You are here

Simon Black

Subscribe to Simon Black feed Simon Black
More Freedom. More Prosperity
Updated: 8 hours 39 min ago

How we’re investing to disrupt the system

Mon, 07/25/2016 - 12:15

I’ll be brutally honest– I’m so tired right now I can barely write this email.

For the past five days I’ve been going on almost no sleep.

I’ve been on my feet almost all day, every day, with an absolutely sadistic schedule trying to cram a year’s worth of education into a single long weekend.

We even spent several hours engaged in rigorous outdoor exercise and physical activity, to the point that I started to feel like I was in the military again.

(My legs are still quivering from a calisthenics exercise that my friends and I have dubbed ‘the Punisher’.)

But despite all this stress and physical exhaustion, I wouldn’t change it for the world… it was the only place I wanted to be.

As I mentioned to you in my last letter, this past weekend was our annual Liberty and Entrepreneurship Camp.

Each summer we host roughly 50 people from all over the world at a lovely lakeside resort in beautiful Lithuania.

My fellow instructors and I, all successful entrepreneurs who espouse the philosophy of personal freedom, lecture about business, freedom, and finance.

We cram A LOT into five days. It’s intense.

For many students the camp is a transformational growth experience.

For me it’s been life-changing.

Sovereign Man spends a lot of money to sponsor these camps, but I come away each year more and more energized about the future generation of problem solvers who will tackle the world’s big challenges.

It’s a tremendous honor to invest in their knowledge and growth at an early stage, and I have no doubt that many of them will be major disruptors on a global scale.

And the world certainly needs disrupting.

Nearly every major western government is bankrupt. The United States. The United Kingdom. Japan. Etc.

These are among the largest economies in the world. And their governments are flat broke.

This isn’t even a sensational statement to make.

Each government publishes its own financial statements showing in black and white that they are insolvent.

(In the case of the US government, its “net worth” is currently NEGATIVE $60 trillion. It’s astonishing.)

On top of that, the global financial system is breaking down at an incredible rate.

Central bankers, who are nothing more than unaccountable, unelected bureaucrats, have been awarded totalitarian control of the money supply and given the ability to conjure unlimited amounts of paper currency out of thin air.

The end result is that our financial system now boasts more than $13 trillion worth of bonds that have NEGATIVE yields.

The mere concept of essentially paying someone else for the privilege of lending them your money is intellectually offensive.

That there’s $13 trillion of those toxic assets in the financial system seems almost fantastical.

And yet it’s true. Even more, this dangerous trend is growing at an almost exponential rate.

Plus, these negative rates are starting to cause serious problems in the banking system.

Right now we’re seeing this unfold most notably in Italy, where one of the country’s largest banks is nearing failure and in need of yet another bailout.

This cancer will continue to spread.

Even many of the central banks themselves, the biggest institutions at the top of the global financial system, are themselves technically insolvent.

I find it very difficult to look at so much objective data… so much debt, insolvency, negative interest rates… and conclude that this is a consequence-free environment.

As I pointed out to our students this weekend, it’s probably not a good thing that most western governments and central banks are insolvent, and their banking systems are in need of a bailout.

History is full of examples of previous global financial crises that share similar characteristics, and it really seems foolish to believe that this time is any different.

But this isn’t any kind of doom and gloom prediction. Nor is it controversial.

This is merely common sense: an objective, truthful look at reality based on publicly available data.

But just because the data and conclusions are negative doesn’t mean that we should panic.

If you understand what’s happening, you can take preventative steps to reduce the ways these risks impact your life.

If your banking system is dangerously insolvent (i.e. today in Italy), don’t hold the majority of your funds there.

Instead, seek safer banking jurisdictions abroad and alternative means to hold savings (gold, physical cash).

If your government is confiscating citizens’ assets at record levels (Civil Asset Forfeiture in the US), don’t hold all of your assets within its reach.

These are simple concepts. And the tools do exist to dramatically mitigate the risks.

But as I told our students over the weekend, it’s important to not live in fear and panic about the next financial crisis, no matter how big it may likely become.

This bizarre financial system, with all of its insolvency and negative rates, could implode in spectacular fashion next week.

Or it could persist for several more years. No one has a crystal ball.

If we’ve learned anything since the last crisis, it’s that the political and banking establishment is incredibly adept at kicking the can down the road.

So the most important thing anyone can do about it is learn about both the problems AND solutions, then take some common sense steps to ensure you’ll always be in a position of strength no matter what happens (or doesn’t happen) next.

Then, and only then, you will be able to take advantage of the incredible abundance of opportunities out there.

Every big problem is an opportunity in disguise. And we’ve barely scratched the surface of the big problems.

Education systems are broken. Pension systems are broken. Healthcare systems are broken.

But these problems are all fixable.

And that creates nearly limitless possibilities for investors, entrepreneurs, and skilled workers to create value– the most important currency of all.

“These are the danger signals and they are flashing now.”

Wed, 07/20/2016 - 10:00

I’m excited.

Tomorrow starts our summer Liberty & Entrepreneurship camp, an annual event that our foundation sponsors in which some of my most accomplished friends and I mentor young students from all over the world.

This year we have students from dozens of countries, places like Indonesia, Ecuador, Nigeria, Brazil, New Zealand, Ukraine, Canada, Estonia, China, Venezuela, Singapore, India, and the United States.

We’ll spend five days together at a beautiful lakeside resort here in Lithuania helping them build real skills in value creation, business development, investing, and more.

Before I sign off for the next few days, though, I wanted to pass along an impressive speech that was recently given by this year’s recipient of the Templeton Prize.

The Templeton Prize is named after legendary investor Sir John Templeton, who passed away in 2008.

In addition to being an enormously successful asset manager, Templeton was an unparalleled philanthropist.

He even renounced his US citizenship in 1964 during the Vietnam War, which saved him over $100 million in taxes that would have gone to fund a destructive war.

Instead, that money went to fund charitable efforts around the world.

This year’s recipient of the Templeton Prize is a British rabbi and philosopher named Jonathan Sacks.

His recent acceptance speech is a succinct and fantastic summation of WHY the West is in such decline.

This is not some message of doom and gloom by a tin-foil-hat-wearing conspiracy theorist.

On the contrary, it’s an inspiring look at what made the West great to begin with. And, maybe, just maybe, how it might be once again.

I’ve provided some excerpts below:

This is a fateful moment in history. Wherever we look, politically, religiously, economically, environmentally, there is insecurity and instability.

It is not too much to say that the future of the West and the unique form of freedom it has pioneered for the past four centuries is altogether at risk. . .

To mention just a few [risks:]. . .

Artificially low interest rates that encourage borrowing and debt and discourage saving and investment.

Wildly inflated CEO pay.

The lowering of living standards, first of the working class, then of the middle class.

The insecurity of employment, even for graduates.

The inability of young families to afford a home. . .

The collapse of birthrates throughout Europe, leading to unprecedented levels of immigration that are now the only way the West can sustain its population, and the systemic failure to integrate some of these groups.

The loss of family, community and identity, that once gave us the strength to survive unstable times.

And there are others.

Why have they proved insoluble?

First, because they are global, and governments are only national.

Second, because they are long term while the market and liberal democratic politics are short term.

Third, because they depend on changing habits of behavior, which neither the market nor the liberal democratic state are mandated to do.

Above all, though, because they can’t be solved by the market and the state alone.

You can’t outsource conscience. You can’t delegate moral responsibility away.

When you do, you raise expectations that cannot be met.

And when, inevitably, they are not met, society becomes freighted with disappointment, anger, fear, resentment and blame.

People start to take refuge in magical thinking, which today takes one of four forms: the far right, the far left, religious extremism and aggressive secularism.

The far right seeks a return to a golden past that never was.

The far left seeks a utopian future that will never be.

Religious extremists believe you can bring salvation by terror.

Aggressive secularists believe that if you get rid of religion there will be peace.

These are all fantasies, and pursuing them will endanger the very foundations of freedom.

Yet we have seen, even in mainstream British and American politics, forms of ugliness and irrationality I never thought I would see in my lifetime.

We have seen on university campuses in Britain and America the abandonment of academic freedom in the name of the right not to be offended by being confronted by views with which I disagree.

Most societies, for most of history, have been either tradition-directed or inner-directed. People do what they do, either because that is how they have always been done, or because that’s what other people do.

Inner-directed types are different. They become the pioneers, the innovators and the survivors.

They have an internalized satellite navigation system, so they aren’t fazed by uncharted territory.

They have a strong sense of duty to others. . . . They take daring but carefully calculated risks. When they fail, they have rapid recovery times.

They have discipline. They enjoy tough challenges and hard work. They play it long.

They are more interested in sustainability than quick profits.

They know they have to be responsible to customers, employees and shareholders, as well as to the wider public, because only thus will they survive in the long run.

They don’t do foolish things like creative accounting, subprime mortgages, and falsified emissions data, because they know you can’t fake it forever.

They don’t consume the present at the cost of the future, because they have a sense of responsibility for the future. . .

Cultures like that stay young. They defeat the entropy, the loss of energy, that has spelled the decline and fall of every other empire and superpower in history.

But the West has, in the immortal words of Queen Elsa in Frozen, let it go.

It’s externalized what it once internalized. It has outsourced responsibility. It’s reduced ethics to economics and politics.

Which means we are dependent on the market and the state, forces we can do little to control.

And one day our descendants will look back and ask, How did the West lose what once made it great?

Every observer of the grand sweep of history, from the prophets of Israel to the Islamic sage ibn Khaldun, from Giambattista Vico to John Stuart Mill, and Bertrand Russell to Will Durant, has said essentially the same thing: that civilizations begin to die when they lose the moral passion that brought them into being in the first place.

It happened to Greece and Rome, and it can happen to the West.

The sure signs are these: a falling birthrate, moral decay, growing inequalities, a loss of trust in social institutions, self-indulgence on the part of the rich, hopelessness on the part of the poor, unintegrated minorities, a failure to make sacrifices in the present for the sake of the future, a loss of faith in old beliefs and no new vision to take their place.

These are the danger signals and they are flashing now. . .

We owe it to our children and grandchildren not to throw away what once made the West great, and not for the sake of some idealized past, but for the sake of a demanding and deeply challenging future.

If we do simply let it go, if we continue to forget that a free society is a moral achievement that depends on habits of responsibility and restraint, then what will come next – be it Russia, China, ISIS or Iran – will be neither liberal nor democratic, and it will certainly not be free. . .

[Editor’s note: You can read the full speech here.]

The financial system is breaking down at an unimaginable pace–

Mon, 07/18/2016 - 10:09

Now it’s $13 trillion.

That’s the total amount of government bonds in the world that have negative yields, according to calculations published last week by Bank of America Merrill Lynch.

Given that there were almost zero negative-yielding bonds just two years ago, the rise to $13 trillion is incredible.

In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.

A year later in February 2016 it had nearly doubled to $7 trillion.

Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.

Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan).

Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments.

And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm.

We’ll probably see $15 trillion, then $20 trillion, worth of negative-yielding subprime government debt within the next few months.

So this trend will continue to grow for now, until, just like in 2008, the bubble bursts in cataclysmic fashion.

It took several years for the first subprime bubble to pop. This one may take even longer. But even still, we can already see the consequences today.

A few months ago I told you about the remarkable $3.4 trillion funding gap in the US pension system.

Remember, we’re not talking about Social Security– that has its own $40+ trillion shortfall.

I’m talking about private companies’ retirement pensions, or public service worker pensions at the city and state level.

(By the way, this is NOT strictly a US phenomenon. Europe suffers its own $2 trillion pension shortfall.)

There’s zero mathematical probability that these pensions will be able to meet their obligations.

They’re already underfunded. And the problem is getting worse, thanks in part to this plague of low and negative interest rates.

You see, most pension funds must achieve a low-risk investment return of roughly 8% in order to stay solvent and pay their beneficiaries.

And making an 8% return used to be a reasonable assumption.

25-years ago, government bonds often yielded more than 8%.

So unsurprisingly, the average return for pension funds over the last 25-years has been around 8% according to the National Association of State Retirement Administrators.

But that’s no longer the case.

With such a huge portion of the bond market now with negative yields, it’s virtually impossible for pension funds to keep their promises.

Even Warren Buffett has written that “[pension] funding is woefully inadequate,” and, “In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep.”

Bottom line: anyone who is ever considering retirement must heavily discount the future promises of unfunded pensions and Social Security.

The younger you are, the less likely you are to receive benefits they’ve promised.

But this also gives you time to prepare and take matters into your own hands. Consider the following:

1. Establish a better retirement plan.

Millions of people currently have their retirement savings trapped in some generic retirement package, like a managed 401(k) that’s directed by a gigantic financial institution.

You could easily be paying 1% to 2% per year in fees. In other words, your investment return is 1% to 2% less than what it should be.

That might not sound like much, but over time it makes a huge difference.

Over the course of a few decades, even a 0.5% difference in your average annual investment return can add up to hundreds of thousands of dollars.

It’s imperative to cut unnecessary costs on your retirement plan.

Depending on the investments you make, establishing a more flexible retirement structure like a solo(k) or self-directed IRA is one way to potentially reduce those costs.

It’s possible to fix your expenses to a particular dollar amount (typically just a few hundred dollars each year) rather than a percentage of assets.

So if your retirement account is somewhere between $50,000 to $100,000, you could save a lot of money and really boost your retirement.

2. Expand your investment universe.

Just like saving on your retirement structure’s costs, or being able to put more money away, raising your average annual investment return by just 1% can have a profound impact on your retirement.

This means being willing to step outside of the crowd and go beyond traditional investments like stocks, bonds, and mutual funds.

It’s not to say you can’t make money with these assets classes.

But the more solid investment options you have to choose from, the more likely you’ll be able to generate higher returns.

Again, this is where a flexible retirement structure really makes a difference.

With a solo(k) or self-directed IRA, you’ll be able to invest in numerous asset classes beyond the mainstream retirement options, including physical precious metals, private equity, venture capital, cash-producing real estate, and more.

3. Start a business.

I’m not talking about the next Google or any major enterprise. But with a little bit of education and effort, it’s possible for absolutely anyone to learn the basic skills needed to make extra money.

In the Digital Age where e-commerce prevails, there are countless options to generate independent income.

And again, with the right structure, it’s possible to push the bulk of your side business’ income into a tax-deferred retirement fund.

[I’ll have a dedicated article on this soon with some more resources and recommendations.]

The entire financial system is exposed to this junk bond market

Mon, 07/18/2016 - 10:01

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

Japan got there first. 15 years ago, we met a Japanese equity manager who made an astonishing prediction:

“Japan was the dress rehearsal. The rest of the world will be the main event.”

That seemed an extraordinary suggestion 15 years ago. Today, not so much.

In the aftermath of the late 1980s real estate and stock market bubble, and its subsequent banking crisis, Japan became a giant laboratory experiment for novel insane monetary policies.

In 2001 the Bank of Japan tried Quantitative Easing. It was a policy that Richard Koo of the Nomura Research Institute described as the “greatest monetary non-event”.

It turned out, not for the first time, that academic economists had it all wrong.

Borrowers, not lenders, were the fundamental bottleneck in Japan’s recession:

“The central bank’s implementation of QE at a time of zero interest rates was similar to a shopkeeper who, unable to sell more than 100 apples a day at $1 each, tries stocking the shelves with 1,000 apples, and when that has no effect, adds another 1,000.

As long as the price remains the same, there is no reason consumer behaviour should change – sales will remain stuck at about 100 even if the shopkeeper puts 3,000 apples on display.

This is essentially the story of QE, which not only failed to bring about economic recovery, but also failed to stop asset prices from falling well into 2003.”

The central banks of the rest of the developed world have had more success in boosting asset prices through their own deployment of QE, but they have had just as little impact on their real economies.

What QE has done is made the asset-rich richer, and the poor relatively poorer. Inasmuch as social equality is a stated aim of most governments, QE has been a disaster.

But it has done wonders for bond prices.

John Seagrim of CLSA points out that despite having yielded very little for a very long time, Japanese Government Bonds (JGBs) have been surprise performers in 2016.

The 40-year JGB has risen by 50 percent in price since the start of the year, reducing the annual yield to a level that’s now just 7 basis points (i.e. 0.07%).

Assuming investors hold the JGB to maturity in 2056, they will achieve a total return of just 2.96 percent over the life of the bond, not accounting for inflation or taxes.

Those investors might be interested to see what they could earn from a different asset class.

If they bought and held a Topix ETF (Japanese stocks) instead, they would earn a current dividend yield of 2.37 percent per year, not including any gains from potential appreciation in the share prices.

Of course, many government bonds are more expensive than the 40 year JGB in that they offer no yield whatsoever, or only a negative one.

10-year German bonds currently yield minus 0.07 percent. 10-year Swiss paper currently yields minus 0.64 percent. The 10-year US Treasury yield of 1.58% seems almost too good to be true at this point, a sad reflection of our investing environment.

Yet somehow, despite policy failures that are made obvious by the lowest interest rates ever recorded in human history, a persistent narrative still dominates financial markets: all-knowing, omnipotent central bankers are still in full control of the situation and will do ‘whatever it takes’ to maintain order.

As Richard Koo puts it:

“Even though QE failed to produce the expected results, the belief that monetary policy is always effective persists among economists in Japan and elsewhere.

To these economists, QE did not fail, it simply was not tried hard enough. According to this view, if boosting excess reserves of commercial banks to $25 trillion has no effect, then we should try injecting $50 trillion, or $100 trillion.”

But investors are starting to realize that ‘whatever it takes’ may not be enough.

Ben Hunt of Salient Partners writes convincingly that this status quo narrative is starting to falter very badly, and in the face of events like Brexit, becoming harder and harder to maintain:

“… status quo political and economic institutions – particularly Central Banks – have failed to protect incomes and have pushed income and wealth inequality past a political breaking point.

They made a big bet: we’re going to bail-out / paper-over the banks to prevent massive losses in the financial sector, we’re going to inflate the stock market so that the household sector feels wealthier, and we’re going to make vast sums of money available for the corporate and government sectors to borrow really cheaply.”

Narratives die hard, but when the ‘omnipotent central bank’ narrative finally and conclusively fails, bond investors will suffer a religious experience as the market rushes to reprice these heavily overvalued bonds.

Think about it: how much will a bond with a NEGATIVE yield be worth on the day that investors lose confidence in their central bankers’ abilities to control the weather financial markets?

Investors holding these junk bonds are going to take a big hit.

Here’s the rub: even if you don’t own bonds personally, you may still have significant exposure.

More than likely your pension fund and your bank all have substantial positions in low (or negative) yielding debt. So there may be a system-wide hit once this repricing occurs.

Ben Hunt again:

“Our portfolios should minimize the maximum risk the world actually presents, not maximize the reward our crystal ball models predict. . .

For me, that means real assets and real yield, fractional ownership in real companies with real cash flows from real economic activity with real people. You know, what a stock market used to mean before it became a Central Bank casino.”

How to legally steal $35,000 from Vladimir Putin

Fri, 07/15/2016 - 12:42

Jim Rogers told me to come here.

We were having dinner a few weeks ago in Singapore, and Jim had just returned that morning from Russia full of optimism for the improving economy.

I had been meaning to come back here anyhow to scout out private equity deals.

But after hearing Jim’s take on Russia having just met with a lot of the country’s business elite, it really lit a fire.

As I’ve written so many times in this letter, I’m really a pathetic tourist. I’ve been to Paris countless times and have never bothered to visit the Eiffel Tower.

When I travel, it’s to either build and maintain relationships, or to put boots on the ground and seek out risks and opportunities first hand.

On my return to Russia, the country has not disappointed.

You’ve probably heard about how the Russian economy has been depressed over the last few years.

Much of this was due to international sanctions imposed after Russia annexed Crimea in 2014 against the wishes of Ukraine, Europe, and pretty much the whole world.

Russia’s credit rating was downgraded, and foreign businesses and investors started pulling their money out en masse.

The capital flight was extreme. Between 2014 and 2015, $210 billion fled Russia, more than 10% of the country’s GDP. That’s an enormous figure.

Then the price of oil collapsed– from $115 in June 2014 to less than $30 just over a year later. Natural gas and other major commodities also fell.

Bear in mind that oil and gas exports are a major component of the Russian economy, so the effects were devastating to both GDP and financial markets.

Russia’s economy didn’t just contract. It shriveled. And the stock market crashed.

On top of everything else, the Russian ruble went into freefall, losing 35% of its value in a matter of months.

This made imports a LOT more expensive, dramatically pushing up the rate of inflation.

Russia has essentially been suffering the worst combination imaginable– consumer price inflation, economic contraction, capital flight, credit downgrades, international sanctions, stock market crash, currency crisis– all simultaneously.

Frankly it’s pretty miraculous this place didn’t descend into Venezuela-style chaos.

But it didn’t. In fact the situation has stabilized and a lot of data shows the economy is turning around. The worst seems to be over.

And yet opportunities still abound.

For example, the Russian stock market is still incredibly cheap.

The average Russian company is selling for just 7.5 times earnings and 20% less than its book value. Plus it pays more than a 4% dividend.

This is like buying a dollar for 80 cents and receiving 3.3 cents on top of that each year.

(US stocks sell for 25 times earnings and 200% MORE than book value, meaning they are historically overvalued and very expensive compared to Russia.)

In addition to stocks, the Russian currency is still far below its historic average.

Aside from making the country dirt cheap for anyone with foreign currency, I discovered something very interesting today:

Some of Russia’s coins are now worth less than their metal values.

I’ll explain– all coins are made of some metal, usually some combination of nickel, copper, etc. And that metal has a certain cost.

A dime coin in the US, for example, has about 1.2 cents worth of metal, mainly copper (91%) and nickel.

So if you melted down a US dime, which has a 10 cent face value, and sold off the metal for 1.2 cents, you’d lose 8.8 cents in the process.

The Russian ruble has become so cheap, however, that some of its coins are basically worthless.

The 1 kopek coin, for example, is the smallest denomination Russian coin that’s worth 1/100th of a ruble.

At current exchange rates that’s $0.00015, or about 0.015 cents! It’s nothing.

And yet each kopek coin is comprised of 1.5 grams worth of copper, nickel, and steel; and the melt value of these metals is worth a hell of a lot more than 0.015 cents.

In fact Russian coin dealers have estimated that the metal value of this coin is worth more than THIRTY FIVE TIMES its face value.

That’s quite a return on investment.

So theoretically $1,000 worth of these coins could be worth more than $35,000 in profit because of the metal value.

Now, I’m not suggesting you book a flight to Russia to scoop up and melt down all the coins you can find.

But it’s worth pointing out that these sorts of anomalies don’t come around too often. And when they do, it’s important to pay attention.

Jim Rogers is one of many legendary investors who has been buying in Russia. Templeton’s Mark Mobius has called Russia the “bargain of the century.”

He may be right. Russia is incredibly cheap.

That’s not to say it can’t get cheaper. Or that it can’t stay cheap for a while.

There has to be a catalyst in order for all the pent-up value to be realized.

But that seems to be happening now. Slowly. Russia is mending fences with Europe. Oil prices have climbed 40% from their lows. Capital is returning. It’s getting better.

18th century British banking mogul Baron Rothschild is often quoted as saying “Buy when there’s blood in the streets [even when that blood is your own].”

That may be too hardcore for most investors.

I prefer to buy when assets are still ultra-cheap, but there are obvious signs that things have turned around.

That time seems to be now.

We’re witnessing a complete breakdown in western values

Thu, 07/14/2016 - 10:54

Two months ago I was with the former President of Colombia, Alvaro Uribe, at his home outside of Medellin.

He was telling me some hilarious stories about his interactions in the early 2000s with Hugo Chavez, who had recently seized power in Venezuela.

Chavez was a fanatic socialist. He believed so strongly in the idea of redistributing wealth from rich to poor.

Yet even when it was clear his policies weren’t working and Venezuela was rapidly sliding into economic chaos, Chavez’s only solution was to double down and redistribute even MORE wealth.

It was the classic definition of insanity.

Chavez failed to understand what Uribe told me so succinctly: “If there’s no wealth creation, there’s nothing left to redistribute.”

We know how Venezuela turned out; its failed socialist experiment led to today’s infamous shortages of food and toilet paper.

But here in Russia is perhaps the most famous example in our modern times.

Marxists came to power in a bloody 1917 revolution with the goal of eradicating poverty and redistributing wealth.

Yet like Venezuela, the only equality the Soviet Union managed to achieve was making everyone equally poor to the point that this vast wasteland of destitution finally collapsed in the late 1980s.

These economic disasters almost invariably start with a rising gap in wealth and income– a growing percentage of the population feeling left behind who rally behind someone promising to “spread the wealth around.”

As Historian Will Durant wrote in his incredible 1969 book Lessons from History:

“The concentration [of wealth] may reach a point where the strength of number in the many poor rivals the strength of ability in the few rich. . . which history has diversely met by legislation redistributing wealth or by revolution distributing poverty.”

This is exactly what’s happening in the West now.

The statistics are obvious: the wealth gap is bigger than it’s been since the Great Depression.

Middle class wages, when adjusted for inflation, are stagnant.

2015 was the first time in years that the average wage increase in the United States actually surpassed the rate of inflation.

But on a longer timeline, household incomes haven’t kept pace with either productivity or the cost of living.

We can see the effects of this anecdotally.

Thomas Piketty’s 2013 book Capital in the Twenty-First Century, which criticized such inequality and advocated a global wealth tax, was an explosive best-seller.

A 2011 Pew Research Center poll showed that 49% of US respondents had a favorable view of socialism.

And of course, Bernie Sanders made wealth and income inequality major issues in his presidential campaign, resonating with tens of millions of people.

On the way over to Russia I was reading an article in Newsweek about Uber, the ride-sharing pioneer that is currently worth around $70 billion.

The author was upset because the company’s stock isn’t publicly traded like Apple or Facebook, meaning he’s not able to own any Uber shares for himself.

He complains that the founders of these tech companies have been “actively deciding to keep as much for [themselves] as possible and shut out the rest of the populace by avoiding public stock offerings.”

According to the author, we’re apparently all entitled to our “fair share” of other people’s businesses and private property.


He’s not alone– there’s a growing chorus of politicians beating up on Uber, evidenced by Elizabeth Warren’s statement in March 2016 that “all the benefits [of Uber and related “shared-economy” companies] are floating to the top 10%.”

What an ignorant comment to make.

Uber loses billions of dollars each year.

So if anything, investors’ capital ends up in the pockets of the hundreds of thousands of drivers who use the app to generate extra income.

In reality Uber constitutes an enormous transfer of wealth from investors to workers and consumers. So her comment was totally wrong.

But what was more amazing was that she was complaining about how it benefits the top TEN percent.

Usually these people whine about the top 0.1%, then the top 1%. Now it’s the top 10%.

When will they start complaining about the top 20%? Or those evil people in the top 55%, i.e. the percentage of households that actually pay US federal income tax.

Wealth and income inequality is real, and the gap is growing. So is the consequent rise of socialism.

People know they’re getting screwed. And they are. They just don’t know why.

They have no idea how central bankers who conjure money out of thin air have rigged the entire economy against them.

So instead they blame “capitalism” and naturally embrace its opposite.

Seven centuries ago when Europe was just a plague-infested backwater, glimmerings of economic freedom began to appear on the continent.

The West adopted core values, like the sacrosanct protection of private property; the ability for an individual to work hard and build wealth; and spirited intellectual debate.

This is how western civilization became the most prosperous that history has ever known.

But this is all changing.

Being wealthy used to be a virtue worthy of widespread aspiration.

Now it’s met with skepticism and derision.

Similarly, intellectual dissent used to be embraced.

Now it’s increasingly considered “hate speech” that must be banished from university campuses and their infantile ‘safe spaces’.

And the entire west, it seems, is moving towards an ever-expanding, fiscally unsustainable welfare state that creates swelling masses of dependents.

This is a complete breakdown of western values, and that has serious consequences.

It’s incredible how rapidly this trend has unfolded– it’s a very steep line from the economic chaos of the 2008 financial crisis to where we are today.

And given the speed of this pro-socialist trend, just think about where it’s going to be in a few more years.

More than likely, it will progress straight into your wallet.

Some disturbing figures about the upcoming banking crisis

Tue, 07/12/2016 - 15:30

In early 1870, the Kingdom of Prussia and French Empire were about to go to war.

It was one of countless conflicts between the dozens of European kingdoms and empires throughout the 18th and 19th centuries, and this one was over before it even started.

Prussia’s military might was legendary. They had recently beaten the pants off of Austria and Denmark, and they’d go on to neutralize or capture over 80% of French soldiers within a matter of months, while losing just 2% of their own.

Very few wars have been so one-sided.

And yet despite its nearly unparalleled military successes and clear dominance in European politics, Prussia lacked something critical: financial power.

Prussia’s economy was robust and healthy. But businesses across all German kingdoms depended almost exclusively on the British banking system to conduct international trade.

It was similar to how nearly the entire world depends on Wall Street mega-banks today for global trade. Germany lacked its own strong financial system.

So on March 10, 1870, King Wilhelm I of Prussia (soon to be German Emperor) granted a banking license to a trio of local entrepreneurs and gave them explicit instructions to establish a banking powerhouse.

And that’s exactly what they did. The bank was called Deutsche Bank, and it eventually grew into one of the largest banks in the world.

Deutsche Bank has seen a lot in its years; multiple world wars and the devastation of Europe. Hyperinflation in the Weimar Republic. Nazi Germany.

The bank even outlasted its own country, as the Kingdom of Prussia was formally abolished in 1947.

But as the world learned in 2008 when the 158-year old investment bank Lehman Brothers went bust, even giant, centuries-old financial institutions can collapse.

Banking is such a bizarre industry when you think about it.

Regular, everyday people like you and I fork over our hard-earned savings to banks.

They take our money and do some of the most insane things with it… whether loaning it to jobless, homeless people, or buying the negative-yielding debts of bankrupt governments.

You and I would never do anything so foolish with our own funds. Yet we hand everything over to banks and give them full license to engage in this madness.

And even when their decisions blow up and they go to the taxpayer with hat in hand for a bailout, they prove that they have memories like goldfish.

Today, banks are up to the same tricks as they were 10 years ago, except they’ve taken things to a whole new level.

And Deutsche Bank is leading the charge.

One of the major issues in the 2008 crisis was that banks were over-leveraged and had very thin levels of capital.

In other words, the banks’ rainy-day reserve funds as a percentage of their overall balance sheets were extremely low, so even a small loss in their investment portfolios would cause financial Armageddon.

That’s precisely what happened.

Lehman Brothers famously had a capital ratio of less than 3% of its assets. So when the value of its assets fell by more than 3%, the bank was finished.

Well-capitalized banks are supposed to have double-digit capital levels while making low risk investments.

Deutsche Bank, on the other hand, has a capital level of less that 3% (just like Lehman), and an incredibly risky asset base that boasts notional derivatives exposure of more than $70 trillion, roughly the size of world GDP.

Even the IMF has stated unequivocally that Deutsche Bank poses the greatest risk to global financial stability.

And the IMF would be right… except for all the other banks.

Because, meanwhile in Italy, nearly the entire Italian banking system is rapidly sliding into insolvency.

Italian banks are sitting on over 360 billion euros in bad loans right now and are in desperate need of a massive bailout.

IMF calculations show that Italian banks’ capital levels are among the lowest in the world, just ahead of Bangladesh.

And this doesn’t even scratch the surface of problems in other banking jurisdictions.

Spanish banks have been scrambling to raise billions in capital to cover persistent losses that still haven’t healed from the last crisis.

In Greece, over 35% of all loans in the banking system are classified as “non-performing”.

This is astounding. But what’s even more incredible is that the ratio of non-performing loans has actually been increasing for several years since the country’s supposed bailout.

Banks in Cyprus and Portugal are hemorrhaging cash and reporting widespread losses.

And banks’ stock prices across the region have practically collapsed in recent weeks as investors have started to realize that Bancopalypse 2.0 may be upon us.

(Oh, and lest anyone think that the United States is a banking safe haven, it’s worth noting that the non-performing commercial loan ratio in the US banking system has tripled in 18-months… but we’ll save that for another time.)

Here’s the bottom line: the banking crisis of 2008 never fully healed.

It just got shuffled under the carpet while the public was fed a phony narrative that everything is fantastic.

This turned out to be a gigantic farce; many of the world’s banking systems are just as risky as they were back in 2008.

Do yourself a favor: don’t keep 100% of your savings trapped in a risky banking system.

What’s the point? They’re only paying you 0.1% anyhow. Why take on so much risk?

If you have savings of even more than $10,000 (and definitely if you’re in the six to seven figure range), move some funds to a stronger, better capitalized banking system abroad.

And definitely consider owning precious metals, plus holding at least a month’s worth of expenses in physical cash in a safe at your home.

Given how low interest rates are, you won’t be any worse off. But should Bancopalypse 2.0 be upon us, cash and gold could end up being a phenomenal insurance policy.

Lessons from the worst banking crisis in history

Mon, 07/11/2016 - 10:53

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

It’s ironic that some of the most honest words to come out of a politician’s mouth were, “When it becomes serious you have to lie.”

That was a quote from Jean-Claude Juncker, former Prime Minister of Luxembourg and President of the European Commission (the EU’s executive branch) in 2011 when asked about Greece’s financial crisis.

Greece was on the ropes and the entire system about to collapse, so, of course they lied. Then they lied about lying.

This raises a very reliable rule of thumb to keep in mind during (and before) a banking crisis: don’t trust anyone in the establishment, especially a politician.

It’s good advice these days. Europe’s banks and its governments are caught like Macbeth’s “two spent swimmers that do cling together / And choke their art.”

Or perhaps a less elegant comparison– two drunken sailors holding each other up.

As usual there’s quite a bit of deflection to steer people away from looking too deeply at bank balance sheets, and high sounding language that everything is just fine.

A review of a historical banking crisis would be highly instructive. So let’s go back to one of the absolute worst in history– the US banking crisis of 1982.

It was so severe, in fact, that as Nassim Taleb writes in The Black Swan,

“In the summer of 1982, large American banks lost close to all their past earnings (cumulatively), about everything they ever made in the history of American banking – everything.”

Richard Koo, the chief economist of the Nomura Research Institute and author of ‘The Holy Grail of Macro-economics: lessons from Japan’s Great Recession,’ recounts the crisis with extraordinary candor.

Koo was a syndicated loan desk officer at the Federal Reserve Bank of New York… so he was truly at the epicenter.

Late on a Friday afternoon in August 1982, his job, along with those of his colleagues, was to try and convince the rest of the world that the US banking system was solvent (even though it was clearly NOT).

The following is taken verbatim from his presentation:

“That was about the worst possible banking crisis in modern US history. Our conclusion was that seven out of eight money centre banks were actually underwater…

“It was so bad because everyone down from Mexico to the southern tip of Chile went bankrupt…

“Paul Volcker, the chairman of the Fed, called central banks and ministries of finance all around the world on that critical Friday in August 1982…

“The Bank of Japan Governor of the time was particularly difficult to locate. A Bank of Japan official who took the call from Volcker recorded Volcker’s exact words for posterity.

“The Fed chairman stated, ‘You better give me Governor Maekawa right away. If you don’t give me Governor Maekawa there might not be any US banks left on Monday.’

“What we at the New York Fed had to do was arrange for all the foreign banks to keep credit lines open to the American banks, knowing fully well that all these American banks were actually bankrupt.

“And we also could not tell the outside world about the situation because if you go out and say ‘American banks are bankrupt’ – the next day they will be bankrupt.

“And so we had to come up with these stories that ‘well, there are some Latin American problems, but they’re all good debt, not bad debt’. . .

“So by keeping this myth going, that everything is fine.. we had to do that for a very long time..”

You can watch Koo’s presentation yourself (it becomes extremely insightful after roughly 31 minutes).

Obtaining a foreign residency is a no-brainer, especially if you have a family

Fri, 07/08/2016 - 12:44

By 2014, inflation was at 50% in Venezuela.

Just paying the bill at a restaurant now required a thick stack of cash.

When that happened, some people simply tightened their belts and stopped going out to eat. Others saw this as a warning sign to look for another, more stable country.

Then in 2015, supermarkets started facing shortages.

So in order to get the groceries they needed, people started lining up outside of stores from early in the morning.

Others saw this as another warning sign, and started searching for jobs in other countries.

Now in 2016, those supermarket shelves are completely empty. Inflation is nearly incalculable. And the entire country has descended into crisis.

Regular people have turned to attacking supply trucks, looting stores, and combing through trash dumpsters just to survive.

As things become increasingly desperate, more and more are scrambling for a way out of the country… only to find that it’s too late.

Many countries, including the United States, have started putting up barriers to prevent a massive inflow of Venezuelan economic refugees.

Two years ago it wouldn’t have been much of a problem. Few people were trying to leave back then, so there were plenty of options available.

Today there are tens of thousands of people trying to leave at the same time, making this a full-blown refugee crisis. So naturally the gates have swung shut.

Venezuela is an incredibly important reminder, not only of how impoverishing socialism can be, but also how important it is to have another option.

Part of having a robust Plan B is ensuring that you and your family have the legal right to go, live, work, invest, and do business in a safe, stable foreign country.

It’s an insurance policy that you (hopefully) might never actually have to use.

But if the day ever came when you felt like you needed to leave, whether for financial or personal safety reasons, having clear legal status in a country where you actually like to spend time can make a world of difference, not to mention stability for your family.

It requires very little to establish a foreign residency in many countries other than a bit of advanced planning and perhaps a small investment.

In some countries, establishing residency can be as simple as setting up a local bank account and depositing money into it, as is the case in Panama.

(Which, given how much value and protection an offshore bank can provide you, this is something we definitely recommend considering.)

Depending on where you go, establishing foreign residency could even qualify you for naturalization and a second passport in a few years’ time.

Bottom line– Investing a little bit of time now will provide tremendous insurance against political and economic uncertainty in the future, should it ever occur.

And even if nothing happens, you can still end up with a second passport, something that can provide more business, investment, travel, and lifestyle options to you and your family.

Best of all, the second passport you obtain can even be something that you’re able to pass down to your children and grandchildren, so that future generations can benefit from the small investment you make today.

If only all insurance provided returns like that…

These six former Goldman Sachs bankers want to destroy your savings

Wed, 07/06/2016 - 11:08

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

Rule #1 in central banking: Never go full Draghi.

Mario Draghi, of course, is the President of the European Central Bank (ECB) who pledged to do “whatever it takes” to save the euro. Or was it save the world? We forget.

Anyhow, Mark Carney, the head of the Bank of England, just went full Draghi, pledging to do, effectively, whatever it takes… even if that means destroy the British pound or economy.

Future historians will no doubt look back at this period in amazement, wondering, given the stunning and murderous failures of Nazi Germany and Soviet Russia, how central planning ever managed to find a last hold-out amongst the world’s central banks.

Yes, Britain may have finally escaped from the EU lunatic asylum.

But as investors we remain trapped in a surreal monetary nightmare in which clueless politicians and desperate central bankers have no choice but to print more money.

This decision, of course, continually erodes the purchasing power of individuals’ savings. It is a tax. An inflation tax.

And this is a tax that exclusively benefits those heavily indebted… namely governments and commercial banks.

It is perhaps no wonder that our own head of the Bank of England, Mark Carney, is a former Goldman Sachs banker, along with ECB President Mario Draghi (another ex-Goldman Sachs banker).

Not to mention the four Federal Reserve bank presidents in the United States who are also ex-Goldman Sachs bankers (the current heads of the Minneapolis, New York, Dallas, and Philadelphia branches).

The list goes on.

We truly have the best monetary system… that money can buy.

My colleague Tony Deden recently reminded me of remarks given by novelist Alasdair Macleod to the Committee for Monetary Research and Education in October 2011:

“I support sound money for two very good reasons. Firstly, it is a basic human right to choose to save, without our savings being debased by the tax of monetary inflation.

“Those who are worst affected by this inflation tax are not the rich (they benefit) but the poor and the barely well-off, which is why monetary inflation undermines society and why the right to sound money should be respected.

“If government gives itself a monopoly over money, it has a duty to protect the property rights vested in it.

“Secondly, it is a basic right for us to own our own money rather than have it owned by the banks.

“For them to take our money and expand credit on the back of it debases it. It is an abuse of an individual’s property rights, and a banking licence is a government licence to do so.

“If anyone else was to do this they would be guilty of fraud. Banks should be custodians of our money, and it should not appear in their balance sheets as their property.

“Sound money guarantees a stable yet progressive economy where people are truly equal. It allows people to save properly for their retirement so that they will not become a burden on the state.

“It leads to democracy voting for small governments. It encourages peaceful trade and discourages war. It is the only path, after this mess, that leads us to long-lasting and peaceful prosperity. We really need everyone to understand this for the sake of our future.”

19-year old paralyzed cancer patient brutalized by TSA

Tue, 07/05/2016 - 11:20

19-year old Hannah Cohen should have been partying.

Living with multiple disabilities like paralysis, partial deafness, and blindness in one eye, Hannah also suffers from a brain tumor.

And five days ago, she and her mother were traveling home via Memphis International Airport to celebrate the end of her cancer treatment with the rest of her family.

That’s when Hannah found out how free she really is.

After her wheelchair set off the metal detector at the airport’s security lane, Hannah couldn’t hear or understand the orders that TSA officers barked at her.

Confused and disoriented from the alarm, she tried to move away from what was clearly a stressful situation, at which point she was tackled, thrown to the ground, and arrested, her face bloodied and bruised.

On June 16th, a class of third graders at William P. Tatem Elementary School in Collingswood, New Jersey also got a nice taste of freedom.

After one of the students used the word ‘brownies’ (they were serving dessert at an end-of-year party), another student exclaimed that the word was racist.

School authorities called the police, who arrived with their firearms to interrogate the 9-year old about his comments.

As we discuss so frequently in this daily letter, these events are not isolated aberrations… but rather have become a sad reflection of normalcy in the Land of the Free.

Two hundred and forty years ago the Founding Fathers of America explained to the world their motives for divorcing the United Kingdom in the Declaration of Independence.

Their reasoning was eloquent, and simple.

People have inalienable, natural rights to life, liberty, and the pursuit of happiness.

Governments exist specifically to secure these rights for the people, and in doing so, they are awarded certain powers from the citizens they govern.

Whenever a government forgets this purpose and becomes destructive to these rights, the people may replace it with a new system that achieves its goal.

Look, it’s not like the US is some horrible place where citizens are constantly facing danger and peril at every possible turn like some third world African dictatorship.

That’s an absurd notion.

The US is a wonderful, safe place where people can achieve a high standard of living and have access to an abundance of opportunities.

But it would be intellectually dishonest to ignore these extraordinary trends.

The reality is that each year the United States becomes less prosperous and less free.

Every year the government produces 70,000+ pages of rules and regulations, on top of the countless pages of new and proposed legislation.

Many of these carry severe criminal penalties, regardless of whether you know about them or not.

As I often say, you can’t even apply for a passport in the Land of the Free anymore without being threatened with fines and imprisonment.

And while life may ‘feel’ normal, the strong arm of the police state can change that in an instant, just like it did for Hannah Cohen.

One day everything’s fine.

The next you’ve been thrust bloodied and face down by some government thug, or had your bank account frozen, or had your private property confiscated through Civil Asset Forfeiture, all for some innocent misunderstanding.

There are hundreds upon hundreds of state, local, and federal agencies with police-like powers. Even the Fish and Wildlife Service has its own gun-toting police force.

They can take your children away from you. They can deprive you of your savings and private property. They can regulate what you can/cannot put in your own body.

When the US Constitution came into force in 1789, there were only a handful of federal crimes including murder, counterfeit, and piracy of the high seas.

Today there are thousands, plus countless rules and regulations that carry criminal penalties.

If you find yourself serving time in the Land of the Free for illegally collecting rainwater on your own property, your cellmate might be in for letting her children walk to the playground by themselves.

That’s not freedom.

In 1819, the administration of US President James Monroe negotiated the Transcontinental Treaty in which the United States purchased Florida from Spain for the sum of $5 million.

That’s about $90 million in 2016 money.

Today the US government blows $2 billion on a website… and hundreds of billions more on pointless wars, sticking taxpayers with the bill, and unborn generations with debts.

That’s not freedom.

When America was in its infancy, the government passed the Coinage Act of 1792 and established the US dollar as precisely 24.1 grams of pure silver.

Today, an unelected committee of economists and ex-Goldman Sachs bankers wields total control over the money supply, with the power to manipulate asset prices and the value of your savings, for the benefit of a tiny banking elite.

That’s not freedom.

July 4th is the traditional day to celebrate the free and independent republic that America used to be.

But as millions of people wake up to the hangover of reality, perhaps July 5th may be the day to acknowledge what America has become… and where it’s going.

The subprime bubble grew by $1.4 trillion in just one month [video]

Fri, 07/01/2016 - 16:24

[Editor’s note: Check out Simon’s video podcast of today’s Notes.]

In the late 12th century while the rest of Europe was choking on feudalism, Venice was rapidly becoming the most advanced power on the continent.

At that point Venice had already created a free society where anyone, regardless of origin or class, could work hard and prosper. It was truly the America of its day.

The Venetians were very forward thinkers. They established a very crude type of limited partnership called a commenda that formed the basis for the modern corporation.

And starting in the late 1100s, the Venetian government began issuing a unique type of sovereign debt called prestiti.

Prestiti were among the earliest form of institutionalized government bonds.

And in their incredible book A History of Interest Rates, authors Sydney Homer and Richard Sylla show these Venetian government bond yields ranged between 5% and 22% for several centuries.

This set the standard for government bonds for the next eight centuries

When the first Dutch bonds were issued in 1517, almost 500 years ago, yields were roughly 20%.

And over the last several centuries, government bond yields around the world typically stayed in a range between 5% and 15%.

That’s the real long-term average… the range that you could consider ‘normal’ for government bonds.

Yet today’s government bond yields are near zero. And in many respects, less than zero.

This essentially means that investors who buy these government bonds are absolutely guaranteed to lose money if they hold to maturity.

This is absolutely insane. If you’re guaranteed to lose money, a bond is no longer a safe haven. It’s not even an investment anymore. It’s just pure insanity.

Barely a month ago I told you how the total size of all the government bonds around the world with negative yields had reached an astounding $10.4 trillion.

That’s an enormous figure. But what was really alarming was how fast the number is growing.

In February 2015, less than 18-months ago, there were $3.6 trillion worth of government bonds around the world that had negative yields.

A year later in February 2016, it had grown to $7 trillion.

By May, $9.9 trillion. Last month, $10.4 trillion.

But just in the last 30 days, the worldwide total of government bonds with negative yields grew $1.4 trillion in just one month to $11.7 trillion.

That’s astonishing. $11.7 trillion is larger than the GDP of China!

We’ve seen this movie before. It was only eight years ago that the financial system was engaged in the same kind of insanity.

Banks had spent years making massive home loans at ultra-cheap interest rates to borrowers with pitiful credit, in many cases with absolutely no money down.

Unsurprisingly, the old adage eventually came true: if you owe the bank $100,000 can can’t pay, you have a problem. If a million people owe the banks $100,000 and can’t pay, the banks have a problem.

Well, the subprime borrowers couldn’t pay, and the banks ended up with a huge problem.

The subprime housing bubble, in fact, almost caused an all-out collapse of the financial system.

Now here’s the important part: back then, the total size of the subprime bubble was ‘only’ $1.3 trillion.

Today’s negative interest rate bubble is NINE times the size of the 2008 subprime crisis.

Now, I don’t see a whole lot of difference between 2008’s subprime home loan borrowers, versus 2016’s subprime government borrowers.

Neither borrower has the financial means to repay its debts.

Back in 2008 the banks loaned money to subprime borrowers under the false premise that ‘home prices always go up.’

Today investors buy the bonds of subprime governments based on the false premise that ‘governments always pay their debts.’

Both assumptions are completely absurd and defy even the most cursory lessons of financial history.

History, in fact, teaches us that anytime financial markets engage in such reckless, irresponsible behavior, a crisis almost invariably ensues.

Ask yourself a question: does it really make sense that woefully bankrupt countries (like Japan, with its national debt exceeding 1 QUADRILLION yen) are able to borrow money and issue bonds with negative yields?

Do we really expect that this subprime government bond bubble, whose rate of expansion is accelerating, can continue to get bigger and bigger without consequence forever?

Would you take your hard-earned savings and buy some bankrupt government bond where you’re guaranteed to lose money?

If not, then ask yourself one more question:

Whose money do you think the banks are using to buy these bonds?

Why, yours, of course.

Banks don’t use their own money to buy government bonds. They use your money.

So if you’re thinking, ‘big deal, I don’t own any of these government bonds,’ guess again. If you have money tied up in the banking system, you’re exposed.

The entire financial system is exposed, just like the entire financial system was exposed to the 2008 subprime crisis.

Look, no one has a crystal ball. This bubble could continue to expand for weeks, months, or even years.

But in the face of such complete insanity, it certainly makes sense to take some basic precautions to limit the impact on your own life.

Whenever you get in your vehicle, you know there’s a bunch of crazies out on the open road.

That’s no reason to panic or live your life in fear. Instead, we take some very basic precautions. We put on a seatbelt.

It’s pretty clear there’s a bunch of crazies in the financial system as well. So put on your seatbelt.

Consider, for example, holding some physical cash instead of keeping 100% of your funds in the banking system.

Own some real assets like gold and silver.

There are plenty of options available to reduce this risk. Just don’t ignore this bubble… because the bigger it becomes, the more severe the consequences when it bursts.

Scathing new report shows just how bankrupt Social Security really is

Wed, 06/29/2016 - 12:19

Last week, a group of analysts published an astonishing report about the future of Social Security in the United States, and their remarks were nothing short of damning.

According to their calculations, for example, these analysts claim that Social Security is already running a huge deficit to the tune of tens of billions of dollars each year.

In fact, this Social Security funding deficit has been taking place for several years now, and it’s actually accelerating. So the problem worsens each year.

According to the analysis, the astounding rise in Social Security recipients vastly outpaces any growth in tax revenue received into the program. And this trend will continue for decades.

The report goes on to describe Social Security’s two main trust funds, OASI (for ‘Old Age Survivors Insurance’) and DI (‘Disability Insurance’).

They tell us that DI actually went bust several months ago.

But rather than attack the root cause of the problem and restructure the program, Congress quietly slapped a band-aid on DI by simply diverting funds from OASI, just enough for DI to limp along for a few more years.

So in other words, they robbed from OASI to pay DI, and keep it afloat through the next presidential election. It’s incredibly short-sighted.

Among the other programs slammed in this report, the Hospital Insurance (HI) fund, one of Medicare’s major trust funds, is of particular concern.

Their brutal analysis shows HI is going to completely run out of money in 2028, just twelve years from now (when President Clinton finishes her third term).

2028 is actually two years earlier than they had originally projected.

And they project the entire Social Security program will be fully depleted six years later in 2034.

Like I said, this report is incredibly damning.

But it raises an important question– just who are these crazy, fringe analysts predicting all of this doom and gloom?

After all, the political establishment has been telling everyone for years that Social Security is going to be just fine. And they seem to have a solid grip on the situation, right?

Well, the report was actually published by the Social Security Administration itself, signed by (among other cabinet officials) the Treasury Secretary of the United States of America.

It’s absolutely incredible. The government is publishing this data in black and white.

They’re telling anyone who’s willing to listen that Social Security has dug itself into an impossible hole.

More importantly, they’re telling us there’s a 0% chance that the government will be able to honor its existing commitments.

They’ll either have to radically raise taxes, or simply reduce (or eliminate) the Social Security benefits that they’ve been promising taxpayers for decades.

The younger you are, the steeper the price you’ll pay.

If you’re in your 60s, for example, you may likely see your benefits cut. If you’re in your 40s or 50s, you can count on it.

And if you’re in your 30s or younger, you can not only forget about Social Security, but you can expect to pay more and more taxes to bail out a program that won’t be there for you when it comes time for you to collect.

This is what happens when nations go bankrupt.

History is full of so many examples of dominant powers who think their wealth will last forever… and so they make far too many promises to far too many people for far too many years.

But eventually the reality of simple arithmetic catches up.

(As we discussed yesterday, arithmetic is slowly dying off in the Land of the Free, so perhaps this explains a thing or two).

We’re seeing this now in the US, and we’ll continue to see this problem worsen in the coming years until it becomes a full-blown emergency and people cry out, “Why didn’t anyone see this coming?!?”

Here’s the good news: you have ample time to prepare, and there are plenty of solutions to fix this.

Don’t get me wrong– I don’t mean “fix Social Security”. Oh no. That program is toast.

I’m talking about fixing this for yourself.

Retirement is one of those life events that is completely predictable. We know it’s going to happen.

And with a little bit of education, planning, discipline, and execution, we can vastly influence the outcome and prevent any major catastrophe from interfering with our goals.

You can dramatically boost your own nest egg, for example, and have much greater say over your retirement assets by setting up a structure like a solo 401(k) or a self-directed IRA.

(When structured properly, you can contribute potentially north of $50,000 per year to your retirement.)

It also makes sense to invest in your financial education; learning more about investing will clearly be beneficial in boosting your returns, and this can have a profound effect over time.

Especially if you’re younger, increasing your average return by just 1% over the course of 20-40 years can add up to hundreds of thousands of dollars in additional retirement savings.

You may also want to consider retiring abroad where you can live the lifestyle you’ve always wanted at a fraction of the price, and substantially stretch the time and value of your retirement savings.

Look, I’m convinced that Social Security will become a national emergency some day. Just remember that since its demise is conspicuously predictable, the impact on your life is completely preventable.

This new breed of celebrities makes China’s rise even more obvious

Tue, 06/28/2016 - 11:29

In the year 605 AD, Emperor Yang of the Sui dynasty in China formally established what became known as the ‘imperial examination.’

This was a standardized test that public officials were required to take, covering everything from arithmetic to writing to military science.

The idea was to ensure that all public servants were educated and qualified.

This concept grew through the centuries, from the Sui to the Tang, Sung, Yuan, Ming, and Qing dynasties, with each successive leader further refining the exam.

It even lasted into China’s early days as a republic at the beginning of the 20th century, and still persists today in Taiwan.

China has had a very long tradition of placing substantial social value on education.

There was a brief interruption in the 20th century during Mao’s Cultural Revolution in which 100,000+ intellectuals were persecuted and shipped off to labor camps.

The economic effects of this decision to kill off intellect were disastrous, and China impoverished itself for decades as a result.

But today education is back at the forefront of Chinese culture, as it was for centuries.

The Chinese obsess over core subjects, particularly the all-important science, technology, engineering, and mathematics (STEM).

The West is lagging here. Even the US Department of Education claims “few American students pursue expertise in STEM fields,” and “we have an inadequate pipeline of teachers skilled in those subjects.”

It’s also a question of values.

Case in point: two weeks ago, state-supported Wayne State University in Michigan decided to drop the mathematics requirement from its general education curriculum.

Instead, the university’s General Education Reform Committee proposed replacing the mathematics requirement with a mandatory course on diversity.

(It’s amazing that young people will actually take on tens of thousands of dollars worth of student debt for this…)

Across the Pacific, however, the Chinese haven’t reached the point yet where their society places much educational value on 18th century gender studies or the history of pop culture.

Instead, China celebrates real intellectual achievement.

Chinese movie stars take to their social media accounts each year during the annual “Gaokao”, or national college entrance exam, to cheer on the students.

The Gaokao is such a big deal in China that it receives substantial national media coverage, and top-scoring students often attract worshipful devotees and achieve minor celebrity status.

The same applies to the online math and science tutors who help students prepare for the Gaokao.

Many tutors attract millions of social media followers and are routinely recognized on the street like any ‘real’ celebrity.

[And in peak season they can make up to hundreds of thousands of dollars per month!]

Here’s an even starker example:

Stephen Hawking gained two million followers within 24 hours of signing up at the microblogging site Weibo, China’s equivalent of Twitter.

Now’s he’s up to 4.2 million, and climbing. That’s in just two months.

By comparison, he has 16,000 followers on Twitter versus Kim Kardashian’s 46+ million.

It’s not that Hawking isn’t famous in the US or Europe– they did, after all, make a movie about his life two years ago (which did slightly worse in the US market than 2014’s Sex Tape…)

It’s that he has a cult-like, almost movie star status in China, where students actually spend time learning about his theories.

To be fair, there’s obviously incalculable intellect in the West. And it’s not like the Chinese are immune to puerile fanaticism for their movie stars.

The key difference in China is that the celebration of intellect and human achievement as a core social value is on par with success and entertainment.

It’s no longer this way in the West. But it used to be.

When Sir Isaac Newton died in 1727, he was buried in England with the honor and prestige of a reigning monarch.

This shocked visiting diplomats from the Ottoman Empire, where intellectuals were treated with suspicion and censorship.

Unsurprisingly the Ottoman Empire was by then rapidly falling into history’s wastebasket of former superpowers, and the West was on the rise.

Decades ago in the US, Albert Einstein and Jonas Salk were huge celebrities.

Charles Lindbergh was once the most famous man in the world.

And children idolized astronauts in the 1960s, whose fame was so vast they were showered with endorsement deals from some of the biggest companies in the world.

Today, children in the West idolize reality TV starlets who are celebrated for having a voluptuous ass.

And in university, ‘checking your privilege’ is becoming more important in the Land of the Free than achieving fluency in the language of the universe– mathematics.

Just like a ballooning national debt, it’s not hard to get a sense of where this trend leads…

Opportunity: the most disastrous event since World War II

Mon, 06/27/2016 - 09:21

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

So the British people have finally spoken. The Establishment, however, chose not to hear them, turning its perpetual tin ear to criticism from below.

As the flag-bearer for an unaccountable, hypocritical and increasingly bewildered elite, Martin Wolf for the Financial Times showed precisely why Remain lost:

“The fear-mongering and outright lies of Boris Johnson, Michael Gove, Nigel Farage, The Sun and the Daily Mail have won.. This is probably the most disastrous single event in British history since the second world war.”

The London establishment has taken the Brexit news with quiet dignity.

The BBC – like the Financial Times, another media institution that persists despite itself – also struggled to make sense of the UK’s extraordinary decision to enter divorce proceedings with the EU.

Extraordinary not because it was irrational, or xenophobic, or economically illiterate, or sado-masochistic, though that is what the Establishment evidently believed.

Brexit was extraordinary because of the massed domestic and international forces that the British people managed to overcome:

All of the main political parties, the IMF, the OECD, the CBI, the TUC, Goldman Sachs, JP Morgan, Morgan Stanley, most chief executives of FTSE 100 companies, and David Beckham.

So what did 17.4 million British people vote for?

One can only speak for oneself. I voted for economic independence from a failing totalitarian socialist economic bloc.

The EU’s greatest economic monument, the euro, simply isn’t working.

That’s because what may be appropriate today for an economy like Germany’s is unlikely to be appropriate for an economy like Greece.

(Greece, by the way, should never have been allowed to join in the first place – but then institutionalised corruption is another of the euro zone’s fatal flaws.)

Yet the euro force-feeds a one-size-fits-all across the continent, which unsurprisingly is the slowest-growing region in the world.

The euro is emblematic of the EU as a whole– it is too big to function properly, especially when there’s little commonality amongst the EU’s disparate cultures.

Yet whenever skeptics expressed concern at the EU’s direction of travel and its acceleration regardless, it was met with a standard response: the answer is more Europe.

Well, not any more.

The financial markets have also spoken. Or at least yelped.

But a few days’ drama does not make a crisis, and Mr Market has a tendency to become emotional– especially when faced with almost unfathomable complexity and a sudden dramatic change to the status quo.

Whatever else happens, a (temporarily ?) weaker pound will boost prospects for British exporters while Britain gets round to renegotiating old and negotiating new trade deals.

The UK’s credit rating will likely take a knock – but Gilts are already living in fantasyland and have been largely uninvestable for months.

The bigger concerns should surely be for the euro, and for a failed economic and political lunatic asylum that has just seen its first prisoner escape.

Will other inmates decide to make a break for freedom – and sanity ?

We think the EU referendum was ultimately the expression of a choice between big and small government.

Enough British voters seemed to have decided that we can get by with less State rather than more.

And what of all the great ‘risk’ in financial markets that have been discussed round-the-clock by financial news?

Remember that risk is the probability of a permanent loss of capital.

Day-to-day price volatility, on the other hand, is just that – and in financial markets it simply cannot be avoided. It cannot be avoided – but it can be exploited when the market over-reacts. Warren Buffett put it nicely:

“Cash combined with courage to invest in a crisis is priceless.”

This opportunity hardly strikes us as the most disastrous event since World War II. Just make sure to go slowly and be patient. This volatility could persist for quite some time.

Tim Price on the Brexit investment opportunities

Fri, 06/24/2016 - 10:57

I’ve never been so happy to be so wrong.

Britain’s referendum on whether or not to stay part of the European Union was marred by some of the most blatant propaganda we’ve seen in the West in a very, very long time.

But… at the end of the day, the British government at least accurately counted the votes. No shenanigans.

“Leave” prevailed. So the UK will officially be leaving the European Union.

This has led to some unprecedented moves in the financial markets.

The pound is at its cheapest level in decades. High quality British companies are now trading for extraordinary discounts.

Investors are panic-selling because they don’t know what’s going to happen next.

Britain has been part of the EU for four decades, and now that’s coming to an end.

Nothing scares people more than their fear of the unknown.

In fact, for decades, the political, media, and financial establishments have been pushing people along a very clear path that they wanted us to follow.

Elections always represented the illusion of choice between establishment candidates and their establishment policies.

This referendum, just like the surge of candidates like Bernie Sanders and Donald Trump, constitute a major revolt.

Simply put, this wasn’t part of the plan. So the system is in complete panic.

This is a huge opportunity, especially for foreign investors who have an unprecedented chance to pick up high quality British assets on the cheap.

I wanted to dive into this, so I rang up my colleague Tim Price, London-based wealth manager and one of the sharpest investors I know.

Tim and I discuss several options in both stock and the currency markets, and he even highlights what investments to avoid.

You can listen in to our call here.

Note: Tim and I cover the following… and MUCH more:

  • Will the UK experience a major financial recession?
  • The pound has cratered. Is it a buy?
  • Sell this currency instead.
  • Why the polls are always wrong.
  • Will the US dollar remain strong?
  • Avoid this entire industry if you’re buying stocks.
  • What you want to think about buying… and when.

Brexit: I’ve seen more subtle propaganda coming out of North Korea

Thu, 06/23/2016 - 14:03

On November 11, 1947, Winston Churchill, then ex-Prime Minister of the United Kingdom, rose to speak at a debate in the House of Commons:

“Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise.

Indeed, it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time;

but there is the broad feeling in our country that the people should rule, continuously rule, and that public opinion, expressed by all constitutional means, should shape, guide, and control the actions of Ministers who are their servants and not their masters.

This may be the perfect summation of what democracy is supposed to be.

And western nations– particularly the US and UK– have been champions of ‘democracy’ around the world (though they typically mean ‘republic’).

Now, today the voters of the United Kingdom go to the polls to decide whether or not their country will remain in the European Union.

This is about as democratic as is gets– direct voting by the people to choose their fate.

Or so they claim.

In reality, each side has had a long, drawn out campaign to influence the outcome.

The ‘leave’ leadership has been scaring voters with horrific stories of evil brown people who will infiltrate the United Kingdom should the country remain in the EU.

I mean, I’ve seen more subtle propaganda coming out of North Korea.

Meanwhile the ‘remain’ side has been threatening eternal economic damnation and financial Armageddon.

Most of the political and media establishment falls in the ‘remain’ camp, so this is where the propaganda becomes painfully obvious.

The IMF, for example, published a report recently suggesting that Britain leaving the EU would permanently lower incomes in the United Kingdom.

Really? Permanently?

So if voters choose to leave the EU, then the UK, which traces its sovereignty back more than 1,000 years and once had an empire so vast they ruled the entire world, will never be able to recover forever and ever until the end of time…?

We’re honestly supposed to believe that a few decades within the European Union has irrevocably thwarted Britain’s 1,000 year history in being able to achieve economic growth independently?

Or that Iceland (not a member of the European Union) can do it, but the UK cannot?

Or that a bunch of IMF bureaucrats can see decades, let alone centuries into the future with 100% certainty?

This is such blatant scaremongering, they’re not even pretending to be professional and unbiased. And this is direct from one of the top financial agencies in the world.

Clearly these people truly love democracy and embrace the idea of voters independently determining their own fate.

The British government (firmly in the ‘remain’ camp) has been using taxpayer funds to support its cause, which is really bizarre when you think about it.

If you’re British, even if you want to vote ‘leave’, the government has been using your money to influence your vote in the other direction.

One of the most absurd scare tactics has been telling people that they’ll lose visa-free travel rights to the European continent if the UK leaves the EU.

This is completely absurd.

Nicaragua has visa-free travel to Europe. Paraguay has visa-free travel to Europe. Are we really supposed to believe that Brits will be shut off from the continent?

They’ve rolled out every possible threat, every human emotion, every celebrity they can find, to influence voters.

In fact, these people love democracy so much they even had Barack Obama fly in to explain to British voters why they should remain in the EU.

(Because, of course, Mr. Obama would willingly hand over US sovereignty to a pan-American political commission based in Mexico City…)

Whichever side wins, it’s clear that no one in power gives a damn what voters want.

Despite having waged wars in foreign lands to ‘make the world safe for democracy’ and despite all the song and bombastic speech about your freedom, they have no respect for your right to self-determination, or even their own electoral system.

All they care about is getting their own way.

And they’re willing to engage in the most vile propaganda and blatant manipulation to do so.

This is a pitiful excuse for the democracy they claim to love so much.

And I’m not sure how long a road it is from here, to how Josef Stalin was quoted in his former secretary’s 1982 memoirs:

“Comrades, you know,” said Stalin, “I think that it’s totally irrelevant who votes, and how they vote. It’s extremely important who counts the votes, and how they’re counted.”

I suppose we’ll find out in a few more hours.

Looking for a second home? Put this country on your radar

Wed, 06/22/2016 - 13:21

Nothing quite shocks the senses like the colors, smells, spices, and prices of Asian street food.

Some of the tastiest (and most bizarre) things I’ve ever had in my life were consumed on the streets of Asia, for a cost of almost nothing.

From China to India, Myanmar to Malaysia, street food is a great metaphor for this entire region: exotic, deceptively flavorful, and incredibly cheap.

Kuala Lumpur is no exception. Sure, the street food is great. But the city itself is surprisingly well developed.

In fact Kuala Lumpur boats some of the most advanced first world infrastructure in the region. Yet it remains an incredibly cost efficient place to live.

For example, the fairly new KLIA express train that transports passengers between the airport and city center in just 30 minutes (the airport is a loooong way from town) is just as good as the airport express in London and Tokyo. Yet it only costs about 12 bucks each way.

The quality of medical care is very high in Malaysia. But it’s so cheap that this country has become a major destination for millions of medical tourists.

You can also obtain incredibly fast Internet, speeds of up to 500 Mbps. Blazing. It’ll set you back about $75/month, but 100Mbps is only $25. That’s a bargain.

Real estate in Malaysia has also long been one of the best deals in Asia; it’s far cheaper to buy in Malaysia than in Singapore or Hong Kong.

And in many respects it’s cheaper to buy property here than even in Thailand, even though Malaysia is more developed.

What’s more, it’s also possible for foreigners to actually purchase real estate and own title to the property in Malaysia, which is highly uncommon across Asia.

Starting around 18 months ago, the local currency (the ringgit) plunged 33% against other major currencies like the US dollar, NZ dollar, and Swiss franc. So for many foreigners, Malaysia has become even cheaper.

That’s why it may be a good idea to keep this place on your radar– it’s an excellent balance of quality versus price.

Plus the country is diverse enough to provide a range of options; in fact, just outside this sleek, modern capital city, you’ll find gorgeous beaches, imposing mountains, and just about every landscape to suit your desires.

It’s also helpful that the government welcomes foreigners.

Through the Malaysia My Second Home program, for example, people over the age of 50 can receive a 10-year visa by demonstrating basic financial solvency.

This includes liquid assets of RM 350,000 ($87,500) and income of RM 10,000 ($2,500) per month. Plus you may have to deposit RM 150,000 ($37,500) in an interest-bearing local bank account.

The nice thing about this is that your foreign income is not taxable in Malaysia, so it can be quite a tax efficient choice of residency.

Note: the program is also available for those under the age of 50, though the eligibility qualifications for younger people require financial assets of RM 500,000 ($125,000) and a local bank deposit of RM 300,000 ($75,000).

That said– Malaysia is far from perfect and it’s important to understand the drawbacks.

First off, this place is legendary for its corruption, and it starts at the top.

The current Prime Minister Najib Razak was found by an investigative team at the Wall Street Journal to have funneled $700 million from a state-owned investment firm into his personal bank account, or bank accounts of close relatives.

The government also has a history of targeting political opposition groups and expanding its police and spying powers through special ‘national security’ laws.

(Gee, where have we seen that before…?)

So it’s not all cookies and candy over here. This place definitely has challenges, and I wouldn’t commit any serious investment capital here.

But it’s fair to say that foreign residents largely insulated from most of Malaysia’s domestic issues, so as a place to spend time, the cost vs. quality metric still warrants this place being on your radar.

Reflecting on the past seven years of Sovereign Man

Tue, 06/21/2016 - 12:18

I’ve always been pretty bad with birthday and anniversaries. Even my own.

So I didn’t even realize until this morning that Sovereign Man actually turned seven years old over the weekend.

Seven years. I can hardly believe it. But it seems even more incredulous to think about how much has happened over the last seven years.

When I sent out the very first Notes from the Field email in June 2009, the world was at the height of the biggest financial crisis since the Great Depression.

Since then, we’ve seen the US government’s debt soar by 70%, and the Federal Reserve’s balance sheet more than double.

We’ve seen the US government caught red-handed spying on EVERYONE, from citizens inside the United States to even their own allies.

We’ve seen an appalling rise in police violence and Civil Asset Forfeiture to the point that the US government now steals more than every thief in America combined.

We’ve seen over half a million pages of new bills, rules, and regulations introduced in the Land of the Free, including some of the dumbest laws of all time like FATCA.

We’ve seen interest rates held down to near-zero in the US, and even slashed to negative territory in Europe, Japan, and many other countries around the world.

We’ve seen entire banking systems go bust, like in Cyprus back in 2013, when the national government FROZE everyone’s savings and implemented severe capital controls to “bail in” the system.

We’ve seen a meteoric rise in the worldwide use of the Chinese renminbi, as well as major, direct assaults against the US dollar’s global dominance.

We’ve even seen America’s own allies openly question why the dollar is still the primary reserve currency in the world.

History tells us that wealth and power routinely shift. That major superpowers can and do go bankrupt. That dominant financial systems and reserve currencies can be displaced.

And that whenever any of this happens, there are consequences.

Our species has been dealing with these same trends for thousands of years. This time is not different.

History also teaches that for people who ignore reality and pretend that nothing is happening, the impact can be severe.

But for those who recognize obvious trends and take simple, rational steps to reduce the consequences, the opportunities are enormous.

If your country is broke, don’t hold everything that you’ve ever worked for or hope to achieve within easy reach of your bankrupt government.

If your financial system is underpinned by highly illiquid banks and an insolvent central bank, don’t keep all of your savings there.

If you are living in the most frivolously litigious society to ever exist in human history, don’t keep 100% of your assets there.


That’s fundamentally why we started this site seven years ago.

No one can claim to predict the future with any certainty, but it’s easy to see the direction that these big picture trends are unfolding.

My objective was to present publicly available data to show that, yes, your country and financial system are bankrupt… plus simple, rational solutions to distance yourself from the consequences.

So much has happened since 2009 to validate that premise, and these trends are only picking up steam.

Back when we started, it was just me and my partner Matt. We were two guys trying to make an impact for an audience of practically zero.

After seven years, hundreds of thousands of people have signed up for this letter.

And today Sovereign Man has more than two dozen employees (mostly out of our offices in Chile) dedicated to helping people become more prosperous and more free.

I’ve had the extreme privilege of building wonderful relationships with giants I’ve greatly admired, like Ron Paul, Robert Kiyosaki, Jim Rogers, Marc Faber, and others.

But more than that, it’s been amazing to have spent time with so many of our readers.

I’ve met thousands of Sovereign Man subscribers over the years at our conferences and events, and I’ve have routinely come away inspired at how many incredible, switched-on people read this letter.

So most of all I just want to say thank you for allowing me to be part of your life.

We certainly live in interesting times. And I look forward to being with you in the coming years as these historic trends continue to unfold.

Free at last?

Mon, 06/20/2016 - 10:51

[Editor’s note: This letter was penned by Tim Price, London-based wealth manager and author of Price Value International.]

“How foul this referendum is. The most depressing, divisive, duplicitous political event of my lifetime. May there never be another” – Tweet from the novelist Robert Harris.

“Free at last, Free at last, Thank God almighty we are free at last.” – Martin Luther King, Jr.

…Free of further campaigning, for the time being, if nothing else. By the end of this week, the entire British nation will enjoy a collective sigh of relief. If there is any natural justice, the EU referendum will have swung in favour of sovereignty and against totalitarianism but, whatever the outcome, at least the campaigning, from both sides, will be over. For politicians, economists, political hucksters and the various news media, this was not their finest hour.

The European Union has become a slow motion collision between magical thinking and wishful thinking. The project is a mirror favouring selective vision, in which observers of whatever background or political stripe see deeply what they want to see but are blind to the project’s more obvious failings. Pacifists see a social construct that has kept peace between Europe’s various warring factions – notably France and Germany – for over half a century, but fail to notice, or for that matter much care about, the youth unemployment rates in the periphery of the euro zone. Advocates of free movement praise Schengen and turn a blind eye to the bodies of immigrants washing onto the shores of Greece and Italy. Supporters of Big Government see a political union that is already huge and continuing to expand, and pay scant heed to the rising cost of regulation that others must bear. Fans of bureaucracy – typically quasi-monopolistic big businesses and the ever-popular banks – see an integrationist scheme that raises the barriers to entry against smaller competitors and engulfs them in red tape, but they ignore the decline in relative economic power, whereby the EU of 1980 accounted for 30 percent of the world economy, while a much larger EU (by population) accounts for just 17 percent of world trade today. For those at the top of the pile who suckle off the teat of the State or the multinational, life is good. There are apparently 10,000 functionaries in the EC earning more than the British Prime Minister. For those obliged to fund this parasitical class, be they taxpayers, small businesspeople or entrepreneurs, or all three, the commercial ‘success’ of the euro zone looks a good deal more questionable. But in the end, whatever the posturing, it really came down to a simple decision on the part of the electorate: should the ideal State be larger, or smaller ? ‘Leavers’ may have seemed either reckless or romantic, but ‘Remaniacs’ have displayed a chronic lack of self-belief.

And the tone of the debate, of course, has been horribly off-key, and it worsened even before the terrible murder of MP Jo Cox. There has been a constant tide of fatuous self- serving pronouncements from both sides, but if ‘Remain’ do win, it will not be because they staked out the high moral ground. They undermined it. As Bloomberg’s Mark Gilbert points out, the campaign to keep Britain in the EU has continually favoured intimidation over persuasion. Where misinformation has not done the job, mud-slinging has taken over.

Suppose that the Leave campaign, which one might call Project Lie, wins the referendum next week.

wrote Martin Wolf for the Financial Times,

How bad might the economic consequences over the next few years be ? Alas, they might be very bad indeed.

The very same Martin Wolf was the author of ‘The Resistible Appeal of Fortress Europe’ (The Centre for Policy Studies / The American Enterprise Institute, 1994), in the foreword to which the late Keith Joseph wrote,

In this erudite essay, Martin Wolf explores the techniques the European Commission and its subordinate bodies use to inhibit and distort the free movement of goods and services. It is a paradox that an entity conceived in The Treaty of Rome as a liberal force has evolved into being a protectionist one. Supra-national protectionism is not new to the theatre of politics. Imperial Preference was the same illusion based on a different geography.

Mr Wolf is Chief Economics Leader Writer for the Financial Times so we are grateful to him from diverting from his daily demands to take time to explain the manner in which the European Union is wandering far from the ideals of liberal open markets.

Mr. Wolf is entitled to change his mind. As both journalist and ‘economist’ he hardly has a choice but to, on an ongoing basis. Ralph Waldo Emerson advises us that a foolish consistency is the hobgoblin of little minds. Mr. Wolf seemingly prefers the philosophical flexibility of his muse, Keynes, which allows his attitude towards the bigger issues to swing in the wind like a Marxist weathervane.

The Referendum campaigns have stirred up muddy waters that, with hindsight, might have been better left untouched. They have done grave damage to political relations across party lines – and may have scuppered the political futures of numerous members of the Cabinet. With any luck they have also sounded the death-knell for economic forecasting, which after months of ridiculous claim and counter-claim, opinion loudly obliterating fact, now has all the style and credibility of a banshee on crack.

And there are still four days left for those undecided to make up their mind. We recommend two books for those searching for considered answers rather than shrill assertions: Daniel Hannan’s ‘Why vote Leave’ and Roger Bootle’s ‘The Trouble With Europe’. For those in search of hard facts and reasoned arguments as opposed to economic fictions, these two works do not disappoint. The following quotation is taken from the former.

The euro must be maintained, regardless of the cost in higher unemployment and lost growth. Schengen, too, must be upheld, regardless of the impact on security or, come to that, refugee welfare. Whatever the question, the answer is always ‘more Europe’.

Does that have to be the answer for Britain, too ? Having tried and failed to convince our friends to go in a different direction, must we submit ourselves to their project ?

Surely we can do better.. If we cannot lead by persuasion, let us lead by example.


Join Forum

To prevent automated spam submissions leave this field empty.

Best of the Web