The Return To A Gold Exchange Standard

his article makes the obvious point that a return to a gold standard is the only way nations can contain the interest cost of servicing debt, given the alternative is inflationist policies that can only lead to far higher interest rates and currency destruction. The topic is timely, given the self-harm of American economic and geopolitical policies, which are already leading America into a cyclical slump. Meanwhile, American fears of Asian domination of global economic, monetary and political outcomes have come true. The upcoming credit crisis is likely to kill off the welfare state model in the West by destroying their unbacked paper currencies, while China, Russia and their Asian allies have the means to prosper.

The fragility of state finances

In my last Goldmoney article I explained why the monetary policies of inflationist economists and policy makers would end up destroying fiat currencies. The destruction will come from ordinary people, who are forced by law to use the state’s money for settling their day-to-day transactions. Ordinary people, each one a trinity of production, consumption and saving, will eventually wake up to the fraud of monetary inflation and discard their government’s medium of exchange as intrinsically worthless.

They always have, eventually. This has been proved by experience and should be uncontroversial. For the issuer of a currency, the risk of this happening heightens when credit markets become destabilised and confidence in the full faith and credit, which is the only backing a fiat currency has, begins to be questioned either by its users or foreigners or both. And when it does, a currency starts to rapidly lose purchasing power and the whole interest rate structure moves higher.

The state’s finances are then ruined, because by that time the state will have accumulated a lethal combination of existing unrepayable debt and escalating welfare liabilities. Today, most governments, including the US, are already ensnared in this debt trap, only the public has yet to realise the consequences and the planners are not about to tell them. The difficulty for nearly all governments is the deterioration in their finances will eventually wipe out their currencies unless a solution is found.

There is a solution that if taken allows the state to survive. It could be modelled on Steve Hanke’s (of John Hopkins University) preferred solution of a currency board, that when strictly observed removes the state’s ability to create money out of thin air. He recommends this solution to currency debasement and the evils that come with it for Venezuela and the like, linking a distressed emerging market currency to the dollar. But here we are considering stabilising the dollar itself and all the other currencies linked to it. The currency board in this case can only be linked to gold, which has always been the peoples’ money, free of issuer risk. In former times this was the basis of a gold exchange standard.

Professor Hanke’s currency board is a rule-based system designed to achieve the same thing. Once the system is in place, every currency unit subsequently put into public circulation by the monetary authority must be physically backed by a defined weight of gold bullion. This was the method of the gold exchange standard adopted by the Bank of England under the terms of the Bank Charter Act of 1844. A modern currency board, consisting of digitised currency, effectively works the same way.

A currency board system is not the best mechanism whereby currency is made exchangeable for gold. Its weakness is it relies on the state fulfilling its obligations, so it would be better to use gold directly, either in physical or digitised form. America reneged on its gold exchange standard in 1933/34, when it first banned gold ownership and then devalued the dollar. That was simply theft by the state from its citizens. Therefore, other safeguards for a gold exchange standard must be in place.

A return to a credible gold exchange standard will then put a cap on interest rates and therefore government borrowing costs. Instead of nominal rates of 10% going on 20% and beyond, a gold exchange standard will probably cap long-term government borrowing rates in a two to five per cent range. It also allows businesses with viable investment plans to progress as well. Not only is it an obvious solution, but it is similar to that adopted in the UK following the Napoleonic wars.

Britain had government debt levels in 1815 greater than that of all advanced nations today relative to the size of her economy, with the single exception of Japan. She introduced the gold sovereign coin in 1816, comprised of 0.2354 ounces of gold, as circulating money with a face value of one pound. Over the following nine decades, not only did she pay down her government debt from over 200% of GDP to about 30%, but her economy became the most advanced and wealthy in the world. This was achieved with sound money, whose purchasing power rose significantly over those nine decades, while the quality of life for everyone improved. A sovereign was still one pound, only it bought much more.

Ordinary people were encouraged to work, spend and save. They aspired to make their families better off. The vast majority succeeded, and for those few unfortunates who fell by the wayside, charitable institutions were set up by successful philanthropists to provide both housing and employment. It was never the function of the state to support them. It would be too much to claim that it was a perfect world, or indeed that everyone behaved as gentlefolk with the best of Victorian values, but the difference between the successful laissez-faire economy in Britain with its relatively minor faults compared with the bureaucratic socialism that succeeded it is stark.

The key is in the creation and preservation of personal wealth, contrasting with socialist redistribution and wealth destruction, which has steadily undermined formerly successful economies. The future is coalescing towards an inflationary collapse for all Western governments, the manner of which is described in more detail in the following section. For prescient politicians, it creates the opportunity to reverse out of socialism, because the silent majority, which just wants commercial stability in preference to state handouts, if properly led will support a move away from destructive socialism. It is not a simple task, because all advice that a politician receives today is predicated on the creed of inflationism and socialist imperatives.

Why and how an inflationary collapse occurs

Monetarists are fully aware that if a government increases the quantity of money in circulation, its purchasing power declines. Their theory is based on the days when gold was money and describes the effect of imports and exports of monetary gold on the general price level.

Pure monetarists appear to assume the same is basically true of fiat currencies, unbacked by gold. But there is a fundamental difference. When gold is used as money for settling cross-border trade, an arbitrage takes place, correcting price differentials. When prices are generally low in one country, that country would achieve sales of commodities and goods in other countries where prices were higher. Gold then flows to the lower price centre, raising its prices towards those of other countries. With unbacked national currencies, this does not happen.

Instead, national currencies earned through cross-border trade are usually sold in the foreign exchanges, and the determinant of trade flows is no longer an arbitrage based on a common form of money. The pure link between money and trade has gone, and whether foreigners retain or sell currency earned by exports depends mostly on their confidence in it. That is a matter for speculation, not trade.

Domestic users of state-issued currency are divorced from these issues, because foreign currencies do not circulate domestically as a medium of exchange. Instead of being a form of money accepted beyond national boundaries, as gold was formerly, there is no value anchor for domestic use. For this reason, a national currency’s purchasing power becomes a matter of trust, and it is that trust that risks being undermined in a credit crisis. The less trustworthy a government, the more rapidly a currency is in risk of decline.

This is why monetarism, which was based on gold as ubiquitous money, is no longer the sole determinant of currency values. It is true that an increase in the quantity of circulating money devalues the existing stock, but if the population as a whole is prepared to increase its preference for money, usually expressed as a savings ratio, there need be no detrimental effect on its purchasing power.

With fiat currencies we enter a world where statistics reflect the quantity of money, and never the confidence people have in it. Additionally, we should observe that statistics can tell you everything and nothing, but never the truth. It is possible for an economy to collapse, but statistically appear healthy as the following example illustrates.

Imagine, for a moment, that modern statisticians and their methods existed at the time of the Weimar Republic. Government finances were covered by approximately ten per cent taxes and ninety per cent monetary inflation. It was a government whose finances were run on the lines recommended by today’s modern monetary theorists.

There can be no doubt the low level of taxation was an encouragement to business and permitted the redeployment of earnings for investment. A falling exchange rate delivers excess profits for export businesses as well. Interest rates were attractive relative to the rate of price inflation, and the economy, statistically anyway, was expanding rapidly.

This was certainly true measured in nominal GDP, the basic measure of economic activity today. Official prices, which are always the latest gathered and indexed, lag monetary debasement by at least a month, possibly two or even three. To this we must also mention governments always under-record price inflation, which is the natural consequence of earlier debasement. Therefore, even after an official price deflator is applied to nominal GDP, “real” GDP growth in Germany between 1918 and early-1923 would be judged by today’s government economists to be booming.

Interestingly, Joseph Stiglitz and a raft of left-leaning economists and politicians believed Hugo Chavez’s socialist policies were successful in 2007, when statistics revealed a similar interpretation for Venezuela’s inflation-ridden economy. However, instead of Germany being deemed to be in an economic boom, in 1920 economists in the classical and Austrian traditions saw it for what it was. Even Keynes wrote about it in his Tract on Monetary Reform, published coincidentally in late-1923 when the papiermark finally collapsed.

Germany’s inflation may have been a statistical success, but it concealed crippling wealth destruction through the transfer of wealth and wages from private individuals to the state through monetary debasement. As Lenin is reputed to have said, “The way to crush the bourgeoisie is to grind them down between the millstones of taxation and inflation.”

In Germany, inflationary financing started before the First World War to finance a build-up of armaments. At the outbreak of war, gold convertibility was suspended, and the unbacked papiermarkbegan its inflationary drift. Exploiting the facility to issue valueless pieces of paper as currency and for the people to circulate them as legal tender became the principal source of government funds.

This trick worked until approximately May 1923. By then, the purchasing power of the mark had fallen consistently at a relatively even pace. It then took only seven months to lose all its purchasing power, when the public collectively realised what was happening, and manically dumped their marks for anything. It was the katastrophenhausse, or crack-up boom, the end of life for a state’s unbacked currency.

It was the pattern firmly established in all fiat currency collapses, which, besides the currencies in existence today, has happened to all of them throughout the history of post-barter trade, without any known exception. It is the familiar route along which the dollar and other paper currencies are travelling today. Now that we are entering a statistical slowdown in most major economies, Weimar-style financing is set to return to centre-stage. The fate for unbacked state currencies, unless somehow averted, will be the same.

The lesson from Weimar and today’s monetary inflation is that the period before the public cottons on to it can be prolonged. In Germany it was 1914-1923, followed by a swift seven-month collapse. Today it is from 1971 and still counting. But the final collapse could be as rapid as Germany’s between May and November 1923.

Doubtless, we will see rising price inflation later this year, but that statistic will continue to be suppressed. With the gap between the effect of accelerating monetary inflation and the official rate of price inflation widening, we could see for a brief period the statistical recovery in GDP that so badly misled Professor Stiglitz and others observing Venezuela’s economy twelve years ago.

A gold standard alone is insufficient

A major problem for governments when price inflation begins to rise is the notional cost of borrowing, because markets alive to the decline in the currency’s purchasing power will drive interest rates higher, despite official attempts to suppress them. So far, the problem has been successfully covered up by central banks rigging government debt markets, and by government statisticians masking the true rate of price inflation through statistical trickery. In future, efforts to keep a lid on reality will presumably intensify as a core feature of monetary and economic policy. In light of another wave of monetary debasement, the question then arises whether markets will permit this market rigging to continue. If not, the purchasing power of unbacked currencies will be visibly undermined by the erosion of public confidence in them.

We cannot know this outcome for sure until it is well on the way. The Lehman credit crisis led to a global explosion in the quantity of money as central banks worked in tandem to rescue the banks and the entire financial world. That injection still circulates in the global blood-stream. A second globally-coordinated monetary debasement is just starting, notably with China leading the way. A realistic assumption must be that this time the purchasing power of state currencies will be the victim of a severe monetary overdose.

This being the case, there is bound to be an upward adjustment in nominal interest rates forced on central banks by the markets. Government financing becomes overtly inflationary, embarking on a modern equivalent of the papiermark route. How else do you describe accelerated quantitative easing?

A loss of confidence in currencies is always reflected in the prices of gold and silver, which by then should be heading considerably higher. Crypto-currencies could compound the problem by becoming an alternative for people no longer content to retain bank deposits.

Governments and their central banks will be at a fork in the road. One direction towards monetary stability is rough, tough, suspension-breaking, but leads to a better place. The other towards accelerating monetary debasement is smoother, more familiar, but just out of sight leads to a cliff-edge of monetary destruction.

Which road will your government take?

Western governments are poorly equipped to make this decision. There are a few people in the political establishment who might understand the choice, but they will have to deliberately put the clock back, and reverse government policy away from socialism and state regulation towards free markets and sound money. They will be fighting the neo-Keynesian economic establishment, the inflationists who form the overwhelming majority of experts and advisers. These neo-Keynesians populate the central banks and government treasury departments almost to the exclusion of all other economic theorists. Spending ministers and secretaries of state will have to be told to reduce their power-bases, which goes against their personal ambitions and political instincts.

It will take an extraordinary feat of leadership to succeed.

In favour of a brave statesman will be the free-market instincts of the silent majority. It is only at times of crisis that a statesman can muster this support. In a different context, Churchill in 1940 comes to mind. The public will not know the solution, but with the right leadership they can be led along the path to economic and monetary salvation. The currency will have to be stabilised by making it convertible into gold bullion, and government spending will have to be slashed, by as much as a quarter or a third in most advanced economies. This means enacting legislation cancelling government responsibilities, something that could require a state of emergency. The message to the electorate must be the government owes you nothing. And so that you can look after yourself, the government must encourage individuals to accumulate personal wealth by removing taxation from savings.

Obviously, the most socialist welfare states will face the greatest challenge. There will be extreme tension between financial reality and entrenched interests. There can be no doubt that their currencies are most likely to fail.

The Eurozone poses a particular challenge, with one currency circulating between nineteen member states. Conventional opinion is that all the troubles visited on the PIGS (Portugal, Italy, Greece and Spain) are due to an inflexible currency. Here, there is likely to be a split, with Germany and perhaps a northern faction gravitating towards the protection of a gold standard, while the PIGS will press for more interest rate suppression and infinite supplies of easy money from the ECB.

The US is a pivot of disaster

The US has a different but more worrying problem. It refuses to accept its decline as the dominant super-power, retreating into trade protection and autarky. Consequently, the US Government is taking destructive decisions. Since President Trump was elected, he accelerated inflationary financing late in the credit cycle in the belief it would lead to greater tax income in due course. He has also replayed the Smoot-Hawley Tariff Act of 1930, in the belief that trade protectionism somehow makes America great again (MAGA). Instead, it has crashed global trade, just as it did in the 1930s. MAGA is a fateful combination of tax cuts and trade protectionism. It is a curious form of self-harm, which backfires badly on American consumers and corporations. And it does not help foster good relations with America’s creditors, who have allowed America to live beyond her means for decades.

Foreigners now own dollars in enormous amounts, for which interpret they are America’s reluctant bankers. They are now beginning to be net sellers as a consequence of a dollar glut in their hands, combined with America’s clumsy geopolitical manoeuvrings. TIC data for December showed foreigners sold a net $91.4bn[ii] – the largest monthly outflow during Trump’s presidency, and this only a few months after everyone believed foreigners were buying yet more dollars to service their own debts.

While ignoring its dependency on foreign finance, America is trying to strangle China’s economic and technical development, but that horse has already bolted. Washington surely knows the jig is up, and that the US, Japan and Britain are merely islands on the periphery of a vitalised Eurasian powerhouse. We were all warned this would happen in one form or another by Halford Mackinder over a hundred years ago. America, it appears, is prepared to destroy herself rather than see Mackinder’s prophecy come true.

Consequently, the whole world is being thrown into a trade-induced slump, and the American government is central to the problem. We can expect its economy, along with all the others, to decline significantly in the coming months. It will be an encouragement for yet more inflationism. The monetary expansion which is sure to follow is set to lead to an acceleration in the decline in the dollar’s purchasing power, as foreigners turn from dollar bankers to dollar sellers. This will lead to an increase in the value of time-preference set by markets, and unless the Fed counters this increase sufficiently by raising its rates, the dollar will simply slide.

Under current circumstances, the 1980-81 Volcker solution of raising interest rates to 20% to stabilise the currency does not appear to be available. Furthermore, to reverse the Nixon shock of 1971 and reinstate gold backing for the dollar as a means of limiting the rise in interest rates is simply not in the establishment’s DNA. America, which is very much the guilty party in destroying its own Bretton Woods monetary arrangements, will find it very difficult to change its tack with such economic cluelessness at the top.

The SCO bloc

Things are very different in Asia. The eight members of the Shanghai Cooperation Organisation, together with those seeking to join, represent roughly half the world’s population. It is led by gold-friendly China and Russia. A further two billion people can be said to be directly affected by the way the SCO develops, including the populous nations of South-East Asia, the Middle East, and Sub-Saharan Africa. That leaves America’s questionable sphere of influence reduced to roughly one and a half billion souls out of a global population of seven. It is proof of Halford Mackinder’s foresight.

China and Russia still have significant infrastructure plans, which will stimulate Eurasian economic activity for at least the next decade, perhaps two. If the formerly advanced national economies slump, of course Asia will be adversely affected, but not as much as even China-watchers fear. The upcoming credit crisis is likely to mainly affect America, UK, Western Europe and their military and economic allies. The SCO bloc could escape relatively lightly, if it takes the right avoiding action.

The threat to the SCO’s future is mainly from its current monetary policies, with China in particular using credit expansion to manage the economy. She has sought to control the consequences of domestic monetary policy through strict exchange controls, a strategy which has so far broadly succeeded.

The growing possibility of a dollar collapse will call for a radical change in China’s monetary policy. We know the direction this new policy will take from the actions of Russia, China and increasingly those of other SCO members, and that is to somehow incorporate gold into their paper monies. Furthermore, they are capable of doing it and making it stick.

While it is clear to us that China and Russia understand the importance of gold as true money, it is not clear whether they have a credible plan for its introduction into their monetary systems. The Russians seem to have a good grasp of the issues. China had a good grasp, but many of her economic advisors are now Western-trained in neo-Keynesian inflationary beliefs. Therefore, China is not wholly immune to the faults that are likely to destroy the dollar and other Western currencies. But the central message in China’s successful cornering of the physical gold market is a switch will be made to sound money when it is strategically sensible, despite the neo-Keynesians in it ranks.

Almost none of the SCO nations have significant welfare commitments to their populations. It is therefore possible for them to contain government spending in an economic downturn. Not only can Russia and China introduce a gold exchange standard and make it stick, but fellow SCO members and those nations tied to it can either introduce their own gold exchange standards, or alternatively use gold-backed roubles and yuan to anchor their currencies.

The economic and monetary direction taken by the SCO in the coming years could turn out to be relatively successful, at least compared with the difficulties faced by the welfare states. Such an outcome would be immensely positive for humanity as a whole and be a lifeline for those of us deluded into inflation-funded socialism. You never know, it might even force spendthrift Western governments to reform their ways and return to sound money policies.

The effect on the price of gold should be obvious. It is said that foreign students in Berlin in 1923 were able to buy houses with the spare change from their allowances, sent to them by their parents, usually in dollars or pounds. Dollars at that time were as good as gold. Today, a currency board or gold exchange standard would have to be fixed at a rate significantly higher than current fiat-currency prices. Gold is the ultimate protection from theft by currency debasement.

by Tyler Durden

Is America An International Rogue Nation?

In 2003, America (and its lap-dog UK) invaded and destroyed Iraq on the basis of lies to the effect that the U.S. (and UK) regime were certain that Saddam Hussein had and was developing weapons of mass destruction. These U.S. allegations were based on provable falsehoods when they were stated and published, but the regime’s ‘news’-media refused to publish and demonstrate (or “expose”) any of these lies. That’s how bad the regime was - it was virtually a total lock-down against truth, and for international conquest (in that case, of Iraq): it was mass-murder and destruction on the basis of sheer lies.

That’s today’s U.S. Government - that’s its reality, not its ‘pro-democracy’ and ‘human rights’ myth. (After all: its main ally is the Saud regime, which the U.S. regime is now helping to starve and kill by cholera perhaps millions of Houthis to death.)

In 2011, the U.S. regime, then under a different nominal leader than in the Iraq invasion, invaded and destroyed Libya — also on the basis of lies that its press (which is controlled by the same billionaires who control the nation’s two political Parties) stenographically published from the Government and refused ever to expose as being lies.

In 2011-2019 (but actually starting undercover in 2009), the U.S. regime (and its then allies King Saud and Tayyip Erdogan, and the Thanis who own Qatar) hired tens of thousands of jihadis from around the world to serve as foot-soldiers (the U.S. regime calls them ‘rebels’), in order to bring down Syria’s secular, non-sectarian, Government, and thereby, via these jihadist proxy-forces, they invaded and destroyed Syria — likewise on the basis of lies that the ‘news’-media hid, secreting from the public such facts as that “The US Government’s Interpretation of the Technical Intelligence It Gathered Prior to and After the August 21 Attack CANNOT POSSIBLY BE CORRECT.” But the lies are never publicly acknowledged by any of the participating regimes and their press.This is an international empire of death and destruction based upon lies.

In 2011-2014, the U.S. regime perpetrated a bloody coup that ousted Ukraine’s democratically elected Government and replaced it by a fascist rabidly anti-Russian regime that destroyed Ukraine and perpetrated ethnic cleansing. How much of this reality was being reported in the U.S. regime’s press, at the time, or even afterward? It was hidden news at the time, and so those realities have since become buried, to become now only hidden history; and the U.S. regime and its ‘news’-media continue to hide all of this ugly reality. It remains hidden, and isn’t mentioned by either the regime or its press.

Right now, the U.S. regime (along with its other lap-dog Canada) is perpetrating, or at least attempting to perpetrate, a coup to take over Venezuela.

On February 8th, the Latin American Geopolitical Strategic Center (CELAG) issued their study, “The Economic Consequences of the Boycott of Venezuela”, and reported that throughout the five-year period of 2013-2017, Venezuela’s “economy and society suffered a suffocation [of] $ 22.5 billion in annual revenues, as a result of a deliberate international strategy of financial isolation [of Venezuela]. Evidently, this financial pressure intensified since 2015 with the fall in the price of crude oil.” So: that’s a total loss of over $112 billion from Venezuela during the entire 5-year period, and the result has become (especially after 2014) the impoverishment of the country. The U.S. regime and its allies and their propaganda-media blame, for that, not themselves, but the very same Government they’re trying to take down. The U.S. regime and its allies have contempt for the public everywhere. The more that Venezuelans blame their own Government for this impoverishment, instead of blame America’s Government for it, the more that their exploiters will have contempt for them, but also the more that their exploiters will benefit from them, because the exploiters’ taking control of the Government will then be much easier to do.

The U.S-and-allied exploiters are attempting to install in Venezuela a man who has absolutely no justification under the Venezuelan Constitution to be claiming to be the country’s ‘interim President’. For some mysterious reason, Venezuela’s President isn’t calling for that traitor to be brought up on charges of treachery — attempting a coup — and facing Venezuela’s Supreme Judicial Tribunal on such a charge, which Tribunal is the Constitutionally authorized body to adjudicate that matter. So, Venezuela’s Government is incompetent — but so too have been all of its predecessors since at least 1980, and incompetence alone is not Constitutional grounds for replacing Venezuela’s President by a foreign-imposed coup. At least Venezuela’s actual President is no traitor, such as his would-be successor, Juan Guaido, definitely is.

Did Venezuela invade America so as for America’s economic war against it to be justified? Did Iraq invade America so as for America’s destruction of it to be justified? Did Libya invade America so as for America’s destruction of it to be justified? Did Syria invade America so as for America’s destruction of it to be justified? Did Ukraine invade America so as for America’s destruction of it to be justified? None of them did, at all. In each and every case, it was pure aggression, by America, the international rogue nation.

Back in 1986, regarding America’s international relations including its coups and invasions, the U.S. quit the International Court of Justice (ICJ), when that Court ruled against the U.S. in the Iran-Contra case, Nicaragua v. United States, which concerned America’s attempted coup in that country. But though the U.S. propaganda-media reported the Government’s rejection of that verdict in favor of Nicaragua, they hid the more momentous fact: the U.S. Government stated that it would not henceforth recognize any authority in the ICJ concerning America’s international actions. The public didn’t get to know about that. Ever since 1986, the U.S. Government has been a rogue regime, simply ignoring the ICJ except when the ICJ could be cited against a country that the U.S. regime is trying to destroy (‘democratize’). And then, when the ICJ ruled on 9 March 2005 against the U.S. regime in a U.S. domestic matter where the regime refused to adhere to the U.S. Constitution’s due-process clause regarding the prosecutions and death-sentences against 51 death-row inmates, and the Court demanded retrials of those convicts, the U.S. regime, in 2005, simply withdrew completely from the jurisdiction of the ICJ. Ever since 9 March 2005, the U.S. regime places itself above, and immune to, international law, regarding everything. George W. Bush completed what Ronald Reagan had started.

This rogue regime has no real legitimacy even as a representative of the American people. It doesn’t really represent the American public at all. It is destroying the world and lying through its teeth all the while. Its puppet-rulers on behalf of America’s currently 585 billionaires are not in prison from convictions by the International Court of Justice in the Hague. They’re not even being investigated by the International Court of Justice in the Hague. That’s a U.N. agency. Does the U.N. have any real legitimacy, under such circumstances as this? Can an international scofflaw simply refuse to recognize the authority of the international court? This mocks the U.N. itself. The U.S. places itself above the U.N.’s laws and jurisdiction and yet still occupies one of the five permanent seats on the U.N’s Security Council and still is allowed to vote in the U.N.’s General Assembly. Why doesn’t the U.N. simply expel America? It can’t be done? Then why isn’t a new international legal body being established to replace the U.N. — and being granted legal authority everywhere regardless of whether a given national regime acknowledges its legal authority over matters of international law? Why is Venezuela being internationally isolated and sanctioned, instead of the U.S. being internationally isolated and sanctioned?

On top of all that, this is the same U.S. regime that has blocked the Paris Agreement on Climate Change, and that has broken one international agreement after another - not only NAFTA, and not only the nuclear agreement on Iran, and not only many nuclear agreements with first the Soviet Union and then Russia, but lots more - and all with total impunity.

And it’s not only the countries that the U.S. invades or otherwise destroys, which are being vastly harmed by this international monster-regime. How many millions of the flood of asylum-seekers who are pouring into Europe have done that in order to reach safety from America’s bombs and proxy-troops - jihadists and fascist terrorists - which have ravaged their own homelands? What is that flood of refugees doing to Europe, and to European politics - forcing it ever-farther to the right and so tearing the EU apart? Why are not Europeans therefore flooding their own streets with anti-American marches and movements for their own Governments to impose economic sanctions against all major American brands, and demanding prosecution of all recent American Presidents, starting at least with G.W. Bush - or else to vote out of office any national politicians who refuse to stand up against the American bully-regime?

It isn’t only weak nations such as Nigeria that are corrupt and rotten to the core. The entire U.S. empire, and especially its U.S. masters, are.

How much more will the peoples of the world remain suckers to the vast corporate propaganda-operation by that out-of-control beast of a rapacious regime, which displays the Orwellian nerve to label as being a ‘regime’ each and every Government that it seeks to overthrow and to call itself a ‘democracy’?The U.S. regime is itself actually allied the most closely with the world’s most barbaric rulers, the Saud family, that own Saudi Arabia. The U.S. regime is also allied with the apartheid and internationally aggressive regime in Israel. Is such an international gang, as this is, going to get off scot-free, as if there were no international law — or at least none that applies to itself?

And, if the U.S. regime is so concerned to ‘protect democracy’ and ‘protect human rights’ all over the world (as that perennially lying bunch always claim to be the ‘justification’ for their invasions and coups), then why isn’t it starting first by prosecuting itself? (Or, maybe, by prosecuting Crown Prince Mohammed bin Salman al-Saud, for his many crimes — and prosecuting his predecessors for financing the 9/11 attacks against Americans?) Well, of course, Hitler didn’t do anything of the sort. (Nor did he prosecute his allies.) He set the standard. Maybe, ideologically, Hitler and Mussolini and Hirohito actually won the war, though this has happened after they first physically lost what everyone had thought was the end of WW II. After all, nobody is prosecuting the U.S. regime today. Isn’t that somewhat like a global victory for fascism — the Axis powers — after the fact? Maybe “we” won the war, only to lose it later. Doesn’t that appear to be the case? Mussolini sometimes called fascism “corporationism”, and this is how it always functions, and functions today by agreement amongst the controlling owners of international corporations that are headquartered in the U.S. and in its vassal-nations abroad.

Is this to go on interminably? When will this international reign of fascism end?

What would happen if all the rest of the world instituted an international legal and enforcement system (under a replacement U.N.) in which all commitments and contractual proceeds to benefit American-based international corporations and the U.S. Government were declared to be immediately null and void — worthless except as regards the claims against the U.S. entities? (The owners of those entities have been the beneficiaries of America’s international crimes.) Contracts can be unilaterally nullified. The U.S. Government does it all the time, with no justification except lies. Here, it would be done as authentically justifiable penalties, against actually massive global crimes.

The U.S. militarily occupies the world; this is a global empire; it has over a thousand military bases worldwide. Why aren’t the people in all of those occupied countries demanding their own governments simply to throw them out — to end the military occupation of their land?

You can’t have a world at peace, and anything like international justice, without enforcing international law. This is what doing that would look like.

What we know right now is actually a lawless world. That’s what every international gangster wants.

Authored by Eric Zuesse via The Unz Review,

Marcellus: The Nifty is No Longer a Play on the Indian Economy

Over the past decade, the Nifty’s earnings have not only grown at a much slower pace than the Indian economy, they have also trailed the S&P500’s earnings growth by a country mile (although the Indian economy is growing much faster than the American economy). This disturbing phenomenon has far reaching implications for Indian investors.   –

The Nifty has fallen far behind the Indian economy

Over the last ten years, India’s GDP growth (in nominal terms) has averaged 13% per annum whilst the most popular benchmark index in India, the Nifty, has seen its earnings grow at a mere 8% per annum. In fact, in nine out of the last ten years, the Nifty’s earnings growth has trailed nominal GDP by a country mile (the only exception being FY11). In America on the other hand, nominal GDP growth over the past decade has been barely 4% and yet the S&P 500’s earnings has grown at 12% per annum, a full 400bps faster than the Nifty (even without converting the Nifty’s earnings to US dollars)! Why do the benchmark indices in India and America display completely opposite trends (when compared to the GDP growth of their respective economies) and what implications does that have for investors?

Why does the Nifty lag the Indian economy?

To understand why the Nifty no longer captures the dynamism of the Indian economy a good place to start is the index as it stood ten years ago. On the face of it, the ten year share price return from investing in the Nifty is a very respectable 14% but that is a deceptively flattering figure. A better way to understand the quality (or lack thereof) of the Nifty is to look at the return from investing in the underlying fifty stocks which were in the Nifty ten years ago – such a portfolio (equal weighted) would give you a return of negative 1% per annum (CAGR over ten years). [Note: by starting the measurement in February 2009, when the market was close to its post-Lehman lows, we are giving the Nifty every chance to benefit from an unusually low base.]

If you assume that the cost of equity of a typical investor investing in Indian stocks is 15%, only 18 out of the 50 stocks in the Nifty have given a return above the cost of equity over the past ten years. [This number too is flattered by the fact that our starting period in Feb 2019.] These 18 outperformers – ranked in descending order of performance – are: HCL Tech, TCS, HDFC Bank, Maruti Suzuki, M&M, Zee, HUL, HDFC, Wipro, Tata Motors, BPCL, Infosys, ITC, Siemens, Hindalco, ICICI Bank, Grasim, L&T and Sun Pharma. As you can see from the list, barring four companies, all the other companies are from relatively capital light and/or B2C sectors like Consumer, Auto, Pharma and Banking.

The other 32 companies – whose ten year return is below the cost of capital – are from balance sheet heavy sectors like Power, Construction, Metals, Telecom, Real Estate and Oil & Gas. These sectors accounted for roughly 30-35% of the Indian economy. And yet these companies account for two-thirds of the companies in the Nifty leaving little room in the index for the more vibrant sectors of the economy. The over-representation in the Nifty of the capital heavy sectors of the economy is therefore a key reason its sluggish performance. It is not obvious to us why the Nifty continues to have such a high proportion of companies from balance sheet heavy sectors.

Secondly, over the last five years, the Nifty’s market has increasingly diverged from India’s nominal GDP (after faithfully tracking it for much of the preceding decade). This in turn is suggests that significant drivers of the Indian economy are no longer in the listed market. For example, taxi aggregators (Ola, Uber), online retailers (Flipkart, Amazon), electronics goods manufacturers, car manufacturers other than Maruti, hotels other than Taj, Oberoi and Lemontree, etc – basically most of the things that affluent India buys beyond FMCG and apparel – is no longer in the listed market. These companies are able to access capital at low cost without entering the stockmarket and therefore their contribution to GDP is not reflected in the stockmarket. If, as the Indian economy matures, the unlisted world continues to provide capital at lower cost than the listed market then the gap between GDP and market cap will widen further.

Implications for investor

1. The sluggishness of the Nifty makes its relatively easy for reasonably competent fund managers to outperform the index and unjustifiably claim the presence of skill. Whilst this does  pose a challenge for Nifty tracker/index funds (since they are tracking a moribund index), it also opens up enormous opportunities in India for smart beta funds. For example, the Nifty Junior (which represents the 50 most liquid stocks below the Nifty) almost always outperforms the Nifty

2. Given that nearly two-thirds of the Nifty constituents have failed to give a return above the cost of capital, large cap Indian funds which draw their constituents largely from the Nifty are a difficult investment to justify. On the other hand, even a relatively simple method – like our Consistent Compounders algorithm which focuses on a select subset of Nifty stocks – is able to deliver returns which are consistently above the cost of capital.

3. The inability of the Indian stockmarket to provide lower cost funding than the Private Equity (PE) firms is depriving the Indian stockmarket of high quality companies which can dominate their sectors and help the stockmarket participate in India’s economic growth. The more important foreign companies and PE funded companies become in India, the bigger the questions mark around the relevance of the Indian stockmarket as a medium via which ordinary investors can benefit from India’s economic growth.

4. The fact that the S&P500 can consistently grow earnings much faster than US economic growth suggests that American companies can tap into Emerging Markets’ economic growth much better than Indian companies in the Nifty. This not only raises troubling questions about the quality of capital allocation and accounting in many large Indian companies who are in the Nifty, it also suggests that Indian investors should consider investing in a portfolio of global companies who dominate specific segments on a worldwide basis.

Three Things to Think About if You Fear aSlowdown

Stock prices and the economy have diverged, and that makes it even harder than usual to judge whether there is a true global slowdown under way. 

There are three possibilities, and investors need to distinguish between them. 

One, a string of one-off hits to the economy in autumn—bad weather, a nasty flu season and new European rules on car emissions—is continuing to be felt now. Two, there really is a dangerous global slowdown, led by China. Three, the world’s political order is coming unstuck: an intensifying trade fight between the U.S. and China, a messy Brexit and other dysfunction across Europe. 

The first effect will fade; the second could last a long time; the third is merely preparing the ground for how bad things might get. STREETWISE Three Things to Think About if You Fear a Slowdown Investors are inding it dificultto form a global outlook There is some evidence that stocks are paying attention to the economic data again. Above,the bull and bear in front ofthe stock marketin Frankfurt. 


Blurring the picture is the behavior of markets, with stocks and other risky assets rallying everywhere in January, even as the mood darkened in countries more reliant on high-value exports to China. Shareholders have begun to discriminate this month, marking down Germany and Japan, both of which export a lot of highly profitable equipment to China. Yet, industrialmetals prices are usually painfully sensitive to Chinese demand, and show no signs of concern. 

What’s going on? There is no way to be sure, but it looks like a confusing mix of the delayed effects of last year’s one-off hits feeding into supply chains, and Chinese companies reining back investments as they worry about growth and tariffs. Neither is good, but it could be worse. 

Start with markets: Last month pretty much every major stock market rose, between 6% (France, Germany, Japan) and 9% (Chinese domestic stocks, emerging markets). Even as stock performance synchronized after last year’s U.S. exceptionalism, economic data suggested the U.S. has again jumped out in front. One closely watched lead indicator, the ISM manufacturing purchasing managers index, unexpectedly rebounded to show healthy expansion in the U.S., and jobs figures stayed strong. PMIs elsewhere suggest German and Italian manufacturing is shrinking more than forecast, while Japan is stagnating.
 There is some evidence that stocks are paying attention to the economic data again, with European and Japanese markets falling more than others in the past few days. 
This fits the first and third explanations: one-off effects are still reverberating through supply chains and hitting confidence while CEOs are concerned about politics. It doesn’t really fit the tale of China’s economy weakening fast, which ought to feed through to commodity prices as soon as investors come to believe it. 

Chinese companies worried about an uncertain outlook seem to be cutting back on new machinery, even as they keep existing factories and steel mills humming. And that makes German and Japanese machinery manufacturers the victims, rather than the Australian and Brazilian iron ore miners who suffer from a broader downturn. 

Japanese robot-maker Fanuc is typical. In its results to the end of December, it said Chinese demand in its three divisions had declined sharply, was weak or had plummeted. Industry data showed machine-tool exports from Japan to the rest of Asia down more than 25% in December compared with a year earlier, with foreign new orders down 24%. Meanwhile, machine-tool exports to Europe and the U.S. were flat, and Japanese domestic orders, while down, were down far less.

 Confidence among German machine-tool manufacturers has collapsed, according to the regular survey by the Ifo Institute in Munich. In November 2017, they were the most positive they had ever been on the business climate, but by the end of last year positive and negative views canceled out—and they were the most negative on the six-month outlook since the end of the 2009 recession. Copyright © 2019 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit https://www.djreprints.com. 

If the trade dispute somehow gets resolved before President Trump’s March 1 deadline to reach a trade deal, CEO confidence might improve, machinery orders could rebound and last year’s one-offs could fade.
Unfortunately, that is not guaranteed. Even without a worsening trade fight, the global economy is a complex beast with much depending on confidence, which is in short supply in Europe. Italy is back in recession thanks in part to the lack of confidence the bond market has in its populist government. France has a crisis of confidence in its business model. And German businesses have the lowest confidence in their outlook since 2012, when the euro was fighting for survival. If any economy is likely to talk itself into recession, it is Europe’s. 

There are a couple of crumbs of comfort for investors. The “soft” sentiment data in Europe is far more disappointing than more solid measures of the economy, according to Citigroup . The mood can swing very quickly if there is a run of good news.

 Even better, a terrible economy is already priced into European stocks and bonds. The German 10-year bond yield briefly dropped below 0.1% last week for the first time since 2016. Stock investors are trying to protect themselves by buying the economy-independent growth of the technology sector and the safe income of consumer staples, driving both to valuation premiums over the U.S. Every other sector trades at a lower multiple of price to 12-month forward earnings than the U.S., with consumer discretionary—including recession-priced auto stocks— at less than 10 times, compared with 20 times in the U.S.