Jan 212017
 
 January 21, 2017  Posted by at 4:59 pm Finance Tagged with: , , , , , , , ,  17 Responses »
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Workmen next to the screws of the RMS Titanic at Belfast shipyard, 1911

 

The people at Conflicts Forum, which is directed by former British diplomat and MI6 ‘ranking figure’ Alastair Crooke, sent me an unpublished article by Alastair and asked if the Automatic Earth would publish it. Since I like his work and I (re-)published two of his articles last year already, ‘End of Growth’ Sparks Wide Discontent in October 2016 and Obstacles to Trump’s ‘Growth’ Plans in November 2016, I’m happy to.

His arguments here are very close to much of what the Automatic Earth has been advocating for years, both when it comes to our financial crisis and to our energy crisis. Our Primers section is full of articles on these issues written through the years. It’s a good thing other people pick up too on topics like EROEI, and understand you can’t run our modern, complex society on ‘net energy’ as low as what we get from any of our ‘new’ energy sources. It’s just not going to happen.

Here’s Alastair:

 

 

Alastair Crooke: We have an economic crisis – centred on the persistent elusiveness of real growth, rather than just monetised debt masquerading as ‘growth’ – and a political crisis, in which even ‘Davos man’, it seems, according to their own World Economic Forum polls,is anxious; losing his faith in ‘the system’ itself, and casting around for an explanation for what is occurring, or what exactly to do about it. Klaus Schwab, the founder of the WEF at Davos remarked  before this year’s session, “People have become very emotionalized, this silent fear of what the new world will bring, we have populists here and we want to listen …”.

Dmitry Orlov, a Russian who was taken by his parents to the US at an early age, but who has returned regularly to his birthplace, draws on the Russian experience for his book, The Five Stages of Collapse. Orlov suggests that we not just entering a transient moment of multiple political discontents, but rather that we are already in the early stages of something rather more profound. From his perspective that fuses his American experience with that of post Cold War Russia, he argues, that the five stages would tend to play out in sequence based on the breaching of particular boundaries of consensual faith and trust that groups of human beings vest in the institutions and systems they depend on for daily life. These boundaries run from the least personal (e.g. trust in banks and governments) to the most personal (faith in your local community, neighbours, and kin). It would be hard to avoid the thought – so evident at Davos – that even the elites now accept that Orlov’s first boundary has been breached.

But what is it? What is the deeper economic root to this malaise? The general thrust of Davos was that it was prosperity spread too unfairly that is at the core of the problem. Of course, causality is seldom unitary, or so simple. And no one answer suffices. In earlier Commentaries, I have suggested that global growth is so maddeningly elusive for the elites because the debt-driven ‘growth’ model (if it deserves the name ‘growth’) simply is not working.  Not only is monetary expansion not working, it is actually aggravating the situation: Printing money simply has diluted down the stock of general purchasing power – through the creation of additional new, ‘empty’ money – with the latter being intermediated (i.e. whisked away) into the financial sector, to pump up asset values.

It is time to put away the Keynesian presumed ‘wealth effect’ of high asset prices. It belonged to an earlier era. In fact, high asset prices do trickle down. It is just that they trickle down into into higher cost of living expenditures (through return on capital dictates) for the majority of the population. A population which has seen no increase in their real incomes since 2005 – but which has witnessed higher rents, higher transport costs, higher education costs, higher medical costs; in short, higher prices for everything that has a capital overhead component. QE is eating into peoples’ discretionary income by inflating asset balloons, and is thus depressing growth – not raising it. And zero, and negative interest rates, may be keeping the huge avalanche overhang of debt on ‘life support’, but it is eviscerating savings income, and will do the same to pensions, unless concluded sharpish.

But beyond the spent force of monetary policy, we have noted that developed economies face separate, but equally formidable ‘headwinds’, of a (non-policy and secular) nature, impeding growth – from aging populations in China and the OECD, the winding down of China’s industrial revolution,  and from technical innovation turning job-destructive, rather than job creative as a whole. Connected with this is shrinking world trade.

But why is the economy failing to generate prosperity as in earlier decades?  Is it mainly down to Greenspan and Bernanke’s monetary excesses?  Certainly, the latter has contributed to our contemporary stagnation, but perhaps if we look a little deeper, we might find an additional explanation. As I noted in a Comment of 6 January 2017, the golden era of US economic expansion was the ‘50s and ‘60s – but that era had begun to unravel somewhat, already, with the economic turbulence of the 70s. However, it was not so much Reagan’s fiscal or monetary policies that rescued a deteriorating situation in that earlier moment, but rather, it was plain old good fortune. The last giant oil fields with greater than 30-to-one, ‘energy-return’ on ‘energy-cost’ of exploitation, came on line in the 1980s: Alaska’s North Slope, Britain and Norway’s North Sea fields, and Siberia. Those events allowed the USA and the West generally to extend their growth another twenty years.

And, as that bounty tapered down around the year 2000, the system wobbled again, “and the viziers of the Fed ramped up their magical operations, led by the Grand Vizier (or “Maestro”) Alan Greenspan.”  Some other key things happened though, at this point: firstly the cost of crude, which had been remarkably stable, in real terms, over many years, suddenly started its inexorable real-terms ascent.  And from 2001, in the wake of the dot.com ‘bust’, government and other debt began to soar in a sharp trajectory upwards (now reaching $20 trillion). Also, around this time the US abandoned the gold standard, and the petro-dollar was born.

 


Source: Get It. Got It. Good, by Grant Williams

 

Well, the Hill’s Group, who are seasoned US oil industry engineers, led by B.W. Hill, tell us – following their last two years, or so, of research – that for purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel, by the oil industry (the IOCs) is rapidly trending to zero. Note that we are talking energy-cost of exploration, extraction and transport for the energy-return at final destination. We are not speaking of dollar costs, and we are speaking in aggregate. So why should this be important at all; and what has this to do with spiraling debt creation by the western Central Banks from around 2001?

The importance? Though we sometimes forget it, for we now are so habituated to it, is that energy is the economy.  All of modernity, from industrial output and transportation, to how we live, derives from energy – and oil remains a key element to it.  What we (the globalized industrial world) experienced in that golden era until the 70s, was economic growth fueled by an unprecedented 321% increase in net energy/head.  The peak of 18GJ/head in around 1973 was actually of the order of some 40GJ/head for those who actually has access to oil at the time, which is to say, the industrialised fraction of the global population. The Hill’s Group research  can be summarized visually as below (recall that these are costs expressed in energy, rather than dollars):

 


Source: http://cassandralegacy.blogspot.it/2016/07/some-reflections-on-twilight-of-oil-age.html 

 

But as Steve St Angelo in the SRSrocco Reports states, the important thing to understand from these energy return on energy cost ratios or EROI, is that a minimum ratio value for a modern society is 20:1 (i.e. the net energy surplus available for GDP growth should be twenty times its cost of extraction). For citizens of an advanced society to enjoy a prosperous living, the EROI of energy needs to be much higher, closer to the 30:1 ratio. Well, if we look at the chart below, the U.S. oil and gas industry EROI fell below 30:1 some 46 years ago (after 1970):

 


Source: https://srsroccoreport.com/the-coming-breakdown-of-u-s-global-markets-explained-what-most-analysts-missed/ 

 

“You will notice two important trends in the chart above. When the U.S. EROI ratio was higher than 30:1, prior to 1970, U.S. public debt did not increase all that much.  However, this changed after 1970, as the EROI continued to decline, public debt increased in an exponential fashion”. (St Angelo).

In short, the question begged by the Hill’s Group research is whether the reason for the explosion of government debt since 1970 is that central bankers (unconsciously), were trying to compensate for the lack of GDP stimulus deriving from the earlier net energy surplus.  In effect, they switched from flagging energy-driven growth, to the new debt-driven growth model.

From a peak net surplus of around 40 GJ  (in 1973), by 2012, the IOCs were beginning to consume more energy per barrel, in their own processes (from oil exploration to transport fuel deliveries at the petrol stations), than that which the barrel would deliver net to the globalized industrial world, in aggregate.  We are now down below 4GJ per head, and dropping fast. (The Hill’s Group)

Is this analysis by the Hill’s Group too reductionist in attributing so much of the era of earlier western material prosperity to the big discoveries of ‘cheap’ oil, and the subsequent elusiveness of growth to the decline in net energy per barrel available for GDP growth?  Are we in deep trouble now that the IOCs use more energy in their own processes, than they are able to deliver net to industrialised world? Maybe so. It is a controversial view, but we can see – in plain dollar terms – some tangible evidence fo rthe Hill’s Groups’ assertions:  

 


Source: https://srsroccoreport.com/wp-content/uploads/2016/08/Top-3-U.S.-Oil-Companies-Free-Cash-Flow-Minus-Dividends.png 

(The top three U.S. oil companies, ExxonMobil, Chevron andConocoPhillips: Cash from operations less Capex and dividends)

 

 
Briefly, what does this all mean? Well, the business model for the big three US IOCs does not look that great: Energy costs of course, are financial costs, too.  In 2016, according to Yahoo Finance, the U.S. Energy Sector paid 86% of their operating income just to service the interest on the debt (i.e. to pay for those extraction costs). We have not run out of oil. This is not what the Hill’s Group is saying. Quite the reverse. What they are saying is the surplus energy (at a ratio of now less than 10:1) that derives from the oil that we have been using (after the energy-costs expended in retrieving it) – is now at a point that it can barely support our energy-driven ‘modernity’.  Implicit in this analysis, is that our era of plenty was a one time, once off, event.

They are also saying that this implies that as modernity enters on a more severe energy ‘diet’, less surplus calories for their dollars – barely enough to keep the growth engine idling – then global demand for oil will decline, and the price will fall (quite the opposite of mainstream analysis which sees demand for oil growing. It is a vicious circle. If Hills are correct, a key balance has tipped. We may soon be spending more energy on getting the energy that is required to keep the cogs and wheels of modernity turning, than that same energy delivers in terms of calorie-equivalence.  There is not much that either Mr Trump or the Europeans can do about this – other than seize the entire Persian Gulf.  Transiting to renewables now, is perhaps too little, too late.

And America and Europe, no longer have the balance sheet ‘room’, for much further fiscal or monetary stimulus; and, in any event, the efficacy of such measures as drivers of ‘real economy’ growth, is open to question. It may mitigate the problem, but not solve it. No, the headwinds of net energy per barrel trending to zero, plus the other ‘secular’ dynamics mentioned above (demography, China slowing and technology turning job-destructive), form a formidable impediment – and therefore a huge political time bomb.

Back to Davos, and the question of ‘what to do’. Jamie Dimon, the CEO of  JPMorgan Chase, warned  that Europe needs to address disagreements spurring the rise of nationalist leaders. Dimon said he hoped European Union leaders would examine what caused the U.K. to vote to leave and then make changes. That hasn’t happened, and if nationalist politicians including France’s Marine Le Pen rise to power in elections across the region, “the euro zone may not survive”. “The bottom line is the region must become more competitive, Dimon said, which in simple economic terms means accept even lower wages. It also means major political overhauls: “I say this out of respect for the European people, but they’re going to have to change,” he said. “They may be forced by politics, they may be forced by new leadership.”

A race to the bottom in pay levels?  Italy should undercut Romanian salaries?  Maybe Chinese pay scales, too? This is politically naïve, and the globalist Establishment has only itself to blame for their conviction that there are no real options – save to divert more of the diminished prosperity towards the middle classes (Christine Lagarde), and to impose further austerity (Dimon). As we have tried to show, the era of prosperity for all, began to waver in the 70s in America, and started its more serious stall from 2001 onwards. The Establishment approach to this faltering of growth has been to kick the can down the road: ‘extend and pretend’ – monetised debt, zero, or negative, interest rates and the unceasing refrain that ‘recovery’ is around the corner.

It is precisely their ‘kicking the can’ of inflated asset values, reaching into every corner of life, hiking the cost of living, that has contributed to making Europe the leveraged, ‘high cost’, uncompetitive environment, that it now is.  There is no practical way for Italians, for example, to compete with ‘low cost’ East Europe, or  Asia, through a devaluation of the internal Italian price level without provoking major political push-back.  This is the price of ‘extend and pretend’.

It has been claimed at Davos that the much derided ‘populists’ provide no real solutions. But, crucially, they do offer, firstly, the hope for ‘regime change’ – and, who knows, enough Europeans may be willing to take a punt on leaving the Euro, and accepting the consequences, whatever they may be. Would they be worse off? No one really knows. But at least the ‘populists’ can claim, secondly, that such a dramatic act would serve to escape from the suffocation of the status quo. ‘Davos man’ and woman disdain this particular appeal of ‘the populists’ at their peril.
 

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.

 

 

Nov 212016
 
 November 21, 2016  Posted by at 4:45 pm Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Theodor Horydczak “Dome of US Capitol through trees at night” 1943

 

For the second time in a few weeks (see ‘End of Growth’ Sparks Wide Discontent), former British diplomat Alastair Crooke quotes me extensively, and I gladly return the favor. Crooke here attempts to list -some of- the difficulties Donald Trump will face in executing the -economic- measures he promised to take in his campaign. Crooke argues that, as I’ve indicated repeatedly, for instance in America is The Poisoned Chalice, the financial crisis that never ended may be one of his biggest problems.

Here, again, is Alastair Crooke:

 

 

We are plainly at a pivotal moment. President-Elect Trump wants to make dramatic changes in his nation’s course. His battle cry of wanting to make “America Great Again” evokes – and almost certainly is intended to evoke – the epic American economic expansions of the Nineteenth and Twentieth centuries.

Trump wants to reverse the off-shoring of American jobs; he wants to revive America’s manufacturing base; he wants to recast the terms of international trade; he wants growth; and he wants jobs in the U.S. – and he wants to turn America’s foreign policy around 180 degrees.

The run-down PIX Theatre sign reads "Vote Trump" on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

The run-down PIX Theatre sign reads “Vote Trump” on Main Street in Sleepy Eye, Minnesota. July 15, 2016. (Photo by Tony Webster Flickr)

It is an agenda that is, as it were, quite laudable. Many Americans want just this, and the transition in which we are presently in – dictated by the global elusiveness and search for growth (whatever is meant now by this term “growth”), clearly requires a different economic approach from that followed in recent decades.

As Raúl Ilargi Meijer has perceptively posited, greater self-reliance “is the future of the world, ‘post-growth’, and post-globalization. Every country, and every society, needs to focus on self-reliance, not as some idealistic luxury choice, but as a necessity. And that is not as bad or terrible as people would have you believe, and it’s not the end of the world … It is not an idealistic transition towards self-sufficiency, it’s simply and inevitably what’s left, once unfettered growth hits the skids. …

“Our entire world views and ‘philosophies’ are based on ever more and ever bigger and then some, and our entire economies are built upon it. That has already made us ignore the decline of our real markets for many years now. We focus on data about stock markets and the like, and ignore the demise of our respective heartlands, and flyover countries …

“Donald Trump looks very much like the ideal fit for this transition … What matters [here] is that he promises to bring back jobs to America, and that’s what the country needs … Not so they can then export their products, but to consume them at home, and sell them in the domestic market …There’s nothing wrong or negative with an American buying products made in America instead of in China.

“There’s nothing economically – let alone morally – wrong with people producing what they and their families and close neighbours themselves want, and need, without hauling it halfway around the world for a meagre profit. At least not for the man in the street. It’s not a threat to our ‘open societies’, as many claim. That openness does not depend on having things shipped to your stores over 1000s of miles, that you could have made yourselves, at a potentially huge benefit to your local economy. An ‘open society’ is a state of mind, be it collective or personal. It’s not something that’s for sale.”

A Great Wish

That’s Trump’s ostensible great wish, (it seems). It is not an unworthy one, but things have changed: America is no longer what it was in the Nineteenth or Twentieth centuries, neither in terms of untapped natural resources, nor societally. And nor is the rest of the world the same either.

Mr. Trump rather unfortunately may find that his chief task will not be the management of this Great Re-orientation, but more prosaically, fending off the headwinds which he will face as he hauls on the tiller of the economy.

In short, there is a real prospect that his ambitious economic “remake” may well be prematurely punctured by financial crisis.

These headwinds will not be of his making, and for the main part, they lie beyond human agency per se. They are structural, and they are multiple. They represent the accumulation of an earlier monetary doctrine which will fetter the President-elect into a small corner from which any chosen exit will carry adverse implications.

Ditto for anyone else trying to steer any ship of state in this contemporary global economy. Paradoxically – in an era moving toward greater self-sufficiency – what success Trump may have, however, will likely depend not on self-reliance so much as he would like.

For his foreign policy about turn, he will depend on finding common interest with Russian President Vladimir Putin (that should not be too hard) – and for the economic “about turn” – on Trump’s ability not to confront China, but to come to some modus vivendi with President Xi (less easy).

“Things are not what they were.” Complexity “theory” tells us that trying to repeat what worked earlier – in very different conditions – will likely not work if repeated later. In the Clinton era, for example, 85 percent of the U.S. population growth derived from the working-age population. The headwind that Trump will face is that, over the next eight years, 80 percent of the population growth will comprise 65+ year olds. And 65+ year olds are not a good engine of economic growth. This is not an uniquely American problem; it is a global trend too.

“The peak growth” (according to Econimica blog), “in the annual combined working age population (15-64 year/olds) among all the 35 wealthy OECD nations, China, Brazil, and Russia has collapsed since its 1981 peak. The annual growth in the working age population among these nations has fallen from +29 million a year to just +1 million in 2016 … but from here on, the working age population will be declining every year … These nations make up almost three quarters of all global demand for oil and exports in general. But their combined working age populations will shrink every year, from here on (surely for decades and perhaps far longer). Global demand for nearly everything is set to suffer.

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: http://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(FFR stands for Federal Funds Rate: i.e. the US key interest rate) Source: http://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

And then there is China: It too is passing through a difficult “transition” from the old economy to an “innovative” one. It too, has an aging population and a debt problem (with a debt-to-gross domestic ratio reaching 247 percent). Trump argues that China deliberately holds down the value of its currency to gain unfair trade advantage, and he further suggests that he intends to confront the Chinese government on this key issue.

Again, Trump does have a point (many nations are managing their exchange rates precisely in order to try to “steal” a little bit extra growth from the diminished global pot). But as noted at Zerohedge, citing the analysis of One River Asset Management executive Eric Peters:

“What’s good for the US in this case [the rising dollar and interest rates in anticipation of ‘Trumponomics’], is not good for emerging markets (EMs). Emerging markets benefit from a weaker dollar, and you’re not going to get that. Emerging markets benefit from global capital flows moving in their direction and that’s not happening either. Back in February, emerging markets were in sharp decline, driven by (1) a strong dollar, (2) rising US interest rates, and (3) slowing Chinese growth. Then China spurred a massive credit stimulus, the Fed became wildly dovish, and the dollar declined sharply.

“Interest rates collapsed throughout the year. As the growing pool of dollar, euro and yen liquidity searched for a decent return, it headed to emerging markets. Trump has reignited the dollar rally, and his fiscal stimulus will force interest rates higher. This reversed everything. [the dollars are heading home]

“And to be sure, the Beijing boys don’t want to see material weakness ahead of next autumn’s Party Congress. But we’re currently near peak impulse from China’s Q1 stimulus.”

In short, Peters is saying that, with the appreciating dollar and rising interest rate environment, growth from emerging markets as a whole will falter, since emerging markets have effectively leveraged their economies to Chinese growth. It used to be the case that they were closely tied to U.S. growth, but it is now China which dominates the EMs’ trade flows [i.e. without China growth, the EMs languish]. The question is, can America reboot its growth whilst China and the EMs languish? It is another structural shift, whereas heretofore, it was vice versa: without U.S. growth, the EMs and China languished. Now it is the converse.

Hollowed-Out Economies

There are other structural changes of course which will make it harder for the industrially hollowed-out economies of the West to recuperate jobs off-shored earlier. Firstly, there has been a systemic shift of innovation and technology eastwards (often to a more skilled and better-educated workforce). This represents not only an economic event, but a redistribution of power too. In any case, technology in this new era is being more job destructive than creative.

In one sense, Trump’s economic plan to “get America working again” through massive debt-financed, infrastructure projects, harks back to the Reagan era, which was also a period in which the dollar was strong. But yet again, “things today are not what they were then.” Inflation then was at 13 percent, Interest rates were around 20 percent, and crucially, the U.S. debt to GDP ratio was a mere 35 percent (compared to today’s estimate of 71.8 percent or 104.5 percent with external debt included).

Then, as Jim Rickards has suggested, the strong dollar was deflationary (deliberately so), and interest rates had nowhere to go, but down. It was the beginning of the three decades’ bond boom, which finally seems to have come to an end, coincident with Trump’s election. Today, inflation has nowhere to go but up – as have interest rates – and the bond market, nowhere to go, but (perilously) down.

Growth and Jobs?

Can Trump then achieve growth and jobs through infrastructure expenditure? Well, “growth” is an ambiguous, shape-shifting term. The first chart shows both sides of the equation … the annual GDP growth and the annual federal debt incurred, spent, and (thus counted as part of the growth) to achieve the purported growth.

Source: http://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

Source: http://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

The second chart shows the annual GDP minus the annual growth in federal debt to achieve that “GDP growth.” In other words, unlike in the earlier Reagan times, more recently, the debt is producing no growth – but … well … just more debt, mostly.

In fact, what the second chart is reflecting is the dilution – through money “printing” – of purchasing power: away from one entity (the American consumer), through the intermediation of the financial sector, to other entities (mostly financial entities, and to corporations buying back their own shares). This is debt deflation: the American consumer ends having less and less purchasing power (in the sense of residual discretionary income).

The point here is that “growth” is becoming rarer everywhere. Russia and China, like everyone else, are in search for new sources for growth.

As Rickards has said, debt is the “devil” that can undo Trump’s whole schema: a “$1 trillion infrastructure refurbishment plan, along with his proposal to rebuild the military, will — at least in the short-term — significantly increase annual deficits. In fact, deficits are already soaring; the fiscal 2016 budget hole jumped to $587 billion, up from $438 in the prior year, for a huge 34% increase…in addition to this, Trump’s protectionist trade policies would implement either a 35% tariff on certain imports or would require these goods to be produced inside the United States, at much higher prices. For example, the increase in labor costs from goods made in China would be 190% when compared to the federally mandated minimum wage earner in the United States. Hence, inflation is on the way.”

In sum, self-sufficiency implies higher domestic costs and price rises for consumers.

Debt will rise. And there is seemingly already a buyers’ strike against U.S. government debt underway: well over a third of a $1 trillion worth of Treasuries were disposed of, and sold in the year to Aug. 31 by foreign Central Banks. And who is buying it? (Below, the chart shows what this purchasing looks like, as a percentage of total debt issued by the Treasury). Well, foreign central banks have disappeared. (The Chinese have not bought a U.S. Treasury bond since 2011.)

(Above: who purchased the marketable debt as a percentage, by period) Source: http://econimica.blogspot.it/2016/11/trump-lies-no-different-than-obama-or.html

(Above: who purchased the marketable debt as a percentage, by period)
Source.

 

It is the American public who are buying. Will they be willing to take on Trump’s $1 trillion infrastructure spree? Or, will it be “printed” in yet another dilution of the American consumer’s purchasing power? The question of whether the infrastructure splurge does give growth hangs very much in the balance to such answers. (Equity shares in construction firms will do okay, of course).

The bottom line: (Michael Pento, Pento Report): “If interest rates continue to rise it won’t just be bond prices that will collapse. It will be every asset that has been priced off that so called ‘risk free rate of return’ offered by sovereign debt. The painful lesson will then be learned that having a virtual zero interest rate policy for the past 90 months wasn’t at all risk free. All of the asset prices negative interest rates have so massively distorted including; corporate debt, municipal bonds, REITs, CLOs, equities, commodities, luxury cars, art, all fixed income assets and their proxies, and everything in between, will fall concurrently along with the global economy.

“For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concurrently with collapsing real estate, equity and bond prices.”

A Pending Financial Crisis

Trump, to be fair, has said consistently throughout the election campaign that whoever won the Presidential campaign to take office in January would face a financial crisis. Perhaps he will not face the “violent unwind” of the QE and bond bubble as some experts have predicted, but many more – according to Bank of America’s survey of 177 fund managers over the last six days, and controlling just under half a trillion of assets – expect a “stagflationary bond crash.”

This has major political implications. Trump is setting out to do no less than transform the economy and foreign policy of the U.S. He is doing this against a backdrop of many of the followers of the liberal élite, so angered at the election outcome, that they reject completely his electoral legitimacy (and, with the élites themselves staying mum at this rejection of the U.S. democratic process). Movements are being organized to wreck his Presidency (see here for example). If Trump does indeed experience a severe financial “unwind” at a time of such domestic anger and agitation, matters could turn quite ugly.

 

 

Alastair Crooke is a former British diplomat who was a senior figure in British intelligence and in European Union diplomacy. He is the founder and director of the Conflicts Forum, which advocates for engagement between political Islam and the West.