Very Dangerous 

Doug Nolan


We’re now only a few days from the most pivotal of elections. 

Meanwhile, new U.S. Covid infections have surged to pandemic highs (Friday surpassing 100,000 on worldometers), with the virus running rampant throughout the country. The early-winter season spike in European infections is nothing short of shocking. Across the continent, governments are being forced to move swiftly to impose restrictions and limited lockdowns.

A few data points: 

Daily infections in France averaged about 550 during June. They had surged to 13,970 by the first day of October. A record 52,013 infections were reported last Sunday and 49,000 on Friday. Daily Italian infections peaked at 6,557 on March 21st and then averaged below 300 for much of the summer. Infections jumped to 2,548 on October 1st and were a record 31,084 Friday. Spain has observed daily infections surge from several hundred in June to Friday’s 25,595. After beginning the month at 2,503, German cases Thursday rose to 16,774. Cases have spiked to 24,000 in Belgium, 22,000 in Poland, and 9,000 in Switzerland. In the UK, after averaging below 1,000 during the summer, new cases averaged about 25,000 over the past week.

Cases here at home remained highly elevated all summer. And if U.S. infections now follow Europe’s trajectory, our nation is facing a dark and challenging winter. By the look of new infection trends in the likes of Michigan, Ohio and Illinois, a worst-case scenario appears increasingly likely. This is a highly infectious virus that now permeates the entire country – cities large and small, the suburbs and rural communities. 

This gloom will be compounded by about half the electorate suffering post-election dejection. Emotions are running deep - anger appears poised to boil over. There is clear potential for large nationwide protests, violence and general social strife. Our nation desperately needs to commence a healing process. Yet this seems especially improbably during the acute phase of a historic pandemic that is proving wickedly divisive. Trump or Biden at the helm on January 20th, a precarious government lame duck session awaits. 

And this week we saw the return of market instability. 

The S&P500 dropped 5.6%, the biggest weekly sell-off since March. The Nasdaq100 (NDX) sank 5.5%, with the beloved Wall Street darling, “growth,” “defensive,” all-everything (most Crowded Trade ever?) big technology stocks under intense selling pressure. Apple dropped 5.4% for the week, with Amazon down 5.3%, Facebook 7.6%, Tesla 7.8%, Nvidia 7.8%, Microsoft 6.4% and Zoom 9.9%. 

Yet the U.S. equities sell-off was rather bland compared to the shellacking in Europe. 

Germany’s DAX sank 8.6%, with a two-week drop of 10.5%. France’s CAC fell 6.4%, with major indices down 7.0% in Italy and 6.4% in Spain. UK’s FTSE 100 sank 4.8%. Italian bank stocks fell 7.4%.

The European Covid spike right into U.S. elections complicates an already complex market environment. 

The euro dropped 1.8% this week, with the Norwegian krone down 2.9% and the Swedish krona falling 1.6%. European currency weakness supported the dollar. At risk of breaking key technical support, the dollar index reversed 1.4% higher on the week. Newfound dollar strength - in concert with Covid fears - weighed heavily on commodities markets. Crude oil was hammered $4.06, closing the week at the low since June 1st. The precious metals suffered as well. Silver dropped 4.2%, and Platinum sank 6.4%. Gold was a relative winner, with losses limited to 1.2%.

The struggle to find decent hedges ahead of critical elections turned only more futile. 

First, it was U.S. equities rallying over recent weeks, as odds rose for a decisive Biden win (and, supposedly, lower odds of the ugly contested election outcome). Many likely pulled back on hedging and/or boosted equities exposure. And then equities abruptly tank just ahead of the elections, with various hedges and the safe havens malfunctioning. Some likely were long European equities as a hedge against U.S. election risk. The metals seemed an attractive hedge. Commodities appeared a reasonable hedge against a Democrat clean sweep. Others were positioned short the dollar heading into possible election turmoil 

Covid garbled any possible message this week from currency and commodities markets. 

The Treasury market seemed to speak loudly and clearly: “Don’t look to me for a hedge – not with Trillions of new supply coming!” In what must be alarming to many, Treasury bond prices suffered marginal declines in the face of a potent “risk off” dynamic in equities and corporate Credit. If you can’t trust Treasuries (as a hedge), whom do you trust? The iShares long-term Treasury ETF (TLT) declined 0.3% this week. Whereas the TLT ETF surged 4.0% (Treasury yields sinking 18 bps) on the S&P500’s last major (4.8%) drop during the week of June 12th.

Ten-year Treasury yields increased three bps this week to 0.875%, the high since June 8th. Corporate Credit was under pressure. Investment-grade Credit default swap (CDS) prices (Markit CDX) surged 10 to 79 bps, the high since May. More dramatically, high-yield CDS surged 48 to 421 bps, the high since late-July. Ominously, junk bond funds suffered a $2.5 billion outflow over the past week. Debt deals were cancelled, including PetSmart’s chunky $4.65 junk offering. 

Corporate Credit was not a good equities hedge. The iShares Investment-grade ETF (LQD) declined 0.7% this week, with the iShares high-yield ETF (HYG) dropping 1.2%. High-yield CDS prices were sharply higher across the board – energy, utilities, industrials, communications, financials and consumer discretionary.

I remain skeptical of the bullish “‘blue wave’ is great for equities” narrative. Ceteris paribus – all things being equal – perhaps massive stimulus would support the equities speculative Bubble. 

But there are many facets to Global Bubble Analysis. 

All things are not equal. “Blue wave” runaway fiscal deficits will not be viewed positively by a vulnerable bond market. In particular, a backup in yields poses a major risk to the speculative Bubble raging throughout corporate Credit. And while mounting Covid risks could be viewed supportive of an even larger “blue wave” stimulus package, a dark winter scenario would ensure festering Credit issues poison the entire market environment. 

Corporate Credit exceeds even equities in terms of Bubble Markets divorced from fundamental prospects. And it’s difficult for me to believe equities can sustain their fairytale run if the corporate debt market stumbles. Of course, central to the “nothing matters but the Fed” narrative is our central bank is standing ready to inject whatever liquidity is necessary to preserve the boom. 

Bloomberg Television’s Lisa Abramowicz (October 19, 2020): 

“Steve Ricchiuto from Mizuho was just on and he said that if Congress were to pass a $2 TN fiscal support plan that he expects the Federal Reserve to potentially buy up all of that in order to help things along. Do you think that’s an advisable step?”

Former Fed chair Janet Yellen: 

“So, the Federal Reserve’s asset purchases – they [the Fed] have not made clear their plans going forward. I’m expecting them to offer more guidance. But their objective there is going to be to try to keep both long and short interest-rates at low levels to support an economic recovery. It is not their objective – ever – to directly try to help the federal government finance its budget deficit. And that would be a very dangerous kind of support to provide. But I do expect – I think asset purchases have worked. They’re holding down longer-term rates, and I expect there to be ongoing purchases. But probably not geared to the federal deficit.”

I agree it would be “very dangerous” to “directly try to help the federal government finance its budget deficit.” History is unequivocal on the matter. Yet Janet Yellen, Jerome Powell and other Fed officials these days face quite a challenge explaining why this is indeed the case. After all, the Fed’s balance sheet expanded from $900 billion to $4.5 TN between 2008 and 2014. I don’t recall anyone at the Fed suggesting this was “very dangerous.” In Yellen’s words, “asset purchases have worked.” And chiefly because of Treasury purchases, Fed assets are up about $3.0 TN in 34 weeks. Again, no one associated with the Federal Reserve is calling this “very dangerous.”

Our nation could well be on the cusp of a historic “blue wave.” 

In the event of a Democrat controlled Washington, a massive fiscal spending program early in 2021 is guaranteed. And there’s a reasonably high probability for a scenario where stimulus approaches $3 TN: A tough Covid winter would see recovery succumbing to another distressing leg down for the real economy. Faltering markets would significantly worsen the crisis. If fragile debt markets buckle, a resulting tightening of financial conditions would spur downside economic risk.

The Fed could well be on the cusp of a historic predicament. They are in the throes of massive monetization. But their approximately $100 billion of monthly purchases will be woefully inadequate to sustain Bubble markets in the event of another major de-risking/deleveraging dynamic. With unprecedented Fed support, speculative Bubbles have further inflated over the past six months. And now there’s the prospect of the Democrats passing a second massive stimulus package – fiscal stimulus they’ve been publicly endorsing.

How much of the resulting deficit does the Fed monetize? 

The Democrats will be infuriated if the FOMC balks at monetizing most of it. When it appears the Fed is accommodating a liberal agenda, the (newfound fiscal conservative) Republican party will be enraged. Once Covid is controlled, debt and deficits move to key issues for the 2022 mid-terms. 

For now, of course the equities market expects the Fed to do whatever it takes to sustain the market boom. Meanwhile, an anxious Treasury market must be thinking some market discipline pointed Washington’s way is long overdue. And if Treasury yields surprise to the upside on an announcement of larger QE Treasury purchases, the Federal Reserve’s job turns a lot tougher. 

The Fed has never been transparent with QE. 

Specifically, in what circumstance is it appropriate? In what situations would it be inappropriate? How exactly does it operate? What are the benefits? The risks? What limits should be placed on the scope and duration of QE programs?

The Fed says QE is to lower rates and market yields. 

The stock market hears that QE is to bolster equities prices. The corporate Credit market hears QE is to narrow risk premiums, support issuance and ensure liquidity for the vulnerable ETF complex. Derivatives markets hear QE is to ensure liquid and continuous markets – to backstop securities markets and quell dislocation and panic. The Democrats hear that QE is to finance fiscal stimulus and programs to mitigate inequality. 

The Fed was always content to play fast and loose with QE. 

It was supposed to be a temporary emergency measure – get in and out and there’s not a lot of explaining to do. But it somehow morphed into an instrumental, permanent policy fixture – and there remains a tremendous amount that needs to be explained. 

You can’t just go about creating Trillions of “money” on an impulse – allocating wealth on a whim. And in this strange new Covid world, everyone’s going to want a piece of them – of their electronic printing press – the Dems, the markets, the Republicans and the American people. What are you going to tell them? 

October 28 – Bloomberg (Bill Dudley): 

“No central bank wants to admit that it’s out of firepower. Unfortunately, the U.S. Federal Reserve is very near that point. This means America’s future prosperity depends more than ever on the government’s spending plan… There’s always something more that the Fed can do. It can push down longer-term interest rates by buying more Treasury and mortgage-backed securities, or by committing to keep buying for a longer period of time. 

It can promise to keep short-term interest rates lower for longer… It can put a specified ceiling on long-term interest rates (a maneuver that economists call yield-curve control). 

It can even take interest rates negative (a move that Fed officials have so far rejected). But this misses a crucial point. Even if the Fed did more — much more — it would not provide much additional support to the economy.”

Is the Fed almost out of firepower? 

Mr. Market – with both fists clinched - would blast “HERESY!” “Open-ended” QE means unlimited balance sheet expansion and unending market support. But is it really that simple? The past six months have experienced about the loosest financial conditions imaginable. Equities surged back to record highs, with the most intense speculative excess since 1999/early-2000. A booming corporate Credit market saw collapsing risk premiums and a record $1.4 TN (y-t-d) issuance. 

How much speculative leverage has accumulated throughout the securities markets, especially corporate Credit? 

How wide is the gulf between market prices and fundamental prospects? 

How powerful is the derivatives time bomb? 

What really has the Fed accomplished with $3 TN of QE? 

At what risk? 

Are we to the point where $3 TN buys a good six or seven months of “stability”?

If President Trump wins reelection, Joe Biden needs to offer words of support and national unity. He must to appeal to his base to remain calm and resist violence. 

If Joe Biden wins the presidency, President Trump should respectfully concede while offering conciliatory words of tolerance and national cohesion. Our nation’s interests must be placed above his own. 

It is imperative that he instruct a segment of his supporters to renounce violence. The armed militias need to stand down. 

Now those are words I never imagined writing…

US global role at stake in this election

A Trump victory would shatter it, but defeat may only defer that tragic withdrawal

Martin Wolf

© FT montage



This US election is the most important since 1932, when Franklin Delano Roosevelt became president in the depths of the Depression. With much trial and error, FDR saved democracy, at home and abroad. 

The re-election of Donald Trump would undo much, if not all, of that legacy. Yet his defeat would not end the danger. If that is to happen, American politics has to be transformed.

This election is so important, because the US plays a unique role in the world. It has long been the paramount model of a functioning liberal democracy, leader of the countries that share these values and an essential player in resolving any big global challenge. The re-election of Mr Trump would signify a rejection of all three roles by the American people. No other country or group of countries is able to take its place. 

The world would be transformed — and not at all for the better.

During a radio broadcast on 29 December 1940, FDR referred to his country as “the arsenal of democracy”. This was accurate in its implications for the supply of materiel in the second world war. American resources were vital in ensuring victory. But the US offered far more than just might. It proved that it was possible for a great power also to be a law-governed democracy. It was the most potent republic since Rome and provided a model of what such a power could now be. Its example of individual freedom and the democratic spirit shaped the aspirations of billions.


As a result of its victory in the war, the US also became the leader of the world’s democracies, including its former adversaries, Germany and Japan. A crucial moment, under FDR’s erstwhile vice-president Harry Truman, was the Marshall Plan of 1948, aimed at restoring a Europe both physically and morally prostrate. 

The US could do this because it was so wealthy. But its power would have been insufficient in the long run. Its allies also trusted it, not always, or in all ways, but sufficiently so. They trusted it because they appreciated its core values and believed that its abiding adherence to the principles of liberal democracy made its commitments credible.

Just a few days after his commitment to make the US democracy’s “arsenal”, FDR made a still more remarkable promise to posterity. In his State of the Union address of 6 January 1941, he committed the US to promoting four freedoms: freedom of speech; freedom of worship; freedom from want; and freedom from fear.

These were not idle vows. Over the ensuing half century, the world experienced a great spread of democracy and reduction in poverty. Neither would have happened without the institutions the US created, the habit of co-operation it promoted and the prosperity it spread.


Needless to say, the US also committed crimes and follies, notably the Vietnam and Iraq wars. But the great American project worked. On balance, it also worked domestically, notably with the clear progress of civil rights.

The US of Mr Trump rejects all of this. He is a man with appetites, not ideals. As journalist Masha Gessen tells us in Surviving Autocracy, Mr Trump’s goal is to do whatever he likes, unconstrained by law, Congress or anything else. He wants to be an autocrat. 

If he wins again, he may largely achieve this aim, as commentator David Frum warns. Mr Trump also runs a corrupt, malevolent and incompetent government, lies more easily than breathes and is even campaigning against the notion that he could lose in a free and fair election. In all these ways, he ransacks every norm of a decent democracy, on a daily basis.

Abroad, Mr Trump admires autocrats, is indifferent to past US promises, rejects multilateralism and happily pulls out of commitments (such as the Paris climate accord) and institutions (such as the World Health Organization). His America is the antithesis of the country FDR, Harry Truman and their successors ran.


A desire for something so different is unsurprising. Satisfaction with democracy is in decline worldwide, especially among the young. Data on perceptions of corruption and life expectancy in the US also show clear signs of relative failure. (See charts.)

So while the rage suffusing US politics is understandable, Mr Trump’s method is to exacerbate it. For donors who finance the Republican party, this is also perfectly acceptable, in return for lower taxes and less regulation. Mr Trump is the product of their Faustian bargain with the party’s base.

If Mr Trump retains the presidency, be it legitimately or fraudulently, the world will draw its conclusions on the US’s future role. Its credibility as a model of competent and successful democracy would be shattered, its believability as leader of an alliance of democracies would be over, and its willingness to participate in endeavours that address shared global challenges, such as climate change or a pandemic, would be non-existent.


The world has indeed changed. But constructive and competent leadership by a democratic US is needed more than ever, given the rising power of an increasingly autocratic China, the success of charismatic autocrats elsewhere and the great global challenges of our age. Mr Trump cannot lead such a US.

His defeat would not, however, end the threat of US retreat. His party would again do everything it can to thwart a Democratic administration. The strategy of “pluto-populism” — the marriage of solipsistic wealth to white middle-class rage — would persist, with the help of the Supreme Court. 

Whatever happens in the election, the US role in the world will remain in question.

Xinjiang and the world

The persecution of the Uyghurs is a crime against humanity

It is also the gravest example of a worldwide attack on human rights


The first stories from Xinjiang were hard to believe. Surely the Chinese government was not running a gulag for Muslims? Surely Uyghurs were not being branded “extremists” and locked up simply for praying in public or growing long beards? 

Yet, as we report in this week’s China section, the evidence of a campaign against the Uyghurs at home and abroad becomes more shocking with each scouring of the satellite evidence, each leak of official documents and each survivor’s pitiful account.

In 2018 the government pivoted from denying the camps’ existence to calling them “vocational education and training centres”—a kindly effort to help backward people gain marketable skills. The world should instead heed Uyghur victims of China’s coercive indoctrination. 

Month after month, inmates say, they are drilled to renounce extremism and put their faith in “Xi Jinping Thought” rather than the Koran. One told us that guards ask prisoners if there is a God, and beat those who say there is. And the camps are only part of a vast system of social control.

China’s 12m Uyghurs are a small, disaffected minority. Their Turkic language is distant from Chinese. They are mostly Muslim. A tiny handful have carried out terrorist attacks, including a bombing in a market in 2014 that left 43 people dead. 

No terrorist incidents have occurred since 2017: proof, the government says, that tighter security and anti-extremism classes have made Xinjiang safe again. That is one way of putting it. Another is that, rather than catching the violent few, the government has in effect put all Uyghurs into an open-air prison. The aim appears to be to crush the spirit of an entire people.

Even those outside the camps have to attend indoctrination sessions. Any who fail to gush about China’s president risk internment. Families must watch other families, and report suspicious behaviour. New evidence suggests that hundreds of thousands of Uyghur children may have been separated from one or both detained parents. 

Many of these temporary orphans are in boarding schools, where they are punished for speaking their own language. Party cadres, usually Han Chinese, are stationed in Uyghur homes, a policy known as “becoming kin”.

Rules against having too many children are strictly enforced on Uyghur women; some are sterilised. Official data show that in two prefectures the Uyghur birth rate fell by more than 60% from 2015 to 2018. Uyghur women are urged to marry Han Chinese men and rewarded if they do with a flat, a job or even a relative being spared the camps. Intimidation extends beyond China’s borders. 

Because all contact with the outside world is deemed suspect, Uyghurs abroad fear calling home lest they cause a loved one to be arrested, as a harrowing report in 1843, our sister magazine, describes.

The persecution of the Uyghurs is a crime against humanity: it entails the forced transfer of people, the imprisonment of an identifiable group and the disappearance of individuals. Systematically imposed by a government, it is the most extensive violation in the world today of the principle that individuals have a right to liberty and dignity simply because they are people.

China’s ruling party has no truck with this concept of individual rights. It claims legitimacy from its record of providing stability and economic growth to the many. Its appeal to the majority may well command popular support. Accurate polling is all but impossible in a dictatorship, and censorship insulates ordinary Chinese from the truth about their rulers. 

But many Chinese people clearly do back their government, especially since to object is deemed unpatriotic. Awkward minorities, such as Tibetans and Uyghurs, have no protection in such a system. Unbound by notions of individual rights, the regime has been determined to terrorise them into submission and force them to assimilate into the dominant Han culture.

China lies at the extreme of a worrying trend. Globally, democracy and human rights are in retreat. Although this began before covid-19, 80 countries have regressed since the pandemic began and only Malawi has improved, says Freedom House, a think-tank. Many people, when scared, yearn to be led to safety by a strong ruler. The virus offers governments an excuse to seize emergency powers and ban protests.

Abusive rulers often rally the majority against a minority. India’s prime minister, Narendra Modi, espouses an aggressive Hindu nationalism and treats India’s Muslims as if they were not really citizens. 

For this, he earns stellar approval ratings. So does Rodrigo Duterte in the Philippines, who urges the murder of criminal suspects. Hungary’s prime minister crushes democratic institutions and says his opponents are part of a Jewish plot. Brazil’s president celebrates torture and claims that his foreign critics want to colonise the Amazon. In Thailand the king is turning a constitutional monarchy into an absolute one.

How can those who value liberty resist? Human rights are universal, but many associate them with the West. So when the West’s reputation took a battering, after the financial crisis of 2007-08 and the botched war in Iraq, respect for human rights did, too. Although America has imposed targeted sanctions over the Uyghurs, the suspicion that Western preaching was hypocritical has grown under Donald Trump. 

A transactional president, he has argued that national sovereignty should come first—and not only for America. That suits China just fine. It is working in international forums to redefine human rights as being about subsistence and development, not individual dignity and freedom. This week, along with Russia, it was elected to the un Human Rights Council.

Start in Xinjiang

Resistance to the erosion of human rights should begin with the Uyghurs. If liberals say nothing about today’s single worst violation outside a war zone, how can anyone believe their criticism of other, lesser crimes? 

Activists should expose and document abuse. Writers and artists can say why human dignity is precious. Companies can refuse to collude. There is talk of boycotts—including, even, of the 2022 Beijing Winter Olympics.

Ultimately, governments will need to act. They should offer asylum to Uyghurs and, like America, slap targeted sanctions on abusive officials and ban goods made with forced Uyghur labour. They should speak up, too. China’s regime is not impervious to shame. If it were proud of its harsh actions in Xinjiang, it would not try to hide them. 

Nor would it lean on smaller countries to sign statements endorsing its policies there. 

As the scale of the horror emerges, its propaganda has grown less effective: 15 majority-Muslim countries that had signed such statements have changed their mind. 

China’s image has grown darker in many countries in recent years, polls suggest: 86% of Japanese and 85% of Swedes now have an unfavourable view of the country. For a government that seeks to project soft power, this is a worry.

Some say the West would lose too much by lecturing about human rights—China won’t change, and the acrimony will stymie talks about trade, pandemics and climate change. True, keeping human rights separate from such things is impossible, and China will try to convince other countries that moral candour will cause them economic harm. 

Nonetheless, liberal democracies have an obligation to call a gulag a gulag. In an age of growing global competition, that is what makes them different. If they fail to stand up for liberal values they should not be surprised if others do not respect them, either.  

‘Society has to find a new equilibrium’

In the first of a series, the former Indian central banker explains why the solution to economic adversity is to strengthen local communities

Rana Foroohar

      © FT montage


Economist Raghuram Rajan has a word of advice for all those who worry about the state of the world at the moment: “Trust people.”

The former India central banker, now a professor at the University of Chicago Booth School, was one of the very few people who warned beforehand of the 2008 financial crisis.

These days, he says, the world is undergoing not a battle between markets and the state, but rather a return to a tri-polar system in which both share power with local communities.

He sees some supporters of Donald Trump, Indian nationalists, and pro-Brexit Britons as struggling for the same thing — a sense of control in a world in which decisions usually flow from the top down, taken by powerful central governments or too-big-to-fail companies.

By empowering local organisations and giving people the ability to make more choices individually, he believes that we can help mitigate populism, and create more vibrant and sustainable communities outside the usual national centres of power.

His recent book The Third Pillar discusses the need to strengthen the third pillar of community and civic society in order to find a way through the current economic and technological disruption.

“When any of the three pillars weakens or strengthens significantly, typically as a result of technological progress or terrible economic adversity, the balance is upset, and society has to find a new equilibrium,” he writes. Today, that involves finding ways to decentralise control, even as politics and the trend towards a digital superstar economy that makes power more concentrated.

In this interview with the FT’s global business columnist Rana Foroohar, he shares personal stories about how he came to his heterodox ideas, takes on some sacred cows (such as social security), and lays out the tools communities need to empower themselves and find a way to grow — on their own terms — in a chaotic time.

Rana Foroohar: I’ve just finished The Third Pillar. I’m curious to know how you came to the idea of inclusive localism at a personal level?

Raghuram Rajan: It actually stems from my observation of the Indian village. There was a big debate in India around the time of independence about whether India should be centred on the village, and the point of decentralisation of self-governance. Gandhi was very much about the village as the centre of activity.

There were some who thought the village is the den of gossip, hidebound tradition and casteism. Ambedkar, who wrote the Indian constitution, was totally against the village. 

He thought they would perpetuate the old traditions and hold people like him back.

The person who ultimately won was Nehru. He was Gandhi’s protégé, but they agreed to disagree on this issue. Nehru was about the need to modernise, bring people into cities and centralised government.

Just after independence, because India had been partitioned, there was a lot of support for centralisation. Only recently did we start moving to decentralised power, to the village panchayat [council]. But, [we] decentralised without providing them with any funding.

Look at the state of Indian cities. Compare them with Chinese cities . . . [where] local authorities are responsible and go beyond their powers to subvert national rules to enable local entrepreneurs to do well.

They’re very much evaluated on how much growth they bring locally and they’re empowered to do that. In India the municipalities don’t have many powers. So Mumbai is a very rich city, pays a huge amount of tax but . . . look at local infrastructure — it’s totally breaking down.

RF: This topic is so relevant right now in the US, in terms of how different states are handling Covid-19, managing education, and so on. Describe for me the problems of globalisation of the past 30 or 40 years as you see them.

RR: If you think about the way globalisation has been described in the 20th century, it was really portrayed as a fight between markets and the state. But in fact, if you look at what has happened, in terms of raw data, you see the market has grown along with the state. They feed on each other.

To some extent, that is understandable because as markets integrate, people within those markets want more common governance. They want to operate across the entire market. That gives them scale, efficiency and they want to make sure the rules are pretty similar.

The history of the 20th century, regardless of the system you look at, is the growth of both markets and the state together. And to some extent, the superstate, because we’re beyond national capitals determining everything. But when the power is taken out of the nation-state, the problem is this leaves the person at the bottom without much power.

RF: This is a historical cycle that ebbs and flows . . . 

RR: I would argue that the most recent process of deglobalisation started in the past 10 years . . . probably the global financial crisis was the first marker. Now, each time we go further, and are more integrated, there is a pushback. The pushback stems from the imbalances between the markets, state and the “third pillar”. You have an attempt [on the part of local populations] to take back control, à la Brexit.

A common factor in many such attempts is a strong push for greater equality. In India, it’s the lower castes not being willing to accept the second-class status. And you can see something similar happening with minorities in the US, whether it’s African-Americans or Hispanics, demanding a greater position at the table.

Then you have the reaction from the ruling majority, which says maybe we’re going too fast . . . we’re not ready for this.

RF: You’re arguing for a certain amount of devolution of power to local communities, which is a conservative idea. But you’re also addressing things that liberals care about, too (such as inequality, poverty, and race). There’s an interesting overlap happening.

RR: If you ask . . . why do some countries grow and others don’t? There is no magic recipe. The World Bank has tried for decades to offer one. But it doesn’t work that way. We write off some communities as historically poor or disadvantaged. But there comes a time, there comes a place, there comes a set of people who say, “we need to make a change”. And invariably it is internal. It’s not an external thing.

I have, for example, a conservative view on aid because that’s what the data suggest. If you keep pushing aid into countries it has absolutely no effect on growth. Don’t get me wrong . . . if there’s famine, by all means you should help people by sending money but is it a way for them to develop? Typically not. [Communities] will find their way, and that process of finding their way itself strengthens their democratic spirit, sense of control and empowerment. Will every community find its way up? Absolutely not. But many will and the ones that will may be better off for it.

RF: If you were writing up the economic plan for the next US president, what would you include in your road map for rebuilding?

RR: One . . . silver lining [of Covid-19] is it has told us we can work at a distance. 

That’s extremely important for minimising the importance of place. The tendency before this was to congregate in the cities. Now workers have the possibility of living 200, 300 miles from the city, and seeding communities there. 

You can nudge this process a little by maybe helping people who have strong incomes, strong degrees to stay in not-so-strong places with some kind of income tax benefit. Now you’ll have to monitor this carefully so that we don’t all end up paying $750 in taxes. 

RF: These periods when we shift from globalisation and growth to deglobalisation and perhaps wealth distribution . . . sometimes get rocky and we have wars and there’s protectionism. At the same time, you’ve got the demographic divide that’s coming not just in the US but in a number of countries where millennials are soon going to be the biggest working block, the biggest voting bloc.

How will these coming shifts change our way of thinking about markets and how to divide the pie between younger people, with all this student debt, and older boomers holding much of the wealth?

RR: This gets to the divide that both the market and government have created within communities, right? There is some evidence that before social security the elderly were certainly dependent on the rest of the community for support, and were thus predisposed to things such as [funding public] schooling. There was a natural flow of funds within the community.

Once the elderly are protected by social security, have their own separate means, and their own wealth, at that point they’re not dependent on their kids or their grandkids and perhaps are less sympathetic towards the needs of young parents.

We all know communities where this is not true. But I think the breaking of family ties by the creation of market mechanisms, or government mechanisms, is an inexorable process, and has benefits, but we also need to find ways to preserve the spirit of the community.

RF: You’re sitting at the University of Chicago, former home of Milton Friedman, certainly a centre of neoliberal thought. Does inclusive localism require us to turn away from neoliberalism? It seems there is inherent conflict when capital can move more freely than goods or most people.

RR: Chicago is a big tent. We don’t all go and pray every morning at the altar of Milton Friedman. 

What I think is central to Chicago is competition: economic competition and political competition. 

Societies without competition tend to stagnate and eventually doom themselves.

But an issue that I think Chicago has not spent as much time on, is, how does the individual grow into a state where they can actually compete? 

We take as given . . . [that] at age 21 you are suddenly able to compete. Wonderful. But how did you start? What did you learn as you got to age 21? Babies don’t start by competing. You nurture them till they’re able to compete.

And that is missing in the narrative. What is the responsibility of different players here to help you reach a state where you can be a full-fledged participant?

That’s, to some extent, why there needs to be the focus on community because that early childhood, what’s most important, comes from within the community.

RF: Let’s bring geopolitics into this. Who knows what’s going to happen after November, but let’s assume some level of decoupling between the US and China continues. Europe also seems to be developing a somewhat separate value set, different ideas about digital governance and privacy. 

Does this worry you? Do you see it as an opportunity?

RR: Variety is good. In fact, with computer technology we have the ability to handle variety at relatively low cost. A lot of rules can be programmed into machines to deal with them. If you have different taxes across jurisdictions, well, I don’t need to know every tax. I just need to look it up or it is done almost automatically.

I think we have the opportunity to have variety and experimentation that will lead us in directions that we didn’t think of before and some will turn out to be good.

What we’ve tried with globalisation is to arrest that by saying, “uniformity, homogeneity”. We all need the same rules, etc. That level of harmonisation is not needed and in fact it detracts from people feeling they have control.

I think what we can do is isolate the areas where there is conflict, intellectual property and technology, and isolate the areas where there’s broad agreement. If you want to sell me vacuum cleaners, I want to buy them . . . Or I want to sell you commodities, great. 

We can allow that to flourish, giving us a basis for discussion and commonality, while separating out the areas where there is a lot of worry, and try and work out over time what might be reasonable answers to those issues.

We need to allow for maximum flexibility for each country to decide, but with some minimum rules of the game. Now, that requires a lot of thinking.

RF: I do struggle to see in the kind of one-world, two-systems paradigm how you can have a country such as China that has chosen to have companies in service to the country, and regions such as the US and Europe where its more the opposite. 

That seems to lead to situations like, for example, Qualcomm, where you have an American innovator battling an American tech giant (Apple, over patents) in three continents while being penalised for doing business in China (by both countries). How do situations like that work out?

RR: This is where you need a little bit of faith that competition in the long run will work out. Remember when we thought the Japanese system would destroy everybody else? This was in the 1990s.

RF: I remember! My father is a Turkish engineer who ran a Japanese manufacturing firm in the rural Midwest. He made me come and take Japanese lessons with him.

RR: Right. Remember when we were all learning Japanese? 

Then we all started learning Chinese. Some people call this “peak China time”. China is an ageing society and will need to sell a lot outside its borders as it ages. Domestic demand is not going to be enough, especially as it ages. That’s something we’ve seen from Japan.

Think about services where data are important, and how much trust there is in a one-party system, with the ability to impose on the private sector and its management of the data? How willing are you going to be for your private data to be held in China and possibly exposed to the tender mercies of the Communist party? My sense is that this system will reach its limits.

One of the reasons Alipay is finding it harder to expand across the world is, in some sense, it has to stay on the good side of the government within China.

What is incredible to me is that the US government now sometimes asserts itself in the same way as the Chinese government in an attempt to level the playing field, not realising the greatest strength of US companies may be their ability to tell the government to buzz off.

RF: This goes to your point about markets and the state moving in tandem because you have the biggest companies, claiming to be “national champions”, pushing that tactic in some cases.

RR: Exactly, because they have an advantage in making the rules along with the government. Look at GDPR in Europe [the data privacy regulation], one of the concerns is that some of the compliance requirements are really onerous, which favours the big companies rather than small companies.

Post financial crisis regulations, again, are more likely to favour the large banks who were at the table writing the rules along with the regulators.

A lot of the economic and political changes coming will tend towards more centralisation. We need to find [a way] in which we can also decentralise.

Federal Reserve lowers bar for access to small-business lending programme

US central bank has come under pressure to boost usage of the lending facility

James Politi in Washington and Colby Smith in New York

The Federal Reserve is reducing the minimum loan size from $250,000 to $100,000 for the Main Street Lending Program © Bloomberg


The Federal Reserve has lowered the bar for small businesses and charities to access central bank loans as they struggle through the economic downturn triggered by the pandemic.

In a statement on Friday, the Fed said it would reduce the minimum loan size from $250,000 to $100,000 for the Main Street Lending Program, a $600bn scheme launched earlier this year with the backing of the US Treasury.

The Fed’s move follows pressure from many members of Congress to boost usage of the MSLP, which has so far issued just $3.7bn of loans, representing only 0.6 per cent of its total capacity.

While larger US companies, which have access to global capital markets, have benefited hugely from the Fed’s interventions since the start of the pandemic, the US central bank has struggled to provide assistance to smaller and medium-sized businesses. The Fed does not have the power to issue grants that would not be repaid.

Although the US economy has been steadily recovering from this year’s shock, there are fears that the recovery could slow sharply amid a new rise in coronavirus cases and fading fiscal assistance, leading to more small-business failures.

Jay Powell, the Federal Reserve chair, had always said he was open to adjusting the terms of the MSLP. But he has cautioned that there had not been huge unmet demand from smaller businesses, because many are wary of taking on additional debt.

In its statement, the Fed said it was adjusting the fees associated with the programme as well as the minimum loan size to “encourage the provision of these smaller loans”.

The US central bank also said businesses that had taken on loans through the Paycheck Protection Program, a small business aid scheme administered by the Trump administration this year, could exclude up to $2m of that from their leverage calculations, which could make it easier for them to access the MSLP.

One of the sectors that has been pushing hardest for changes to the MSLP is the commercial real estate industry, which has been walloped by the pandemic as Americans steer clear of shopping malls and office buildings. 

The sector has been pushing for more lenient terms on the loans, but it is unclear that the new terms announced on Friday will satisfy those demands.

Beyond Main Street, usage for the remainder of the Fed’s 11 lending facilities — which were announced in March under powers that allow the central bank to make asset purchases in “unusual and exigent circumstances” — has also remained modest.

The Fed has consistently framed many of these facilities as “backstops”, in the event that the dysfunction that swept through financial markets in March and April re-emerges. Investors have since ascribed the minimal take-up to the central bank’s success in quelling any concerns of a repeat event in the near future.

The municipal bond facility, which involves the Fed buying up to $500bn of short-term notes from select states, counties and cities, has purchased just $1.7bn of assets as of Wednesday, according to figures released this week.

Meanwhile, the Fed’s holdings of corporate bonds and exchange traded funds that track the market has stalled out around $13bn for weeks. The central bank had set the cap at $750bn. 

China boosts foreign access to huge onshore capital markets

Opening up futures trading is latest sign of how Beijing is forging ties with Wall Street

Thomas Hale and Hudson Lockett in Hong Kong

The move is the latest step in the opening up of China’s vast but tightly-controlled financial markets © Financial Times


New rules making it easier for international investors to trade in China’s booming capital markets have come into force, adding momentum to Beijing’s sweeping liberalisation of its financial system.

The measures, which went into effect on Sunday, update the official schemes that govern foreign access to the country’s enormous capital markets.

They allow much greater access to China’s onshore futures markets, an important tool in hedging stock market positions as well as for speculating on price movements. 

Foreign investors will also be able to lend out their holdings of shares that trade in Shanghai and Shenzhen, allowing others to use them to take bearish positions.

The move is the latest step in the opening up of China’s vast but tightly-controlled financial markets, a process through which the country is forging closer ties with Wall Street despite rising geopolitical tensions with the US.

The new rules, which combine the existing Qualified Foreign Institutional Investor schemes, are designed to simplify and speed up the process through which international investors apply to access Chinese markets, as well as removing constraints on the size of positions they can take.

“If you’re any financial institution, a fund manager big or small, China is now an open market to you,” said Fraser Howie, an independent analyst and expert on the country’s financial system. “It really is a high point of openness and capital market development [for China].”

China has for the last two decades permitted foreign investors to access its onshore equity markets via the QFII scheme, as well as a stock connect programme launched in Hong Kong in 2014.

But Beijing’s appetite for financial reform has gathered pace this year at a time when foreign money has flooded into an economy recovering strongly from the coronavirus pandemic.

Chinese stocks hit a record high value of more than $10tn in October and foreigners own their biggest ever share of the country’s bond market. In September, Chinese treasuries were added to one of the world’s most important bond indices, paving the way for an estimated $140bn of inflows.

The China Securities Regulatory Commission said the new rules, which were first announced in September, would “expand the scope of investment” in the country.

Kinger Lau, chief China equity strategist at Goldman Sachs, said an improved ability to hedge was “one of the very important preconditions for people to scale up their exposure in the market”.

The rules coincide with the conclusion of talks in Beijing over China’s 14th five-year plan last week, which emphasised a need for “self-sufficiency” in technology sectors dominated by the US. A feud between Beijing and Washington over trade and access to cutting-edge technologies has contrasted with Chinese moves to open its markets to foreign investors.

 “Maybe the tensions between US and China, or the pressures coming aboard, could be a catalyst for the Chinese authorities or regulators to do more reforms,” Mr Lau added. “You have to reform and you have to open up to counteract all these external challenges”.


Additional reporting by Wang Xueqiao in Shanghai

If Biden wins, what’s next for Trump — and Trumpism?

‘Trumpism would survive, but probably couldn’t win another election. It would be a personality cult without the personality’

Simon Kuper


After the Watergate saga ended with Richard Nixon’s resignation in 1974, one couple is said to have divorced because they had nothing left to talk about. A similar void now looms for many of us. 

We’ve hardly allowed ourselves to imagine what happens if the most likely scenario occurs: Donald Trump loses the US election, whines for a while, then leaves office. 

After Trump, could his supporters and opponents find not just new conversations but new identities? Could Trumpism survive? And would his departure pop the populist balloon worldwide?

Every modern US president lives in the heads of people around the world, but no previous incumbent occupied as much real estate as Trump has. In fact, no person in history has had such a real-time grip on the global consciousness. 

Trumpists often sneer that liberals suffer from Trump Derangement Syndrome, but how could one not? For four years, the man with the world’s biggest megaphone has polluted our brains with lies, abuse and race-baiting, leaving everyone who hears him more stupid and paranoid.

“Trump’s dysregulation — the fact that he is in a high-intensity state all the time — has been passed on to us,” says Tony Schwartz, who ghost-wrote The Art of the Deal for him. Barack Obama promises that if Trump goes, “It just won’t be so exhausting. You might be able to have a Thanksgiving dinner without having an argument.”

There’s a natural tendency to want to replace an over-exciting leader with a boring one. Ronald Reagan gave way to George HW Bush, Margaret Thatcher to John Major, Nixon to Gerald Ford. There’s an appetite now for a tedious president who at the very least won’t turn himself into a biological weapon aimed at his own country. 

The Democratic senator Michael Bennet captured the sentiment during his doomed run for the White House: “If you elect me president, I promise you won’t have to think about me for two weeks at a time.”

Joe Biden looks like the new Gerald Ford: a decent man who inherits a national crisis that defeats him. It has become structurally almost impossible to get progressive laws through the Senate (which the Democrats will struggle ever to hold beyond a two-year stretch) and the Supreme Court. If Biden packed the court with his own justices, the institution would instantly lose legitimacy with nearly half of Americans.

After Trump, the Democrats will lose their turnout machine and liberal newspapers their best story. A news recession threatens. 

The New York Times couldn’t keep its millions of new subscribers with front pages about endless congressional wrangling to pass fragments of a Green New Deal.

And Americans would refocus from politics on to private life, as in John Updike’s 1992 novel, Memories of the Ford Administration, whose historian narrator barely mentions Ford and instead lovingly relives his own adulteries. He wonders: “Was there ever a Ford Administration? Evidence for its existence seems to be scanty.”


Trump will surely avoid jail. Rich Americans and/or former presidents generally do. 

He has debts of at least $1.1bn, but then his previous six business bankruptcies didn’t exactly slow him down. American life abounds with ways to convert fame into money. 

In defeat, he could execute his original plan for 2016 and launch Trump TV. (Replacing the terminally ill Rush Limbaugh on rightwing talk radio would waste his televisual talents.)

Trump can make a fortune as long as he abandons his fantasy of being a businessman and owns his true genius as a lowbrow entertainer. He could thrive for a while yet. 

Former US presidents are highly motivated people with unbeatable healthcare. The last three who died were in their nineties, while Jimmy Carter is steaming ahead aged 96.

Trumpism would survive Trump, but probably couldn’t win another election. First, it would be a personality cult without the personality. Second, white nationalism is already crashing into the changing demographics of America. 

The Republican party is in a bind: it will have an outdated cultural offering and an unpopular economic offering of tax cuts for the rich and deregulation for fading fossil-fuels industries. 

Trump’s main political legacy could be the far-right militias he has encouraged. It only takes a few armed groups to make a country ungovernable.

Outside the US, the future for nativists is brighter. They will study Trump’s high-entertainment, anti-elitist, dog-whistling campaign of 2016 as a model for how to get elected, and his subsequent four years as a case study of how not to consolidate in office. 

While Trump was watching daytime TV, tweeting and playing golf, a professional autocrat like Viktor Orban captured the media, the courts, state bureaucracy and big business. Trump merely appointed some judges. Admittedly, eating the state is harder in the US than Hungary, but he barely tried. 

Nor did he hit the lowest bar of competent governing. For comparison: as a proportion of each country’s population, American deaths from Covid-19 have been more than four times Hungary’s. Simplistic nativism plus basic competence and state capture will remain an awesome political recipe.

MALDISTRIBUTION OF WEALTH & SILVER – INVESTMENT OF THE DECADE

by Egon von Greyerz


The Founding Father and President Thomas Jefferson understood the extreme danger in handing over the issuance of the money to the bankers:

“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills, or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.” 

– Thomas Jefferson. (1743-1826).


If we look at just one example of “depriving the People of their Property” as Jefferson stated, the consequences for the ordinary man are devastating.

According to Federal Reserve Data, the richest 59 Americans have a wealth of $2 trillion which is the same as the wealth of poorest 50% or 165 million people. If we instead take the richest 1%, their wealth in Q2 2020 is $34 trillion or 17x the poorest 50%.

MALDISTRIBUTION OF WEALTH

This maldistribution of wealth leads to extreme poverty as Jefferson said and eventually to social unrest or revolution. This is what we are seeing the beginning of in the US currently.

Central banks and bankers robbing the poor and favouring the rich whilst destroying the economy and the currency have been the norm in history rather than the exception. 

I have quoted the Jefferson contemporary, Mayer Amsel Rothschild’s (1744-1812) words numerous times: 

“Permit me to issue and control the money of a nation and I care not who makes the laws.” 

Jefferson clearly didn’t appreciate bankers like Rothschild.

JOHN LAW & JEKYLL ISLAND

The world is now entering the end of yet another century long era when bankers and central bankers have managed to issue and control the money in an unlimited and immoral manner. 

But unscrupulous bankers have existed throughout history. 

John Law in France and his Mississippi Company during the early 1700s comes to mind. He obtained control of the money from King Louis XV, and quickly destroyed the currency and bankrupted a lot of people.

The plans for a similar coup as Law’s was performed by a number of bankers and the US Treasury Secretary on Jekyll Island in 1910. 

This is where the idea of the Fed was born as a private bank, owned and controlled by private bankers with the right to issue the nation’s currency.

THE FED AND THE BANKERS CAN ONLY WIN

From the banks point of view, the Fed has been the most beautiful construction and much more robust than Law’s bank since it is a century old. 

As a result of the Fed’s creation, private bankers have not only been in a position to create unlimited wealth for themselves and their friends like hedge funds and private equity companies. 

But they have also avoided taking any losses. In 2007-09 as the financial system was on the verge of collapse, governments had to absorb $10s of trillions of losses whilst the bankers had their normal major bonuses paid out that year too. 

The New York Fed was in charge of $29 trillion in bailouts. Congress never approved the bailout funds nor was it aware that they existed!

Morgan Stanley was one of the biggest recipients of the bailout, receiving $2 trillion. 

Interestingly, Morgan Stanley’s Hedge Fund Front Point LLC also received Fed support. 

This was the fund featured in the book and film “The Big Short” (a must read/see). 

So the Fed was forced to support a hedge fund which was shorting all the banks the Fed was forced to rescue. 

By the end of 2007 Morgan Stanley’s leverage was nearer 40%. 

No wonder they had to be saved by the Fed.

PLUS ÇA CHANGE ….. THE MORE IT CHANGES, THE MORE IT STAYS THE SAME

Interestingly, the New York Fed is in the same position today and is responsible for handing out funds from a number of lending facilities to rescue many US banks which are in trouble again. 

As always, the names of the banks receiving support and the amounts are kept confidential.

On top of the special facilities, the Fed started Repos in September 2019. In January 2020 these Repos had reached $6 trillion. By March the Repos were at $9 trillion. According to a report by the BIS, four large banks and hedge funds were the beneficiaries of the Repo debacle.

So who are the largest shareholders of the New York Fed? Surprise, surprise, they are the same people that had to be rescued in 2008, Morgan Stanley, Goldman Sachs, JP Morgan Chase, and Citigroup. Incidentally, these banks also have the biggest/riskiest derivative positions of all US banks.

What a wonderful position to be in. These major banks can take unlimited positions and risk, knowing that as major shareholders of the central bank, they can always rescue themselves at the expense of the government and the taxpayers. And this naturally at no cost to either their own banks and nor to the Fed that they control and own.

POWER CORRUPTS

What a marvellous construction, devised by the bankers over a century ago on Jekyll Island. They were the true descendants of Mayer Amschel Rothschild. But they did not just set up a structure so that they could control the money. 

They also succeeded in conning both congress and the government to hand over control of the whole caboodle to give them ultimate control and power.

Power corrupts and ultimate power even more so. And corruption eventually leads to the downfall of not just of the perpetrators but of the whole bogus edifice they have created. 

Unlimited money printing and credit creation will inevitably destroy the currency and the financial system as von Mises said: “There is no means of avoiding the final collapse of a boom brought about by credit expansion….”

IT IS ALL ABOUT RISK

The expertise of myself and our company is to analyse and understand risk and come up with solutions to protect wealth. 

We clearly don’t possess the ability or means to save the world or the financial system. Instead our passion is to advise and assist the people who are interested in preserving or insuring their assets.

We are now approaching the end of century long chapter in the world economy which will make financial history. Like most eras of excessive debts and spending combined with false markets and fake money, this one will end badly too. 

But the difference this time is that there is not just one nation or continent which is involved but virtually every country in the world. 

Thus, we have reached the end of the road and the central bankers’ safety net will not be strong enough as it only consists of worthless fake money.

The only hope is Deus ex Machina or god from the machine. This was how hopeless situations were rescued in the ancient Greek plays. A figure (god) was lowered onto the stage to solve the insoluble problem. Sadly, I doubt that this will be the case this time.

(The picture below was made for an article I wrote back in 2011.)


WEALTH PRESERVATION

I have for 18 years, in numerous articles on KWN and on our website – GoldSwitzerland.com – discussed the virtues of wealth preservation in the form of physical gold stored outside the banking system.

The acceleration of deficits and debts will further speed up money creation on a global scale, never seen before in history. This will lead to a total debasement of all currencies as they decline to their intrinsic value of ZERO. 

They are already down 97-99% in real terms since 1971 which means measured in gold. 

The death of the dollar and most major currencies is likely to take place in the next 2-5 years as governments print unlimited amounts.

Gold is the king of the metals and is the only money which has survived in history. But the crown prince of the precious metals is silver and in the next few years, silver is likely to have the most spectacular surge.

Silver was $50 in 1980 and again reached that level in 2011. At $25 today, silver is the most incredible bargain of any asset. 

Just as gold has been money for 5,000 years, silver has during many periods in history been the principal currency. 

For example the French word Argent means both silver and money.

SILVER – THE INVESTMENT OF THE DECADE

Silver is both an industrial as well as precious metal. It is used in many electric and electronic products. Also, the demand for photo-voltaic or solar panels is expected to explode in the next 5-10 years.

Out of 850 million ounces ($21 billion) of annual mine production, (27,000 tonnes), 66% is for industrial use. With a major increase in production of solar panels, that percentage is likely to grow substantially. 

As jewellery absorbs 25% of mine production, there is only 10% left for making coins and bars. Scrap silver makes up some of the difference but there is normally an annual shortage of silver.

As demand for gold increases, silver demand will grow substantially as we have seen in 2020. Silver has always been seen as the poor man’s gold and as gold prices will become too expensive for many investors, they will instead buy silver.

The gold silver ratio reached almost 130 in April which was an extreme. See chart. 

It is now down to 77 and likely to initially reach 30 where it was in 2011. Eventually we are likely to see the ratio back to the historical average of 15 or even 10 which the ratio of silver to gold in nature.


The consequence the substantial increases in industrial and investment demand will be a major increase in silver prices. 

My long standing target for gold reaching $10,000 in today’s money will probably be vastly exceeded. But if we assume $10,000 for gold and a gold silver ratio at 15, that would be a silver price of $666.

Interestingly it says in the bible that King Solomon received 666 talents of gold annually which would be worth $1.4 billion today.

But if we look at silver adjusted for real inflation based on ShadowStatistics, the $50 high in 1980 would equal to $950 today. So silver at between $600 and $1,000 is not an unrealistic target.


So silver has the potential to go up between 24x and 40x from today’s $25 price. 

A wealth protection asset with such a profit potential must be the investment of the decade.

This might sound like sensational fantasy targets but that is far from the case. As I have shown, the inflation adjusted price is $950 so these levels are not unrealistic, especially when the supply and demand situation is taken into account.

But investors must understand that silver is extremely volatile so the corrections will be frightening. 

Silver is not for the faint hearted.

Most importantly, silver should be bought for wealth preservation purposes and not for speculation. 

Therefore it must be held in physical form outside a fragile banking system. 

lunes, noviembre 02, 2020

....IF IT´S OPEN / GEOPOLITICAL FUTURES

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... If It’s Open

Thoughts in and around geopolitics.

By: George Friedman


I returned from a trip to South Korea about three weeks ago. Since then, I went to the bank once and to the supermarket on a mad lark. I have reached the point we used to call cabin fever but which I now call the Corona Crouch. 

The Corona Crouch is a defensive posture that decreases your risk of getting a disease but increases your chance of going mad, and not in a good way. It does not lead to brilliant insights on the nature of the universe; it leads to a seething rage at a world out of control.

My wife and I have discussed doing something daring. 

It begins with leaving the house, getting in the car, driving someplace and doing something, preferably surrounded by people also doing something. 

There is a town west of us called Fredericksburg, which I may have mentioned before. 

It was settled in the 1840s by German liberals fleeing a failed rebellion. 

Its residents spoke German until after World War II, and it is still filled with German restaurants and flags. 

It was also the birthplace of Chester Nimitz, commander of U.S. naval forces in the Pacific during World War II. Fredericksburg has a main street to walk up and down, stores and restaurants. 

It also has the National Museum of the Pacific War, which is both appropriate and superb, a rare combination.

We live in a region of Texas best described as lovely. That by definition precludes interesting things to see, unless seeing a hill two hills over counts. No matter how comfortable our house or how welcoming our land, life requires that there be more. 

And thus the discussion of where to go. My wife suggested the Pacific War museum, which we have seen many times but not since the Corona Crouch began. 

Only after we started planning the trip did she qualify the visitation with “… if it’s open.” 

She then suggested our favorite hotel in San Antonio adding, “… if it’s open.” It hit me that the banner above the Corona Crouch should read “... if it’s open.” 

Every thought of living differently for a day ended in what must be the motto of our time: “… if it’s open.”

Jean-Paul Sartre wrote a book called “No Exit” about an endless conversation from which there was no exit. I have been a part of such discussions, where I considered hurling myself from a window as a reasonable alternative. 

There is also a French term known as “ennui,” a sense of listlessness and indifference to all things that arise out of the emptiness of life. The French were well prepared for our time with a philosophy and a name for what we experience.

My wife and I have lived in places where we had only each other to talk to but never in a place where there was no exit, and where the question is not whether we can leave but whether there is an exit. Whether or not we might be prepared to take risks, the world is now designed to prevent us from doing so. 

We are responsible not only for ourselves but for the rest of the world, and so the world has shut its doors. What else can we do, save read Sartre again and hope we have become sufficiently sophisticated to be in the grips of ennui rather than ticked-off and bored.

There is a dimension of freedom I never considered until now: the right to assume that things that should be open are open, and the right to enter them if I have money, and no other qualification. That is gone. I cannot assume that a place is open because it should be, nor that I am free to choose. 

I am now assuming people to be infectious and must act as if I am, and the places I go may no longer welcome me or no longer exist. In the past half-year or so, the landscape of my life has shifted so much that it is difficult to navigate. The buildings are there, but what they mean has changed.

COVID-19 is real. Aside from the Crouch, the medical establishment has no solution for it yet It’s as if sergeants were training bots how to move and shoot. It is all they have, and it’s what we must do. But it should not be thought for a moment that we are being kept safe. We are safe from the virus perhaps, but the Europeans, having been praised for their rigor, now have also discovered that doesn’t mean you have an exit. 

I have a powerful and odd marriage that has endured far worse and this is no challenge, but I wonder how many other marriages will find that there is an exit, how many friendships will wither, how many hopes for the future collapse as businesses built with hope close their doors forever. 

As we crouch from the disease, we must be aware of the price that is being paid. The casual chat in the usual bar is gone, and with it boasts and flirts. 

Of course we can all return to it … if it's open.