Europe’s Barbarians Inside the Gate

Nouriel Roubini

.European Union flag torn at edge
BERLIN – I am on a two-week European tour at a time that could make one either very pessimistic or constructively optimistic about Europe’s prospects.
 
First the bad news: Paris is somber, if not depressed, after the appalling terrorist attacks earlier this month. France’s economic growth remains anemic, the unemployed and many Muslims are disaffected, and Marine Le Pen’s far-right National Front is likely to do well in the upcoming regional elections. In Brussels, which was semi-deserted and in lockdown, owing to the risk of terrorist attacks, the European Union institutions have yet to devise a unified strategy to manage the influx of migrants and refugees, much less address the instability and violence in the EU’s immediate neighborhood.
 
Outside the eurozone, in London, there is concern about negative financial and economic spillover effects from the monetary union. And the migration crisis and recent terrorist attacks mean that a referendum on continued EU membership – likely to be held next year – could lead the United Kingdom to withdraw. This would probably be followed by the breakup of the UK itself, as “Brexit” would lead the Scots to declare independence.
 
In Berlin, meanwhile, German Chancellor Angela Merkel’s leadership is coming under growing pressure. Her decision to keep Greece in the eurozone, her courageous but unpopular choice to allow in a million refugees, the Volkswagen scandal, and flagging economic growth (owing to the slowdown of China and emerging markets) have exposed her to criticism even from her own party.
 
Frankfurt is a divided city, policy-wise: the Bundesbank opposes quantitative easing and negative policy rates, while the European Central Bank is ready to do more. But Germany’s thrifty savers – households, banks, and insurance companies – are furious about ECB policies that tax them (and others in the eurozone core) to subsidize the eurozone periphery’s alleged reckless spenders and debtors.
 
In this environment, the full economic, banking, fiscal, and political union that a stable monetary union eventually requires is not viable: The eurozone core opposes more risk sharing, solidarity, and faster integration. And populist parties of the right and left – anti-EU, anti-euro, anti-migrant, anti-trade, and anti-market – are becoming stronger throughout Europe.
 
But of all the problems Europe faces, it is the migration crisis that could become existential. In the Middle East, North Africa, and the region stretching from the Sahel to the Horn of Africa, there are about 20 million displaced people; civil wars, widespread violence, and failed states are becoming the norm. If Europe has trouble absorbing a million refugees, how will it eventually handle 20 million?
 
Unless Europe can defend its external borders, the Schengen agreement will collapse and internal borders will return, ending freedom of movement – a key principle of European integration – within most of the EU. But the solution proposed by some – close the gates to refugees – would merely worsen the problem, by destabilizing countries like Turkey, Lebanon, and Jordan, which have already absorbed millions. And paying off Turkey and others to keep the refugees would be both costly and unsustainable.
 
And the problems of the greater Middle East (including Afghanistan and Pakistan) and Africa cannot be resolved by military and diplomatic means alone. The economic factors driving these (and other) conflicts will worsen: global climate change is accelerating desertification and depleting water resources, with disastrous effects on agriculture and other economic activity that then trigger violence across ethnic, religious, social, and other cleavages. Nothing short of a massive, Marshall Plan-style outlay of financial resources, especially to rebuild the Middle East, will ensure long-term stability.
 
Will Europe be able and willing to pay its share of it?
 
If economic solutions aren’t found, eventually these regions’ conflicts will destabilize Europe, as millions more desperate, hopeless people eventually become radicalized and blame the West for their misery. Even with an unlikely wall around Europe, many would find a way in – and some would terrorize Europe for decades to come. That’s why some commentators, inflaming the tensions, speak of barbarians at the gates and compare Europe’s situation to the beginning of the end of the Roman Empire.
 
But Europe is not doomed to collapse. The crises that it now confronts could lead to greater solidarity, more risk sharing, and further institutional integration. Germany could absorb more refugees (though not at the rate of a million per year). France and Germany could provide and pay for military intervention against the Islamic State. All of Europe and the rest of the world – the US, the rich Gulf States – could provide massive amounts of money for refugee support and eventually funds to rebuild failed states and provide economic opportunity to hundreds of millions of Muslims and Africans.
 
This would be expensive fiscally for Europe and the world – and current fiscal targets would have to be bent appropriately in the eurozone and globally. But the alternative is global chaos, if not, as Pope Francis has warned, the beginning of World War III.
 
And there is light at the end of the tunnel for the eurozone. A cyclical recovery is underway, supported by monetary easing for years to come and increasingly flexible fiscal rules. More risk sharing will start in the banking sector (with EU-wide deposit insurance up next), and eventually more ambitious proposals for a fiscal union will be adopted. Structural reforms – however slowly – will continue and gradually increase potential and actual growth.
 
The pattern in Europe has been that crises lead – however slowly – to more integration and risk sharing. Today, with risks to the survival of both the eurozone (starting with Greece) and the EU itself (starting with Brexit), it will take enlightened European leaders to sustain the trend toward deeper unification. In a world of existing and rising great powers (the US, China, and India) and weaker revisionist powers (such as Russia and Iran), a divided Europe is a geopolitical dwarf.
 
Fortunately, enlightened leaders in Berlin – and there are more than a few of them, despite perceptions to the contrary – know that Germany’s future depends on a strong and more integrated Europe. They, together with wiser European leaders elsewhere, understand that this will require the appropriate forms of solidarity, including a unified foreign policy that can address the problems in Europe’s neighborhood.
 
But solidarity begins at home. And that means beating back the populists and nationalist barbarians within by supporting aggregate demand and pro-growth reforms that ensure a more resilient recovery of jobs and incomes.
 


Mario Draghi riles Germany with QE overkill

Markets threw a tantrum because they did not get instant gratification, but the ECB's radical stimulus is unprecedented

By Ambrose Evans-Pritchard


Mario Draghi, the ECB's president, said the bank will keep buying €60bn of bonds each month as far out as March 2017 Photo: Reuters
 
 
The European Central Bank has cut the deposit rate to a record low of -0.3pc and vowed to print money for as long as it takes to defeat deflation, pushing its radical stimulus measures to extremes never seen before in any major region in modern history.

The far-reaching moves come despite signs that economic growth in the eurozone is picking up, and ignores vehement protests from German-led hawks that quantitative easing at this late stage is doing more harm than good.
 
Mario Draghi, the ECB’s president, said the bank will keep buying €60bn of bonds each month as far out as March 2017 or “beyond if necessary”. It is effectively an open-ended pledge.

“Abundant liquidity will continue for a long, long time,” he said.
 

Markets were betting on even more largesse, and reacted badly to the package of measures.

Many funds had expected an increase in the volume of QE purchases to nearer $80bn and an even deeper cut in the deposit rate, beguiled by the ultra-dovish rhetoric of top ECB officials over recent days.
 
The euro soared by almost 4pc to $1.0933 against the dollar, smashing through technical stops in a bloodbath on the exchange markets. “It was the biggest one-day rise in the euro since 2009,” said Ian Stannard, from Morgan Stanley.

Germany’s DAX index of equities and France’s CAC 40 both fell 3.6pc, the worst drop since August. The FTSE 100 dropped 2.3pc to 6,275.

Mario Draghi wearing his imperial Pickelhaube. Bild Zeitung threatened to take it away again if he printed money

Yields on 10-year German Bunds spiked violently by 19 basis points to 0.66pc, with even more drastic reversals in Italy and Spain.

An estimated €300bn of eurozone debt trading at negative rates has turned positive again within a single trading day, reducing the total to €2.2 trillion.

“Markets want immediate gratification. A lot of traders had large positions and they got caught out,” said David Owen, at Jefferies.

“But when things settle down in a couple of weeks, people will realize that what happened today is highly significant. The ECB is adding another $360bn to its balance sheet and is now reinvesting its portfolio, like the Bank of England. This is a big deal,” he said.

The ruckus on trading floors had echoes of August 2012, when Mr Draghi launched his back-stop plan for Italian and Spanish bonds (OMT), ending the eurozone debt crisis at a stroke. Markets sold off in a knee-jerk fashion at first but soon changed their mind as the significance sunk in.

Mr Draghi said QE has been an unqualified success but the summer storm in emerging markets and China diluted the effects, while the commodity crash has made it even harder to fight deflation. Inflation is still stuck at 0.1pc, leaving little safety margin against an external shock.

Snow on Chinese Fu pouches at Prince Gong's Mansion in Beijing
The summer storm in emerging markets and China diluted the effects of QE in Europe  Photo: Xing Guangli/Xinhua Press/Corbis


“We are doing more because it works, not because it fails,” said Mr Draghi, insisting that the eurozone would have been in outright deflation this year without QE.

Yet it is far from clear whether the region needs radical stimulus as far ahead as 2017, given that the ECB itself is predicting above trend growth of 1.7pc next year. Euroland is already benefitting from a near perfect storm of positive shocks.

Fiscal austerity is finally over. The euro has fallen 13pc in trade-weighted terms since April 2014. Oil prices have plummeted from $114 a barrel to $43 in 18 months, giving consumers a shot in the arm.


The euro has fallen 13pc in trade-weighted terms since April 2014


“It’s going to be harder and harder for them to follow through on QE,” said Simon Smiles, from UBS.

He said business sentiment in the eurozone is rising briskly and Spain is beginning to display pre-Lehman forms of overheating. The eurozone’s PMI services index rose to a 54-month high in November.

“This is hardly an environment for further exceptional accommodation. We think the talk in the markets is going to switch to when the ECB turns, perhaps by the end of the first quarter,” Mr Smiles said. UBS said the euro is seriously under-priced, with fair value near €1.25.

Click here: source: tradingeconomics.com

The money supply is catching fire. Narrow M1 – cash and checking accounts – is rising at a blistering pace of 11.8pc. The transmission mechanism is damaged and the lag times are unpredictable, but this could set off a sharp pick-up in economic growth next year.

The broader M3 measure is rising at 5.3pc. In Germany it has reached 8.5pc and may soon hit double-digits, a threshold likely to set off alarm bells in Frankfurt. Jens Weidmann, the head of the Bundesbank, has warned repeatedly over recent days that there is no justification for further stimulus.

“The longer that extreme monetary policy continues, the less it works and the greater the risks and spillover effects that come into play. We shouldn’t forget that the measures already taken require time to work their full effects,” he said.

Jens Weidmann, Bundesbank chief

The Bundesbank warns that negative rates are causing serious problems for savings banks and smaller lenders, and make it much harder for insurance companies to match their maturities.

Hans Werner Sinn, from the Germany’s IFO Institute, said Mr Draghi has given up trying to conduct a responsible monetary policy and is engaged in a covert rescue of ailing banks and governments. “The ECB has turned into a bail-out machine,” he said.

Both German members of the ECB opposed the new measures, and were almost certainly joined by hawkish governors from the Netherlands and the Baltics. They may have stopped Mr Draghi going even further. “The ultra doves lost the argument,” said Frederik Ducrozet, from Pictet.




Gabriel Stein, from Oxford Economics, said the ECB is right to ice the cake until recovery is entrenched, even if only as an insurance policy. “This was definitely warranted. There have been too many false dawns,” he said.

“The great recession took a huge bite out of the eurozone economy, and there is still a lot of slack."
 
Tim Congdon, from International Monetary Research, said the region will languish in semi-slump whatever the ECB does as long as banks are being forced to their beef up their capital buffers and restrict credit.

Lenders must raise the ratio of "loss-absorbing capacity" to 16pc of risk assets by the end of the decade under new global rules. “This condemns Europe to a further five-year sentence of low growth,” he said.

For Mr Draghi, it is a day he would probably rather forget. He delivered exactly what he promised yet for mysterious reasons the markets concluded otherwise. Sometimes you just can't please them.

 


Fed Policy: Unsafe At Any Speed?

by: Eric Parnell, CFA            


- The Fed took the bait.
       
- Fed Chair Janet Yellen recently penned a response to an open letter from political activist Ralph Nader.
       
- It was a notable exchange to say the least that warrants a closer review.
       
The Fed took the bait. On October 30, political activist Ralph Nader penned an open letter from "the Savers of America" to Chair Janet Yellen at the U.S. Federal Reserve to share his dissenting views on monetary policy. And on November 23, Ms. Yellen submitted her open letter response to Mr. Nader.

A notable exchange to say the least that warrants a closer review, particularly the response from Chair Yellen.

Before even considering the content of Chair Yellen's reply, it is worth it to question the following.

Why exactly is Ms. Yellen and/or her staff spending the time crafting a response to Mr. Nader's letter anyway? It would be one thing if Ms. Yellen was a financial blogger or Mr. Nader's elected representative, but she is the Chair of the U.S. Federal Reserve. Whether I agree or disagree with the content of Mr. Nader's letter, it seems that her and her staff's resources could be better spent on other endeavors. Sure, the transparency and consideration to respond to such letters is certainly appreciated, but where now is the line drawn. Will she be responding to trolls next?

One of the issues associated with Chair Yellen submitting a signed open letter response to Mr. Nader is that it leaves her reply subject to critique. And to this point I am inclined to provide some selected observations.

First, Ms. Yellen concedes the fact that at least some savers have suffered hardship at the expense of the Fed's monetary policy since the outbreak of the financial crisis more than seven years ago. The justification for the zero interest rate policy for so many years has been the emphasis on restoring the economy to prosperity so that it can support higher returns. I agree completely with the intent, but it immediately raises an important question. Is a wait of more than seven years and counting an acceptable length of time for savers still suffering at the hands of Fed policy to wait for the economy to restore itself to prosperity. After all, for many retirees, seven years represents a meaningful portion of an individuals life span in retirement. Yes, zero interest rate policy has been the Fed's dogged solution, but is it not reasonable to consider whether a different policy approach might have returned our economy to prosperity more quickly?

Ms. Yellen continues in her letter by reviewing the state of the economy in the immediate aftermath of the financial crisis. Indeed, the unemployment rate did rise to a peak of 10% by October 2009 and has been falling ever since. And yes, resulting lower mortgage rates have provided support to a housing market that was left decimated by the housing bubble that was left unchecked by this same monetary policy institution in the years leading up to the crisis.

That is, of course, for those lenders in the post crisis period that were actually able to qualify for the loans at these lower mortgage rates. And while home prices have recovered, they remain -13% below the levels from nearly a decade ago in early 2006. As for the housing market itself, it's recovery over the last seven years has brought it back to levels today that would have represented cyclical lows during past housing market downturns. Hardly anything to build an open letter victory lap around.

(click to enlarge)

The more dubious statement from Ms. Yellen comes at the end of her second paragraph:

"Americans generally have benefited, most particularly lower- and middle-income people affected disproportionately during the downturn."

This particular comment raised an eyebrow.

First, to suggest that lower- and middle-income people have been the primary beneficiaries of the Fed's zero interest rate policy since the financial crisis is disingenuous at best. One has to look no further than real median household income in the United States since the outbreak of the financial crisis to see that the average American have not necessarily thrived under the current monetary policy regime and that an alternative approach might have served them better.

(click to enlarge)

Also, it has clearly been by Chair Yellen's own admission the highest income individuals that have benefited most from the Fed's zero interest rate policy since the financial crisis. For example, during a speech on economic opportunity and inequality sponsored by the Federal Reserve Bank of Boston just over a year ago on October 18, 2014, Ms. Yellen openly and candidly lamented how "the past several decades have seen the most sustained rise in inequality since the 19th century" and that "by some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then." And she also cited during this same speech the stock market as a primary culprit for this widening inequality gap, particularly since the outbreak of the financial crisis. With all of this in mind, how is it then that lower- and middle-income Americans have particularly benefited from the Fed's zero interest rate policy when the income and wealth inequality gap are near their highest levels in the past century caused by a soaring stock market?

But it is in her next paragraph from her reply letter where arguably the most important points for scrutiny are raised. In the letter, Ms. Yellen raises the following:

"Would savers have been better off if the Federal Reserve had not acted as forcefully as it did and had maintained a higher level of short-term interest rates, including rates paid to savers? I don't believe so. Unemployment would have risen to even higher levels, home prices would have collapsed further, even more businesses and individuals would have faced bankruptcy and foreclosure, and the stock market would not have recovered."

Ms. Yellen's point here is notably imperceptive and in my view completely misses the point as to why so many Americans that follow the Federal Reserve are disgruntled with how the Fed has managed monetary policy in the post crisis period. I would contend that most are in full agreement with the Fed's swift policy response to the financial crisis in late 2008 and early 2009.

From my own perspective, I not only fully agreed with the Fed's implementation of what is now known as QE1 and the alphabet soup of special programs that were implemented at the time, but I would go so far as to credit the Fed with saving the global economy from total collapse. So in this regard, I completely agree with Ms. Yellen that the Fed was correct to have acted as forcefully as they did at the time. But this is not the argument.

Instead, at issue is how the Fed has managed monetary policy in the years since they succeeded in pulling the global economy back from the abyss. For when the Fed launched into these extraordinarily aggressive policy responses to the financial crisis back in late 2008 and early 2009, they did so with the following explanation. The Fed first needed to stabilize the financial system, and once it did it would move to slowly dismantle the too big to fail financial institutions as well as determine what the appropriate penalties would be on those bad actors that caused the financial crisis. So in short, the objections to the Fed's response to the financial crisis is not what was done in response to the crisis, but instead what has been done since the crisis.

(click to enlarge)

By the summer of 2010, the Fed had succeeded in pulling the global economy back from the brink. Was it perfect? No, but one should not expect conditions in a capitalist system to be perfect and rosy at all points in time. But by the Fed's own beloved metric in the U.S. stock market, the S&P 500 Index (NYSEARCA:SPY) had been returned to 2005-2006 levels just prior to the 2007 peaks. The Fed's quantitative easing program had drawn to a close and presumably the markets would be left to stand on their own and undergo a much needed cleansing phase to wash the excesses that had been built up during the housing bubble from the financial system in a controlled and orderly way. After all, this is what the Fed had promised us when they engaged in their great rescue plan only 18 months earlier.

Also, this would have been the time to begin contemplating how the bad actors would be penalized for nearly breaking the global financial system with their absurdly reckless behavior during the housing bubble.

But the second part of the bargain is not what we received from the Fed. Instead, the Fed did the total opposite. Instead of allowing the economy to cleanse, addressing the structural problems associated with these large at risk financial institutions, and moving to punish bad actors, the Fed instead decided to pour on more with the launch of QE2 in the second half of 2010. And in the years since, the Fed has piled on more and more and more stimulus despite the fact that the Fed had already essentially stabilized the economy so many years before.

And it is to this point where the dissent against the Fed is sourced for so many. For by continuing their zero interest rate policy for more than five years longer than arguably necessary, they have essentially created a brand new crisis threat by encouraging the same undue speculation and risk taking that led to the bursting of the technology bubble and the housing market collapse related financial crisis over the past decade and a half. And the Fed has done so at the expense of the savers that have been repeatedly told to wait and absorb the near zero interest rates on their savings for so many years to encourage this same speculative behavior once again. Fool us once, fool us twice, but fool us three times?

I applaud Ms. Yellen and the Fed for their priority to use monetary policy to foster economic expansion and stable prices. And I commend Ms. Yellen in particular for her progress in directing monetary policy from the beginning of QE3 tapering nearly two years ago to the point where the Fed is considering raising interest rates as soon as next month. But if it turns out after one or two rate increases that the Fed is forced by the economy to reverse course on policy, it is my hope that they will consider policy prescriptions other than lowering rates back to zero and engaging in yet another round of QE4 asset purchases. For while QE1 and its associated programs did splendidly in rescuing the global financial system, the efficacy of the various stimulus programs that have followed are far less clear. In fact, it could be argued that these post 2010 programs have proven more detrimental than helpful to the economy and the financial system.

So while QE and zero interest rates may be great for rescuing an economy, it may not be the best approach for generating a robust sustained recovery. Decades of experience in Japan provide evidence to this latter point. And after seven years now of following the same script with an economy that remains sluggish at best, perhaps at minimum the consideration of a new and decidedly different monetary policy approach to the problem may finally be warranted.


The Trouble With Interest Rates

J. Bradford DeLong

Calculator

BERKELEY – Of all the strange and novel economic doctrines propounded since the beginning of the global financial crisis, the one put forward by John Taylor, an economist at Stanford, has a good claim to being the oddest. In his view, the post-crisis economic policies being carried out in the United States, Europe, and Japan are putting a ceiling on long-term interest rates that is “much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing.”
 
The result of low interest rates, quantitative easing, and forward guidance, Taylor argues, is a “decline in credit availability [that] reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence.”
 
Taylor’s analogy fails to make sense at the most fundamental level. The reason that rent control is disliked is that it forbids transactions that would benefit both the renter and the landlord.

When a government agency imposes a rent ceiling, it prohibits landlords from charging more than a set amount. This distorts the market, leaving empty apartments that landlords would be willing to rent at higher prices and preventing renters from offering what they are truly willing to pay.
 
With the economic policies Taylor criticizes, this mechanism simply does not exist. When a central bank reduces long-term interest rates via current and expected future open-market operations, it does not prevent potential lenders from offering to lend at higher interest rates; nor does it stop borrowers from taking up such an offer. These transactions don’t take place for a simple reason: borrowers choose freely not to enter into them.
 
So how does Taylor arrive at his analogy? My intuition is that his reasoning has become entangled with his beliefs about the free market. Taylor and others who share his view probably begin with a sense that current interest rates are too low. Given their belief that the free market cannot fail (it can only be failed), they naturally assume that some government action must be behind the unnaturally low rates. The goal then becomes to figure out what the government has done to make interest rates so wrong. And, because any argument that treats government action as appropriate can only be a red herring, the analogy to rent control emerges as one of the possible solutions.
 
If my intuition is correct, Taylor and his fellow travelers will never be convinced that they are wrong. Accepting the idea that central bankers may be doing the best they can in a difficult situation would require entertaining the possibility that markets are imperfect and fallible. And that is one thing they will never do.
 
We have seen this play out before. Five years ago, Taylor and his intellectual allies wrote an “Open Letter to Ben Bernanke,” warning that the quantitative easing planned by the Federal Reserve’s then-chairman risked “currency debasement and inflation.” But, although their prediction turned out to be spectacularly wrong, that has not led Taylor or any of the other signatories to rethink their theories or to consider that perhaps Bernanke knows something about monetary economics. Instead, Taylor seems to have settled on another theory – his rent-control analogy – for why the government is doing everything wrong.
 
The only possible response is to point to logic and evidence. Given real economic conditions, European and American monetary policy is not too loose; if anything, it is too restrictive. The “natural” interest – what would be ground out by the Walrasian system of general equilibrium equations – is actually lower than what current monetary policy is producing. Yes, the inertial expectations of the economy have combined with monetary policy to distort interest and inflation rates, but not in the direction that Taylor is proposing. On the contrary, compared to what is needed (given the current state of the economy) or to what a free-market, flexible-price economy in proper equilibrium would deliver, interest rates are too high and inflation is too low.
 
There is indeed something wrong with today’s interest rates. Why such low rates are appropriate for the economy and for how long they will continue to be appropriate are deep and unsettled questions; they call attention to what MIT’s Olivier Blanchard calls the “dark corners” of economics, where research has so far shed too little light. What Taylor and his ilk fail to understand is that the reason interest rates are wrong has little to do with the policies put in place by central bankers and everything to do with the situation that policymakers confront.
 


The Collapsing Global Trade

By: Chris Vermeulen
.

The Collapsing Global Trade

The global economic trade is down 8.4 percent so far this year. Among the many economic indicators that experts use to gauge the health of the world economy, the Baltic Dry Index (BDI) usually goes unnoticed. This Index offers an indication of the global demand and supply of major stock materials that are used by manufacturers at the beginning of production. And the shocking truth is that the index has been plummeting to reach a new low not seen before.

Baltic Dry Index Monthly Chart

BDI is often considered a good indicator about the state of the global economy. Economic pundits consider the index as a crystal ball to provide insight about the general direction of the global economy.

An upward trending BDI indicates strong global demand of commodities. A high BDI reading shows that producers are purchasing more raw materials, which in turn is indicative of growth in global economic activities. On the contrary, a downward trending BDI indicates slowdown in economic activities.

Just a month ago, BDI was showing a reading of 950, but now it has fallen all the way to 498. And when you look at the trade numbers of specific countries, the significance of the numbers become quite apparent.

US Economic Data Indicative of Imminent Global Meltdown

WARNING: The latest economic data released by the US Census Bureau shows that inventories increased again, wholesales declined again, and the inventory-to-sales ratio has reached the levels that were last seen just after the 2008 global meltdown.

Inventory-to-sales ratio is an important figure that shows how long the merchandise remained hung up before being sold. This ratio has been getting worse with each passing month. This recent spike to 1.31 in August this year is the same level it had reached after the economic crises began in 2008.

Inventory to Dales Ratio 10-Year Chart


Wholesale merchants are hit the most with the increase in inventory-to-sales ratio as it has tied up their capital. When they are unable to get rid of the inventory, they resort to slash orders.

This creates a chain reaction affecting every member in the supply chain that may lead to disastrous consequences. The effects can range from business cycle recession similar to one occurred in 2001 to a general global crises as seen in 2008.

This is extremely bad in my opinion as it means the world is scrambling to save money and not buy anything extra as they/we all fear something big and bad is going to happen eventually.

Just imagine how slow sales will be and how high this inventory ratio will be once the next major financial crisis hits...

The dismal figures shown by Cass Freight Index (CFI) also point to an imminent collapse in global trade. The index has been used since 1990 to show monthly North American freight volumes and costs. Latest CFI figures show a declining trend of both shipment and expenditures which can be seen in the graph below.

CASS Freight Index 5-Year Chart
CASS YoY Change 2014-2015










During the past four years, both freight volumes and expenditures remained low in the US. The index levels have been below even the 2013 levels for past several months. In October this year, the shipment index stood at 1.092, which represents a year-to-year decline of 5.3%. Moreover, the index level has declined 4.7% as compared to the previous month.

Expenditure index also showed a declining trend standing at 2.435 in October that represents a decline of 8.7% as compared to previous year. In many ways, the declining CFI levels hints of a general slowdown in the US economic activity that promises to have deep consequences both locally and in the global arena.

China Export and Imports are Collapsing - A Danger Sign for World Economy

China C9ontainerized Freight Index

The economic picture of our biggest trade rival, China, is looking bleak as well. The country is being plumetted by two forces: declining competitiveness due to increase in wages and weak global demand. The red dragon at the moment is no longer looking as vicious as it seemed during the first half of this new millenium.

Chinese exports plummeted to $192.41 billion, declining 6.9% in October as compared to a year ago. Exports peaked in December last year when they stood at $227.5 billion and have fallen 15.4% since then. The imports also decreased closing at $130.8 billion in October, which represents an whopping 18.4% decrease compared to last year.

The dismal economic figures in both the US and China give indication of an imminent collapse in global trade with servere consequences. Economic figures in the Euro area also paint a bleak picture about the state of the world economy. Learn more about this in my book.


Should We Brace Ourselves for the Next Global Meltdown?

Maersk CEO, Nils Smedegaard Andersen, told Bloomberg that the global economic growth is declining, and that the figures are much worse as forecasted by the IMF and others. Contrary to what we may have been led to believe, the state of most of the world economy is in dire state.

If the economy was really doing well as suggested by President Barrack Obama and others, then why is the largest shipping line, Maersk, scaling back at capacity and eliminating jobs?

Why is Target suddenly closing stores in the US? And most important of all, why are the largest banks in the west laying off thousands of workers?

All of this points to just one fact that the next global economic meltdown is upon us. What we are seeing are the precursors of a collapse in global trade. The declining trade and economic activities in the US, China, Europe and other many other regions that we have not touched point to the beginning of a crisis that will soon be making headlines of most newspapers around the world.


Saudi Arabia: The wake-up call


Ensuring stability will be crucial for Riyadh’s power brokers as they face discontent and war
 
Saudi Defence Minister Mohammed bin Salman bin Abdul Aziz attends a meeting with French Prime Minister Manuel Valls (unseen) in the Saudi Capital Riyadh on October 13, 2015. France announced a series of deals worth 10 billion euros ($11.4 billion) with Saudi Arabia to reinforce links with the conservative Islamic kingdom despite persistent criticism from rights activists of the kingdom's record on civil liberties. AFP PHOTO / KENZO TRIBOUILLARD (Photo credit should read KENZO TRIBOUILLARD/AFP/Getty Images)©AFP
Mohammed bin Salman, deputy crown prince and Saudi defence minister
 
 
Inside the sprawling royal court in Riyadh, a team of technocrats is putting the final touches to plans for a drastic overhaul of the Saudi Arabian economy. Backed by an army of highly paid western consultants, the royal aides have identified billions of dollars of waste and government largesse that the desert kingdom can no longer afford.
 
Ten months after acceding to the throne, King Salman bin Abdulaziz, 79, faces the daunting challenge of managing a new era in Saudi Arabia. The world’s largest oil producer and longstanding US ally has adopted a policy that protects its market share rather than the price, which has more than halved since June 2014. But while the effect has been cushioned by $640bn in foreign-exchange reserves, the age of $100-a-barrel oil has receded and budget surpluses have been replaced by yawning deficits.
 
“The collapse in oil prices is a wake-up call,” says an official in Riyadh. “We’ve had a long history of bad practices because of our overreliance on oil.”

The belt-tightening comes at one of the most testing times in the kingdom’s history, with the Sunni Saudi monarchy locked in a regional power struggle with Shia Iran and sectarian tensions flaring across the region. Determined to reassert its leadership role in the Sunni Muslim world and confront Tehran, Riyadh in March launched a military campaign in neighbouring Yemen to push back Iran-backed Houthi rebels.
 
Amid the turmoil of the Arab uprisings that convulsed the region in 2011, Saudi Arabia has positioned itself as one of the last bastions of stability compared with Iraq, Syria and Yemen, the failing states from which the Sunni jihadis of Isis have projected terrorist power across the Middle East and beyond. A senior western diplomat in Riyadh says: “Whatever you think about the policies of the government, the stability of Saudi Arabia really matters.”
 
Saudi authorities have cracked down on Isis cells in the country in recent months. But while Saudis see themselves as victims of Isis, many outsiders consider the kingdom’s dependence on the clerical establishment, and its determination to spread its Wahhabi brand of Islam worldwide, as part of the problem, contributing to the radicalisation of Sunni youth and breeding jihadis.
 
“The picture is bleak,” says a Riyadh businessman. “The longer oil prices are depressed and turmoil in the region continues and the longer we have security issues in the country, the less options there are and the more dire the situation will be for Saudi Arabia.”

Next generation

The faces of the three leading men of Saudi Arabia stare down at visitors on the streets of Riyadh: King Salman is in the middle, flanked on one side by his nephew, crown prince and interior minister, the 56-year-old Prince Mohammed bin Naif; on the other is his favourite son and deputy crown prince, the 30-year-old Prince Mohammed bin Salman. Ask any Saudi where power is concentrated today, however, and they will point to the younger royal.

While the crown prince heads the security council and is credited with repelling the al-Qaeda threat over the past decade, Mohammed bin Salman leads the team working on restructuring the economy. As defence minister, he is the point man on the war in Yemen. Increasingly, he is also his father’s representative on foreign policy, meeting Russia’s Vladimir Putin twice this year and Barack Obama, US president, once. He oversees the operations of the royal court, the most powerful body in the absolute monarchy. Saudi Aramco, the state oil company, as well as the Public Investment Fund, with $5.3bn in assets, are also under his purview.
 
Known for his appetite for detail and data, the young prince has been preparing for his father’s succession for several years. He asked aides to identify areas in need of reform and officials who could be promoted. His spadework led to what analysts describe as a tsunami reshuffle when the monarch assumed the throne in January, on the death of his half-brother King Abdullah.

Never in the kingdom’s history had so many royal decrees been issued at once, with dozens of new officials appointed to government.

 
King Salman also broke with tradition by shifting power to the second generation of princes.
 
Officials speak of a different “tempo” and a willingness to challenge the way things have been done in the past. They argue that the collapse in oil prices should be seen as an opportunity to clean up Saudi finances and diversify the economy. The sidelining of other royals and the accumulation of power in the hands of Mohammed bin Salman have, however, sparked speculation of royal infighting.
 
Close watchers of the al-Sauds say dissent in the family is real, but that those who have lost out lack the momentum to present a threat to the king. Of greater concern to observers are perceptions of a power struggle between the crown prince and the deputy crown prince.

“Until recently we had several independent power centres in Saudi Arabia, with each senior prince taking decisions, and there was no long-term planning. Now you can have a united decision-making process — but the big concern is that a lot of power is with one prince,” says a Riyadh-based analyst.

Palace intrigue

As Mohammed bin Salman looks to consolidate his position, the success or failure of his economic plans — and the war in Yemen — will be the yardsticks against which he is measured.
 
Success could vindicate his ageing father’s bet on his inexperienced son, whose challenge now is to translate a grasp of detail into policy delivery. Failure could sour the national mood and embolden dissenters who say he is too young to take on the myriad challenges.

The government has slashed public spending by a quarter, raised $27bn through local debt issuance this year and is considering an international bond programme in 2016. The swingeing $80bn in cuts, bringing spending down to $267bn, will be followed by more austerity next year as the government looks at a budget of $229bn-$240bn.

“Spending was completely out of control and oil prices were going down so we looked at everything,” says one official.

Among the priority targets are energy subsidies that cost the treasury 13.2 per cent of gross domestic product, less than half of which go to households. Officials are studying ways of raising non-oil revenues via government fees and a sales tax. But they will broaden existing welfare payments to redistribute money to poor and middle-class Saudis who will be hit hardest by higher electricity, water and petrol prices.


Sceptics say promises of reforms have been made in the past but not delivered. Arbitrary decision-making and the absence of checks and balances in the system also undermine fiscal discipline: when King Salman took over he announced a salary bonus for public sector employees and utilities investment totalling an estimated $30bn.

An ingrained administration that is resistant to change is a further impediment. When the royal court this year asked for proposals for cuts to departmental spending, most responded by asking for a 25 per cent increase in allocations.

“This [situation] presents a unique opportunity to accelerate the diversification of the economy,” says Masood Ahmed, director for the Middle East and Central Asia at the International Monetary Fund.

“Achieving that goal will require both bold reform decisions and sustained and effective implementation,” he warns.

There are signs that government cuts are damaging business confidence. The private sector, dependent on government spending, is reeling from the sharp retrenchment. “The business community feels there are too many sudden changes in regulations and where we’re going. We need stability in the way we move forward,” says Lama al-Sulaiman, vice-president of the chamber of commerce in Jeddah.

Private sector growth, which has this year fallen to 2.9 per cent from 5 per cent last year, is crucial for creating employment for the hundreds of thousands of Saudis who enter the job market every year, especially given the limits on expansion in the public sector.

The ruling family, backed by the clerical establishment, have for decades provided jobs and a cheap cost of living for their subjects in return for loyalty to the tribally based, authoritarian system of governance. At the height of the unrest that swept the Arab world, the government showered the population with salary increases and new social spending while cracking down on dissent. Five years on, moves to change the social contract threaten to upend that delicate balance of power as regional threats abound.

Human rights groups say the government continues to use the judicial system to stifle dissent by jailing Shia and pro-democracy activists for anti-government activity, as well as religious crimes such as apostasy or insulting Islam. The number of executions this year has risen to the highest level in two decades, prompting increasing scrutiny of the tough judicial system that mirrors some of the punishments meted out by Isis in the areas it controls in Syria.

Spectre of Iran

The new Saudi regime boosted its popularity in the first months in office with the launch of a bombing campaign in Yemen as Houthi rebels moved south after taking over the capital Sana’a.

Mohammed bin Salman was cast as the warrior flexing his military muscle to counter Iran’s expansionist designs on the Arab world. Despite doubts in western capitals about the extent of Iranian support for the rebels, Riyadh was convinced that Tehran was using the Houthis to create a proxy force on Saudi Arabia’s borders.

 
Vacillations in US regional policy, coupled with messages from Washington that Saudi Arabia should match its high defence spending with more responsibility, also encouraged Riyadh. The west’s rehabilitation of Iran through the nuclear agreement with world powers was the final straw. “The Yemen war was about not being pushed around any more,” says one western official who closely watches the kingdom.
 
Thousands of civilian casualties have raised western concerns about the military campaign, which appears to have settled into a war of attrition, even as public support in Saudi Arabia remains strong. While there is some cautious talk in Riyadh about a truce, the fact is that the Saudis will have to pick up the cost of rebuilding its impoverished neighbour, having spent billions of dollars on helping to demolish it.

“There’s a lot of frustration about how they’ve run the campaign,” says a senior western official amid concerns that jihadis have exploited the conflict to widen their presence in the country.

Observers say the Yemen campaign has also reinforced anti-Shia sentiment in Saudi Arabia, where a Shia minority in the eastern province already feels marginalised. “Support for the campaign has been partly built on sectarianism and hatred towards the Shia,” says one Riyadh-based observer.

Even if the military campaign wraps up, the power struggle with Iran will persist, playing out in other arenas, primarily Syria, where Saudi Arabia is on the side of the rebels and Iran is supporting the regime. “We’re obsessed with Iran,” says one Saudi political observer. “For us Iran is an issue of security.”
 
Delivering a radically different Saudi economy and a more assertive foreign policy are in line with the aspirations of an overwhelmingly young Saudi population: 60 per cent are under the age of 30. A kingdom that is friends with the US, but more self-reliant, one that benefits from oil wealth but does not rely solely on it, are popular aspirations.
 
But the first test facing the monarchy lies in implementation, whether on the economic front or on security. Saudi businessmen remember bitterly earlier periods of low oil prices and promises of diversification that were abandoned when the outlook for crude improved. The Yemen war, meanwhile, has not inspired greater confidence in Saudi military capabilities among its allies.
The monarchy must also manage the impact of change on the relationship between rulers and ruled.

Saudis are subjected to restrictions on free speech but they are active users of social media and public opinion cannot be ignored. There is growing awareness of corruption and the excessive spending of the royal elite, which could derail attempts to impose more austerity.

Saudi Arabia is in desperate need of reform but the sweeping changes envisaged take the kingdom into uncharted territory, creating demands for popular representation, which has no place in the monarchy’s vision of the future.


Op-Ed Columnist

Spain Yesterday, Syria Today

Ross Douthat


As with Spain, so now with Syria. Once again we have a divided country bled by an ideological proxy war — this time between the Salafism of the Gulf states and the Twelver Shi’ism of the Iranian regime, with other regional and global powers hovering in the background. Once again we have the escalating atrocities — chemical warfare, massacres and religious persecutions, the return of beheadings, slavery and crucifixion. Once again we have ideologically motivated volunteers rushing in from far and wide; once again we have liberal powers seemingly helpless to bring the conflict to an end.
 
But then there is this illuminating difference. The Spanish Civil War actually ended relatively swiftly; after less than three years of fighting Franco’s nationalists had won. The Syrian conflict, though, is in its fifth year and counting, and its ultimate outcome is no clearer today than it was in 2012 or 2014.
 
In part, this difference is actually a grim sort of good news — not for Syria, obviously, but for the world. One reason Spain’s civil war ended quickly was the sheer effectiveness of the military aid the Axis powers sent to the nationalist cause. Spain proved (or seemed to prove) the effectiveness of total war as a tool of ideologically-motivated statecraft: The left was crushed, Franco’s regime established, and looking from afar Adolf Hitler could draw an obvious lesson for his own terrible ambitions.

In Syria, the lessons are very different. The war is endless, the factions barely competent, and neither of the main ideological forces invested in the conflict seem capable of actually winning it. The Iranian mullahs have helped President Bashar al-Assad survive, but not to prosper. The Gulf states have lost control over their own Sunni proxies, and now face an Islamic State that threatens them as well.
 
This means that neither Tehran nor Riyadh can look at Syria and see a template for regional expansion or grand ideological victory. And that, in turn, makes a Middle Eastern version of the massive conflict that followed the Spanish Civil War seem relatively unlikely. For all their ambitions and enmity, neither the Iranians nor the Gulf states (who are currently hiring Colombian mercenaries to fight their other proxy war, in Yemen) look anywhere near strong enough to start one.

Of the powers involved in Syria that are strong enough to start a wider war, meanwhile — Russia, the United States, France and Turkey — it’s not at all clear what they would hope to get out of it. The West can barely decide which Syrian faction we should be bombing. Russia’s brinksmanship with Turkey is a show of toughness with no clear strategic objective attached.
That doesn’t make a blundering sort of war impossible. But unlike in Ukraine, where Vladimir Putin does aspire to hold territory, in Syria and its environs none of the outside powers seem to want responsibility for anything. And so long as there’s no ground they’re willing to fight over or even occupy, the risk of sustained great power conflict seems moderately remote.
 
Which is happy news relative to where things stood in Europe as the Spanish Civil War was winding down. But if Syria is (probably) not a harbinger of a full-scale Third World War, it is a harbinger of a different set of evils — institutional collapse, permanent disorder, and the inability of global institutions to master the problems that they supposedly exist to solve. 

If the war in Spain previewed an era of totalitarian aggrandizement, the war in Syria has exposed the essential hollowness of so-called nation-states, the ease with which ethnic and religious furies can take over when they crack.
 
If the war in Spain was a proving ground for eastern front-style total war, the war in Syria is a training ground for Paris-style terrorists. 

If the war in Spain ushered in a decade of vast militaries on the march, the war in Syria is giving us civilians on the march — the movement of refugees as a geopolitical crisis.
 
If the war in Spain demonstrated that Hitler and Stalin were happy to step in when a liberal center failed to hold, the war in Syria demonstrates that the Pax Americana is cracking and no power or alliance is remotely prepared to take its place.
 
If the war in Spain was a dress rehearsal for World War II — well, the truth about Syria is that it’s probably not a rehearsal for anything. It’s the main event, and nobody can foresee when it will end.


Putin’s Syrian Roulette

Omar Ashour

 President of Russia, Vladimir Putin
LONDON – Two recent tragedies – the downing of a Russian civilian airliner over the Sinai Peninsula and the terrorist massacre in Paris two weeks later – seemed to give Russia and the West something to agree upon: the Islamic State (ISIS) must go. But a closer look at Russia’s military operations in Syria – not to mention Turkey’s downing of a Russian warplane – suggests that it would be premature to conclude that Russian and Western objectives can be brought into alignment.
 
Of course, Russia claims that its Syrian intervention is aimed at defeating the Islamic State and “other terrorists.” But, according to the US State Department, more than 90% of Russian airstrikes so far have been directed not at ISIS or the Al Qaeda-affiliated Jabhat al-Nusra, but at the armed groups that are fighting both ISIS and Russia’s ally, Syrian President Bashar al-Assad. In fact, ISIS has made advances in Aleppo since the airstrikes began.
 
This is not to say that annihilating ISIS is not on Russian President Vladimir Putin’s agenda. It almost certainly is. But he also has other objectives: to protect Assad’s regime, to expand Russia’s military presence and political influence in the eastern Mediterranean and the Middle East, and perhaps even to push up the price of oil.
 
So far, Russian airstrikes have been concentrated in Latakia, Hama, and Idlib, where they have enabled Assad’s regime to make several advances. Putin seems to be trying to help Assad secure his coastal strongholds, toward which armed rebels made significant advances in August and September.
 
These areas are part of the so-called “useful Syria,” which also includes the Lebanese border, Damascus, parts of Aleppo, and major cities in western, southern, and central Syria. Assad must maintain control over these areas to fortify his position in any political negotiations and eventual settlement, including a potential partition.
 
Moreover, Russia’s installation of sophisticated air-defense capabilities in Syria has nothing to do with ISIS, which has no air force. Instead, it sets the stage for a no-fly zone, which would protect Assad’s regime and serve as a strategic counterweight to America’s presence at Turkey’s Incirlik Air Base.
 
In fact, Turkey’s downing of the Russian warplane – which, incidentally, was targeting Syrian rebel groups – is prompting Russia to step up these efforts. Russian Defense Minister Sergei Shoigu has now announced that a cutting-edge S-400 SAM system will be deployed to Russia’s air base in Latakia.
 
But there are serious problems with Putin’s strategy. For starters, the tactical airstrikes on which Russia is relying have not proved particularly effective in the past. Russia’s air force lacks the breadth of precision weapons and targeting systems fielded by the West – a reality that produced horrific consequences during the Georgian war in 2008 and the first and second Chechen wars in 1994-1996 and 1999-2009. Tolerance for “collateral damage” is much higher in Russia than in the West – and the reality of it plays into the hands of terrorist recruiters.
 
The Kremlin has also been attempting to stoke ethnic tensions – a tactic used since the Czarist era – with Foreign Minister Sergey Lavrov claiming that Russia intervened in Syria to “protect minorities.”
 
Putin made the same claim when he sent troops to invade two ethnic enclaves in Georgia, Abkhazia and South Ossetia, and recognized them as independent republics. Likewise, he justified Russia’s annexation of Crimea and invasion of parts of eastern Ukraine by emphasizing their substantial “ethnic Russian” populations.
 
In the Middle East, however, the outcome could be reminiscent of what followed the Soviet invasion of Afghanistan 36 years ago. Regional players like Turkey and Saudi Arabia adamantly oppose leaving Assad in power, as that would advance the interests of their rivals, Iran and Hezbollah. Fifty-five Saudi clerics have released a statement urging “jihad” against the Russian invaders. Syria’s Muslim Brotherhood, whose leaders are based in Turkey and northern Syria, have echoed that sentiment, declaring that jihad against the “Russian invasion” is the “religious duty” of “every able-bodied Muslim.”
 
If domestic resistance succeeds in driving Russia out of Syria, as happened to the Soviet Union in Afghanistan and to Russia in the first Chechen war, Putin could face trouble at home.

Military defeat, combined with worsening economic conditions, would likely turn much of the public – and more than a few of his cronies – against him.
 
But other outcomes are also possible. A partial Russian victory, like that in Georgia or Ukraine, would mean carving out pieces of western Syria under Russo-Iranian protection, and ultimately the de facto partition of the country. An outcome like that of the second Chechen war – less likely, given the major differences between the two theaters – would entail the installation of a loyalist regime, whether led by Assad or someone else, and the persistence of instability and a rural insurgency.
 
The least likely scenario is one in which Russia leads a negotiating process that produces long-term peace and stability. A Russian-led “mediation” in Tajikistan ended the civil war of 1992-1997, and led opposition movements to hand over their weapons or to integrate into the regular army under Russian guarantees. But a few years later, many of these movements were banned, and their leaders and members were in jail, in exile, or in graves.
 
None of these scenarios correspond with the slogans of Syria’s 2011 revolution, or with Western interests in stabilizing the country, stemming refugee outflows, and, eventually, promoting democratization. Unfortunately, this is not surprising: as has been true so many times in the past, the West currently has no credible strategy for containing Putin, even when he has no clear exit strategy or endgame in mind. All that is certain now is that, whatever happens in Syria, it will not happen without Russia.
 


Seeking a Saviour

by Jeff Thomas




It’s an unfortunate truth that, when people are worried about the future, they often put their faith in politicians to somehow make everything better.

Politicians, of course, are famous for promising panaceas for whatever is troubling voters, and they even invent new troubles to worry about, presenting themselves as the only ones who can solve these woes.

Not surprising then, that, over time, any nation may slowly deteriorate into a population of nebbishes who turn to their government to do their thinking for them and take responsibility for their futures.

In the last year, the world has seen many elections in which the top spot (president, prime minister, premier, etc.) was contested. In Brazil, socialist President Dilma Rousseff was returned, but almost immediately ran into trouble over a failing economy, scandals, and corruption charges. In less than a year, her popularity sank to the lowest level for any Brazilian president on record.

In the UK, conservative Prime Minister David Cameron was returned, which immediately triggered riots in London by the anti-austerity crowd. He will soon be facing increasingly angry voters of all stripes who are boiling over with the dramatically worsening immigration question. In addition, he’ll soon be facing a referendum on the UK’s membership in the EU - an eventuality he’s been postponing for quite some time.

In Canada, voters have chosen to oust the conservatives and return to the golden promises of the Trudeaus. The Canadian dollar dropped immediately. Justin Trudeau plans a vast programme of public spending in the face of a declining economy, but hasn’t offered any explanation as to how this can be paid for.

Argentina has just had its election. The departing Peronist, Cristina Fernández de Kirchner, has passed the baton (and a failing economy, rapidly declining peso, and civil unrest) to the more conservative Mauricio Macri.

Do we see a pattern here? No, except in the sense that countries habitually put in a conservative for a while, tire of him, and replace him with a liberal, then tire of him, and replace him with a conservative.

None of these leaders will be the solution to the problems of their nations. In fact, they are the problem. Each of them (and many others around the world) offered dramatic, unrealistic campaign promises for ever-increasing largesse from the government. Each will increase national debt to maintain a government that’s already drowning in debt, in order to fulfil their promises, with an understood endgame that, at some point, the economy hits the wall. Citizens with opposing views of the reason for such problems are boiling over, as it’s become clear that there’s no money in the till to pay for such economically suicidal policies. Yet, each year, the spending worsens and so do the economic conditions for the average citizen.

And this is true whether we see Labour, Tory, Republican, Democrat, Democrata Progresista, or Federalista del Centro in power. At some point, it would be reasonable to expect the average voter to realise that it’s not only the opposition candidate that’s a danger, it’s also his own party’s candidate and, in fact, the entire political system.

What’s interesting is that, in many countries, grumblings can be heard to this effect - that “they’re all corrupt” - yet, immediately after making such statements, the average voter returns to the support of his party’s candidate, as he is “the lesser of two evils.”

And here we see a guiding principle of party politics. Do all you can to create the image of the opposing party as literally evil. Use the media to parrot that concept, on a daily basis. By so doing, it becomes unimportant who you run for office. Your party supporters do not vote for your candidate, they vote against the opposing party’s candidate. And that makes it possible to run a rutabaga for office and still win, if you can succeed in demonising the turnip the other party is running.

In the U.S., political candidacy is practically a national sport. The presidential competition begins as soon as the previous election has ended. (Candidate Hillary Clinton began the “I might be running” charade before the sitting president had been sworn in, in 2013, for his second term.)

In addition to the candidates pouring so much time into campaigning that those who already hold public office abandon their responsibilities in order to focus on the campaign, hundreds of millions of dollars are poured into each campaign. In the current U.S. election race, we observe Mrs. Clinton, a candidate with a dark past who has been described by the majority of American voters as a liar, and as dishonest and untrustworthy - an astonishing revelation until an even more astonishing truth sinks in - that many of those who see her in that light plan to vote for her anyway, in order to stop a Republican - any Republican - from attaining office.

And the Republican side is presently led by Donald Trump, a man famous for his quick temper, boastful comments, bullying presence, and egotistical will, in addition to having a long record of causing massive bankruptcies with his business projects.

Yet, his supporters are equally rabid in their belief that he is desperately needed to counter the dreaded Mrs. Clinton.

It’s hard to imagine that two candidates could be less qualified for public office. We might be forgiven if we conclude that there is no lesser of two evils in equations such as this one. There is only disaster in a red outfit versus disaster in a blue outfit.

In 1796, the young U.S.A. chose between John Adams and Thomas Jefferson for president.

Most Americans admired them both and it was a very close election. Both had been founding fathers and both contributed heavily to the cause of freedom that was so valued in the early days of the U.S.

But, in those days, the average American recognised that his freedom depended upon a small government. As Mr. Jefferson rightly stated, “A government big enough to give you everything you want is a government big enough to take away everything that you have.”

Indeed, the U.S. had come into being as a result of revolution against the government of King George of England, who had the temerity to raise the total tax level to about 2.5%.

But countries do seem always to decline over time. No matter how well-intended the original concept, no matter how productive the people, countries decline, and for the same reasons.

Governments (both liberal and conservative) constantly work to grow their own power and to extract as much wealth from their people as they can manage.

As stated at the beginning of this article, “It’s an unfortunate truth that, when people are worried about the future, they often put their faith in politicians to somehow make everything better.” By doing so, they make their own destruction possible.

But what’s one person to do? “You can’t fight City Hall,” as they say. However, in most countries, the U.S. included, it’s still legal to vote with your feet - to move to a different jurisdiction that has not gone so far into decline, where the taxation is low and the level of liberty is high. In any era, there are always jurisdictions that are freer than others. The present era is no exception. In seeking a saviour, we should not put our faith in any politician or group of politicians.

If we have a saviour, he is the man in the mirror. If we are to be saved, we alone must do the research, make the plans, vote with our feet, and establish our own liberty.

Editor’s Note: The U.S. government is broke and bleeding money. Like most governments that get into financial trouble, we think American politicians will keep choosing the easy option…money printing on a massive scale.

This has tremendous implications for your financial security. These politicians are playing with fire and inviting a currency catastrophe.

Most people have no idea what really happens when a currency collapses, let alone how to prepare…