Month: September 2018

Authored by Robert Gore via Straight Line Logic blog,

John McCain is buried, may his philosophy soon follow.

Now they lay his body down
Sad old men who run this town

“Kings,” Steely Dan (Walter Becker and Donald Fagen), 1972

Novelists can align their stories with whatever deeper truth they’re trying to convey. Real life is seldom so neat, but the death of John McCain can neither be separated from nor understood without appreciating its symbolic elements. The mourning functionaries and hagiographic media that laid McCain to rest symbolically buried, without realizing it, the philosophy he so epitomized. Send not to know for whom the bell tolled, it tolled for what they so fervently believe.

John McCain venerated the state, of which he was a product. His grandfather and father were admirals in the navy. He was a graduate of the Naval Academy and spent his entire career working for the government. His philosophy was consistent: there are no constraints on the state. As was his ambition: the accretion of state and personal power. Championing government both at home and abroad, he achieved bipartisan splendor.

He never met a US war, actual or prospective, he didn’t love. (Although he sort of admitted after the fact that Iraq might have been a mistake, and he came out against torture.) His was the deciding vote against repealing Obamacare. That put him at the Olympian summit of uniparty bipartisanship: the indefatigable champion of the warfare state, the welfare state, the surveillance state, and anything else the state might want to do.

That is why the flags flew at half-mast, his body lay in state in the US Capitol, Democrats and Republicans issued gushing commemoratives, and the mainstream media flowed with his praises. Powerful people’s florid eulogies were the verbal equivalent of the military’s twenty-one gun salute. McCain was the exemplar of the uniparty’s only consistent principle: the expansion of government and its power.

McCain couldn’t have achieved the prominence he did if millions of American hadn’t shared his beliefs. An invariably wrong anti-prophet greatly honored in his own country, his vision is being challenged and undermined not at home but in foreign lands, many of which have suffered the depredations of McCain and his ilk’s “muscular” foreign policy.

If McCain the warrior had been anything more than unobservant, arrogant, and stupid, he might have noticed that nonstop bombing and unrestricted warfare were not “winning hearts and minds” in Vietnam. That slogan was only PR anyway, the military and political goal was always dominance and subjugation. Whatever the benefits of a successful hearts and minds campaign might have been, mostly unnoticed were the devastating consequences to the US of losing those heart and minds.

In modern warfare the invader employs overwhelming force: fighter jets, bombers, ships, submarines, tanks, artillery, and well-supplied and armed troops, or to use one of McCain’s favorite phases, boots on the ground. The invasion goes well. Instituting an occupation, installing a puppet government, and fighting the inevitable insurgency do not. The invasion loses heart and minds, the occupation and puppet even more, and the insurgency is off and running.

McCain, who never voiced an original thought or cogent insight in his life, failed to grasp the decentralization of cheap but effective means to wage insurgent counter-warfare: IED’s, shoulder-launched missiles, mines, terrorism, propaganda, hacking, the internet, and smart phones. It never seemed to occur to him that once someone loses a close relative or friend to your shock and awe, they’re probably going to be your enemy, sworn to harm you any way they can. It apparently eluded him that the “friendly rebels” he posed with in photo ops and embraced as regime-change agents would be friends only as long as the US supplied money and arms, but would shift allegiances on a dime, only true to their own ends. Call it willful blindness.

In his defense, and it’s a feeble defense, his myopia is shared by the US political, military, media, academic, entertainment, and business establishment. Those who don’t share it are marginalized, suppressed, or—for the sake of career and professional standing—keep their mouths shut. But myopia excuses far too much. Venality and corruption are at the heart of it. America’s endless wars reward its proponents and beneficiaries with enormous power and profits. Their five-star sendoff for prime beneficiary McCain is fitting.

Now US dominance is under attack. Russia and China press ahead with their consolidation of Eurasia and the erection of a multipolar order. They have both developed weapons for which the US has no defense, unless such defenses are a well-kept secret. Even satraps, puppets, and vassals are questioning their allegiance to the US government, its military, and its dollar. The US national debt asks no questions, but tells no lies. The numbers on usdebtclock.org for debt and unfunded liabilities spin ever faster, propelled by uncontrolled spending, compounding interest and a refusal to admit that our ends outstrip our means.

McCain’s death was as charmed as his life. He has departed before the empire he loved collapses under the weight of hubris and debt. It’s a story as old as empire, but the rulers of America either don’t read history, don’t comprehend its lessons, or believe that they, like McCain, will depart before the bitter harvest is reaped.

Now they’ve laid John’s body down, sad old men and women who run this town. Their sadness was feigned. One of the treasures exchanged for power is the capacity for honest and wholesome emotion. It’s all unbounded ambition, bloodless calculation, and reflexive insincerity. The “sad” is from the perspective of the wise and ethical. Many of the “mourners” are so warped, so corrupt, and so beyond redemption that they evoke profound despair among those who see them for what they are.

The “old” is real. The powers that be look and talk old. Their philosophy is ancient, tottering like Hillary Clinton falling into her van. For centuries, beneath the religious and patriotic dross, might wielded by central authority has made right. That philosophy and its adherents won’t go without an epic tantrum befitting the late McCain, but forces of decentralization beyond their control have been unleashed. The order they worship is Rome’s unaffordable, unmaintainable subjugation of its empire, undone by barbarians outside the gates and corruption within.

The future belongs to chaos as the unsustainable old order collapses. Someday an entirely different order and ethic, based on decentralized liberty, may prevail…somewhere.

This weekend John McCain has been laid to rest. Not, unfortunately, what he represents…but that will follow soon enough.

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Automotive loan amounts and monthly payments continue to reach record highs, but US consumers seem unfazed.

According to Experian’s latest State of the Automotive Finance Market report, Americans are paying an all time high monthly payment for both a new and a used car and assuming a larger amount of debt to make it happen as affordability continues to decline. Americans now hold $1.149 trillion of outstanding auto loan debt (a record) up from $1.027 trillion two years ago….

… with the average new car loan jumping $724 year-over-year to $30,958 in Q2 2018, while used vehicle loan amounts increased $520 to reach $19,708.

Meanwhile, the average new-vehicle monthly loan payment hit a record $525 in the second quarter, up $20 from a year ago…

… while the average monthly payment for a used vehicle also hit a record $378 per month.

“I think we’re certainly at a point where affordability is a question,” said Melinda Zabritski, Experian’s senior director of automotive finance solutions one quarter ago, and the trend has only worsened since. “When you look at how much income you need to support that payment, it certainly is higher than your average individual income.”

And while one reason people are spending more is because they are buying more trucks and SUVs, which are sold at higher price points, a far more important factor, especially in the last year, is the rise in interest rates.

“For some buyers, this is going to come as a surprise,” said Jessica Caldwell, executive director of Industry Analysis for Edmunds.com. “For buyers with average credit scores, the rates are higher than a couple years ago and that will mean a higher monthly payment.”

Taking a closer look at the data, the gap between new and used financing payments continues to widen, reaching $147 in the second quarter. For some consumers, that gap can often mean the difference between buying a new or used vehicle.

A breakdown of the auto financing market shows that in Q2, 86% of all new vehicles and 55% of used cars were purchased with financing, while the number of leased vehicles in the quarter dipped modestly from a year ago to 30.4%.

While hardly a surprise, but further depressing auto affordability, interest rates continued to creep higher across all loan types, with the exception of used loans in the deep-subprime segment where loan issuers have recently retrenched their lending, first in credit cards and now in auto loans, amid fears of a new subprime crunch. The average new car loan is now 5.76%, up 56bps Y/Y, and up from 4.4% five years ago, while the average used car can be had if a consumer can afford the annual 9.40% interest rate.

 

As Edmunds Jessica Caldwell ominously concluded recently, “We’re starting to see a trickle-down effect from the rate increases happening at the federal level.”

Also not surprising is that consumers are staying with a “strategy” of taking out long-term loans, to try and offset higher sticker prices, higher interest rates and higher loan amounts. The flipside is that longer terms mean consumers pay more interest over the life of a loan. The average term in the second quarter was just under 69 months, unchanged from a year ago and tied for an all time high. Experian said, “72 months remains the most common loan term for both new and used loans.”

The effect is being felt mostly at the risky end of the credit spectrum, where compared with last year, lenders appear to be more conservative as market share for subprime and deep-subprime automotive loans continues to fall, Experian said.

“Deep subprime hit an all-time low of 3.54 percent, compared with 3.98 percent in Q2 2017” Experian sai.  Overall, subprime and deep subprime (a FICO score below 500) fell to less than 19% of the loan market. As a result, average credit scores for new and used vehicle financing continue to improve, reaching 715 and 655, respectively.

With auto lenders making fewer risky loans, the percentage of delinquent loans showed a decline in the second quarter.  Experian reported 30-day delinquencies accounted for about 2.1% of outstanding balances in the second quarter, vs. 2.2% a year ago.

However, as the map below shows, 30-day delinquencies still remain a substantial problem across much of the southern US.

As a result of the pullback on subprime exposure, market share declined in the quarter for “buy-here, pay-here” dealers and for independent finance companies, which tend to specialize in loans to customers with subprime credit.

But the key data which seems to suggest that the auto bubble may have run its course comes from the following charts which reveal that traditional banks and finance companies are starting to aggressively slash their share of new auto originations especially when it comes to the subprime segment, while OEM captives (and Credit Unions) are being forced to pick up the slack in an effort to keep the ponzi schemes going just a little longer.

And while some can claim that this is just a natural result of healthy competition between lenders, what is likely causing sleepless nights at banks who have tens of billions in outstanding loans, is the coming tsunami of lease returns which will lead to a shock repricing for both car prices and existing LTVs once the millions in new cars come back to dealer lots.

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Well, we made it so far, and while the rest of the world has been bruised and battered with one “rolling bear market” after another, as Labor Day in the US comes to a close, the S&P500 is at all time highs, having risen 8% this year, and is now trading above 2,900 after the quietest August in 50 years.

So what happens next? As Bloomberg’s David Wilson writes, if past is prologue the market will bring nothing but post-holiday cheer for the next 4 months.

Here is a stunning statistic: since 2009 when central banks became stock market activists and unleashed the longest bull market in history, the S&P 500 has moved higher every year between Labor Day and year-end. The gains have averaged 7.2% annually, and have ranged between 1.4% in 2012 and 13.9% in 2010.

The trend was originally mentioned in a post by Schaeffer’s Investment Research analyst Rocky White, who writes that the S&P 500 has been positive the last nine years in a row from Labor Day through the end of the year.

The table below shows that over the past 20 years, there were nine occasions when the index was up at least 5% heading into Labor Day. In those nine years, the rest of the year was positive every time, with an average gain of 6.95%. The other years were positive just 73% of the time, with an average return of only 1.34% — and way more volatility, going by the standard deviation of returns.

So more of the same “new normal” pattern, or will 2018 be the first year in the past decade when stock fail to post gains in the last 4 months of the year? Indicatively, the last time stocks went lower post Labor Day… was the end of 2008, when it fell about 30% in the last three months of the year during the financial crisis.

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Submitted by Russel Napier of ERI-C

Bringing Up The Bodies in Emerging Markets

‘The order goes to The Tower, “Bring up the bodies.”’

           — Bring Up The Bodies, Hilary Mantell (The Forth Estate, Jan 2015)

For many investors the meltdown in emerging market exchange rates is just some temporary contagion from Turkey; it will go away. The reasoning goes that it is a myopic liquidation of perfectly good assets, just because Turkey happens to be classified as an emerging market. Your analyst has long disagreed with that and late last year outlined the consequences for emerging markets from the bankruptcy of Turkey.

Of course the greatest surprise for investors is not that this is a problem for emerging markets but that it is, much more importantly, the beginning of a European crisis. However, it is not just the negative impacts from the broad financial forces outlined in these reports that are depressing emerging market exchange rates. There is something much more important and insidious undermining these exchange rates: the rise of the rule of man and the decline of the rule of law.

Professional investors have become entirely distracted from the structural decline in the rule of law in emerging markets, as they beat themselves up about Brexit and the Trump Presidency. Given the backgrounds of the average investment manager, it is not surprising that their attention should be diverted to these local issues that challenge not just their portfolio values, but also their personal values. Whatever these two political shifts represent, however, they do not represent a decline in the rule of law. If the US does have a President, whether Republican or Democrat, who breaches the law then it is highly likely that they will be held to account by the legal process.

Similarly, with Brexit the UK’s exit from the EU represents no threat to the rule of law, simply a different and more directly accountable legislature that will enact those laws. Whether you like the impacts that Brexit and Trump are having on your belief system or your way of life they are not a threat to the legal systems that protect your clients’ savings. Sadly, in emerging markets the rise of the strong man and the decline of the rule of law are indeed undermining savers’ legal title to their assets and the cash-flows from those assets.

Investors simply refuse to see it, so intent are they on traducing what they see as the failings of their own political systems. It is time to refocus on what really counts for investors and above all else, above who runs the country and even how they run it, investors must worry first about whether the return of their capital is protected by law. Crucially, even if foreign investors refuse to acknowledge the decline in property rights in key emerging markets, the local investor, being much more fully exposed in his person as well as his property, acts to remove his property. Across key emerging markets we are not just witnessing a contagion from Turkey, but the outflow of local capital that follows when the rule of man rises and the rule of law declines.

Now I fully expect to get a flood of emails from distressed investors questioning such a pessimistic outlook for emerging markets. After all, they don’t have Trump and they don’t have Brexit, so they must be OK. However, they do have Duterte, Erodgan, Xi, Orban, Amlo, Maduro, Putin, Kaczyniksi, and Manangagwa – amongst others. Few if any strong men can ultimately strengthen the rule of law that is ultimately the only protection for investors. In strengthening the law, they weaken themselves.

Investors brought up in the developed world take for granted the stability and continuation of the rule of law. They expect it to be as available and constant as air. Anyway, what role can a consideration of the rule of law play in trying to obtain index beating quarterly returns? It is this myopia and not the myopia associated with the short-term dumping of assets, because they are labelled ‘emerging markets’, that is particularly dangerous. The history of emerging markets is the history of populism, the real populism that subverts human rights and property rights. On the rise in emerging markets, this populism is resulting in a growing exodus of what are now very large sums, even in global terms, of local savings.

It is the shift in local savings, more so than foreign savings, that is pushing emerging market exchange rates to ever lower levels. It is not the flighty financial capital seeking slightly better interest rate differentials that departs in situations like this. It is the financial capital that funds development and growth that flees, as the rise of the rule of man begins to squeeze out the rule of law. The loss of such capital has profound long-term economic impacts.

There is a key reason why the strong men are on the rise and the rule of law on the decline: the world is failing to inflate away its debts. Even before we invented paper money, there was a well recognized method of inflating away debts. Perhaps most famously Henry VIII’s so-called great debasement (1554-1551) inflated away the excessive debts run up to fund wars with France and Scotland, as well as a bit of lavish spending by the king himself. Your analyst meets investors almost every day who believe that inflation is currently playing a similar role. However, such an assertion ignores the fact that the global non-financial debt to GDP ratio is now 244% up from what seemed a dangerous level of 210% of GDP as the global economy peaked in December 2007.

All the evidence suggests that the authorities have so far failed to inflate away their debt burdens and thus some are now turning to more extreme solutions. As The Solid Ground has long pointed out, it is impossible to inflate way debts denominated in somebody else’s currency, and once again many emerging markets find themselves with too much foreign currency debt. It is thus emerging markets that will be forced to take extreme measures first, and extreme measures require extreme leaders.

Default is one solution, particularly if one has the luxury of defaulting on a foreigner, or sequestration of private wealth under various guises is another. Given the need for such extreme measures when countries fail to inflate away their debt, it should be no surprise that the rule of law is on the ebb and the rule of the strong man is creeping in.

Of course, investors have found themselves threatened with sequestration before in times of crisis in emerging markets. However, in recent decades they have always had the foot soldiers of the IMF to intervene on their behalf. For a generation the IMF conditions for large bail-out loans enforced private property rights and enforced economic policies that would ultimately be to the benefit of both local and foreign investors. Now the IMF has changed its mind. In November 2012 it published The Liberalization and Management of Capital Flows: An Institutional View. That document concluded on page 6 “capital controls form a legitimate part of the policy toolkit”, and the executive summary of the document places their appropriate use in context:

‘Rapid capital inflow surges or disruptive outflows can create policy challenges. Appropriate policy responses comprise a range of measures and, involve both countries that are recipients of capital flows and those from which flows originate. For countries that have to manage the macroeconomic and financial stability risks associated with inflow surges or disruptive outflows, a key role needs to be played by macroeconomic policies, including monetary, fiscal, and exchange rate management, as well as by sound financial supervision and regulation and strong institutions. In certain circumstances, capital flow management measures can be useful. They should not, however, substitute for warranted macroeconomic adjustment.’

Capital controls do not need to be called capital controls. Your analyst has long argued that so-called macro-prudential regulation tools can be used as tools of financial repression, to keep the yield curve below the rate of inflation. A key part of any successful repression is to control capital flows and force savers to hold assets that offer a high prospect of negative real returns. In a paper published by the National Bureau of Economic Research in 2015, the authors also recognise that ‘capital flow management’ and ‘macro-prudential regulation’ can both be used to achieve restrictions on the free movement of capital. The authors’ list of measures provides a guide as to the measures from each toolkit that can amount to de facto as well as de jure capital controls.

Types of Capital Flow Management Techniques

Investors must not be surprised if an IMF bailout package contains capital controls and the IMF goes from enforcing your rights to stripping you of those rights. Capital controls lock investors into a pot of assets denominated in one currency, and thus leave them at the mercy of the government policies of that particular jurisdiction. Capital controls have been the first step in the process through which wealth is re-assigned, whether through inflation or more directly, from the private sector to relieve the debt burdens of the state. Importantly capital controls destroy liquidity in assets increasingly held in open-ended structures offering daily redemptions in developed world currencies. We cannot know when the IMF will finally endorse the use of capital controls as part of a bailout programme, though it is worth noting that the IMF worked as part of the troika in Greece keeping in place capital controls originally imposed by the Greek government. Similarly, in Cyprus IMF involvement with the country occurred with capital controls in place. According to Panicos Demetriades, former central bank governor of Cyprus, the policy makers that investors rely on to defend their property rights have a very different view on their role –

I was informed by Isabelle Von Koppen Meretz, the ECB troika chief of mission, just before the teleconference with the ECB Governing Council that the European Commission came out strongly in favour of capital controls while the ECB was against the idea while the IMF sat on the fence.

A Diary Of The Euro Crisis in Cyprus: Lessons For Bank Recovery and Resolution

Could the ‘revised’ package that the IMF is currently negotiating with the Government of Argentina finally let the capital controls cat out of the bag? We cannot know, but we do know that, “capital controls form a legitimate part of the policy toolkit”. Investors need to fear the strong man, but they also increasingly need to fear the IMF. Their role as sheriff, protecting property rights in emerging markets from the 1980s onwards, significantly reduced the risks for portfolio investors and encouraged capital inflows. Today they stand ready not to protect capital but to incarcerate it. That will come as quite a shock to the owners of portfolio assets who believe that there will always be a global policy response that is positive for asset prices. Generations of investors considered policy makers to be the enemy of capital but now, apparently, they are its saviour. When the IMF gets to its ‘road to Damascus’ moment, it will send a profound shudder through a generation of players/investors conditioned to believe that this referee was on their side.

Debasing a currency prior to the invention of paper money was actually quite difficult. After all, Sir Thomas Gresham (1519-1579) observed as early as the sixteenth century how bad money drives out good: good coin composed of precious metal was fungible in any country and held its value when saved, while bad coin was exchanged as quickly as possible. Indeed, it may have been this difficulty in debasing a metallic currency that delayed Henry VIII’s move to debase his coinage. Long before he tried inflation he tried sequestration: most notably sequestering the property of the church through the diligent work of Thomas Cromwell and others.

Today strong men, lumbered with excessive debt and ensuing restrictions on their power, face the same challenges as Henry. They can find their answers with Cromwell and sequestration, or they can find their answers through debasement. Whichever path they choose it is very clear that a transfer of power and thus wealth in underway. The strong man is engaged in a battle for power and there can be no doubt who ultimately wields that power and who they ultimately have to strip it from:

“Let’s say I will rip your life apart. Me and my banker friends.”

How can he explain that to him? The world is not run from where he thinks. Not from border fortresses, not even from Whitehall. The world is run from Antwerp, from Florence, from places he has never imagined; from Lisbon, from where the ships with sails of silk drift west and are burned up in the sun. Not from the castle walls, but from counting houses, not by the call of the bugle, but by the click of the abacus, not by the grate and click of the mechanism of the gun but by the scrape of the pen on the page of the promissory note that pays for the gun and the gunsmith and the powder and shot.”

              Hilary Mantel, Wolf Hall (Forth Estate, March 2010)

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Two weeks ago, when Interior Secretary Ryan Zinke proclaimed:

“I’ve heard the climate change argument back and forth,” Zinke told the Sacramento-based KCRA.

“This has nothing to do with climate change. This has to do with active forest management.”

The virtue-signaling back-lash was deafening, and yet contained little to no actual scientific evidence that ‘climate change’ had done anything to exacerbate this year’s wildfire situation.

And then just last week, much to the chagrin of the mainstream media, politicians, and environmental advocacy groups who swing their “climate change” hammer at every statistical anomaly, claiming that anthropogenic global warming has created a new regime of fires and smoke that has never been experienced before, University of Washington veteran climate scientist Cliff Mass posted on his blog that “those making such claims are seriously misinformed.”

As Mass points out, wildfires are an essential part of the ecology of our region, particularly east of the Cascade crest, adding that during the past few summers we have gotten a taste of the “old normal”, one that was very familiar to our great grandparents and their predecessors.  And one that we will experience frequently in our future if we don’t take steps to restore our forests and to bring back regular fire.

And if words can be politicized, then perhaps the hard data and a simple chart will help. An excellent illustration of our firey and smoky past is found in this graphic produced by the Oregon Department of Forestry (OD) showing acres burned and number of fires from 1911 to 2017…

And the pattern for the entire US is the same.  As Bloomberg reports,  giant wildfires of the sort tormenting California and other Western states this summer are not a new thing. Wildfires appear to have been far more widespread in the 19th and early 20th centuries than they are now.

In fact, the number of acres burned early in the 20th century absolutely dwarfs when are experiencing recently. If only they hadn’t driven so many SUVs in the 1920s??

At 3 million acres burned across three states and British Columbia, the Great Fire of 1910 was the biggest wildfire in U.S. history, spurring an increase in budgets for fire suppression.

The Oakland firestorm of 1991 was the worst for property damage, with economic losses of $2.75 billion in 2018 dollars. But last year’s Tubbs Fire (also in California) is likely to surpass that: Insurance claims for Sonoma County alone exceed $7 billion.

And spending is soaring: federal expenditure on fire suppression from 1985 to 2017, adjusted for inflation rose 435%.

We will let Mr. Mass have the last word:

“Those who blame our dangerous situation on a ‘new normal’ solely resulting from climate change, are not only misinformed, but they can act as obstacles to the actions that are acutely needed: a massive effort to thin our forests and bring back low-intensity fire.”

We can hear the screams now…

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Via CaseyResearch.com,

A lot of folks are asking themselves this question, and for good reason.

You see, China’s pulling resources out of the ground in Africa at an alarming rate. Not only that, Chinese people are pouring into the continent by the boatload.

That said, it’s not all “bad news.” China’s also started construction companies across Africa, created jobs, and built schools and hospitals.

In short, the question I posed above is trickier than it may seem. So I got Doug Casey to tell me what he thinks.

Keep in mind, this interview is controversial. Please don’t read ahead if you’re easily offended.

Justin: Is China exploiting Africa?

Doug: Of course “exploit” is a loaded word; it implies one-sided, unbalanced dealings, and unfair business—although the word “fair” also has lots of baggage, and politically charged meanings.

But, yes, they’re definitely exploiting Africa. We’re seeing a veritable re-colonization of Africa. Every time I visit Africa I see more and more Chinese. It doesn’t matter which country; they’re everywhere.

It’s important to remember that Africa doesn’t produce anything besides raw materials. There’s close to zero manufacturing, like 1% of the world’s total, in sub-Saharan Africa. And almost all of that is in South Africa. The little there is, is only produced with the help foreigners—Europeans, but increasingly the Chinese.

The Chinese basically see Africans as no more than a cheap labor source. That’s at best. Other than that, they’re viewed as a complete nuisance. Basically an obstacle, a cost, standing in the way of efficient use of the continent itself.

What do the Chinese people think of Africans? They don’t hold them in high regard. Of course, you’ve got to remember that China has viewed itself as the center of the world since Day One. They see all non-Han peoples as barbarians, as inferiors. That was absolutely true when the British sent an ambassador, Macartney, to open relations at the very end of the 18th C. He was treated with borderline contempt—pretty much the way Europeans and Americans have treated primitive peoples since the days of Columbus. It’s actually the normal human attitude, when an advanced culture encounters a backward culture. The Chinese see their culture as superior to even that of the West, and believe—probably correctly—that they’ll soon be economically and technologically superior as well.

Africa doesn’t even enter the equation. The continent has no civilization, no economy, no technology, no military power. The famed Zimbabwe ruins are just some semi-finished rocks piled on one another—and they’re considered iconic. The Chinese see the place the way the Spanish saw Mexico and Peru in the 16th C. Of course they won’t say that in public. In fact it’s very non-PC for anyone to make that observation…

Nonetheless, Africa is going to be the epicenter of what’s happening in the world for years to come. It’s gone from being just an empty space on the map in the 19th C, to a bunch of backwater colonies in the 20th C, to a bunch of failed states that people are only vaguely aware of today. Soon, however, it will be frontpage news. And this is both because Chinese are moving to Africa in record numbers and Africans are leaving as fast as they can.

Many Africans are now trying to make their way to Europe. Every year scores of thousands of them—all young men by the way—cross the Mediterranean on rafts. When they arrive in Europe, they somehow survive by selling bobbles on the street, dealing dope, or stealing. And figuring out how to game the welfare system. Now, I realize this doesn’t sound very promising. But that’s the way things are headed. It’s a growing trend.

Justin: In previous conversations, you’ve mentioned how Africa will be responsible for most of the population growth going forward. Will this happen because so many Chinese are pouring into Africa?

Doug: Well, it’s hard to be certain what’s actually on Mr. Xi’s mind, but I read something a few years ago about how China wanted to move 200 or 300 million of its citizens to Africa. Most people aren’t aware of this. It hasn’t been widely promoted, but this is another trend.

Rich Chinese are smart to diversify to developed Western countries. Poor Chinese go to backward countries, to try to become wealthy. Africa is the prime recipient.

One reason is because China is lending scores of billions to backward countries, mostly for infrastructure development. But the roads, ports, railroads, and what-have-you are built almost exclusively by Chinese companies with Chinese labor, who stay there. The infrastructure is there to enable the export of raw materials, mainly back to China. But the debt has to be repaid. It’s a great deal for China.

It will be interesting to see what happens when a couple hundred million Chinese are living with a radically expanding native African population.

Few people realize this. I ask knowledgeable people what they think the biggest cities in the world will be at the turn of the next century. And they all guess cities in China or India.

But that’s not true. Eighty years from now, Lagos, Nigeria will be the largest city in the world. It’s on track to have a population of more than 90 million. The world’s second biggest city will be Kinshasa in the Congo with about 80 million people. Dar es Salaam of Tanzania will be the world’s third biggest city with a population of roughly 75 million people.

Lagos is no surprise. The city already has some 20 million people. But I was shocked when I heard about Kinshasa and Dar es Salaam, having been to both places.

When I was in Dar in 1982, it was just a big town with maybe one million people. But it was stuck in the past. I mean in the harbor there were tramp steamers dating from the ’40s. It was like stepping back into a time warp. But, even though Tanzania was a police state back then, Dar was both peaceful and exotic. Now it’s sprawling, filthy, unpleasant, and chaotic. I can’t imagine what it will be like if the population projections are correct.

My point is that these are backward places. They don’t produce anything, especially the Congo and Tanzania. I don’t have a clue how people will even survive.

I don’t see how these cities will support tens of millions of people. Where is the food going to come from? What about everything else that people need to survive? Nobody—including the Chinese—are going to build the infrastructure that will be needed. It’s not going to be there because nobody is investing in Africa except the Chinese. In fact you can’t really “invest” in these places, because there’s no rule of law.

Justin: And what happens if these economies can’t support all these people?

Doug: I honestly think Africa could implode. I mean where is the economic growth going to come from that will be needed to support all these people? It’s turning into the world of Soylent Green in the cities. And in the boondocks, people just sit around on their haunches and beat on earth. Or at least the women do. Men just sit around and palaver all day.

Africans don’t have the Protestant work ethic of Europeans. They don’t have the Confucian work ethic of China.

The average African can’t even save money, for starters. Every one of the currencies in Africa is essentially worthless. Even if you have money to save, where are you going to park it? Africa’s banking system is almost nonexistent. The banks are unstable, and the governments are basically kleptocracies.

Where will Africa get the capital necessary to support economic growth?

Of course, pockets of Africa will experience explosive growth in the coming years. But there’s not a prayer there’s ever going to be a place like the mythical nation of Wakanda in the movie Black Panther. For a lot of reasons. For one, Africans haven’t learned anything from the past.

Just look at what Zimbabwe recently went through. It forcibly evicted 250,000 Europeans, and stole almost all their property. There are only about 5,000 Europeans left there now. I was last there a couple of years ago. The place now produces nothing but people and political agitation. It used to be the breadbasket of Africa. Now it’s going back to bush.

You’d think South Africans would say, “Geez, that country’s economy was totally destroyed by politics and envy. That wasn’t a good idea; we ought to act more intelligently.”

But they’re doing the opposite. They’ve announced a plan to confiscate, without compensation, all the white-owned land. They started with two game farms a few weeks ago. Everything will be distributed to cronies of the President and his ministers. Then, having evicted the two white tribes—the Afrikaners and the British—the remaining nine black tribes will start fighting over everything.

Why is this? Is it because South African blacks are that stupid? I thought about it, and the answer is “no.” They actually view what happened in Zimbabwe as a success.

Justin: Why do you think that is?

Doug: The blacks went from owning, say, 10% of the country’s wealth to now owning, say, 99%. That looked pretty good. The fact the absolute amount of wealth fell by perhaps 75% is irrelevant to them.

It’s a different way of looking at things. No black in South Africa thinks Zimbabwe made a mistake. They consider getting rid of the white people a triumph.

This is obviously racist. But Africa is probably the most racist place on the planet. Most people in Europe and the US either don’t know this or, if they do, they’d never admit it.

Frankly, it amazes me that so many Americans have programmed themselves to feel “white guilt.” Anyone who’s traveled knows that Europe and the US are the least racist societies on the planet.

But all the races are “racist,” to be candid. It’s genetically programmed into humans to fear alien groups. It’s a result of the competition for scarce resources, over millions of years of evolution. Racism may be unsavory, but it’s entirely natural. The only solution is to view people as individuals, first and foremost. Looking for political solutions against racism only makes things worse, not better.

Justin: How could what’s happening in South Africa impact the rest of Africa?

Doug: Well, South Africa has always been the workshop of the continent. Basically, anything industrial that’s ever happened in Africa has come out of South Africa.

But the future looks grim. There are only four million whites left in South Africa. And the smart ones are going to make the chicken run and get out. It’s “unfair,” of course, because the Afrikaners were there only slightly after the Bantus, who came down from the north as the Europeans arrived by boat. The big losers are actually the original inhabitants, the Hottentots (now called the Khoisan).

When the Europeans do leave, they’ll take their education, work ethic, and culture with them. After the two white tribes leave, the nine major black tribes will fight over the spoils. The best case possibility is that South Africa—or Azania, as some politicized blacks like to call it—will break up into several new entities.

They’re already confiscating white farms in South Africa. And what will happen with those farms? They’ll be destroyed and go back to the bush just like they did in Zimbabwe. Modern farming is a very high-tech, management-intensive business.

So, I’m very pessimistic about the future in Africa.

Justin: The Chinese obviously have a lot of skin in the game in Africa. Don’t they have an incentive to erect infrastructure that will support their interests? Or should the African people be making these investments?

Doug: The investment should come from Africans. But that’s unlikely for reasons I’ve already mentioned.

It’s funny. Last month, Robert Friedland gave a speech at the Sprott Natural Resource Symposium in Vancouver. He was talking about his projects in Africa. He spoke of how wonderful their mineral deposits are. And he’s quite correct.

Africa has some of the best mineral deposits in the world in terms of both size and grade quality.

But he mentioned where his investments are located—South Africa and Congo—only once during his entire one-hour speech. And that was quickly and sotto voce, because everyone knows that these governments really only know how to do one thing: steal. In Congo it’s likely to be more overt. In South Africa, they’re passing a law which mandates blacks must own 30% of the mining company’s shares, plus get a 1% royalty, plus be in the majority of management. And a lot more. I may be slightly off in the numbers, working from memory—but it’s going to destroy mining. These people are actually insane.

On the kind of bright side, since the Chinese have significant investments in Africa, they’re not going to let the African governments confiscate their assets and run them into the ground.

If bribing political leaders proves ineffective, it’s possible that they’ll put soldiers’ boots on the ground. They could send in the Red Army to defend their assets. Or send in assassins to take out individual African politicians.

Justin: What are the chances of that happening?

Doug: There’s a good chance that happens.

The people who run these African governments are not going to change their stripes or their culture.

The methodology in Africa has been the same for years. Get into the government. Steal as much as you can. Then go to Europe to live like a billionaire.

These are tribal societies. When one tribe takes over the government, all the other tribes look for ways to overthrow that tribe. If they succeed, they get their chance to loot the cornucopia.

Justin: It’s clear that you’re pessimistic on Africa. But you’ve also said the young people should move to Africa if they want to make a bunch of money.

Do you still think that’s a good idea?

Doug: Absolutely. I know what I’ve been saying may sound contradictory.

After all, if Africa is likely to go into economic, political, and sociological collapse in the decades to come, how can there be opportunity?

There’s plenty of opportunity, however, because the playing field is very uneven in Africa. And that’s exactly what you want.

You don’t want a level playing field; you want one tilted in your direction. If a young American or European stays in their own country, he’s just like 100 million other people. He’s got no marginal advantage.

If you go to Africa, it’s a different story. You’ve got a ton of marginal advantages. You are likely the only person that has a certain background, set of skills, education, capital, and connections. You’re automatically very unusual. That makes it much easier to make things happen.

You can be sitting down with the president, or the richest guys in the country, in a couple weeks after you arrive on the scene.

I think that it’s an excellent place to go for an individual from Europe or America that wants to get wealthy. And have an exotic adventure as a bonus.

Justin: Thanks for taking the time to speak with me today, Doug.

Doug: No problem.

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A new study reveals how many American families are struggling with debt and savings in the “greatest economy ever”

More than 80 percent of American families define the “American Dream” as financial security and homeownership, and more than half think this dream is unattainable, according to revelations in the latest State of the American Family Study released by Massachusetts Mutual Life Insurance Company (MassMutual).

The bottom 90 percent of Americans (remember the middle class was wiped out) are trapped with insurmountable debts, including auto loans, credit card debts, payday loans, and student loans. Only one if four families have enough emergency savings to cover more than six months of expenses.

It was the Golden Age of the US economy, the quarter century between 1948 and 1973, when America reigned supreme, manufacturing exploded across the country and the American middle class greatly expanded. Those days are gone as the empire is in structural decay.

The “American Dream” is starting to look a lot different. This time around, there is no white picket fence, and if you were to believe the “American Dream” — you would have to be asleep or in a zombified state intoxicated on opioids listening to the mindless government propaganda of how today is fantastic.

The “greatest economy ever” was actually during the post–World War II economic expansion, where the male of the household had one high paying career as his wife stayed home raising the children. That was enough to buy a home, auto, and experince the “American Dream” of consumerism without massive amounts of debt. Those days are gone not because it is politically incorrect to say women should stay home, but instead, today’s gig economy in a failing economy provides households with low skill/low paying jobs (not careers). How times have changed…

Some 82 percent of Americans now say their “American Dream” is financial security for themselves and their family, three-quarters say it is owning a home, and 71 percent believe it is achieving financial independence. And here is the shocker: One-third of Americans believe the American dream has vanished. Why? They have too much debt. “Americans believe financial security is at the core of the American Dream, but it is alarming that so many think it is beyond their reach,” said Mike Fanning, head of MassMutual U.S.

“It is clear that people are taking steps to help secure their financial future and dreams, and more can be done to help to keep the American Dream alive. Starting earlier appears to be part of the solution as ‘not starting early enough’ was the top financial regret across all consumer groups,” Fanning added.

Some 64 percent of those surveyed (3,200 people during January and February 2018) said they have a home mortgage, 56 percent said they have credit card debt, and 26 percent have student loans. A majority of those surveyed said they do not feel financially secure. More than 25 percent said they regret not being fiscally responsible.

The evaporation of the American dream seems to be correlated with increasing debt loads. Collectively, Americans have more than $1 trillion in credit-card debt, according to the Federal Reserve. Another $1.5 trillion in student loans, $1.1 trillion in auto loans, and $15 trillion in mortgage debt outstanding.

Rachel Podnos, a certified financial planner and attorney based in Washington, D.C., told Market Watch that investments in education and property could be paid off, but for many, that debt is a major obstacle in making life decisions.

“I don’t get anymore why owning a home is essential to the American Dream,” she said. “It’s a really bad idea if that is going to cause you to buy a home you can’t afford, which could jeopardize your dream of ever reaching financial independence.”

Matt Schulz, the chief industry analyst at credit-card website CompareCards, said with the recent decline in unemployment, many people still feel they are not benefiting from economic growth. “There is a lot of hopelessness and a lot of concern, simply because the Great Recession isn’t that far in the rearview mirror,” he added.

MassMutual’s survey also said many Americans are in poor financial health. Some 18 percent said they had less than one month of expenses saved for an emergency. Another 26 percent said they have one to three months’ expenses saved. And 21 percent said they had three to six months’ expenses saved.

Podnos said Americans should redefine what the “dream” means for them:

“That may not mean owning a home, at least for some time, and I think that’s OK,” she said. “Maybe it just means financial independence, living comfortably within your means and being able to build wealth.”

Here is the issue: Americans are discovering the “dream” was merely a fantasy provided by the government and blended with corporate propaganda. Many have also figured out their existence is meaningless as the institutions of what made this country great are being systematically dismantled. America is entering its terminal stage — the damage has been done — and today is by far not the “greatest economy ever.”

*  *  *

For more color on America’s slow death. Here is Chris Hedges, “America: The Farewell Tour”: 

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Authored by Robert Murphy via The Fiscal Times,

President Donald Trump sparked controversy – as is his wont – when he recently told CNBC that he was “not thrilled” with the Federal Reserve’s announced hikes in short-term interest rates, which he claimed would hinder the economic expansion for which his administration had worked so hard. “I’m letting them [the Fed] do what they feel is best,” he added, but this assurance was not enough to prevent journalists and policy experts from pronouncing Trump’s remarks as unprecedented interference with the central bank’s independence.

It may be unusual for a president to openly voice such criticism, but it wouldn’t be the first time one has pressured the Federal Reserve for short-term political gain. In 1965, President Lyndon Johnson considered firing then-Fed Chairman William McChesney Martin, but upon learning this would probably be illegal, he opted instead to dress down the recalcitrant central bank chief at his Texas ranch. By Martin’s later account, a heated argument erupted that resulted in the president shoving him against a wall. According to financial journalist Sebastian Mallaby, as LBJ pushed Martin around the room, he yelled, “Boys are dying in Vietnam, and Bill Martin doesn’t care.”

Better known is President Richard Nixon’s tape-recorded collaboration with Fed Chairman Arthur Burns, Martin’s replacement, who maintained an easy-money policy to stimulate the economy before the 1972 election, which contributed to Tricky Dick’s landslide victory and fueled price inflation for the rest of the decade. In terms of the resulting capital destruction and economic dislocations, this episode is one of modern U.S. history’s greatest object lessons about the risks of executive power reaching beyond its constitutional authority.

For another example showing that Trump’s behavior is nothing new, consider that President George H. W. Bush had a running public dispute with then-Fed Chair Alan Greenspan over monetary accommodation. Bush would later blame “The Maestro” for his 1992 reelection loss.

Far from being unthinkable, the idea of government officials manipulating monetary policy for political gain is so intuitive that economists have a name for it: the political business cycle. The classic model was published in 1975 by Yale University economics professor William Nordhaus. For most countries that he analyzed, Nordhaus found no smoking gun proving political interference with the central-bank policymaking, but he concluded that it appeared the United States had a very politicized business cycle.

Nordhaus looked at 10 “before and after” election periods covering five U.S. election cycles. For nine of those 10 periods, the unemployment rate matched his model’s prediction: Joblessness fell before the election and rose afterward. This pattern is exactly what one would expect if elected officials exercised discretion over the timing of the economy’s booms and busts. If the economic fluctuations were due to random chance, the probability that they would coincide with the observed pattern would be very small, only slightly above 1 percent.

Although intuitive, the simple predictions of a “political business cycle” model didn’t perform as well in the two decades following Nordhaus’ seminal work. One refinement was to assume politicians only lean on the central bank to loosen up before an election if it seemed they would otherwise be likely to lose; an incumbent who was confident of reelection wouldn’t take the risk of goosing the economy for short-term gain but having to paying a political price for it during the next term. (For details, see Kenneth Schultz’s 1995 article in the British Journal of Political Science.)

Fortunately, hyper-refined economic models aren’t always necessary for showing that political factors influence central bank policy. Indeed, ordinary narrative history can reveal even scandals of the opposite kind: central banks aggressively asserting their political independence at great cost to the economy. Nicholas Biddle was chief of the Second Bank of the United States — the Fed’s predecessor — who decided to fight moves by President Andrew Jackson to veto the renewal of the bank’s charter and withdraw Treasury deposits from the bank. A champion of hard money, Jackson said the central bank was a political tool that served the monied elites at the expense of ordinary people.

Biddle, however, had many cards to play during his battle against the populist Democrat. Not only did he have luminaries such as Daniel Webster and newspaper editors literally on his payroll, but he exercised his power to call in bank loans and tighten credit, thereby causing bank failures and a financial panic. “This worthy President,” Biddle wrote, “thinks that because he has scalped Indians and imprisoned judges, he is to have his way with the Bank. He is mistaken.”

Biddle’s callous disregard for the economic destruction he wrought shows the naivete in thinking that fallible men (and now women) could be in charge of the nation’s money machine and not succumb to temptations of power. No one should be deemed above the fray.

When Alan Greenspan took the helm at the Federal Reserve in 1987, he had a reputation as a hard-money man opposed to fiat money and government economic intervention. In 1966, he wrote an essay praising the gold standard that Ayn Rand would include in her book on capitalism, but you wouldn’t have known this had you only followed Greenspan’s actions at the Fed. Indeed, the excess creation of fiat money and credit during his tenure inflated the real estate bubble whose bust precipitated the financial crisis in 2008.

Less blatantly, Greenspan’s successor, Ben Bernanke, veered from the monetary strategy he outlined in his earlier academic work, leaving many economists puzzledas to why Bernanke as Fed chair seemed more interested in bailing out banks than in helping unemployed workers.

The above stories notwithstanding, the root problem with the Federal Reserve isn’t one of especially weak leadership caving to political pressure. Rather, the entire premise of “Fed independence” is absurd: The central bank cannot help but be political. It was created by an act of Congress in 1913. Under its current structure, the seven members of the Fed’s Board of Governors (from whom the chair is also selected) are nominated by the president of the United States and confirmed by the Senate. If the president and Senate were to pick the Board of Directors and CEO of Exxon — and this group then had regular meetings to announce its targets for the price of crude oil — nobody in the financial press would dream of calling Exxon’s decisions “independent” of politics. It would clearly be a state-run company, utterly subservient to Washington.

Trump committed a faux pas with his public complaints about the Fed. But his actual “mistake” was in letting the American people in on a dirty secret: The central bank is by its very nature a political institution that exists to serve the nation’s rich and powerful class, not the average Joe.

So by all means, let’s champion Fed independence from political interference, and start by taking away its government-granted power to create legal tender. If the Fed were a private bank like any other, we could be sure the president would no longer micromanage its policies.

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Like the famous George Santayana quote goes, “those who cannot learn from history are doomed to repeat it.” And thanks to a cache of documents released by George Washington University’s National Security Archive project, the American people are learning just how close their country came to sparking a devastating nuclear conflict with Russia and China back in the 1960s.

The Lyndon Johnson-era “Single Integrated Operational Plan” (or SIOP) laid out how the US military would carry out a retaliatory (or preemptive) nuclear strike with the objective of eliminating the Soviet Union and China as “viable” societies, and the USSR as a “major industrial power.” The “overkill” plan intended to wipe out 95% of its top-level targets with loss of human life as the primary metric for success. No version of the SIOP has ever been fully declassified, meaning that the documents released by GWU offered the first complete picture of the US’s Cold War-era nuclear-defense plans. While the US military had created the first version of the SIOP in the early 1960s, the version published by GWU is from 1964.

Here’s a summary of the new information included in the documents.

The Joint Staff review of the SIOP-64 guidance includes new information on nuclear war planning:

The SIOP guidance permitted “withholds” to hold back strikes on specific countries. Recognizing the reality of Sino-Soviet tensions, it would be possible to launch nuclear strikes against the Soviet Union without attacking China or vice versa or to withhold strikes from Eastern European countries, namely Albania, Bulgaria, and Romania

Priorities for Task Alpha targets: At the top of the list of the most urgent target categories were: heavy and medium bomber bases, unprotected ICBM sites (silos did not shield Soviet ICBMs until early 1964), and IRBM/MRBM [intermediate range/medium range ballistic missile] sites.

For the top priority “Task Alpha” targets, the SIOP-64 guidance set an even higher damage expectancy of 95 percent, “a high degree of probability of damage.” Thus, overkill continued to be baked into the SIOP.  Yet, because nuclear planners based their assessments of damage on the blast effects of nuclear explosions, they did not take into account the further devastation caused by fire effects, especially in urban areas.

The purpose of one of the retaliatory options was to destroy the Soviet Union as a “viable” society because it targeted Soviet military forces (conventional and nuclear) plus strikes on urban-industrial targets – Task Charlie.

The 1964 plan didn’t include specific casualty projections, while an earlier version of the SIOP projected that the planned strikes would have killed 71% of the residents of major Soviet urban centers and 53% of residents in Chinese population centers. Meanwhile, estimates from 1962 predicted the death of 70 million Soviet citizens during a “no-warning US strike” on military and urban-industrial targets.

But even the most comprehensive plan couldn’t guarantee that the retaliation by the USSR and China wouldn’t lead to an “unacceptable” level of US casualties. This fear was the primary driver of the US-Soviet arms race, as GW points out in its analysis.

The urgency given to counterforce targets and the availability of preemptive options added momentum and instability to the U.S.-Soviet strategic competition. Washington identified more Soviet nuclear installations for the target lists, which then boosted the Pentagon’s requirements for more nuclear warheads.

Turning our attention to the present day, it’s tempting to dismiss these documents as relics from a bygone era. But this simply isn’t true. The latest US Nuclear Posture Review, released in late February, revealed that the US is still prepared to launch nuclear strikes against China and Russia in response to both nuclear and non-nuclear provocations. The plan embraces a hawkish approach to military cooperation with both countries and anticipates myriad threats in the military expansionism currently being embraced by both China and Russia. Given this paranoid outlook, it’s hardly surprising that Russia earlier this year unveiled plans for a revamped nuclear arsenal – while China’s navy last year surpassed the US’s fleet in size. Of course, these actions will be perceived as threats by the US…and the vicious cycle will continue until one side capitulates, or both sides plunge headlong into a full-scale nuclear conflict.

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