Since I believe that the financial system is at the heart of today’s meta-question (What Could Go Wrong?), it would be perhaps more to the point to ask: what has held this matrix of rackets together so long? After all, rackets are characterized by pervasive lying and fraud, meaning their operations don’t add up. Things that don’t comport with reality are generally prone to failure so sooner or later they have to implode.
Financial markets have been surging supernaturally on “liquidity” since 2009 — and by “liquidity” I mean “money” (digital credit from thin air) supplied by the Federal Reserve, in rotation with the other sovereign central banks, BOE, ECB, BOJ, PBOC, from whence it pings ‘round the world, wherever the lure of the main chance sparkles.
Trillions wafted into the stock and bond markets, levitating them as a sort of stage-managed misdirection from the sickening spectacle of wobbling real stuff economies. In 2017, The Dow Jones Industrial Average recorded an astounding 5,000 point year-on-year upzoom, with 12 months of gains and no loser months, and a string of 71 record highs.
America’s central bank, the Federal Reserve, acted as if pumping up the stock markets was the only thing that mattered. The result was a Potemkin economy, a glittering Wall Street false-front with a landscape of “flyover” squalor and desolation behind.
In the background of all this is an array of perilous real world events playing out that include especially potential conflict around North Korea and the Middle East. China’s banking system is a fun-house of scams and dodges that don’t add up anymore than ours do. The whole wicked pottage of EU / Brexit issues simmers away, along with the EU’s fatal flaw of lacking any fiscal discipline among member nations, so government spending has no relation to sovereign borrowing. NATO’s aggressive military posturing on Russia’s borders is pointless, stupid, dishonest, and provocative. Nobody knows what kind of gambit Crown Prince Mohammed bin Salman of Saudi Arabia will try next. Iran demands to be recognized as theregional hegemon. And our dear exceptional nation, with its restless Deep State black box “assets,” is capable of all sorts of mischief at home and abroad.
Any of these things could shove American markets into criticality, as if they don’t have enough built-in fragility already. Manipulation of the markets by the Fed and its water-carrying Too Big To Fail partners have deprived the markets of their chief function: price discovery, the ability to discern what things are really worth. Markets are therefore functionally useless and their uselessness is a giant hazard. No society that depends on money can work for long if nobody knows the true value of things, including the value of money itself. The price of attempting to live in a culture of pervasive dishonesty is that a re-set is inevitable. When it happens, it will be hugely destabilizing.
Then there is the very troubling behavior of FBI employees (Peter Strzok, Lisa Page, Deputy FBI Director Andrew McCabe), plus some members of Obama’s inner circle (Susan Rice, Samantha powers) in the twilight months of his term. And remember, Robert Mueller has been the erstwhile James Comey’s mentor and true-blue friend going way back. It just looks flat-out like a bunch of Deep State lifers were out to get the Golden Golem. The so-called “optics” are terrible.
Since crashing stock markets are liable to turn Trump into a mad bull, at the same time that Mueller will have to put up or shut up, I predict that long about the vernal equinox Mueller will come up with some Mickey Mouse charges against Trump, or his people, and be promptly fired by the president. General Flynn and the baby foreign policy wonk will be pardoned, and perhaps others. Probably not Manafort and his chum (though their prosecution might fail.) Democrats will go apeshit and batshit both, with talk of impeachment and constitutional crisis, but I don’t think any of that will stick. Congress may have more to worry about with tanking markets and other symptoms of an incipient economic train wreck. The effort to dump Trump would aggravate the tanking markets.
It is also plausible after the disclosures of recent months that the Russian meddling investigation could blow back on Hillary, the Clinton Foundation, Clinton allies, and possibly even some of Obama’s people (maybe even the former president himself). The evidence for Obama-era FBI involvement in the Christopher Steele file is already out there. There is yet to be a satisfactory elucidation of the Loretta Lynch / Bill Clinton Phoenix tarmac meet-up, nor to the circumstances around HRC’s lost emails and private server, nor the Anthony Weiner laptop, nor to the Uranium One matter. The casual observer sees much more circumstantial criminality in these matters so far than any Trump collusion-with-Russia hypothesis provides.
Economic savant and international man-of-mystery James Rickards says that Trump and his generals are going to whap North Korea upside its big chunky head soon after the winter Olympics are concluded in South Korea on February 25. But as Trump averred in the election campaign, he is not inclined to state in advance exactly what we might do in a military situation. Maybe the rumor is true that we have interesting new weapons capable of turning Little Rocket Man into a Post Toastie without harming the mass of innocent North Koreans. I’d have to give 50 percent odds that whatever we do in Korea turns out to be an epic illustration of Murphy’s Law, since our track record in foreign military adventures since VJ day in 1945 is pretty scant in the “win” column. The Balkan War, maybe… Bush One’s Gulf War sort of… Grenada (for Godsake)… what else…?
Kim Jung-un may not be able yet to deliver an atomic blast to Rodeo Drive, but he can likely lob one into Tokyo on a five minute flight path. Look at the map. The Japanese must be nervous about it. They were once a world-class military power, in case you don’t remember the banzai era. Prime Minister Shinz? Abe wants to revise Japan’s pacifist constitution — engineered by US advisors during the post-war occupation — to allow for a robust military. I wouldn’t be surprised if something lethal jumps out of a lacquered black bento box in the direction of Pyongyang around the same time the US goes for that whap upside NK’s head.
And there’s Seoul, of course, less than 20 miles from the DMZ and within range of a supposedly huge array of North Korean heavy artillery. The theory is we have a slim window of opportunity to deal with this rascal before he equips himself to do some major mischief in the world. I don’t believe this is just a bunch of shuck-and-jive cooked up by the arms merchants and their friends. It’s real and existential and very messy. Something is going to happen there.
China has a pretty firm mutual defense treaty with North Korea, and perhaps reason to want to keep the regime up-and-running as a buffer zone. But do they really want to jump feet first into World War Three defending Kim? I guess we’ll find out. In the meantime, China’s president Xi Jinping has got enough on his plate trying to safely land the high-flying, but wobbling, debt-saturated Chinese economy. Odds are that it’s going to be a rough landing. In which case, maybe war is the answer, as a way of distracting the Chinese public’s attention. But what sort of war? Cyber-sabotage? EMP blackouts? Good old-fashioned mutual nuclear destruction? Grinding old-school land campaigns? Naval battles? It’s a dangerous game and Xi does not look like a risk junkie — more like prudent ole Uncle Xi. So I’ll predict that whatever blows on the Korean Peninsula, China will try to stay out of it, even if it makes faces and jumps up and down a bit.
I suspect Putin and others in Russia would have liked the country to become more fully Europeanized in tone and style than it has been allowed to be, with NATO playing war games on Russia’s border, and US monkeyshines in Ukraine, and sanctions against it for really no good reason. So, Russia has been shoved back into its cubbyhole as a nation not quite of Europe, with sinister Byzantine overtones and ancient exotic Mongol influences.
Meanwhile, Europe desperately needs Russia’s oil and natural gas, so they must know that using NATO troops and armor to make threats is a hollow gesture. Notice that Russia is stockpiling gold reserves, where the USA is just selling the stuff off. (China is stockpiling, too. Like mad.) When other currencies implode, there is reason to believe the world will be introduced to a gold-backed Ruble and Yuan, “money” backed by money. They’ll be able to buy stuff they need. Will we? Will a gold-backed currency shove aside the US dollar as world reserve currency? The precursor to that will be China’s effort to establish oil trade in its Yuan.
Europe has stumbled along economically for several years on Mario Draghi’s promise to “do whatever it takes” to keep the EU’s member nations from falling into the black hole of debt deflation, namely, buying every bond that the sovereign governments and corporations issue.
That kept the game going, but the structural imbalances in EU banking are now so extreme that it is hard to see a way out besides an EU crackup. The Merkel-led immigration-and-refugee policy looked like a bad bet from the get-go and is liable to get worse when the whatever-it-takes liquidity dries up and the EU member countries fall into recession (or depression) and there’s no more money to pay for all those refugee settlement centers and the social services that have been provided. There won’t be enough gainful employment for Germans, Belgians, Frenchmen, and Swedes, let alone for immigrants and refugees.
I’ll predict that starting in 2018 we’ll see efforts to ramp up deportations of these newcomers. Racist? That will be the knee-jerk hue-and-cry. But the epithet is losing its punch as the effects of Merkel’s open door policy are felt on-the-ground in the obvious hostility, xenophobia, and aggression, displayed by Islamic settlers. The defeat of ISIS on the Middle East battlefields in 2017 suggests that they will be ramping up terror operations to Europe. European nationalism movements will grow in 2018 and gain intellectual respectability as the defense of European culture is taken seriously. Middle European states such as Hungary and Poland have not given in on the EU’s demand to accept immigrants and refugees from Islamic lands. Their example will be followed. Politicians in the rest of Europe will consider the “Just Say No” option.
The United Kingdom enters 2018 especially vulnerable to economic travail. The estimated cost of Brexit at tens of billions of pounds sterling, and the potential loss of business, especially banking, is one mighty headwind. The other, less talked about, is the dwindling of the UK’s oil and gas reserves. The equation is simple: fewer energy inputs equals lower economic activity. The only way around that is the popular central bank strategy of recent years: money-printing and accounting fraud. You can’t base an economy on that, and the truth will become painfully self-evident this new year in Great Britain.
Otherwise, it’s beginning to look like Crown Prince Mohammed bin Salman (MBS) of Saudi Arabia (KSA) would like to rumble with Iran to beat back their influence outside their borders in the region. Iran has had plenty of opportunity to play with its military hardware in recent decades: in the Iran-Iraq War, arming Hezbollah to battle Israel, in support of Bashar al-Assad’s government in Syria, and lately in Yemen’s civil war. KSA, on the other hand, has been buying jet planes and bombs from the US for decades, with nary a chance to put them to use. MBS seems eager to test-drive this schwag.
A real dust-up between the principals would put a lot of the world’s oil supply at risk if oil tanker shipping in the Persian Gulf were interrupted. China and Japan would bear the brunt, but the whole world would feel it. Kicking the clerics out of government in Iran might tone down the unnecessary religious hostilities between Sunni and Shiites that has played such a big part in the creation of failed states throughout the Middle East and North Africa (MENA). Iran has plenty of economic problems inside its own borders.
2018 will be a tumultuous year of shake-outs and loss. The watchword for the year should be “lean.” Individuals will be shoved into leaner modes of living. Companies will suffer despite the new lower tax. Financial rewards will be lean. Nations will have to seriously start planning to get by on less, to downscale, and jettison programs that don’t jibe with the mandates of reality. 2018 is the year that the world comes un-stuck from the past ten years of pretending that it’s possible to get something for nothing. For 2018, it’s full speed ahead into the long emergency.
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