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Things That Make You Go Hmmm...

The Consequences of the Economic Peace

October 6, 2014



The Consequences of the Economic Peace

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”






“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

“I find economics increasingly satisfactory, and I think I am rather good at it.”


THINGS THAT MAKE YOU GO HMMM... ....................................................3

Mass Default Looms As World Sinks Beneath a Sea of Debt .....................................30

The Messaging App That’s Powering the Hong Kong Protests ...................................31

Argentina Central Bank Governor Juan Carlos Fabrega Resigns ................................32

Moscow Is Provoking a Number of Its Neighbors ..................................................33

Hong Kong Crisis Exposes Impossible Contradiction of China’s Economic Growth ...........35

A Final Splurge ........................................................................................36

CHARTS THAT MAKE YOU GO HMMM... ..................................................38

WORDS THAT MAKE YOU GO HMMM... ...................................................41

AND FINALLY... .............................................................................42

Things That Make You Go Hmmm...

This week’s TTMYGH is going to be a little different.

After several weeks on the road and staring down a couple more, I am going to make an attempt to turn the presentation I have been delivering into written form, after many requests for a version that people can look at in the comfort of their own homes (and, presumably, without my annoying voice clouding the issue).

I’m hoping I can turn a very visual and fluid presentation into a more static one; but I’m sure that if I fail miserably, you’ll let me know.

This will make for a chart-heavy and consequently much longer piece than usual (though lighter on additional articles in the interest of saving your time and space this week), but let’s see if we can’t make this work.

The presentation, entitled “The Consequences of the Economic Peace,” is a look at the ramifications of several decades of easy credit and an attempt to draw parallels with a time in history when the world looked remarkably similar to how it does now.

That last time didn’t end so well, I’m afraid.

So... without further ado, here we go.

The Consequences of the Economic Peace


The 19th century was a time of upheaval right across the world.

There were no fewer than 321 major conflicts in a century which encompassed, among others, the Napoleonic Wars, the Crimean War, the US Civil War, the Boxer Rebellion, the Opium Wars, and the Boer War.

That single century saw no fewer than 52 major conflicts in Europe alone.

Britain, as the world’s preeminent superpower, was involved in an astounding 73 conflicts in that single 100-year span. In addition, France fought 50 wars and Spain fought in 44.

How crazy was Europe in the 19th century?

Well, Britain and France fought on the same side in six major conflicts; the Spanish and the French sided together on nine occasions; and Britain and Spain found themselves in alliance in seven different wars.


Britain and France fought each other in no less than eight separate wars between 1803 and 1900; and in 1815 alone Spain and France fought each other on four occasions, while the British and Spaniards were on opposing sides six times during the century.

And people wonder why the EU is such a tricky proposition…

The serious point to be made, though, is that once it comes to war, former alliances count for nothing.

Anyway, as the 19th century made way for the 20th, Jan Bloch, a Polish banker, wrote a book entitled Is War Now Impossible?, in which he predicted that the lightning wars of the past — where cavalry ranks and infantrymen faced each other in hand-to-hand combat, deciding victory and defeat in short, brutal fashion — were to be replaced by drawn-out, grinding trench warfare.

“Everybody will be entrenched in the next war. It will be a great war of entrenchments. The spade will be as indispensable to a soldier as his rifle.”

— Jan Bloch, Is War Now Impossible?

Cheerful soul, was old Jan.

But, despite Bloch’s dire predictions, the first decade of the 20th century was blissfully peaceful, with no conflicts between European powers anywhere on the continent.

By the time 1910 rolled around, however, political tensions were rising across Europe.

The Franco-Prussian war that had so inspired Bloch had led to the creation of a German Empire and the ascension of Wilhelm II to the German throne in place of arch diplomat Otto von Bismarck. It had also made the country more bellicose.

Russia, meanwhile, had lost most of its Baltic and Pacific fleets in the Russo-Japanese War of 1905, and that defeat had led to revolution. Defeat in the Far East forced the country to turn its attentions westward towards the Balkans — a region it eyed lasciviously — as did its old rival Austria-Hungary.


Meanwhile, in 1907, Britain and France had signed the Entente Cordiale, which finally put to bed a thousand years of almost continual conflict between the two countries (or at the very least reduced the “warfare” between the two to bouts of French impoliteness countered by silent indignance with some heavy tutting on the part of the British).

In 1908, Austria-Hungary had annexed Bosnia & Herzegovina; and in 1912 Serbia, Greece, Montenegro, and Bulgaria formed the Balkan League to challenge the Ottoman Empire.

After some classic in-fighting when Bulgaria turned on its allies (only to be defeated inside a month), the Balkan League emerged victorious — a victory that disturbed Austria-Hungary, who feared nothing more than a strong Serbia on her southern border.


So here’s where Europe stood in 1914:

Great Britain, her power receding, was struggling to play the role of the world’s policeman; Germany, newly industrialised and ruled by a nationalistic leader, was puffing her chest out to the rest of the continent; and good old France was in steady decline and (no doubt painfully) reliant upon her old foe Britain for support.

And yet, despite such geopolitical turmoil everywhere, the man in the street was remarkably sanguine about the state of the world:

The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper.

— John Maynard Keynes, The Economic Consequences of the Peace

Those words were written by none other than everybody’s favourite economist, John Maynard Keynes, in his book The Economic Consequences of the Peace, a publication which made him a household name all around the world.

It’s a sad indictment of today’s society that the only way for a modern-day economist to achieve Keynes’ level of fame would be to become a serial killer or marry a Kardashian.

But I digress... let’s get back to Europe in 1914. Despite the numerous mounting problems, as Keynes had pointed out, everyday life went on as usual — and the men and women of Europe in general and the UK in particular assumed that nothing untoward would happen.

Europe’s leaders would make sure everything got sorted out.

Sound familiar?

Then, on the 28th of June, 1914, amidst all the known knowns, a young man called Gavrilo Princip stepped up to a passing car in Sarajevo and with a single shot became a Black Swan that changed the course of history when he assassinated Archduke Franz Ferdinand of Austria.

I won’t go into the details of WWI at this stage; but in case you don’t know about it, I’m told there have been several books written on the subject (Barbara Tuchman’s The Guns of August being my own personal favourite). Anyway, after four years of warfare that tore the world apart like never before, a peace was finally reached.

But it was a peace which one man in particular vociferously condemned — and that man was John Maynard Keynes.

Keynes had left Cambridge University to work at the Treasury in 1915, and he had been hand-picked to attend the Versailles Conference as an advisor to the British Government. He was staunchly against reparations of any kind and advocated the forgiveness of war debts (yeah, I know… go figure); but as it turned out, his advice to focus on economic recovery was disregarded; and Keynes resigned his position, returned to Cambridge, and set about scribbling furiously in his notebooks.

In just two months, Keynes wrote the book that would make him a household name around the world — The Economic Consequences of the Peace.

In the book, Keynes was highly critical of the deal struck at Versailles, which he felt sure would lead to further conflict in Europe — describing the agreement as a “Carthaginian peace” — and with the passing of a surprisingly short period of time, he would be proven correct.

The three major figures on the Allied side of the negotiating table at Versailles were President Woodrow Wilson of the USA, President Georges Clemenceau of France, and British Prime Minister David Lloyd George.

Wilson wanted what he called a “fair and lasting peace,” which was based upon his famous “Fourteen Points” plan and which would create a League of Nations (the forerunner to the UN) as well as reduce the armed forces of all countries.

The French? Well they were just pissed.

Understandably, they wanted Germany to be punished and proposed severe reparations alongside punitive confiscation of land, arms, industry — and even citizens.

Britain’s Lloyd George was caught between a rock and a hard place. Privately, he agreed with Wilson on each of his points, but public opinion in Britain dictated that he side with Clemenceau, and so it was the French proposal that won out.

On the other side of the table was, of course, Germany; and, in truth, based purely on the numbers, Keynes’ claims about the nature of the peace are hard to dispute.

Germany was forced to pay £6.6 billion in reparations.

Now, to put that into perspective, that’s about £320 billion in today’s money. Want a little more perspective? Well, the amount of money that Germany was forced to pay back after WWI — an amount so punishing that it led, as we’ll see, directly to WWII — was conjured up out of thin air by the Bank of England — INFLATION-ADJUSTED, I’D LIKE TO STRESS — in just 33 months between January 2007 and September 2009.


Along with those reparations, Germany lost 13% of its land in total and 15% of its agricultural land, 12% of its population, 48% of its iron ore production, and 10% of its coal (which was given directly to the French). Meanwhile, Germany’s army was cut to 100,000 men, its navy to 36 ships (and no submarines), and the nation was banned from having an air force.


The peace hammered out at Versailles would end up having grave consequences just 20 years later as the economic straitjacket into which Germany was buckled enabled a firebrand former lance corporal in the Bavarian army to seize control of the country and once more plunge the world into the darkness of war.

Alongside warfare, there are few things that affect a greater proportion of a nation’s citizens than economics; and as hard as it is to believe, given today’s apathy towards the subject, before the advent of cable TV, the study of economics was the stuff of rock stars.

Until Sismondi’s Nouveaux Principes d’Économie Politique was published in 1819, classical economists had either denied the existence of business cycles or blamed them on external factors — chief amongst them, funnily enough, war.

In 1860 the French economist Clement Juglar had identified repeating economic cycles lasting 7 to 11 years, and Joseph Schumpeter had expanded upon Juglar’s work by identifying four separate stages within the Juglar Cycle:

expansion, crisis, recession, and recovery.

These four stages form what we used to lovingly refer to as “the Business Cycle.” (I say “used to” because the downward half of the business cycle has been abolished by the Federal Reserve — for reasons we shall come to shortly.)


However, in 1920, a year AFTER the Treaty of Versailles, a Russian economist called Nikolai Kondratieff founded something he named The Institute of Conjuncture (not conjecture, conjuncture), at which he and a team of fellow economists studied, yes, conjuncture — or business cycles, with a particular focus on the long waves they identified within those cycles.

Over the years since Kondratieff first laid out his theory on long-wave cycles, a tremendous debate has ensued as to the usefulness of such long-term prognostication; but there is one very good reason why I (and many others) believe there to be a significant advantage gained through the study of long-wave cycles…

(Wikipedia): Long-wave theory is not accepted by most academic economists.

Good enough for me.

But let’s get back to our Russian friend.

Kondratieff, being a Russian, of course took the long view.

He took Schumpeter’s four stages and equated them to the four seasons in a year. Once he had identified what he felt to be the length of each “Spring,” “Summer,” “Autumn,” and “Winter,” Kondratieff had his “Wave;” and, as it turned out, that Wave ran for approximately 53 years.

In 1925, when he published his book The Major Economic Cycles, using existing data, Kondratieff overlaid his wave on world history and projected it forward — meaning that everything for the 89 years that followed was conjecture on his part (not conjuncture, conjecture).


How’d he do? Well, as it turns out, surprisingly well. Kondratieff nailed far too many major turns to have his work simply dismissed, and his most recent turn into Winter occurred in 2000 or, for those of you who measure the passing of time by such things, precisely at the bursting of the tech bubble.


The blue shaded area shows how far into the current Kondratieff downwave we are and — far more importantly — how much farther we have to go before things are supposed to turn around.

But what do the inner workings of a Kondratieff Winter look like? And are we in the middle of one, as a nearly 90-year-old forecast would have us believe?

Like Schumpeter’s cycles, the four seasons in a Kondratieff Wave are broken down and characterised by the phenomena usually seen during each specific phase of the full cycle.

I won’t go through all four seasons now, as we don’t have time, but rather we’ll focus on the longest phase — Winter — as it’s the one we find ourselves mired in.

In a Kondratieff Winter, the first major phenomenon is a bout of deflation. So how are we doing on that score?

In the USA, after a short bout during the depths of 2008–9, the Fed has managed to turn the ship around nicely. The Eurozone? Well, they’re in the middle of a pitched battle against the spectre of deflation; and so far, not to put too fine a point on it, they’re getting their arses kicked. The UK, a country utterly addicted to debt, is in fine health (assuming you measure a country’s health by its strong inflationary forces and its massive debt load — don’t laugh, many people do); and then of course there’s Japan — the country it’s impossible to ignore when having these kinds of discussions.


Japan suffered from a prolonged period of deflation lasting the best part of 20 years, but Abenomics has seemingly fixed that little problem — for now at least.

So I think it’s fair to say that there is no outright deflation, but it’s equally fair to say that this is clearly an ongoing struggle, so let’s hold off on making a definitive judgment on that particular piece of the puzzle.

Next up is the premise that equities will be in a bear market during a Kondratieff Winter.

As I’m sure everybody reading this knows, that’s a big fat FAIL, and we need no charts to show equity markets around the world at all-time highs.

Which brings us to another key signal of a Kondratieff Winter — the mass repudiation of debt.

During Winter, debt — one of the major causes of the onset of that season — is …, well, repudiated. Nobody wants anything to do with it.

As you can see from this chart, as the world went into the Kondratieff Winter in 2000, far from repudiating debt, we’d been embracing it like never before:


By the end of 2007, before things got nasty, the total global issuance of debt securities (as measured by the BIS) had doubled since 2000 to reach a staggering $69.2 TRILLION.

From there?

Well, it’s not exactly what you’d call “repudiation.” In fact, another $21.6 trillion has been added to the mountain of debt hanging over the world.

Why the massive surge? Well that would largely be down to our old friends at the Fed again, and we’ll come to why shortly. The truth is, we’ve all been beaten over the head with stories of the Credit Crunch and tales of austerity, or tales of how hard it has been to find access to credit since 2008; but, as always, the reality is somewhat different.

Since December 2007, total debt in the financial sector has increased a mere 0.5% — OK, again, it’s hardly what you’d call “repudiation.”

It’s a start, but the nonfinancial sector has taken the baton up with some relish and run with it, increasing total debt by 67% in just over six years.

And then, of course, there’s government — that body of men and women to whom the word repudiate means “spend more” (just like austerity or cutback).

They too have layered on another 67% of debt burden while struggling manfully to balance the budget and be responsible in these new, austere times.


Based on these numbers, if they REALLY decided to impose austerity, the debt burden would skyrocket.

So that’s ANOTHER big fat fail. Comrade Kondratieff is starting to look a wee bit unhinged.

But now we get to the middle of the order, and here’s where things pick up a bit.

Bankruptcies? Well, they spiked in the US in 2005 as people rushed to declare themselves bankrupt before new rules made it harder to do so. Those new rules slashed personal filings by almost 75% in 2006, but guess what? Up they went again — on a far steeper trajectory than prior to the alterations to the rules.


I’ll give Kondratieff that one.

Banking crisis? C’mon!! I’ll give him that one too — AND the damn credit crunch while I’m at it.

Which brings us nicely to “rising interest rates.”

I’m sure there are a few people reading this who are old enough to remember those, but of course rates have been falling and then falling some more for decades now, so the average memory gets a little shaky.


Let’s face it, as the major tool available to supposedly help smooth out the business cycle, you’d expect interest rates to at least look SOMEWHAT cyclical in nature, no?

Most people assumed that once rates got to zero they couldn’t fall any more.

How could those people BE so foolish?

Zero is only the lower bound for interest rates in the REAL world, but we live in a central bank-created Fantasyland, so normal rules don’t apply.

Either way, we need to stick another one in the Kondratieff fail column.

Currency crises? Well there have certainly been plenty of those since the turn of the century, so Kondratieff scored on that one, too … which just leaves a rising gold price.

It seems so long ago — for those of us who believe in the yellow metal — that gold rose year after year, but from the beginning of the Kondratieff Winter gold climbed relentlessly, and even the setbacks of the past couple of years haven’t been enough to steal this one from me, so it goes in the Kondratieff win column.

So there you have it. It’s close and hardly conclusive, but by a narrow majority it looks as though we ARE in a Kondratieff Winter. However, the fact that the score is so close is actually rather misleading, so let’s take a look at the missing ingredients and see if they have anything in common.

The misses — deflation, an equity bear market, debt repudiation, and rising interest rates — are all, of course, inextricably linked. They ALL flow directly from interest-rate policy.

Rising interest rates generally dictate that equities enter bear markets, deflation becomes a threat (or at the very least, inflation becomes much less of one), and debt is discharged or defaulted upon.


Of course, the policy of the Fed has been one of lowering rates consistently and at the first sign of any trouble in the economy (trouble that USED to be called a normal part of the business cycle); and those falling rates have had a predictable effect on equities, debt, AND inflation.

Falling interest rates. Every central banker’s first (and until recently, last) line of defence against the downward part of the business cycle.

By lowering rates to zero and thereby staving off those three important components of the Kondratieff Winter, the Fed (and its cohort around the world) has, optically at least, made it look as though things are not so bad.

But even interest rates are beholden to the law of diminishing returns, and as the zero bound is reached and the effect of another marginal cut in rates diminishes to virtually zero, new measures are called for.

Those new measures have largely been in the form of QE these past few years, but even magic money conjured out of thin air has its limits in terms of effectiveness — which is why the Europeans are now experimenting with negative interest rates.

The longer this goes on, the more desperate their measures become.

The question is, WHY?

The answer has its roots in another peace treaty of sorts that again involved Keynes — this time the Bretton Woods agreement, which was thrashed out at the Mount Washington Hotel in New Hampshire after WWII.

That agreement, which (like those at Versailles in 1919) went against the proposals of Keynes, established the IMF and the World Bank, cemented the dollar’s status as the world’s reserve currency, and ushered in an era of unprecedented economic peace, as a quarter of a century passed between its signing and the oil shocks of the 1970s.

That economic peace, however, would have far-reaching consequences.

If we take a look at the growth of both credit and GDP in the US after WWII, we see a remarkable story unfold.


I know, I know... it’s a “busy” chart. It was easier in the live presentation where I could build it sequentially, but bear with me.

Clearly, credit growth has accelerated away from real growth, and the reasons for that acceleration are clear. They begin with our old friend, the federal funds rate (blue line).

Now, as you can see (in the red-dotted box in the bottom left-hand corner of the chart), for the first 20 years after WWII, credit and GDP grew in lock-step. So what changed?

Well, of course, the soundness of money changed.

When Nixon closed the gold window on August 15, 1971, to “... protect the dollar from speculators,” he also ensured that credit creation would become as easy as just saying “yes.”

Immediately after the dollar was “saved from speculators,” the divergence between growth and credit creation began to increase, even as interest rates soared due to the inflation unleashed by Nixon’s actions.

Finally, though, interest rates reached their peak and began the journey lower from a little over 18% to where we find them today, and that meant the gloves were off and credit creation could take off like a rocket, fueled by those rapidly declining rates and a growing sense that the Fed would continue to lower them at the first sign of any trouble.

The business cycle was sooooo 1960s.

Interestingly enough, if we highlight the period between 1954 and 1969 (dark grey triangle) we see that credit and GDP both grew steadily despite interest rates increasing 11-fold.


A close-up look is even more instructive when it comes to the nature of the unchecked business cycle.

As I pointed out, between October 1954 and October 1969, rates (blue line) climbed 11-fold; but more tellingly, during that 15-year period they fluctuated along with the business cycle, adjusting up as well as down as conditions warranted.

Rates quadrupled, fell by five-sixths, rose nearly seven-fold, fell by three-quarters, quadrupled again, halved, then doubled — all in the space of 15 years.

However, if we overlay the business cycle (represented by the PMI Composite Index — red line), we see something that today would be considered extraordinary: a business cycle that ebbs and flows without ever getting out of hand, despite the extreme interest rate moves that occurred.

In fact, the PMI was in expansion (above 50) far more often than it was contracting (below 50), DESPITE a rise in interest rates from bottom to top of 8.5%!

Anybody care to hazard a guess as to what the US economy would do today if rates were to hit 9%? Never mind that debt-service payments would wipe out every dollar of tax revenue collected by the US government several times over.

Sticking with our chart, it’s easy to see the next consequence of this peaceful economic environment and easy credit was an explosion in equity markets, with the S&P 500 following the trajectory of the expansion in credit until the mid-’90s, when it became clear that the Fed’s default response would be to slash rates in the face of any sign of a faltering business cycle... and then the party REALLY got going.


A reversion to the credit growth trendline when the tech bubble burst was followed by a return to trend growth along with even sharper credit creation… and then came 2008… and the Fed’s massive blitz of funny money, which was absolutely vital in order to stop everything falling apart and the lines for credit and GDP growth converging again, as they hadn’t since 1971.


But the twin milestones of the closing of the gold window in ’71 and peak rates in ’81 created even more instability elsewhere.

Next up? The US budget deficit; and once again you can see the difference made by the abandonment of the gold standard, compounded by the peaking of interest rates.



The US monetary base has followed a familiar path — at least up until 2008 when, after dropping rates to essentially zero and running headlong into the law of diminishing returns, the Fed was forced to expand the base from $800 billion to its current nearly $4 trillion — or face a shattering of the economic peace.

All of which brings us to the Fed’s balance sheet.

The cost of maintaining the economic peace is staggering — way beyond anything we thought we understood just a few short years ago.

Assets on the Fed’s balance sheet now stand at $4.4 trillion, as opposed to the $925 billion they owned on September 10, 2008.

But it’s when we take a look at the Fed’s total assets versus their capital that things get interesting.

In order to keep the peace, with interest rates already pegged at 0%, the only option open to the Fed was to massively increase the wrong side of their balance sheet — which of course they did without hesitation.

Now, if we take a dozen snapshots each 12 months apart and do a little measuring, we start to get a better sense of the ledge out onto which the Fed has so gleefully sauntered:


As you can clearly see, the degree to which the Fed has been forced to lever itself to maintain the economic peace is downright terrifying, and their solvency is (how can I put this delicately?) “questionable.”

At least it WOULD be if they couldn’t create money out of thin air.

Back in 2007, the issue of leverage in the investment banking community (which hadn’t mattered to anybody for many years) suddenly mattered to everybody and for the usual reason in such cases: people started to worry about losing money.

Amazingly, having financial institutions levered 30x became something to fear seemingly overnight; and, of course, whilst things like that can go on for a long time, as soon as the fear takes hold, it’s GAME OVER.

Today, in 2014, after the massive expansion of its balance sheet in the name of peacekeeping, the Fed’s leverage far exceeds what was enough to cripple the world financial system back in 2008.


The price of peace has been heavy indeed; and generally speaking, throughout history, when the price of peace finally becomes too high, the pendulum tends to swing back to the other extreme…

Now, you may not have noticed it, but since the turn of the century and the onset of the Kondratieff Winter, the number of wars in which we are all embroiled one way or another has taken a significant turn higher. There are wars going on everywhere, and some of the “enemies” being found to rally people against are a little abstract, to say the least — Fox News’ “War on Christmas” being a prime example of the extremes to which things have traveled.

Nevertheless, the drums are beating.

HOWEVER, there’s one war that’s far more insidious than any of the overt conflicts you hear about from endless men and women behind microphones and podiums.

It’s the one war that isn’t talked about and the one war the public ISN’T kicking up a fuss about… which is a shame, as it’s the one war that affects just about everybody:


The last remaining pool of untapped capital is the world’s savings, and that is firmly in the sights of central banks and governments everywhere.

If you think about this war in its basic terms, it’s really quite scary.

As we’ve already seen, the expansion of the last 40 years has come down to one long orgy of credit creation, and this orgy has required more and more punch to keep the party going.

The increase in real GDP generated by each additional dollar of debt has plummeted from $4.61 in the immediate aftermath of WWII to just $0.08 in 2012:


(At this point, the charts were just getting a bit too depressing, so I thought I’d flower this one up for you a bit.)

All the while, every major central bank in the world has been trying its damnedest to create 2% inflation to help lessen the impact of the soaring debt burden — a burden enabled by two things:

1.The dollar’s status as the world’s reserve currency
2.The economic peace

Paying off your debt in a currency you yourself can debase is a tried and tested strategy of just about every central bank in the world, but never before have so many countries needed to employ that strategy simultaneously. And with currencies essentially being a zero-sum game, it is impossible for them all to be successful.

Now, allowing the imbalances created over the last 40-odd years to correct themselves would plunge the world into a depression — thus desperate measures are called for. The Fed (as well as every other major central bank around the world) has been forced into doing absolutely everything necessary to maintain the economic peace and keep the expansion of credit going — including abolishing the downward half of the business cycle to try to ensure that deflation and all the other deadly facets of the Kondratieff Winter are avoided.

The situation is akin to that faced by the swordfishmen in Sebastian Junger’s book The Perfect Storm. The men get caught in the biggest storm of the century and face a life-and-death battle for survival at sea. Junger’s book was made into an excellent movie by Wolfgang Peterson.

In the climactic scene of the movie, ruggedly handsome skipper George Clooney (who, it has to be said, looks NOTHING like any fisherman I’VE ever seen) and ruggedly handsome fisherman Mark Wahlberg (ditto), having battled against 100-foot waves for hours, finally catch a glimpse of sunlight, and think they’ve made it to the other side of the storm.

Immediately though, the sunlight disappears, the skies darken, and they realise they are back in the middle of the maelstrom.

Worse still, they find themselves faced with one more giant wave, 150 feet high.

Clooney guns the boat’s weary engines, and they try desperately to climb the near-vertical face of the wave; but as they near the top, the forces of nature are simply too much for them, and the boat plunges down the face of the wave, is turned over, and vanishes forever.

The Fed, the BoE, the BoJ, and the ECB are on the face of that wave — gunning the engines for all they’re worth and running into diminishing returns everywhere they turn as the suffocating debt load threatens to overwhelm them.

Zero interest rates, QE1, QE2, QE3, Operation Twist, ABS purchases, the doubling of the Japanese monetary base, and now negative interest rates. They’ve tried everything, and the wave continues to rise up to meet them.

At some point — maybe soon — the forces of nature that drive the business cycle will overwhelm their futile efforts.

Meanwhile, in the background, stealth efforts to create inflation with the aim of getting citizens to pay for government profligacy continue apace.

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

— John Maynard Keynes

Keynes was never more right than when he identified the pernicious effects of inflation, and today’s disengaged society just makes the task of debasing a currency that much easier.

Kondratieff’s research into cycles turned up another extraordinary phenomenon that further cemented the link between economics and war.

It became apparent that those same 53-year economic cycles could be relied upon to mark major conflicts as well as major economic turning points.


Now, as you can see, the bad news is that these long wave cycles are uncannily accurate at predicting major conflicts, but the good news is that we seem to be in mid-cycle, which would suggest that we are at the furthest point from war that we could be.

But of course, just as Kondratieff expanded upon Juglar & Schumpeter’s shorter cycles to find the larger wave, the process goes both ways; and nestled within the 53.5-year war cycle is another cycle of shorter duration — this time 17.7 years.


… and the news from THAT cycle isn’t so good, I’m afraid…

War and economics have always been inextricably linked, and they will forever remain so. If you’re not used to that idea already, get used to it.


The worse the economic situation gets, the higher the likelihood of conflict. That has been the case since the dawn of money, and it’s just as true today, regardless of the fact that most people firmly believe that a major war is now impossible.


Remember this slide? It showed the geopolitical state of the world right before the outbreak of WWI.

Well, exactly a century on, the echoes from the past are too loud to simply ignore, as the slide below demonstrates only too clearly:


Not only is the big picture eerily reminiscent of 1914, but if we dig a little deeper into the detail, we find that though the names have changed, the mechanics of today’s world are a little too close for comfort to those of 1914.


Territorial claims, religious unrest, heavily armed unstable nations, proxy wars, terrorism, and — above all — complacency.

But it doesn’t end there, I’m afraid.


Fear in the West over the growing economic strength of China, China’s own desire for a bigger role on the world stage, globalisation, and increased tourism are all prevalent — as is the general assumption that war is unthinkable (and there’s that word again).


Keynes’ description of life right before the outbreak of WWI could have been written for today, only instead of his “daily newspaper” we’d have to substitute American Idol, Big Brother, or my own favourite — The Great British Bake Off, a top-rated show from the UK about which one of a dozen ordinary people... can bake the best cake.

Don’t laugh. An argument on that show between this man and this woman a few weeks ago — over a baked Alaska — knocked both Ukraine and ISIS off the front pages of the broadsheets FOR A WEEK.

I despair.

The Treaty of Versailles ushered in an era of peace after WWI, but that peace was short-lived because, from an economic standpoint, it heaped enormous pressure on Germany, pressure that was enough to drive them back to war just 20 years after its signing.

The Bretton Woods Agreement — a new financial system recognised as being so crucial that it was hammered out while the world was still at war — demonstrated that the lessons of Versailles had been learned to a degree and that the importance of money in relation to warfare was understood.

Its signing began an era of economic peace that lasted a quarter of a century, but that too began to fray in the early 1970s as the dollar came under pressure from those “evil speculators” (and by “evil speculators” Nixon essentially meant the De Gaulle administration in France, who continued to run down their dollar reserves by exchanging hundreds of millions of dollars for gold, as they were perfectly at liberty to do thanks to the Bretton Woods agreement).

In order to keep that peace, America was forced to renege on the agreement. But by doing so, the money spigot was opened wide, and the US embarked upon an era of credit creation which just got more extreme the longer it continued, seemingly consequence-free.

The bursting of the tech bubble was the first real sign that something was wrong, but the response from the Fed was both instant and desperate — and designed solely to prevent the wheels from coming off — a decision that would merely set the world firmly on course for an epic disaster.

Many thought that in 2008 we faced our global Day of Reckoning and survived, but the truth is that 2008 was actually just another tremor — albeit a major one — warning of a massive impending quake.

The real day of reckoning, when the unconscionable level of debt that has been built up during the fiat money era finally topples over under its own weight like the giant wave in The Perfect Storm, lies ahead of us.


Both war and financial collapse occur in cycles and are subject to the overwhelming laws of nature.

Those inherent characteristics of the natural order are permanent. They cannot be altered.

What the Fed and the rest of the central banks have done in trying to rewrite the natural laws of finance and human behaviour is likely to lead either to war or to a collapse of the financial system — or both. At this point, the exact outcome is undecided, but the options have narrowed considerably.

Over the past six years, those at the helm have pulled every lever and pushed every button available to them in a desperate attempt to stave off an inevitable and natural cleansing of the business cycle, because all those years of economic peace have resulted in an unprecedented credit inflation. And, as my friend Dylan Grice recently said,

“If you’ve had… an unprecedented credit INflation, you WILL have an unprecedented credit DEflation”

All that the central banks of the world have ended up doing as they have desperately tried to maintain the economic peace these past several decades is to make that credit inflation larger and therefore infinitely more dangerous than anything that has gone before it.

The consequences WILL be dire.


OK... so that was a slog (for which I apologise), but in my defence the charts made it seem a LOT longer.

I promise.

The rest of this week’s Things That Make You Go Hmmm... is devoted to the ongoing disquiet in Hong Kong (about which I will write a lot more in the coming weeks), the insufferable debt mountain hanging over the world (about which I have rambled on for so long this week), the resignation of Argentina’s central bank governor, and the amazing spending spree of Brazil’s Dilma Rousseff ahead of this week’s general election.

Charts? Well, we have them of course, and this week we take a look at US inequality (which is worse than... well, just about ever), a possible global equity market top, and Great Britain’s gold hoarders.

Finally, there are interviews with Bill Fleckenstein, Steve Keen, and an amazing chat between Mark Hart and Raoul Pal that you just won’t want to miss (and that is NOT bias on my part — trust me!).

Until Next Time...

Mass Default Looms As World Sinks Beneath A Sea Of Debt

As if the fast degenerating geo-political situation isn’t bad enough, here’s another lorry load of concerns to add to the pile.

The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

I exaggerate only a little in depicting this apocalyptic view of the future as the conclusion of the latest “Geneva Report”, an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy.

Aptly titled “Deleveraging? What Deleveraging?”, the report points out that, far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further. The raw numbers make explosive reading.

Contrary to widely held assumptions, the world has not yet begun to de-lever. In fact global debt-to-GDP — public and private non financial debt — is still growing, breaking new highs by the month.

There was a brief pause at the height of the crisis, but then the rise in the global debt-GDP ratio resumed, reaching nearly 220c of global GDP over the past year. Much of the more recent growth in this headline figure has been driven by China, which in response to the crisis, unleashed a massive expansion in credit.

However, even developed market economies have struggled to make progress, with rising public debt cancelling out any headway being made in reducing household and corporate indebtedness..

Reduced mortgage finance during the banking crisis temporarily succeeded in capping and partially reversing the growth in UK household debt. Yet with a reviving housing market, these reductions may have come to an end, with the Office for Budget Responsibility expecting household debt to income ratios to start climbing again shortly.

In the meantime, the government has been piling on borrowings like topsy, not withstanding attempts by the Chancellor, George Osborne, to bring the deficit under control. Total national non financial indebtedness has therefore barely budged since the start of the crisis.

The UK remains the fourth most highly indebted major economy in the world after Japan, Sweden and Canada, with total non financial debt of 276pc of GDP. The US is not far behind with debt of 264pc of GDP.

However, the real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. This is obviously still lower than many developed economies, but the speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable.

The only way the world can keep growing, it would appear, is by piling on debt. Not good, not good at all.


There are those that say it doesn’t matter, or that rising debt is merely a manifestion of economic growth. And in the sense that all debt is notionally backed by assets, this may be partially true. But when rising asset prices are merely the flip side of rising levels of debt, it becomes highly problematic. Eventually, it dawns on the creditors that the debtors cannot keep up with the payments. That’s when you get a financial crisis.

Crisis or no crisis, the Geneva Report’s authors — Luigi Buttiglione of Brevan Howard, Philip Lane of Trinity College Dublin, Lucrezia Reichlin of the London Business School and Vincent Reinhart of Morgan Stanley — argue that rising indebtedness in developed economies has been crimping potential output growth ever since the 1980s....

*** Jeremy warner / link

The Messaging App That’s Powering The Hong Kong Protests

Joshua Wong, a 17-year-old student in Hong Kong, had a problem. You will have experienced a version of it yourself: you are at a football match or a gig and you need to find a friend. But the crowd means that the network is overloaded, and you can’t get a signal on your phone. The thing that means you need to call someone is the very thing that means you can’t.

For Wong, the problem was more serious: he wasn’t at a football match, but playing a leading role in the organisation of the pro-democracy protests that have shaken his city over the past week. And he wasn’t just worried the network would be overloaded — he was worried the authorities would block it on purpose.

Every major display of social unrest these days seems to come with a game-changing technological accompaniment. The London riots were narrated on BlackBerry Messenger. Twitter played an essential role in the Arab spring. Turkish protesters who found the internet blocked turned to censor-proof Virtual Private Networks. But none of those innovations was much use without a connection. For Wong and his allies in Hong Kong, the answer was an app that allows people to send messages from phone to phone without mobile reception, or the internet: FireChat.

When you download it, FireChat looks like an unexceptional venue for inane online chat about sport and TV. But it’s more than that. If the network is down, FireChat can use Bluetooth — really just a sexed-up radio signal — to talk to nearby users. The protesters may find something satisfying in the way the system works, gaining strength like a movement, or a radical idea, not through a top-down imposition, but from thousands of little connections.

Every new participant increases the network’s range and strength. “Usually, the more people there are in the same location, the less connectivity you get,” says Micha Benoliel, one of the app’s creators. “But with our system, it’s the opposite.”

FireChat has already been used in protests in Taiwan, Iran and Iraq, but never on the scale being seen in Hong Kong. After Wong urged his movement to use it, FireChat got more than 100,000 new sign-ups in Hong Kong in under 24 hours; it has registered 800,000 chat sessions since. If the Communist party isn’t quite reeling, its opponents’ lives have at least got a little easier.

Of course, users would do well to take care: there is nothing to stop the authorities hopping on to the network as well. Benoliel recommends people avoid real names; this is, he says, for information-sharing, not for secrets. Still, in a sense, that is exactly the point. “Our mission has always been freedom of speech, to help information to spread. So this is perfect.”

*** uk guardian / link

Argentina Central Bank Governor Resigns

Argentine President Cristina Kirchner replaced the head of the central bank Wednesday, marking the second overhaul of her economic team in less than a year.

Mrs. Kirchner named her top securities and exchange regulator, Alejandro Vanoli, as central bank governor after she accepted Juan Carlos Fabrega’s resignation, according to a statement posted on the presidency’s press website.

Mr. Fabrega’s resignation came a day after Mrs. Kirchner in a televised speech accused central bank employees of helping local bankers to speculate against the Argentine peso in hopes of forcing the government to devalue the currency. Argentina’s central bank has little autonomy from the federal government and the president in practice can hire and fire its senior executives at whim.

Mr. Vanoli, who had served as head of the National Securities Commission since November 2009, takes the helm of a central bank whose main task is financing the federal government. Unable to borrow abroad due to a legal dispute with creditors, Mrs. Kirchner has relied on money printing to cover spending deficits at the expense of inflation that is thought to be around 40%.

Since 2010, the Kirchner administration has also borrowed tens of billions of U.S. dollars from the central bank’s reserves to pay creditors. High inflation and declining reserves, now at $27.9 billion, have undermined faith in the currency and spurred some Argentines to seek the safe haven of the U.S. dollar.

Mr. Fabrega was widely respected among the country’s bankers thanks to a career of more than 40 years at the country’s largest bank, state-run Banco de la Nacion. Unusual among central bankers for not having a university degree, Mr. Fabrega started as a line employee in a Banco de la Nacion branch and worked his way up the ranks to eventually become president of the bank during Mrs. Kirchner’s first term.

She tapped him to run the central bank in November last year as part of a broad shake-up of her cabinet that included naming a new economy minister and chief of staff. Mr. Fabrega is credited with helping to stem a run on the central bank’s hard currency reserves back in January by devaluing the peso 20% and doubling interest rates to almost 30%.

However, local media reported that he frequently clashed with Economy Minister Axel Kicillof — a young technocrat who has pushed for greater government intervention in the economy — over monetary policy and the devaluation. Mr. Kicillof’s spokeswoman has denied reports of a rift between the two officials.

*** WSJ / link

Moscow Is Provoking a Number of Its Neighbors

Finnish Prime Minister Alexander Stubb, 46, discusses relations with neighboring Russia and his country’s flirtation with NATO. He says Finland will make a decision “without asking for permission.”

SPIEGEL: Mr. Stubb, Moscow is following with great concern just how sympathetic you are to the idea of Finland joining NATO. Do you see it as a threat when President Vladimir Putin speaks of the “special attention” he devotes to economic relations with your country?

Stubb: Russia for us is a large, powerful neighbor with which we share a 1,300 kilometer-long (810-mile) border and against which we have waged war in the past. We know how the Kremlin speaks and acts. But I’m not anxious or afraid, because Finland is an integral part of the European Union.

SPIEGEL: Putin confidant Sergei Markov has explicitly warned of the consequences of NATO membership, saying it could trigger a World War III.

Stubb: Rhetoric can be razor sharp, and just as one needs to take some comments seriously, others should not be.

SPIEGEL: Currently, though, you’re playing down tensions even though Russian jets have repeatedly breached Finnish air space recently.

Stubb: Finland is not an isolated case in that regard. Moscow is provoking a number of its neighbors. The most dismaying example is Ukraine. The message is: “Look, Russia is still a superpower.”

SPIEGEL: Putin wouldn’t simply accept Finland joining NATO.

Stubb: That may well be. But for us the question has to be whether this step would increase our security. And if doing so would provide us with greater influence over European security policy. This is a decision we will make without asking for permission.

SPIEGEL: In contrast to you, many in your country are critical about joining NATO.

Stubb: We should have become a member in 1995 when we joined the EU. Nevertheless, we are very satisfied with the close partnership we maintain with NATO — even if things like the security guarantee in the event of an attack are formally missing. Still, even though we are paying great attention to the issue, for the time being I don’t see any broad majority for joining soon.

SPIEGEL: During the Cold War, Finland remained neutral in order to keep from provoking the Soviet Union. Does intimidation by the Kremlin still have an effect today?

Stubb: On the contrary. Each threatening gesture strengthens those who support NATO membership. But of course some of my compatriots become cautious when Moscow falls back into the tone that prevailed during the Soviet era.

SPIEGEL: Russia is Finland’s third most important export market after Sweden and Germany. Do the EU sanctions and Russia’s counter boycott threaten to create an economic crisis in your country?

Stubb: The sanctions aren’t the problem. We’re suffering from the crisis in the Russian economy. Instead of modernizing it, Putin has placed his bet on profits from the natural gas and oil industries. This crisis is being amplified by the sanctions and we Finns are going to feel the effects. When the Russian economy does well, the Finns also do well. That’s why we are stressing a diplomatic solution of the Ukraine conflict.

SPIEGEL: If Finland isn’t suffering existentially over the sanctions, then why did you so vehemently resist their tightening recently?

Stubb: I first have to make something clear here. My government did not fight against this new round of sanctions.

SPIEGEL: But your foreign minister …

Stubb: ... didn’t consider the timing to be very good and he stated this publicly.

SPIEGEL: He said it was “a question of war and peace.”...

*** der spiegel / link

Hong Kong Crisis Exposes Impossible Contradiction Of China’s Economic Growth

China’s Xi Jinping cannot make any serious concessions to Hong Kong’s democracy movement. The Umbrella Revolution spreading from the affluent Island to the poorer quarters of Kowloon is an existential threat to the Chinese Communist Party.

“If he were to give way, it would set off contagion across the mainland,” said George Walden, a veteran British diplomat who survived the Cultural Revolution inside China and later negotiated Hong Kong’s future with Deng Xiaoping. Beijing has already blocked all images of the protests in the Chinese media as a political quarantine measure.

“Xi Jinping has a horror of what happened to the Communist Party in the Soviet Union. If things get seriously out of hand, he may mobilise ‘patriotic compatriots’ (Beijing-controlled agitators) on the streets. In the end he will bring out the troops, if he has to,” he said.

President Xi will surely play for time, hoping the protests will fizzle as Hong Kong’s business elites try to rein in their unruly children, or try to buy them off quietly. But he cannot yield. “The authorities see this as a matter of life and death, a fuse that can take down their world,” said Zhao Chu, a Chinese columnist and star on Weibo — China’s Twitter.

Whether it escalates to full coercion depends on whether Hong Kong’s poor join the students in serious numbers. We know from the “Tiananmen Papers” that Deng Xiaoping was willing to let the democracy protests run for a while in 1989, until workers threatened a general strike and set up their own blockades. The real massacre was at Beijing’s Gongzhufen and Muxidi crossroads, three miles west of Tiananmen Square, where the students were gathered.

“The next few days are key. It will determine which way the silent majority goes,” said Jonathan Fenby, a former editor of the South China Morning Post, now at Trusted Sources. “Most of Hong Kong’s 7m people prize stability. They may think these militant youths are trouble-makers, but they don’t like being pushed around by Beijing either.”

The students did win a victory in 2012, blocking the imposition of China’s “patriotic education” in Hong Kong. That is where Joshua Wong — the star of today’s protests — cut his teeth. It may have given him false confidence. He is now listed as a “threat to internal stability” by Chinese state security.

That triumph came at the end of the Hu Jintao era, a time of drift, corruption and a pervasive belief that uber-growth would last forever. Xi Jinping is a different animal, leading a different country. All can now see that China has picked the low-hanging fruit of catch-up growth, and has reached the limits of credit.

Mr Xi is China’s most ruthless leader since Mao Zedong. He has purged his enemies one by one, whether Bo Xilai in his Chongqing fiefdom or former security chief Zhou Yongkang, all in the name of Party ethics. He has revived Maoist “self-criticism sessions” to tighten his grip.

He chairs the Central Military Commission — unlike his weak predecessor — and has imposed an “absolute loyalty” test on the army high command. He has clamped down on dissent in the Uighur regions of Xinjiang with an iron fist. A chill is spreading through Chinese academia and through Weibo.

Some in Britain urge a pressure campaign, demanding that Beijing adhere to its vague promise of “universal suffrage” for the people of Hong Kong, not quite the same thing as free elections, though this was never clarified. The chorus of tut-tutting — bordering on liberal infantilism — is misguided on every count.

China’s state media is already trying to discredit the students as tools of Western agitation, just as the Kremlin has exploited the (inconsequential) presence of EU and US diplomats in Kiev’s Maidan Square to portray Ukraine’s home-grown revolution as a Nato coup, more readily believed than you might imagine.

*** Ambrose Evans-Pritchard / LINK

A Final Splurge

THAT governments splurge in election years is a hallowed democratic tradition. True to form, Brazil’s left-wing administration, led by President Dilma Rousseff who is seeking a second term in an election on October 5th, has gone on a spending spree. Just how big became apparent on September 30th, when the treasury released its August accounts.

The primary deficit (before interest payments) reached 14.4 billion reais ($5.9 billion) in that month, the fourth in a row in which the government has failed to put aside cash to pay creditors. The consolidated primary surplus in the eight months to August stood at just 0.3% of GDP. Most of that came from the states; the central government managed just 1.5 billion reais, a piffling 0.05% of GDP and the worst result for the period since 1998. The overall budget deficit climbed to 4% of output, the highest level since Ms Rousseff’s predecessor and mentor, Luiz Inácio Lula da Silva, embarked on a huge stimulus package in 2009, as the global financial crisis took hold.

Part of the fiscal deterioration is a good sign, after a fashion. The government has at last decided to stop “pedalling”, as critics mockingly call the dubious procedure of putting off payments to state-owned banks charged with disbursing benefits such as unemployment insurance, or cash handouts for the poor (which Ms Rousseff raised three months ago). In recent months these lenders have had to finance such payments from their own funds. Now the treasury has finally footed the bill.

It does, however, mean that in order to meet the self-imposed primary-surplus target of 1.9% of GDP in 2014, all levels of government must save a total of 22.2 billion reais a month until the end of the year, an impossible task. A disappointing auction this week for fourth-generation mobile spectrum hardly helped. The treasury was hoping to rake in at least 8 billion reais; it only managed 5 billion reais.

One reason was that the 4G sale, brought forward from 2016 to plump up state coffers this year, came too soon after an earlier one in 2012. Some operators stayed away as a result. Private-sector economists now reckon that the “structural surplus”, which excludes such one-off injections, has turned into a small deficit.

If Brazil is to keep its investment grade the next government will need to reverse this trend. A month ago Moody’s revised its outlook for government debt from stable to negative. On September 30th the ratings agency told an investors’ conference in São Paulo that it will refrain from re-appraising Brazil’s credit risk until 2016, once it becomes apparent what the next government is doing to tackle weak growth (which will average just 1.5-1.7% a year during Ms Rousseff’s four years in power), and a wonky budget.

On paper, Marina Silva, candidate of the centrist Brazilian Socialist party, promises a more responsible fiscal policy. So does Aécio Neves of the Party of Brazilian Social Democracy, the most market-friendly of the main contenders. If the latest polls are any guide, however, neither is likely to get a chance to implement a new course. Ms Rousseff, who in August trailed Ms Silva by as much as ten points in second-round simulations, now enjoys a healthy lead over either challenger, thanks to ample media exposure that has allowed her to play up successes and bash rivals.

Markets despair at the thought of Ms Rousseff’s re-election. On Monday they swooned after a poll released over the weekend showed the incumbent consolidating her lead and hinted at a possibility of an outright victory in the first round. Pricing in this (admittedly still remote) scenario, the stockmarket had its worst session in three years, falling by 4.5%. The shares of Petrobras, the state-controlled oil giant which was mismanaged on Ms Rousseff’s watch and the subject of corruption probes, plummeted by 11%. The real also weakened against the dollar; September saw it lose one-tenth of its value against the greenback, also the most since 2011....

*** economist / link

Charts That Make You Go Hmmm...


As we previously noted, only the highest income earners have seen any gains in compensation since the crisis began around 2007 to the current ‘recovery’ tops. It is perhaps not entirely surprising then that, the total income controlled by the Top 1% is drastically above that of the slave-included times of Ancient Rome and as high as the peak in the roaring 20s.

Current inequality is almost 50% worse than in Ancient Rome and as large as the end of the roaring 20s....

*** zerohedge / link

Global Equity Market Top?


Nick Laird of Sharelynx proves he’s not JUST a gold guy with these fantastic charts showing possible equity market tops around the world and the havoc a strong dollar is wreaking.

Check out Nick’s great service HERE and tell him I sent you.

Stevenage, in Hertfordshire, has been revealed as the gold hoarding capital of the UK according to research from bullion dealer BullionByPost.

The analysis, conducted exclusively for the Telegraph, reveals the secret gold buying habits in the UK. Online gold bullion dealer BullionByPost analysed sales figures to its customers over the last six years to reveal where in the UK the highest average value in gold bullion has been delivered.

“We believe Stevenage has topped the list for a combination of reasons. It’s on the London commuter belt, just 30 minutes from Kings Cross, attracting successful professionals with high disposable income,” said Rob Halliday-Stein founder of BullionByPost.

Demand is also high in the surrounding areas. According to the Office for National Statistics, Hertfordshire is the fourth highest in England for Gross Household Income per head.

Perhaps more surprisingly, following the top three urban areas, is a hub of Midlands counties made up of Herefordshire, Leicestershire and Worcestershire, reflecting a demand in rural areas....

*** UK Daily Telegraph / link


Source: UK Daily Telegraph

Words That Make You Go Hmmm...



Meet Mark Hart. Mark may well be the smartest guy you’ve never heard of (as well as one of the nicest), and recently my friend and colleague Raoul Pal sat down with Mark for a fascinating interview about a range of subjects that provide a far deeper insight into how some of the really big trades of the last decade or so have been constructed.

I began watching this at 1:15 AM one morning in Singapore and was riveted from beginning to end...


When my friend Bill Fleckenstein calls an interview “one of the best I’ve done,” you’d better believe it’s going to feature here.

After his bewildering appearance recently on CNBC online (when he handled himself flawlessly in the face of what I can only describe as abject stupidity), Bill discusses the Fed, gold, the bond market, and a subject dear to my own heart — financial reporting.

The result is some of Bill’s best work.




This guy will be a familiar face to many readers, but it’s his words that will resonate.

Profesor Steve Keen talks why the current economic recovery is doomed to end much sooner than you think. He also explains what has caused the current housing bubble and argues that bank reform is essential if the economy is to move away from an unhealthy dependence upon asset speculation.


and finally...



If you still have a little time left after ploughing through this week’s Things That Make You Go Hmmm..., then prepare to spend 4:57 on the edge of your saddle as a group of cyclists take a trail very definitely NOT for the faint of heart...






Grant Williams

Grant Williams is the portfolio and strategy advisor to Vulpes Investment Management in Singapore — a hedge fund running over $280 million of largely partners’ capital across multiple strategies.

The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between the firm and its investors.

Grant has 28 years of experience in finance on the Asian, Australian, European, and US markets and has held senior positions at several international investment houses.

Grant has been writing Things That Make You Go Hmmm... since 2009.

For more information on Vulpes, please visit


Follow me on Twitter: @TTMYGH

YouTube Video Channel:

PDAC 2014 Presentation: “Gold and Bad: A Tale of Two Fingers

ASFA Annual Conference 2013: “Wizened in Oz

66th Annual CFA Conference, Singapore 2013 Presentation: “Do the Math

Mines & Money, Hong Kong 2013 Presentation: “Risk: It’s Not Just a Board Game

As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from time to time, the views I express and/or the commentary I write in the pages of Things That Make You Go Hmmm... may reflect the positioning of one or all of the Vulpes funds—though I will not be making any specific recommendations in this publication.




A walk around the fringes of finance


By Grant Williams

06 October 2014


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Discuss This


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Ronald Nimmo

Oct. 16, 12:32 a.m.

This is a captivating article, but I must disagree with Grant’s premise that Britain was a waning power in 1914. To the contrary the British Empire was at it’s peak at that time. Germany was on the ascendancy at that time, but it was not at Britain’s expense. Germany did not seek a war with Great Britain nor did it try to encroach on the British Empire. WWI is what sent the British Empire into a downward spiral. This is well known and I am surprised Grant does not realize it.

Oct. 8, 9:07 p.m.

“The French? Well they were just pissed.”

I hope you mean ‘pissed’ in the US sense, of ‘mad’, rather than the UK sense of ‘drunk’. And by ‘mad’, I mean in the US sense of ‘angry’, not the UK sense of ‘insane’. Two countries divided by a common language as usual.