Limping into the Economic Abyss

James West

At the risk of sounding like a broken record, I preface this essay with the principle economic theme of the 21st century: The ongoing weakness in the global economy is the continuation of a world financial crisis that began in 2008 and has only been eased in its corrective intensity by the massive fabrication of more capital and credit by G7 governments. Since the crisis was catalyzed by an excess of capital and credit relative to real global supply and demand, this is an approach that will not only ensure the continuation of said crisis, but will magnify its long-term destructive outcomes when the G7 stimulus efforts break down – which they are now showing clear signs of doing.

There is a uniform absence of leadership in the world at present. G7 governments are concerned only with the ongoing behind-closed-doors negotiations with major financial institutions where the parameters for the exact limits of predation by the financial sector on the general public are set in exchange for financial support during elections, and so at the top of the political food chain, it is banks, and not elected governments, that call the shots.

And this is why we have, as our collective global reaction to the imbalances caused by such excessive credit and capital, more of the same.

Leadership is trapped by its duplicity, the economy is thus under siege with more capital and credit (which is only available to the top layer of the economic food chain – not to you and I), and an utterly clueless financial media dutifully parrots the metaphors and clichés fed to them by the bank’s PR machine to provide a plausible context within which to conduct our respective realities.

The collapse of a civilization, historically, does not happen overnight. The series of collective mis-steps that ultimately result in ancient ruins being discovered by distant future generations who then ponder on the mistakes that might have caused such demise while repeating them constitute a long series of events and leadership decisions. The concept of deficit spending – financing the present with the GDP of the future – will likely, at some point, be identified is the critical flaw in the current thinking that began us on the path to destruction.

I find it laughable and tragic that the extent of our collective response is to re-elect the architects of this policy, mostly from apathy, while we as individuals concern ourselves solely with the pursuit of wealth and the perception of stability and prosperity that comes with it. What we fail to understand is that being left alone to our own pursuits is dependent on a world financial stability that supports so much that we take for granted. The flow of every kind of goods into every corner of the planet cannot continue without a baseline financial systemic health. Same for the systematic collection and processing of waste, provision of health care, globally interconnected transportation systems – all are reliant on a functional system of value transfer.

When confidence in the dominant system of value transfer begins to wane, the vitality of the entire financial system that depends on it loses forward momentum, and it is an inertia that keeps the system apparently moving forward, even while the engine that drives it has thus commenced self-destruction. By pouring more oil into the engine, or flooding the economy with more money and credit, we can maintain forward motion. But at some point, we’re going to have to take this economic train off the tracks for a complete rebuild.

That is the point we are heading toward, and absent strong and united world leadership, the transitional phase between a complete breakdown in the old system and the establishment of the new system will be characterized by strife and possibly even warfare.

The Fed has Lost its Credibility
With Ben Bernanke and his Federal Reserve compatriots having undermined their own credibility by transmitting contradictory, conciliatory, conservative and aggressive stances simultaneously so far in 2013, he has communicated in no uncertain terms that he has no ideas, no plan or strategy, and is committed merely to reacting to market data and media interpretations thereof to formulate policy going forward.

The British have hired the Canadian former central banker Mark Carney in an unequivocally bald-faced admission that no leadership exists within its own borders to lead the country out of its economic malaise. Though my first emotion, as a Canadian, is pride that we are seen as a source of leadership to the rest of the world, that pride is countered by a more profound awareness that our reputation as the world’s best financial shepherds is as much a result of only 32 million people divided by 10 million square kilometres of still mostly unexploited natural resource wealth as it is conservative deficit spending.

The rest of the G7 is in varying states of economic lethargy, and again, it is the combined capital fabrication of the United States, Japan, the United Kingdom and the Euro region that makes the illusion of forward momentum and general economic “recovery” a plausible falsehood. The BRIC nations are now feeling the insistent swirl of the whirlpool black hole that is rapidly becoming the world economy, and incrementally, the inflammatory continuation of the current strategy of putting out the fire with gasoline will have its inevitable outcome, engulfing concentrically larger regions thus saturated.

James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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