Tag: news

Authored by Alasdair Macleod via GoldMoney.com,

This article describes how China can escape the fate of a dollar collapse by tying the yuan to gold. There is little doubt she has access to sufficient gold. Currently, her interest is to preserve the dollar, not destroy it, because it is the principal means of Chinese foreign interests being secured .

Furthermore, a return to sound money requires China to reverse its interventionism under Xi, returning to Deng Xiaoping’s original vision. Sound money can only last if the relationship between the state and the wider economy is properly addressed.

Of all the major economies, China’s is best placed to implement a sound money solution. At the moment it seems unlikely the necessary reforms will be forthcoming; but a general collapse of the global fiat currency regime presents the opportunity for reassessment and change.

Introduction

In last week’s Insight I examined the position of the US dollar, given the Fed’s current monetary policies, and concluded that the Fed’s dollar is likely to become valueless by the end of this year. The consequences for other major currencies — the euro, yen and pound — are that they are likely to fall with the dollar. This is because they adopt the same monetary policies, the same macroeconomic fallacies, and through the Bank for International Settlements, G7 and G20 meetings agree to continue to be bound by common policies. While the intention is for all to survive by working together, instead it ensures that they all sink together.

The maverick nations are Russia and China. Russia is obviously working towards protecting her currency with gold — there is no controversy there. China’s position is more complex. Her leadership relies on the inflation of bank credit through state-owned banks to finance her infrastructure plans as well as in financing the massive uplift her non-financial private-sector economy has enjoyed since 1980. Yet, she has made aggressive moves to ensure her population owns physical gold and has invested in mine production, making her the largest national producer by far, while ensuring virtually no gold leaves the Chinese mainland.

Having more or less gained control over the world’s physical market, China is the greatest hoarder of gold on the planet. She appears to understand the importance of gold to monetary stability while at the same time playing the West’s neo-Keynesian games.

China’s gold

The most controversial aspect of my previous comments about China’s gold ownership is about the level of undeclared bullion. But the strategy has always been clear. In 1983 the Peoples Bank was given a monopolist mandate by the Communist Party to manage the state’s acquisition of gold and silver, while private ownership remained banned. This fitted in with the Peoples Bank’s monopoly of managing foreign currency dealing, confirming that in 1983 at least, the leadership and its advisors regarded both gold and silver as primarily money.

Nineteen years elapsed before the Peoples Bank opened the Shanghai Gold Exchange, permitting members of the general public for the first time to buy and take delivery of gold and silver. Following advertising campaigns, the market for 24 carat gold jewellery exploded, and together with investment gold, since 2002 withdrawals from the SGE’s vaults have been about 17,500 tonnes, admittedly not adjusted for scrap resubmitted for refining. To be consistent with gold policies after the SGE opened for business, those nineteen years must have been used by China to acquire significant quantities of undeclared bullion. But other analysts assume that the public held some gold illegally before 2002 as well, so about 17,000 tonnes net of scrap for private ownership seems about right.

The opportunity for the state to build a bullion hoard before 2002 was there. Following the bull market ,which culminated on 21 January 1980, gold entered a 19-year bear market taking it from $850 on that afternoon’s fix to a low of $256.8 in July 1999. But by January 2002, gold was still on the floor at under $280. And there were substantial sellers: portfolio disinvestment by Swiss banks, the largest private depositories at that time, left them holding virtually no gold.[i] Central banks and official sources reduced their holdings of monetary gold by 3,450 tonnes, but more importantly gold leasing by them supplied an estimated 10,000—16,000 tonnes into the market (Veneroso, 2005).

Meanwhile, demand was soaked up by the expansion of derivative markets, principally LBMA forwards and Comex futures.  In all those years global mine output added 43,800 tonnes. Various parties must have absorbed the gold that wasn’t absorbed by jewellery, which probably accounted for about 25,000 tonnes.

US policy was to rub out monetary history by denying gold as having any monetary role and to be replaced by the Fed’s unbacked dollar as everyone’s reserve currency. A new generation of Harvard-educated Arabs went with the neo-Keynesians, preferring stocks to gold, the opposite of that of their forebears who disliked financial assets, including foreigners’ currencies. But these were also the formative years for China’s adoption of capitalism.

The Chinese leadership, having a high degree of control over its population, is given to long-term planning in the form of five-year plans with longer-term underlying objectives. It is inconceivable that these plans would have omitted a gold strategy, particularly since regulations were put in place giving the Peoples Bank its mandate to build national reserves.

Given all the foreign exchange dealings of the Peoples Bank, handling inward investment in the eighties and growing exports in the nineties, it could easily have accumulated 20,000 tonnes of gold at contemporary prices, representing approximately 10% of foreign currency flows across the bank’s trading desks. Traditional secrecy in gold markets would have provided cover. All the Peoples Bank needed to do was acquire an average of 1,000 tonnes a year, which given the bullion flows and market dynamics in gold’s great bear market would have been achievable without attracting attention.

It is only on the basis of this understanding that we can apply a 20,000-tonne ball-park figure to the unknowable. And since 2002, China continued to import gold in addition to its growing mine supplies to ensure its population ended up with significant quantities of gold as well. Whether intentioned or not, the leadership has ensured large quantities of 24 carat gold are in public circulation, which is important in the event that gold backing for China’s currency is implemented.

In the event of a general fiat currency collapse, many nations have sufficient gold to operate a gold exchange standard, admittedly at higher gold prices than those that prevail today. That is not the problem. In government, treasuries and central banks, there are very few who understand economics proper, being sold entirely on neo-Keynesian macroeconomics. Neo-Keynesian macroeconomics is a belief system unfounded on reality and their Zeus, or Jupiter, is inflationism. Their lesser gods all owe fealty to this one overriding directive. Before sound money can be introduced, they must all be swept from their temples.

China’s worship of inflationism is less institutionally embedded and should be easier to overturn, particularly since Marxist philosophy predicts the end of capitalism, which today would be manifest in the collapse of the capitalists’ currencies. The ability of the Chinese to escape the monetary fates of the West is in theory still there.

China’s interest in the dollar

With all its gold, by monetising it China could kill off the dollar tomorrow. Undoubtedly, this financially nuclear option has become a backdrop to her strategy in the ongoing trade and financial war against America. But the idea that by using this undoubted power over the dollar China gains a simple victory if through her actions the dollar is destroyed understates a more complex situation. It is not in China’s interest on many levels, not least because of her ownership of dollars is about $3.4 trillion, of which only $1.5 trillion is invested in Treasuries, agency, corporate and short-term debt in the US. The balance is actively used in loan finance to China’s commodity suppliers, those involved with the belt and road initiatives and other states with which China desires to gain influence.

Destroy the dollar and China’s heft around the world is destroyed as well, because only a small proportion of China’s loan-influence is in renminbi. In that sense, if the dollar collapses America gains a geopolitical benefit over China, her means of international influence being crippled. The Chinese leadership will be acutely aware of the consequences of the dollar’s demise and therefore will do nothing to encourage it. Indeed, if the dollar begins its collapse in the foreign exchanges, we could find China increasingly calling out the Fed on its inflationary policies. But then the Fed’s problem is and will continue to be an inability to stop its addiction to unlimited inflationism.

Unfortunately, a banking crisis is embedded in the script, which will have fundamental effects on all fiat currencies, some more than others. And since international banking is overwhelmingly a dollar affair, after a short pause the consequences are bound to weigh heavily upon it as the reserve currency. This credit cycle unwind is a Category 5 compared with 2008—09’s Category 2 or 3. It is only after such a cataclysm that China will have no alternative to abandoning all attempts to support the dollar and its means of buying overseas influence. China will then need to secure its own currency.

It will require a return to gold backing — the nuclear option so far avoided. While the cost will be writing off trillions of dollars and its means of securing overseas influence, there will be a monetary vacuum to fill. And compensation will be found in an increase in the value of China’s declared and undeclared bullion stocks, as well as the enrichment of its gold-holding people.

Establishing a sound currency

To appreciate what is vital for a currency to be sound requires certain conditions to be satisfied. These are the three immutable ground rules for a gold-backed currency, all of which must be obeyed:

• The state currency must be an accountable gold substitute; that is to say every unit of currency expansion must be fully backed by gold at the fixed exchange rate.

• It must be freely convertible into physical gold on demand by everyone.

• It must be freely convertible for the settlement of domestic transactions and imports and exports.

To these we can add an addendum, and that is to reform the banking system so that there is no expansion of unbacked bank credit.

If the Chinese obeyed these rules to the letter, not only would their gold-backed currency lead to a quantum leap in the progress of its own economy, but given China’s undoubted economic power the yuan would become accepted as the foreign currency of choice for most of the world and it would encourage other nations to adopt similar gold exchange standards.

The proof is found in a nation of ten million which two hundred years ago in less than a century dominated technology and international trade, saw its population increase threefold as prosperity spread and life-expectancy increased, encouraged other nations to adopt gold standards, and by 1914 had built over 80% of the world’s shipping afloat. That small nation was the United Kingdom. Just think of the potential if China repeated the exercise.

Sound money works best with free markets

The impediments to the implementation of the sound money rules defined above are, however, substantial. It requires the relationship between the state and its people to be fundamentally reformed and instead of state control a laissez-faire philosophy must be adopted. The whole point behind sound money is to remove it from state control so the temptation for inflationism, which is leading visibly to the destruction of the current global monetary system, is removed.

The money that people use for their current and deferred consumption is rightly their affair, and not the state’s. This is why every time the state takes control of money away from its people it eventually fails, and the monetary function returns to the metals trusted by people through millennia. Today, we face no less than this transformation, the return to the peoples’ money and the destruction of statist fiat currencies.

Of the world’s significant economies, China appears best able to plan for monetary reform. Even so, it will not be easy and requires the completion of the new capitalist mindset courageously introduced by Deng Xiaoping. Instead, under President Xi China has drifted away from Deng’s vision towards internal suppression and increasing state control. He must recognise that central planning in China has had its day and it is time to give his population its economic freedom.

If only he can recognise it, Xi’s vested interest now lies in that direction. It will not be easy, and there is no certainty he will grasp the opportunity. But if he decides to do so, it requires the following issues to be addressed.

The state and the economy

Being a burden upon it. the state must reduce its role in the economy to the barest minimum to absorb less than 20% of GDP, preferably even less than 10%. Welfarism must be abandoned, or at least reduced until its financial burden on the state is minimal. In this respect, China is better placed than more mature advanced economies. The World Bank estimates China’s government spending in 2018 was 14.7% of GDP, which compares with the US’s 34%.

China scores highly in this respect.

Functions of the state to be restricted

In a sound-money free-market economy the basic state functions are to establish and administer laws to ensure certainty in contracts, to provide national defence and domestic law and order. China discriminates in her laws, is territorially ambitious with respect to Taiwan and the South China Sea, and internal policing is oppressive. There is no sign of change in these regards, which affects international relations adversely. If China dropped its claims to Taiwan and respected Hong Kong’s independence, international relations would immediately improve. Persecution of the Uyghurs is indicative of a heavy-handed statist response to the threat of Moslem terrorism. In these respects, China scores badly and in a new sound-money regime would only gain significant influence with its trading partners if these attitudes were reformed.

Mercantilism must be abandoned

China adopts a mercantilist approach to economic management, which coupled with an iron-fist control over the population has had some successes. But it is one thing for a reforming government to take an impoverished population and provide a framework and monetary stimulation to lift it out of poverty and another to continue the process. In China’s case, anything was better than Mao and Deng seized the opportunity.

In its early stages a mercantilist approach can have obvious objectives, which leads to national capital being deployed with effect. But being based on monetary expansion, even then capital is misallocated through monetary distortion, which only becomes obvious later. As a continuing state policy, it leads eventually to substantial tribulations and inefficiencies, and China has had its share of these.

The error is to regard the state as capable of being fundamentally motivated by profit. A misleading precedent for mercantilists was the East India Company, which ran India as its fiefdom until the Indian Mutiny. But that was a company which was mandated to produce profits for shareholders.

A government is necessarily a bureaucracy, not suited to an entrepreneurial role. China will need to address the relationship between the state and its role in the economy if a yuan gold standard is to be freely accepted through trust and trade, and for the maximum benefit of its economy. In fairness, China is abandoning support for zombie companies, but it still tries to pick winners, so is hardly neutral.

Regulation must be abandoned, allowing the public to set the parameters of its own demand.

Originally the means of control adopted by fascist governments, widespread regulation of economic activities has become the standard of modern government policies. The assumption is that the consumer must be protected from avaricious businessmen. The result is cronyism.

Instead of suffering from the West’s cronyism, China promotes businesses on a purely nationalistic basis, a policy which has now backfired in a crony world. The exclusion of American technology from China’s “Made in China 2025” strategic plan has intensified American hostility and is undermining Chinese technology’s international business. This would not have happened if China had a non-interventionist policy towards her domestic market. That has to change.

Banking must be reformed

The Achilles’ heel of the West’s banking system is the fraudulent issue of bank credit, which is no different in principal from central bank inflationism. Even in the days of the gold standard the expansion of bank credit increased currency in circulation without being backed by gold. There were, in effect, two types of currency; fully backed gold substitutes and fiat currency the product of unbacked bank credit, but indistinguishable from each other in circulation.

The expansion and subsequent contractions in bank credit created a destructive cycle of bank lending, particularly following the 1844 Bank Charter Act in English law, which set the subsequent international standard. This must be stopped. In the case of China, most banking is provided by state-owned banks, so if the state is determined to maintain a sound yuan it should present few difficulties in eliminating bank credit expansion.

The provision of monetary capital must be backed by savings and it is for the market to establish a balance between immediate consumption and its deferral. And here, China is in the fortunate position of having a strong savings culture, unlike the US and UK along with most members of the eurozone, where after allowing for consumer credit saving hardly exists.

Accumulation of private wealth to be embraced

The replacement of unbacked bank credit expansion with genuine savings as the source of investment capital requires the state to take a positive view on the accumulation of private sector wealth. Being a young modern economy, in this regard China is better placed than nations with more mature economies and ingrained socialism, where wealth is regarded as a morally justified source of tax revenue.

Progressively increasing tax rates mitigate against the acquisition of wealth, and China will need to reform its income tax regime to a flat tax rate. Since government spending is under 15% of GDP, with a reasonable personal allowance a flat income tax of 20% should allow for a balanced budget and other taxes to be eliminated over time. State spending targeted to an eventual 10% rate of state spending relative to GDP would allow the income tax rate to be reduced and held to a 15% rate and the abolition of all other taxes.

Income tax should be applied at the same rate on all sources of income. To make income from savings tax-free is a distortion of the market. Post-war Japan and Germany made it easy to avoid tax on savings interest, and their economies became savings driven and highly successful. But in China’s case, where a very high savings rate already exists, not only is such a policy unnecessary, but it leads to unwelcome imbalances in foreign trade which so long as other fiat currencies exist are politically destabilising in the longer term.

Digital money

China is almost certain to be tempted to adopt a centralised cryptocurrency approach, a forerunner of which is reportedly in trials at the moment. It is thought by many that application of this technology may well find a place in a new form of gold substitute.

Other commentators suspect that China’s motivation is to maintain control over its citizens’ spending. If this is the case it would be a mistake, and at odds with an objective to maximise the nation’s economic potential for the benefit of its citizens by returning to free markets. However, state-issued crypto technology is too young at this stage to be relevant to the successful establishment of a gold substitute currency.

The return to sound money

So far, we have established that of all the major economic powers, China is well placed to adopt a durable gold exchange standard. The most significant hurdle is the Communist Party’s control freakery over its people. Under wise leadership, this can be addressed, more likely during a monetary crisis when political objectives can be radically changed, than at any other time.

Otherwise, China has sufficient bullion reserves and gold ownership is widespread in the population. Silver, which is more naturally the money of the people is also widely available for coinage. Furthermore, there is reason to hope that the state is not as beholden to the neo-Keynesian macroeconomic inflationism as are other leading nations.

We have established that it is not in China’s current geopolitical interest to introduce a gold standard that undermines or destroys the dollar. For this reason, China will only do so once it is clear that the dollar is in the early stages of an unavoidable inflationary collapse, and the risk of the yuan going down with it must be urgently addressed. An increasingly certain banking crisis, likely in the next month or so, and a reappraisal of the dollar’s prospects and the debt trap of rising interest rates being sprung on western governments is likely to determine timing.

To be successful in defending the yuan from the gathering global monetary crisis, when the decision is taken to go ahead the following announcements should be immediately made.

1. The State is transferring its undeclared bullion to monetary reserves, announcing a figure which we believe could exceed 20,000 tonnes. At the same time, it announces the yuan will be backed by gold from a defining date, perhaps a month hence, the rate to be determined by the markets in the intervening period. The purpose is to let the gold price rise to an appropriate level for a yuan exchange rate to be fixed.

2. Following the defining date the quantity of yuan in circulation will be set by market demand, and any increase in the quantity will be fully backed by gold reserves held and allocated for that purpose by the Peoples Bank.

3. The announcement will also state that conversion terms will be offered for all government debt (currently about 40 trillion yuan) into a new perpetual loan, interest payable at the holders’ choice in yuan or gold at the yuan/gold fixed rate, which will be set at the defining date.

4. All holders of yuan will be free to exchange their yuan for new gold coin at the rate set on the defining date. In due course silver coins at sterling proof will also be issued as circulating currency, the rate set designed to ensure their continued circulation.

5. All exchange controls to be removed with immediate effect.

6. China’s withdrawal from all international cooperation at G7, G20 meetings etc., currency and economic management being no longer appropriate.

7. Digitising plans, if any, will be discarded as unnecessary for the circulation of a gold-backed yuan.

8. Consultation with the banks will be initiated to phase in over an appropriate period a restructured banking system. The objective will be to separate deposit-taking as a custodial function from investment funding of bonds and equities on an agency basis. Until these new provisions are in place, the expansion of bank credit will be frozen after which it will not exist.

The markets can then set a gold exchange rate which will be adopted as the fixed rate of exchange for the yuan. The return of a monetary function to silver is likely to reduce the gold/silver ratio to 20 or perhaps less, and allowance should be made for a settled relationship between gold and silver that might take a little longer to establish on a lasting basis. Only then can silver coins return to circulation.

There can be little doubt that a move to a gold yuan will have a profound effect on remaining fiat currencies. As noted above, a short period of time between announcing these plans and their implementation will be required for markets to adjust. It is likely that fiat currencies would face downward pressure on their purchasing power, and China must be seen to be protecting her own interests by returning to sound money and not deliberately undermining the dollar.

The consolidated perpetual loan has many advantages. It never has to be repaid. The coupon, reflecting gold’s rate of interest as well as issuer risk, could be set, at say 2%, and the conversion price set at 50 per notional 100 gold-yuan of the bond. Those prepared to back the Chinese government and its sound money regime would be rewarded for the risk by a running yield of 4%. As the government’s rating improves with the success of the return to gold, the price would rise towards par, giving early investors a solid reward. The wealth creation for holders becomes a solid contribution to providing capital for a progressing economy.

Other nations, particularly those in Asia, are likely to follow China in implementing their own gold exchange standards, and all nations will be then faced with a stark choice: do they hang on to their welfare states and their growing difficulties in financing them, or do they stabilise their currencies? If China does adopt a proper gold exchange standard, she would neutralise all America’s geopolitical power, whether America follows suit or not.

And finally, China should cease to provide the statistics beloved of neo-Keynesian macroeconomists, for they only serve to provide reasons for state intervention.

Dave Portnoy’s decision to leave E-Trade (he claims he was kicked off the platform after criticizing the company over a recent string of outages), was only the brash Barstool Sports founder’s latest repudiation of the Wall Street and financial establishment. Over the past few months, the outrageous founder of Davey Day Trader Global has led an army of Robinhood traders into the shares of bankrupt companies like Hertz, and turned the concept of active management on its head by picking stocks by randomly picking tickers out of scrabble letter bags.

Since dismissing Warren Buffett as “Washed up” and irrelevant on his daily livestream, where he shares his trades and stream-of-consciousness commentary, Portnoy has drawn the ire of handful of Wall Street luminaries running the gamut to the respectable (Howard Marks, Leon Cooperman, guys who have actually managed money) to the people like Dennis Gartman and Ron Ansana, whom he has torn apart on his twitter feed and during his broadcasts.

In a pair of amusing editorials, Gartman hysterically scolds Portnoy for his “rank, almost amateurish, speculation.” Here’s a snippet via Fox Business.

Thousands, perhaps many thousands, of naive, mostly very young and wholly inexperienced “investors” follow his every word and his every recommendation as he engages in day trading.

For the past several weeks he has been right. The market had rallied — but we are again reminded of Joseph Kennedy’s admonition.

We are also reminded of John Maynard Keynes’ admonition that the market can remain illogical far longer than we can remain solvent.

And here’s a clip from a recent interview where Gartman warns that “when the shoe clerks are in the market…that’s always been the sign of a market top.”

Because god forbid the proles make any money while the rich are out there stuffing themselves, right?

We suspect that after Portnoy is finished “beating [Gartman] like a drum” in his response, the newsletter writer will brush it all off as some kind of joke, or like he was being tongue-in-cheek, or whatever.

Portnoy admittedly lost big when he first tried his hand at day trading. But he quickly saw his fortunes turn around when he tuned out the talking heads on CNBC and figured out “that stocks only go up.” Fortunately for him and his army of traders, he came to this realization just as Warren Buffett was publicly dumping his airline stocks. This simple analytical assessment – that the airlines wouldn’t be going out of business – birthed his career as a fly-by-night stock analyst.

Portnoy expounds on his “stocks only go up” theory in a Fox News editorial published below:

* * *

Howard Marks is mad. Ron Insana is mad. Dennis Gartman is mad. In fact, it seems like all the Wall Street suits are mad.
Who are they mad at? Me.

Why are they mad? Because when COVID-19 caused sports to be postponed indefinitely a few months ago, I turned from sports gambling to day trading and founded my own fictional firm called Davey Day Trader Global Global.

Yes, that’s two globals because one global isn’t enough to describe how global we are.

I have livestreamed my trading exploits every single day for millions of people to watch.

In the beginning, I struggled. I was down $2 million before I could blink, and all the self-proclaimed pundits and talking heads on Wall Street treated me as a lovable loser.

The finance community welcomed me with open arms. But then something funny happened along the way. I started winning and they started losing.

The more I won, the more mad they got.

While Warren Buffett told people to get out of the airlines and cruises, I told my clients to dive headfirst into both industries.
I bought Spirit at $7.70. Within months, it had tripled. I openly wondered whether I was better than some of the legendary (albeit geriatric) traders of past generations.

Suddenly, I became the most talked about person on Wall Street. Every time I turned on the TV, my name was being mentioned, usually in an unflattering light.

It culminated with Dennis Gartman (who is that?) going on FOX Business Network’s “Varney & Co.” Thursday and essentially saying it’s unfair that the public is allowed to invest in the stock market.

He thinks it’s unfair that I’m leading an army of day traders who treat stocks like a game and am making it more difficult for Wall Street veterans to navigate.

Gartman was mad that for the first time in history, retail investors, or the “retail bros” as they call them, don’t need them to invest our money for us. They no longer get a fat commission check every single time the public wants to make a trade.

They want the public’s money, but they want to be the only ones allowed to spend it. They want to get paid whether they win or lose.

The pure arrogance of guys like Gartman, Insana and Marks is surreal. They somehow think trading is their birthright and that they alone should have a monopoly on making money.

They don’t think Joe Public can be smart enough or trusted enough to invest our own, hard-earned money. Only they have that knowledge and insight on what is best for us.

Yet here I am. Beating them like a drum for the past three months at their own game. While they have been slow to react to the changing markets, I’ve adapted on the fly.

All I hear is old-timers say that the retail bros are going to get crushed. That they’ve lived through this before. That the pride comes before the fall.

Yet I ask them, how many global pandemics have they actually lived through? The answer is zero.

I have as much experience in this trading climate as they do. And maybe the very fact that I’m not burdened with their history has allowed me to see this market for what it is, while they have failed miserably.

Whatever the case may be, I’m just glad I can make trades for myself and make money for myself instead of paying commissions for bad advice from talking heads.

* * *

Source: Fox News

Authored by Jayant Bhandari via Acting-Man.com,

A Failure to Integrate Values

The only region in the world that has proactively tried to incorporate western culture in its societies is East Asia — Singapore, Japan, Hong Kong, South Korea, and Taiwan. China, which was a grotesquely oppressed, poor, Third World country not too far in the past, notwithstanding its many struggles today, has furiously tried to copy the West.

Famous Greek philosophers: their thoughts are a cornerstone of Western culture. [PT]

Western culture, which developed organically over at least the two and half millennia, starting from Greco-Roman philosophers, is not easy to duplicate. This culture requires thrift, honesty, hard work, liberty, individuality, dispassionate reason, objective justice, loyalty, honor, stoicism, a desire to rise above oneself, and many other factors that perhaps cannot be seen or isolated but must be absorbed subliminally in all their complex interactions. These are reflected in social, religious, and political structures of the West — the three independent branches of government, the rule of law, compassion for others, charity, family system, etc.

The West and East Asia, including China, comprise a mere 2.5 billion people.

“The Rest,” the Third World, comprises 5 billion out of 7.5 billion people on the planet. The cultural factors underpinning the West sound like clichés until one who gives up political correctness for the truth starts to see that the Third World, despite its several centuries of interactions with the West, simply fails to understand them.

The Third World is blind to what makes the West a civilization. It is as if the Third World cannot rise above animal instincts — craving for food, power over others, sex, and for the material.

Over several centuries of western colonization and missionary activities, an attempt was made to infuse Western cultural factors into the Third World. It was only a marginal success. Since the third world countries achieved political independence, without constant Western involvement, all has been lost. Christianity became voodoo, and the political system became a tool for tribalism and tyranny.

Focus on Materialism

The Third World is tempted by only the physical products of Western society. They are pleasure-centric. When they look at the West, all they see is entertainment, an easy-going lifestyle, freedom from responsibility, liberal governments, free health-care, consumerism, social welfare, and good salaries. They either want to be economic migrants to the West or copy the Western lifestyle, without an iota of an understanding that they must have wealth-generating capabilities first and that there is something at the foundations of Western culture.

The lure of materialism [PT]

There is a virtual absence of reading habits in the Third World. If they end up reading Ayn Rand, all they see in it is a drama. They fail to see a non-collectivist philosophy embedded in it. If they watch movies like the Matrix, all they see is a sci-fi movie. They fail to see any suggestion that they might be getting indoctrinated by their leaders.

What they see as the culture of the West from their narrow worldview is primarily the culture of its lower-class and the entertainment industry.

European colonization and technology were a massive relief for the Third World, but merely temporary, for they never learned or even saw the principles that made such prosperity possible. All the advantages, given the mindset of expediency, have been frittered away, through wars, excessive consumption, malinvestment, an increase in population, etc. The Third World’s craving for the material, unconnected with morality or reason, means that it forever wallows in poverty, oppression, and at the edge of a Malthusian crisis.

Nothing it has is sustainable, neither capital nor institutions. All surplus gets consumed or frittered away — it takes a higher calling to invest and preserve the surplus. Everything has a pull towards decay, disintegration, and degradation.

European colonization provided a rational system for the Third World to operate in. Christian Missionaries tried to infuse reason among the inhabitants. In desperation, they sometimes even removed children from their families. All these attempts made only a marginal difference.

Departing European colonizers transferred Western tools — technology, institutions, etc. — to the democratically elected bodies of the Third World. The tools were subverted and used for tribalistic purposes. And democracy enabled the most irrational, base elements to rise to power.

Ease of travel made the situation worse by enabling the emigration of the best people from the Third World.

Post-Colonial Regression

Since the departure of European colonizers, the Third World has been culturally and institutionally regressing to its pre-European dark ages. None of these societies are sane, stable, or sustainable by themselves. It is the fear of America that keeps their tyrants behaving better than they otherwise would and their nations from falling into forever wars between their tribal units.

Despite this cultural and institutional regression, the free-gift of Western technology and the green revolution, and peace imparted by America still enabled economic growth, which alas has allowed more cultural problems to accumulate before Malthusian equilibrium kicks in again.

Thomas Malthus: his concerns over unsustainable population growth were misguided when applied to a Western capitalist market economy – he failed to take human ingenuity, problem-solving capabilities and capital accumulation into account. However, his concerns will become valid in a stagnating or regressing economy. [PT]

Marxist and Keynesian economics has a toehold in the Third World not because those works corrupted them, but because these pseudo-economics match their expectations for free stuff. Every single major leader of the Third World who studied in the UK during the British colonization became a socialist — socialism is all that they saw during their life in the UK.

Importing the wrong prophets from the UK: Marx and Keynes. [PT]

The contribution the West has made to Africa — which for all practical purposes did not have a written language, technology of farming, or tools before the arrival of Europeans — is immense. Unfortunately, these gifts have mostly gone unused.

In the Third World, girls in school-uniforms carry water buckets on their heads. Despite the concept of the wheel having been offered on a platter, they haven’t figured out its use. They have been taught English for centuries by now, but what they have is pidgin, a simple, non-nuanced, lacking-in-grammar language. This predicament had to happen for complex language can only be retained if the society has an interest in ideas, planning, and issues outside immediate needs.

For most in the Third World, “tomorrow” is too far in the future. Their communication needs are limited to teasing each other, consumption needs, activism, and discussing celebrities.

Christianity was spread in the Third World, but it ended up becoming voodoo, heavily mixed with superstitions. Formal education, seen as a magic wand that enables a good life, has turned into at best rote-learning, and its purpose is only to get a certificate at the end. Education without core western values sits unassimilated in superstitious minds. It merely increases stress levels, leading to the spread of ritualistic, superstitious, and materialistic religion.

The tools of Western technology have been corrupted for tribal purposes — steel instead of being used for constructing bridges and factories has been more commonly used for making machetes in Africa. The internet was expected to rapidly spread truth, knowledge, and awakening to the poorest in the Third World. Instead, if they are not watching pornography, they circulate superstitions, rumors and political activism.

Absence of Rationality

Tools for development and growth in the West have failed in the Third World, and often had the opposite effects. The question is, why is it that the Third World has failed to absorb and even notice the cultural qualities of the West? What went wrong? Why did the Third World fail to maintain the benefits offered?

The fundamental problem of the Third World is that the concept of reason is conspicuous by its absence. Without “reason,” intellectual and financial capital is not accumulated. The operating system in their minds is tribalism, superstition, magical thinking, and irrationality. This operating system makes them impervious to absorbing Western intellectual capital.

Rationality – the foundation of civilization [PT]

Without the rationality, civilization is not possible. Irrational societies must vacillate between dogma, hedonism, and savagery, never stumbling on another dimension, rationality.

A society of irrational people, particularly in a democratic system, where the most tribal, least-competent 50% people decide on who rules, eventually has to disintegrate into tribal units, who will then enter into never-ending wars. This is what will happen to 5 billion people living in the Third World, a humanitarian catastrophe never seen before. 100s of millions, perhaps billions will perish, once their problems have become too large for the West to contain.

Weighing in for the third time this year, Moody’s just reignited its feud with SoftBank by reaffirming the company’s junk credit rating while moving its outlook to “negative”, from “ratings under review” on Friday as the collapse of Wirecard (once a major SoftBank holding though the company dumped its stake last year) creates yet another blemish on Masa Son’s reputation one day after the SoftBank Chairman quit the board of Alibaba.

Back in March, the ratings agency downgraded SoftBank’s credit rating to Ba3 and warned that it could soon fall further into “speculative” (ie “junk”) territory. That sparked a feud between SoftBank and Moody’s as the company took the “unusual step” of asking for the rating to be withdrawn.

In response to Moody’s “doubling-down”, as Reuters put it, SoftBank shot back that it hadn’t delivered any new information to Moody’s since the ratings agency’s last update. SoftBank says it has “provided no information to Moody’s”…and it’s…”unclear what Moody’s intention is”…or…”what information it uses” to make these determinations.

Unfortunately, SoftBank’s recent investing track record – and that of its $100 billion “Vision Fund”, which managed to lose money on stakes in Uber, WeWork and many other less-notable companies, speaks for itself. Though, just yesterday, the company announced it had raised $35 billion by selling some of its Alibaba stake back to Alibaba, which it plans to buy back more shares and pay down debt in an attempt to satisfy certain activist investors who have taken an interest in the Japanese disgraced national champion.

Not only are buybacks extremely politically sensitive right now, but both Moody’s and S&P Global Ratings have taken issue with SoftBank’s share-buyback plan for financial reasons.

“Major asset sales have been announced but given the structured nature of the transactions, cash proceeds may not all yet have been received or applied towards debt reduction,” Moody’s said.

SoftBank’s preference for complex financial transactions like collateralised margin loans “signals a heightened tolerance for risk and financial complexity,” Moody’s continued.

The concerns follow peer S&P Global Ratings which earlier this month said SoftBank’s 2.5 trillion yen ($24 billion) buyback plan – launched to stabilise the firm’s stock price after its tech investments faltered – raised doubts about “financial soundness and creditworthiness”.

Of course, none of that matters to SoftBank, since it’s goal with the buybacks is to boost its lagging share price, satisfy the activists nipping at its heels, and alleviate some of the pressure on Masa Son, whose personal wealth is now in play as his SoftBank shares have been used to guarantee loans.

We suspect this won’t be the last we hear from Moody’s or S&P, as the ratings agencies have apparently vowed to make an example of SoftBank – not that the company doesn’t deserve it.

Authored by Ryan McMaken via The Mises Institute,

Manufacturing company 7-Sigma made headlines when it decided to leave Minneapolis as a result of the company’s plant being burned by rioters. “They don’t care about my business,” 7-Sigma owner Kris Wyrobek old the Star-Tribune. After more than 30 years in the city, the company isn’t staying, nor are any of the company’s fifty jobs.

But the costs of being victimized in protests is just one of many reasons homeowners and businesses may be realizing life and business in central cities has lost its luster. The ongoing threat of more business lockdowns, more riots, higher taxes, and failing schools may induce many Americans to flee, once again, to the suburbs as their parents or grandparents did.

This goes well beyond the fear of the disease many journalists have assumed is behind the observed beginnings of an exodus from cities. Yes, many in the upper classes have fled the cities for their mountain homes and yachts for “health reasons.” But these people are relatively few in number and their thinking quixotic. They can afford to drop everything and leave cities overnight.

But the larger impacts are likely to be felt as middle class homeowners and business owners conclude they’d simply rather avoid the edicts and neglect of mayors and city councils in central cities who thinking nothing of issuing job-destroying “stay-at-home” orders while allowing rioters and vandals free rein.

The real cost to cities is likely to emerge over time. It will come in the form of families and shop owners who decide it’s best to move their businesses ten miles down the road to a neighboring city that will actually do something about rioters. It will come in the form of families which decide their next home will be just a little bit farther from the urban dictator-mayors who have the heaviest hands in enforcing lockdowns and business closures. It will come in the form of potential new business owners and homeowners will be decide to never purchase property to start a business in central cities in the first place.

The Decline of Cities at Mid-Century

We may be seeing something reminiscent what happened in America’s large central cities during the 1970s and 1980s. Many Americans concluded these cities had become unlivable and crime infested. Many concluded these were places that were quite inhospitable to doing business. So they left. (Forced busing for “integration” purposes was a factor as well.)

In some cases, there were dramatic events that illustrated the trend. The late sixties in New York saw several strikes by city workers. Transit and sanitation in the city became a disaster. The 1977 blackout in New York City ended in widespread riots that induced many businesses to pack up and never return. Many households followed.

But for the most part, cities saw an exodus that took many years and slowly hollowed out the finances and tax revenues of big cities. Areas of Detroit fell into ruin. By the mid seventies, New York City was lurching from one fiscal crisis to another.

“Nearly half of large cities lost cities shrank by at least 10 percent” during the 1970s, according to the Kansas City Fed :

St. Louis, Cleveland, Buffalo, and Detroit each shrank by more than 20 percent. Vast stretches of urban land were left virtually deserted.

More than half of large cities lost population from 1950 to 1980.

There were other factors at work as well, of course. The central cities were often hit the hardest as the old Rust Belt went into decline after the region was destroyed by labor unions and city and state laws that made business in the region inefficient and uncompetitive. Business owners and workers who possessed any real ambition or entrepreneurial spirit had good reason to leave the region altogether.

City centers, built on an old manufacturing-based working class never recovered.

The situation today is a bit different. During the 1990s, core cities began to recover from their mid-century decline and many officials and intellectuals in these areas began cultivating the so-called ” creative class” (also known as the ” bohemian bourgeoisie “) with the idea that young artists, engineers, architects, and tech workers might be convinced to move into city centers and and revitalize local urban economies. It appears to have worked in many cases.

But in 2020 America the hey day of the new techno-city may be over.

Civil Unrest

The case of the Sigma-7 closure in Minneapolis is just the most famous case of central cities’ hostility to businesses within their borders. We’re not hearing about the many small less-notable businesses that won’t re-open in the wake of riots. In other cities, such as Chicago, city officials are now begging retailers to not leave the city.

Meanwhile, a number of small businesses now within the “CHOP” zone in Seattle is suing the city for abandoning businesses to the whims of the leftist mob.

As reported by the local NBC affiliate, local businesses have been threatened and harassed by the bosses of the “Capitol Hill Occupation Protest” (CHOP) zone in the city. The city government, the plaintiffs have concluded, essentially have abandoned these businesses to the new “government”:

The City’s decision has subjected businesses, employees, and residents of that neighborhood to extensive property damage, public safety dangers, and an inability to use and access their properties.

Minneapolis and Seattle aren’t the only cities the prospect of continued civil unrest. with forty million new unemployment filings in recent months, the US faces a worrisome period of highly elevated unemployment. Many of the worst-affected workers will be lower-income populations living in core cities. This won’t help the prospect of a speedy return to placid city environments.

Regime Uncertainty

As government experts and media pundits emphasize growth in reported COVID-19 cases, the prospect of renewed lockdowns now looms, as well. This is a threat at the state level and in many suburban local governments. But experience strongly suggests that those political jurisdictions controled by political leftists are likely to embrace the longest and harshest lockdowns. In many states, such as Texas and Colorado and California and Pennsylvania, local governments in big cities embraced lockdowns more enthusiastically than the surrounding regions and at the state capitols.  “Regime uncertainty”—uncertainty about what business-killing regulations a government might embrace next—appears to be greater in central cities.

Business owners are likely to remember this. In the medium- and long-term, business owners and potential business owners will gravitate to those areas where the threat of harsh lockdowns is smaller.

The Rise of the “Work-at-Home” Trend

If the work-at-home trend persists, core cities will have lost one of their main draws: namely, the prospect of a shorter commute for those who can afford a home close-in to the employment centers. Even if daily commutes are just reduced—say, to a three-days-per-week schedule—the commute-time cost of a home in the suburbs falls dramatically. Without the need to sit in traffic five days per week, more expensive city homes and the congrestion and crime of city centers becomes far less attractive.

Declining Tax Revenue and Urban Blight

On top of it all will come big cuts to city budgets as COVID lockdowns decimated tax revenues. All cities and states will be impacted, but if the most productive taxpayers move out of the core cities, it is these areas that will feel the brunt of revenue shortfalls. In other words, a shift of productivity toward the suburbs and small cities will hollow out big city budgets and school district budgets as well. This will only encourage businesses and families to stay away in even larger numbers. Families will seek to avoid school districts and decline, and employers won’t want to become part of a shrinking tax base where tax increases are frequently eyed by politicians as a way out.

The Beginnings of a Trend?

All of this will take time to play out. Yes, we’ve started to see those with means leave big cities already. The New York Times has reported on numerous former residents of New York City who have left for the surrounding regions. The Times asks “is New York City worth it anymore?” and points out  “the pandemic send young New Yorkers packing.”

Meanwhile, some real estate agents report a “mad rush” of wealthy buyers to get out of the city center and into the wealthy suburbs of San Francisco. These are just the early movers. The exiles of more modest means will come later. Not surprisingly, the median rent in San Francisco for a one-bedroom apartment dropped 9.2 percent in May, compared year-over-year.

But these remains a small percentage of the overall population. Most homeowners, families, and business owners need time to move their businesses, sell their properties, and be convinced it’s time to move on.

None of this should be interpreted, however, as a trend away from metropolitan areas overall. There appears to be little risk that large numbers of Americans will be quitting metro areas for rural villages and towns. Some will. But most will notice that metro areas still have most of the jobs, most of the cultural institutions, and most of the health care services. What can’t be said is that core cities have a monopoly on these resources. In recent decades, suburbs and small cities have increasingly become places that host a wide variety of sports teams, museums, convention centers, hospitals, and more. Metro areas are still a good place to be. But old core cities? Not so much.

Before the COVID-19 outbreak, global advertising investment was estimated to grow at a 7.1% clip in 2020.

Now, as Visual Capitalist’s Katie Jones notes, global ad spend is estimated to see a brutal contraction of 8.1% – equating to almost $50 billion – as a result of changing consumer behavior. The total loss becomes a bleak $96.4 billion when taking pre-pandemic growth forecasts into account.

Today’s graphic uses data from the World Advertising Research Center (WARC) to visualize the estimated decline in advertising spend by media format and industry.

As advertisers adapt to rising in-home media consumption, the tug-of-war for ad dollars between online and traditional media seems to have a decisive winner.

The Death of Traditional Media

After decades of experts predicting the death of traditional media formats, the COVID-19 pandemic could be the last nail in the coffin.

In fact, spend across every type of traditional media format will see a decline in 2020, while most online media formats are expected to see an increase in spending.

Mid-term, this era will be associated with an accelerant of latent and incremental trends towards more digital consumption, commerce, and thus advertising”

– Dr. Daniel Knapp, Interactive Advertising Bureau Europe

With consumers spending significantly more time at home, brands are allocating more dollars to certain media formats to reflect that. However, when it comes to traditional in-home formats such as TV, consumers are opting for streaming services instead. In fact, they are streaming twice as much online video on services such as Netflix compared to last year.

Spending Estimates, by Category

Almost every industry will see reduced spending. The one category that will buck the trend is “Telecoms & Utilities”, which will experience a 4.3% increase in ad spend throughout the year.

Interestingly, stay-at-home restrictions have increased consumers’ reliance on these services for staying connected with loved ones and working from home.

Moreover, the pandemic has proved to be a turning point for the telecommunications industry, as the importance of faster internet speeds are emphasized and the potential of 5G is realized.

The Road to Recovery?

When inflation and exchange rates are taken into account, the decline in advertising spend is expected to be worse than that experienced during the global financial crisis.

Although 2021 shows signs of recovery, WARC suggests this is reflective of how steep the decline in 2020 will be.

Data shows that global advertising spending growth did not fully recover for eight years following the previous recession, so a swift recovery may be highly unlikely, and returning to pre-pandemic growth rates may not be possible for a number of years.

The Changing Advertising Landscape

As advertisers come to terms with their new reality, they are faced with the uncertainty of changing consumer behavior and the potential for a second wave to tighten quarantine restrictions once more.

Could the pandemic be accelerating the inevitable shift to digital, or is the pain for traditional media only temporary?

Authored by Edward Peter Stringham via The American Institute for Economic Research,

The school closures, stay home orders, shuttering of businesses, banning of elective surgeries, closure of physical entertainment events, blocked flights, and sudden imposition of a central plan – it all happened suddenly from mid-March in the course of only a few days, and to enormous shock on the part of people who had previously taken their freedom and rights for granted. 

Despite enormous pressure from Washington, eight states did not lock down or used a very light touch: South Dakota, North Dakota, South Carolina, Wyoming, Utah, Arkansas, Iowa, and Nebraska. 

After 100 days, we are in a position for some preliminary analysis of the performance of locked down states versus those that did not lock down. AIER has already published the evidence that lockdown states had higher rates of unemployment. 

The Sentinel, a nonprofit news source of the Kansas Policy Institute, confirms our research by reporting the following data: locked down states have overall a 13.2% unemployment rate, while open states have a 7.8% unemployment rate. 

But perhaps this better economic performance came at the expense of health? 

In terms of health, locked down states have nearly four times the death rate from COVID-19.

The results do not prove that staying open necessarily caused the good outcomes, but should certainly lead us to question the notion that “lockdowns are necessary or else we all are going to die.” 

To be sure, many mitigating factors may exist. Open states may have had fewer long-term health facilities housing people with low life expectacies; in every state, these account for roughly half of all deaths from COVID-19. In fact, “deaths among a narrow 1.7% group of the population are greater than deaths from the other 98.3%.” 

Population density between the states also varies and that could have been an explanatory variable. The open states also lacked governors who mandated that nursing homes accept active COVID-patients. Earlier this month, we published some more detailed research “Unemployment Far Worse in Lockdown States, Data Show” by economist Abigail Devereux who found similar results.

A routine trope in the media is that people who oppose lockdowns are pushing freedom and wealth over safety and health. But as we can see from this clean examination of the results, the open states experienced less economic pain and less pain from the disease itself. 

We are seeing desperate attempts by politicians, public health officials, and media commentators somehow to make sense of why the United States pursued the course it did with the closures, stay-home orders, travel bans, and near-universal quarantine, in violation of every principle that America has celebrated in its civic culture. 

With the evidence coming in that the lockdowns were neither economically nor medically effective, it is going to be increasingly difficult for lockdown partisans to marshal the evidence to convince the public that isolating people, destroying businesses, and destroying social institutions was worth it.