the streets.

It’s a false premise. Unfortunately, so is violent revolution.

As my dictionary so perfectly defines, “revolution” has two meanings.

First, it can denote an overthrow of a sitting government, whether violent or ‘bloodless’.

But in celestial terms, ‘revolution’ denotes a complete orbit around a fixed axis. In other words, after one revolution, you end up right back where you started.

So whether violent or non-violent, or whether in a voting booth or on the streets, revolutions put a country right back where it started.

In the French revolution, people traded an absolute monarch in Louis the XVI for a genocidal dictator in Robespierre for a military dictator in Napoleon.

In 1917, the Russians traded Tsarist autocracy for Communist autocracy.

In 2011, Egyptians traded Hosni Mubarak for Mohamad Hussein Tantawi (who subsequently suspended the Constitution), for Mohamed Morsi (who as President awarded himself unlimited powers), for yet another coup d’etat.

All of this is because of a knee-jerk reaction– ‘if our country is having major problems, we should throw the bums out and let the man on the white horse take over.’

This creates a never-ending cycle in which the fundamental problems perpetuate.

It’s not about any single person or group of people. It is the system itself that needs changing.

In our system we award a tiny elite with the power to kill, steal, wage war, educate our children, and conjure unlimited quantities of paper money out of thin air.

This is just plain silly. And antiquated. We’re not living in the Middle Ages anymore where we need kings to tell us what to do, knights to keep the peace, and serfs to do all the work (and enrich the nobles).

Yet this is not too far from the system we have today.

The real answer is within ourselves. As Ron Paul told our audience in Santiago last year, become less dependent on the government and more self-reliant:

This idea is beginning to resonate with more and more people who are increasingly disgusted with the system… and all parties.

With our modern technology, transportation, and access to information, we have all the tools available to do this.

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IMF report: ‘Debt is good’. What are these people smoking?

February 18, 2014
Sovereign Valley Farm, Chile

Probably every kid in the world has at some point dreamed of having a time machine and being able to travel back to the past… usually to see dinosaurs or something like that.

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

People living in that time had to trust that the high priests were smart guys and knew what they were talking about.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Granted, human civilization has come a long way since then. But the basic building blocks are not terribly different than before.

Anyone who challenges the state is still burned at the stake. And our entire monetary system requires that we all trust the high priests of central banking and economics. Those that stray from the state’s message and spread economic heresy are cast down and vilified.

You may recall the case of Harvard professors Ken Rogoff and Carmen Reinhart who wrote the seminal work: “This Time is Different: Eight Centuries of Financial Folly”.

The book highlighted dozens of shocking historical patterns where once powerful nations accumulated too much debt and entered into terminal decline.

Spain, for example, defaulted on its debt six times between 1500 and 1800, then another seven times in the 19th century alone.

France defaulted on its debt EIGHT times between 1500 and 1800, including on the eve of the French Revolution in 1788. And Greece has defaulted five times since 1800.

The premise of their book was very simple: debt is bad. And when nations rack up too much of it, they get into serious trouble.

This message was not terribly convenient for governments that have racked up unprecedented levels of debt. So critics found some calculation errors in their Excel formulas, and the two professors were very publicly discredited.

Afterwards, it was as if the entire idea of debt being bad simply vanished.

Not to worry, though, the IMF has now stepped up with a work of its own to fill the void.

And surprise, surprise, their new paper “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

Translation: Keep racking up that debt, boys and girls, it’s nothing but smooth sailing ahead.

But that’s not all. They go much further, suggesting that once a nation reaches VERY HIGH levels of debt, there is even LESS of a correlation between debt and growth.

Clearly this is the problem for Europe and the US: $17 trillion? Pish posh. The economy will really be on fire once the debt hits $20 trillion.

There’s just one minor caveat. The IMF admits that they had to invent a completely different method to arrive to their conclusions, and that “caution should be used in the interpretation of our empirical results.”

But such details are not important.

What is important is that the economic high priests have proven once and for all that there are absolutely no consequences for countries who are deeply in debt.

And rather than pontificate what these people are smoking, we should all fall in line with unquestionable belief and devotion to their supreme wisdom.

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