Is a second Great Depression coming?

By: Sam Brown

Readers of my articles know that I believe that the unprecedented high debt level in the US makes bankruptcy of both the government and the private sector unavoidable. For me the only question is whether it will be a soft bankruptcy via inflation or a hard bankruptcy via a termination of the debt servicing. The debt problem was discussed in an interview with former Fed chairman Alan Greenspan on the 13 December 2016. He was interviewed by Bloomberg's David Westin. I advise my distinguished readers to watch the video of this remarkable analysis of the debt issue, it is only five minutes long.

Westin asked Greenspan whether the US could grow its way out of the debt problem like the banks did in the 1980s with the Latin American debt crisis. "Could we do this with the US economy?".

Greenspan's answer was short: "Not now." He went on to explain that the lack of productivity growth made this impossible. The US needed annual productivity growth of two per cent but only achieved under 0.5 per cent. This was a necessary condition to achieve real GDP growth of three to four per cent that the current administration needs to make the economy grow faster than the debt burden.

Greenspan saw the root of the debt problem in the growth rate of entitlements (pensions, healthcare etc.). This was eating into domestic savings that were needed to get investments going that produce productivity growth. Politicians did not want to touch the entitlement problem because any such move would be very unpopular with voters.

If the problem of an ever-growing debt burden cannot be resolved, then the next logical question is: When will the borrowing train run out of steam? Alan Greenspan pointed out that he doubted that the US could borrow much more from abroad. There were no domestic savings either because they were crowded out by entitlements. "Where do you go from there? I mean it is a nice idea to say well we build our way out of it. Good luck!" He pointed out that he expected a period of stagflation because of a shortage of labour and a rise in the rate of the money supply. Alan Greenspan did not say it but I assume that he expects the Federal Reserve to print the Federal Reserve Notes needed to pay the bills once borrowing becomes impossible since this is the only option left. This would point towards a soft bankruptcy scenario. It is here where I part ways with his analysis.

In a previous article "Will the Fed turn the US into a Mad Max world?" I expressed my fears that the stream of ever more borrowing will slow down considerably because borrowers run out of capacities to borrow. Not just in the US but globally. A global credit crisis can be triggered if the over indebted US consumer throws in the towel and defaults. Maybe as a result of hurricane damage, maybe because loan sharks charge him/her too much for an auto loan.

The experience of the past few years has shown that the trickledown effect of money printing is largely a myth and that the newly extracted "money" finds a new home at the wealthiest five per cent of the population. This implies that more money printing will do very little to bail out the weakest link of the economy, the remaining 95 per cent. The claim of a tight labour market is refuted by the poor wage increase figures. In last week's Productivity and Costs statistics, unit labour cost increases quarter on quarter were shown as being just 0.2 per cent. If labour was in high demand that figure would be far higher. The problem is that the official unemployment rate of 4.3 per cent is no indicator of unemployment but the result of an algorithm that spreads misinformation. The real unemployment rate could be higher than 20 per cent. A visit at might help.

Widespread bankruptcies among US consumers will lead to a credit contraction which in turn will lead to a reduction of the money supply. There are several polls that say that roughly half of all US households would not be able to pay for an unexpected $500 expense. This is borderline bankruptcy for me. An important development that has played out over more than a hundred years has received hardly any attention. It is the wealth redistribution function of the fiat currency system. It sucks the wealth out of nations and puts it into the pockets of a tiny number of extremely wealthy individuals.

The same class of individuals who designed it in the first place. And this is how it works and how it pushes nations into utter destitution. The banking industry creates new currency with every loan it advances to customers. However, wealth cannot be created out of thin air or by punching a few numbers into a computer. Somebody's wealth will have to suffer in order to put wealth into the newly created currency. Suffer do all currency holders and the recipients of payments in this currency. In the case of the Dollar it is all Americans and foreign parties who depend on the value of the Federal Reserve Notes.

The super wealthy also suffer but they hold most of their wealth in financial assets that tend to overcompensate (just have a look at the all-time highs of the stock markets) for the inflationary effects of the newly created currency with rising values. They receive most of the new currency because they have the assets to borrow it. Whilst the "ordinary" 95 per cent never have enough wealth to finance more than the family home and a few luxuries, the super-rich borrow almost exclusively to invest in income generating assets. This means that over time more and more wealth flows into their pockets whilst the salaries, pensions and savings of the 95 per cent are destroyed by inflation. This wicked scheme is in operation in all nations on this planet, it is a truly global disease. Decades of looting have led to a situation where 62 individuals own half of the earth's wealth.

The problem is – you can only expropriate so much until the public wakes up because they are with their back against the wall. The wall of the poorhouse. The victims are now called populists by the mainstream media who make the utmost effort to disguise the reasons for the unrest. To flank their operations, generations of economists have been trained to explain to the public that you only need to tweak this or that and everything will be all right again. It won't.

The system has been broken beyond repair by the extraordinary greed of the oligarchs. We are now at a point where the cost to squeeze more wealth out of impoverished nations becomes almost prohibitive. The halt of the borrowing train is the halt of the oligarch's wealth extraction scheme. The mechanics of this exploitation system are also stifled by the awakening of the public. The election campaign of Barack Obama should have raised some eyebrows. He won almost exclusively by repeating the word "CHANGE". Donald Trump promised the same.

And both have and will betray the electorate because they are part of the "Swamp". You do not need an IQ of 200 to understand that elections are a charade and that the people of the so called Free World are nothing but serfs of a few trillionaires. In today's world, it does not matter what party you vote for – the oligarchs corrupt them all.

To summarise: The Greenspan scenario of stagflation will not happen because its assumptions are an illusion. The most likely scenario is a depression, worse than the one in the 1930s because the level of debt is unprecedented. The collapse of the economy will bring about a collapse of the credit of governments and of the fiat currencies. Their intrinsic value is zero. Our world of today is on its death bed and nobody knows what the new world will look like. The parallels with the past are clearly visible. The fraud, the daily market rigging and the complicity of governments, media, big business and finance. George Ohlsen and his band reflect this beautifully in their portrait of the spirit of 1929 in "I'm In The Market For You". Switch on your business TV and you may find that this is also the hymn of the actors in the theatre of eternal prosperity where everything is for sale.

Progress on many fronts

New types of therapy mean cancer is going to become ever more survivable

Science is making cancer treatments more precise in many different ways

THERE are few whose lives have not been touched by cancer. It cuts down friends, loved ones, siblings, spouses, parents and children. And it does so more than it used to. A generation ago, one in three people in the rich world could expect one day to hear the fateful words, “I’m afraid you have cancer.” In some countries it is now approaching one in two. The longer other things do not kill you, the more of the wear and tear that leads to cancer your cells accumulate. Live long enough and it will be the reward.

Worldwide, cancer is the second leading cause of death after heart disease; it killed 8.8m people in 2015, three-quarters of them in low- and middle-income countries. Between 2005 and 2015 the number of cases increased by 33%, mostly owing to the combined effects of ageing and population growth. New cases are expected to increase by 70% in the next 20 years.

Set against this rise is the fact that, in rich countries, cancer is becoming more survivable. Today 67% of patients in America will survive for at least five years. Different cancers fare differently, as do different sorts of patients—cancer has proved more treatable in children than in adults. Some cancers, such as that of the pancreas, have seen barely any improvement. But there are general grounds for optimism.

New research tools, such as easily generated antibodies, rapid gene sequencing and ever easier genetic engineering, have revolutionised biologists’ understanding of cancer. This understanding has allowed more specific approaches to the disease to be developed, and the trend will continue. What is more, the tools of molecular biology have moved out of the lab and into the clinic. Genetic tests are used to find the precise vulnerabilities of a particular patient’s cancer. Antibodies attack the specific molecules that have gone haywire. The cells of patients with cancer are engineered to better fight the disease.

And in the current decade a whole new branch of therapy has sprung up. Unshackling the immune system’s response to cancer, once a pipe dream, has become practical medicine, with approved therapies for eight kinds of cancer. The excitement at oncology conferences is palpable.

As these advances have arrived regulators have increased the speed with which treatments for life-threatening diseases are approved. This is in some ways a mixed blessing—some expensive drugs with little if any benefit are nevertheless getting to market. But it has encouraged an unprecedented wave of investment and innovation. The pipeline of oncology drugs in clinical development has grown 45% in the past decade. There are currently about 600 drugs under development at biotech and pharma companies.

The picture is not uniformly rosy. In both treatment and prevention the poor are ill served. Basic chemotherapy and pain relief is difficult to come by in many parts of the world. The failures are not limited to poor countries. Cancers due to bad diet, obesity, alcohol abuse and smoking could all be reduced a great deal in wealthy ones. And while vaccination against human papilloma virus is routine in Rwanda, it is still limited in America—which means thousands of American women will face cervical cancers they could have avoided in years to come.

But if some low-hanging fruit still go tragically, lethally unpicked, progress is not merely possible. It is happening.

The End Is Nigh

by Jeff Thomas

Recently, US Secretary of the Treasury Steve Mnuchin stated, "If China doesn't follow these sanctions [against North Korea], we will put additional sanctions on them and prevent them from accessing the US and international dollar system."

By this, he meant that the US would shut China out of the SWIFT system, through which the great majority of international settlements are facilitated. In stating this, the US government is doing nothing less than threatening economic warfare against China, which would unquestionably prove catastrophic to the global economy.

This is astonishingly shortsighted, as the US can no more do without trade with China than China can do without trade with the US. Further, the US will unquestionably pressure its other trading partners (particularly the EU) to endorse and follow the sanctions. This they will not comply with, as it would serve to cut their own economic throats. The relationships between the US and their partners have been wearing thin in recent years, and the present threat against China is very likely to prove to be the final straw. The net effect would be to place the US out on an economic limb, alone.

There may be those who disagree with this premise, under the assumption that, to cut China out of the SWIFT system would destroy China's ability to make international transactions, forcing them to cave to US demands.

However, China, Russia, and others have seen this day coming and have created their own SWIFT system, world cable network, and world banking system. All that's needed to kick it all into gear is a major international need to bypass SWIFT. The US government has just provided that need with this threat. There would certainly be teething pains in getting the new system running on a massive scale, but the sudden worldwide need would drive the implementation.

This threat by the US at a time when it's broke is, in effect, economic suicide.

But, just as the ink is drying on this announcement, the increasingly impetuous US president has cracked a deal with Democrats to permanently abolish the US debt ceiling. As the debt ceiling was the last safeguard in governmental fiscal responsibility, he's effectively chosen to assure that the US will experience economic collapse.

Again, economic suicide.

It could be argued that the insatiable ego of “The Donald” has driven him to recklessness.

Indeed, it's been his habit, when opposed on anything he wishes to do, to lash out, often creating far more dangerous deals, and saying, effectively, "So, there. I showed you. I'll do as I please, no matter the damage." This would suggest that he's the "Lemming in Chief," leading the US over a fiscal cliff.

It could also be argued that he is, instead, the "Patsy in Chief," and is being cleverly played by those who understand his personality weaknesses and repeatedly goad him into unwise decisions that will benefit them, but will ultimately be disastrous for the country.

Either way, what we're witnessing is a train wreck about to happen, and we're all, to a greater or lesser extent, on that train.

For many years, in predicting the economic collapse of what was once known as the “free world,” I've stated my belief that, whilst we cannot predict the actual dates when the primary events will occur, we can observe the lead-up events—that they'll increase in both frequency and magnitude the closer we get to the collapse. We've recently been in the stage where lead-up events have become weekly. We now appear to be entering the stage where lead-up events become daily. Once we've reached this stage, it's time to fasten our seat belts.

So, in returning to the image above, is this the end of the world? In a word, no. Those who profess the coming end of the world have been with us for, literally, thousands of years. They're just as misguided and incorrect today as they've always been.

It is true, however, that the world as we know it is about to undergo the most dramatic change that we'll witness in our lifetimes. Most certainly, we're presently in the greatest economic bubble the world has ever seen, which assures us that, when it breaks, the damage it causes will be correspondingly great.

But let's have a second look at the image above. It seems apparent that the three men in it are part of a religious group, recommending that mankind repent. As can be seen on the placard in the middle, "Ye must be cleansed."

Regardless of any religious connotations to this placard, there's accuracy in its economic connotations. A collapse is inescapable at this point. The system must be cleansed, much in the way an alcoholic must dry out, or an addict must get the drugs out of his system, before the recovery can begin.

When a crisis of these proportions occurs, it's not possible to simply acknowledge the collapse, then begin anew the next day. Just like the alcoholic or the addict, we can't just hit the reset button and start anew. After a collapse, a long and painful process must begin to cleanse the system. In a collapse of the severity of the one we're facing, the cleansing promises to be quite long and quite painful.

Twenty years ago, in predicting the coming collapse, Harry Schultz predicted, “ten years down; ten years up.” It may well be that his prediction was actually conservative, and we're now looking at a longer period, as so much additional damage has been done since his prediction.

But, before we leave this topic, it's important to look at one more factor. Historically, economic wars have a habit of becoming shooting wars. It's not commonly known that the US war with Japan was precipitated by the US repeatedly putting the squeeze on Japan economically.

President Roosevelt froze Japanese assets in the US. He subsequently succeeded in cutting Japan off from three-quarters of their international trade. Finally, he cut them off from almost 90% of their oil supply.

It could be argued that, at that point, Japan had no choice but to go to war, however badly it might turn out for them.

Could it be that the US government imagines that similar tactics will force China into a war, so that, when that war ends, the US would control China as it did Japan after 1945?

If that's their intent, the outcome would be unlikely to turn out as they imagine. Although the sabre rattling by US political leaders and retired generals is heard daily on the American news programmes, and the American people are clearly being indoctrinated to believe that war might be necessary, America has never been less ready for a war.

The US is a very different country from what it was in 1941. It does possess a sizable military; however, that military is no match for the combined forces of China and Russia. Moreover, the US is not the industrial giant it was in 1941. Its factories have largely closed and moved overseas. What remains is not sufficient for wartime production. The American people as a whole are heavily in debt and the government itself is broke.

By any standard, the actions being taken by the US are therefore reckless indeed. The end of the world is not nigh, but the end of the world as we know it most certainly is.

If there's a light at the end of the tunnel, it may lie in the fact that, in previous world wars, there were always countries that simply didn't take part. They sat it out in peace, while the rest of the world went mad. This is still true today.

Germany´s Hour

Robert Skidelsky

LONDON – Who runs the European Union? On the eve of Germany’s general election, that is a very timely question.  

One standard reply is, “The EU’s member states” – all 28 of them. Another is, “The European Commission.” But Paul Lever, a former British ambassador to Germany, offers a more pointed answer: Berlin Rules is the title of his new book, in which he writes, “Modern Germany has shown that politics can achieve what used to require war.”
Germany is the EU’s most populous state and its economic powerhouse, accounting for over 20% of the bloc’s GDP. Determining why Germany has been so economically successful appears to be elusive. But three unique features of its so-called Rhineland model stand out.
First, Germany has preserved its manufacturing capacity much better than other advanced economies have. Manufacturing still accounts for 23% of the German economy, compared to 12% in the United States and 10% in the United Kingdom. And manufacturing employs 19% of the German workforce, as opposed to 10% in the US and 9% in the UK.
Germany’s success in retaining its industrial base contradicts rich countries’ standard practice of outsourcing manufacturing to locations with lower labor costs. But Germany has never accepted the static theory of comparative advantage on which this practice is based. True to the legacy of Friedrich List, the father of German economics, who wrote in 1841, “the power of producing wealth is therefore infinitely more important than wealth itself,” Germany has retained its manufacturing edge through a relentless commitment to process innovation, backed by a network of research institutes. Its export-led growth has given it the benefit of increasing returns to scale.
The second feature of the German model is its “social market economy,” best reflected in its unique system of industrial “co-determination.” Alone among the major advanced economies, Germany practices “stakeholder capitalism.” All companies are required by law to have works councils.
Indeed, large companies are run by two boards: a management board and a supervisory board, divided equally between shareholders and employee representatives, which take strategic decisions. The resistance to offshoring is therefore much stronger than elsewhere, as is a willingness to restrain wage costs.
Finally, there is Germany’s firm commitment to price stability. Germany needed no lessons from Milton Friedman on the evils of inflation. They were already hard-wired into its most famous post-war institution, the Bundesbank.
Lever suggests that it was as much the memory of the currency collapse of 1945-1948 as of the hyperinflation of the 1920s that drove home this lesson. Likewise, an aversion to public deficits mirrors the population’s resistance to private indebtedness.
Institutionally, the EU has become Germany writ large. The Commission, the European Parliament, European Council, and the European Court of Justice mirror the decentralized structure of Germany itself. The EU’s gospel of “subsidiarity” reflects the division of powers between Germany’s federal government and states (Länder). Germany ensures that Germans fill the leading positions in EU bodies. The EU rules through its institutions, but the German government rules those institutions.
Yet talk of “hegemony,” or even “leadership,” is taboo in Germany – a reticence that stems from Germans’ determination not to remind people of their country’s dark past. But denying leadership while exercising it means that no discussion of Germany’s responsibilities is possible.

And this inflicts costs – especially economic costs – on other EU member states.
Germany has created a system of rules that entrenches its competitive advantage. The single currency rules out devaluation within the eurozone. It also ensures that the euro is worth less than a purely German currency would be.
The EU’s recent Treaty on Fiscal Union – the successor to the Growth and Stability Pact – prescribes binding legal commitments to balanced budgets and modest national debt, backed by supervision and sanctions. This precludes deficit finance to boost growth. And Germany’s insistence that non-wage costs be equivalent throughout the EU is less a device for enhancing Germany’s competitiveness than for reducing others’.
The EU, especially the 19-member eurozone, thus functions as a vast home base for Germany, from which it can launch its assault on foreign markets. And that base is strong. Germany exports to the EU 30% more than it imports from it, and runs one of the world’s largest current-account surpluses.
This is a benign rather than a brutal hegemony. But at its heart lies a massive contradiction. National accounts must balance. A surplus in one part of Europe means a deficit in another.
The eurozone was established without a fiscal transfer mechanism to succor members of the family who get into trouble; the European Central Bank is prohibited from acting as lender of last resort to the banking system; and the Commission’s proposal for Eurobonds – collectively guaranteed national bond issues – has foundered on Germany’s objection that it would bear most of the liability.
Germany has been willing to provide emergency finance to debt-strapped eurozone members like Greece on the condition that they “put their houses in order” – cut social spending, sell off state assets, and take other steps to make themselves more competitive. The Germans see no reason to take measures to reduce their own super-competitiveness.
What can be done to achieve a more symmetric adjustment between Europe’s creditors and debtors?
Barring a fiscal transfer mechanism, John Maynard Keynes’s 1941 plan for an International Clearing Union might be adapted for the eurozone. Member countries’ central banks would hold their residual euro balances in accounts with a European Clearing Bank. Pressure would be simultaneously placed on creditor and debtor countries to balance their accounts, by charging rising interest rates on persistent imbalances.
An EU clearing union would be a less visible intrusion on German national interests than a fiscal transfer union would be. The essential point, though, is that for the eurozone to work, the strong must be prepared to show solidarity with the weak. Without some mechanism to realize that, the EU will limp from crisis to crisis – probably shedding members along the way.