Nationalism

In chapter 8 of David Stockman's new book The Great Deformation, the power-that-be-turned-anti-establishment-reality-seeker explains his perspective on the myths of the New Deal Recovery: "The new deal was a political gong show, not a golden era of enlightened economic policy. It shattered the foundation of sound money and inaugurated a régime of capricious fiscal and regulatory activism that inexorably fueled the growth of state power and the crony capitalism which thrives on it. But it did not end the Great Depression or save capitalism from the alleged shortcomings which led to the crash. In fact, the New Deal introduced a severe dose of economic nationalism and autarky at a time when the only hope for speedy recovery was a reopening of world trade and reestablishment of a stable international monetary régime.... in reality, the notion that the New Deal had pioneered a road map to recovery by means of countercyclical fiscal policy is mostly a postwar academic legend."

An overview of this week's drivers.

While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."

Whenever discussion over North Korea arises in Western circles, it always seems to be accompanied by a strange mixture of sensationalism and indifference. The mainstream media consistently presents the communist nation as an immediate threat to U.S. national security, conjuring an endless number of hypothetical scenarios as to how they could join forces with Al-Qaeda and attack with a terroristic strategy. In the midst of the latest tensions with the North Koreans, I have found that most people are barely tracking developments and that, when confronted by the idea of war, they shrug it off as if it is a laughable concept. “Surely” they claim, “The North is just posturing as they always have," creating a social and political atmosphere surrounding our relations with the Asian nation that places both sides of the Pacific in great danger. The skeptics argue that we will never get to this point, though, because North Korea has brandished and blustered many times before, all resulting in nothing. We see recent events being far different and more urgent than in the past. All that is needed to instigate an event on the Korean Peninsula are tightened sanctions.

The key point here is that European Crisis is now accelerating right as Germany becomes increasingly uninterested in funding additional bailouts.

German Chancellor Angela Merkel has walked a tightrope over the last few years of keeping the EU together without infuriating the German populace to the point of having to abandon ship. What happens if she loses her political "balance"?

In news that is hardly welcome to Chancellor Merkel and her September reelection hopes, German Focus magazine revealed that a substantial 26% of all Germans would back a party that wants to quit the euro. Even more disturbing is that a whopping 40% of all Germans in the prime 40-49 age group are tired of supporting a failed monetary regime and will just say "nein" to the European globalist experiment at preserving the status quo if just given the opportunity. The Italian virus is spreading: the question is which "clown" will show up on the cover of the Economist in six short months, when at least one person will appear on the political scene to take advantage of the populist protest at endless German-backed bail outs, and what as Dylan Grice so eloquently explained earlier, is merely a reaction to central banker central planning manifesting itself in ongoing social breakdown.

The most unsurprising news of the day has just hit, and while we have already had some 20+ rumors on this issue previously, this time it is official:

Venezuela's Hugo Chavez has died, says VP Maduro
Chavez who ruled Venezuela since 1999, died from cancer at the age of 58
Venezuela's army chiefs pledge to support President Nicolas Maduro after Hugo Chavez's death
Special deployment of armed forces announced in Venezuela after death of Hugo Chavez

Time to celebrate Hugo's memory with some more currency devaluation? It is unclear if Goldman's record profits on Venezuela exposure (see How The Glorious Socialist Revolution Generated A 681% Return For Goldman Sachs) are about to snap back with a vengeance.

One of the reasons mistakes are made, and often serious mistakes, are because the right questions are not asked. If you ask the wrong questions then the answers, even if answered correctly, will lead you to the wrong conclusions. What we are seeing in Italy this morning is a good example of asking and answering the small questions when the larger questions are vastly more important. What most people have not grasped yet, but the dawning will come, is that a Referendum has just taken place in Italy. All of the political upheaval in Italy was caused by anger and frustration with the European Union and their policies. The EU is now cornered.

Platinum and palladium surged Tuesday on renewed concerns that supplies of the platinum group metals will shrink. Zimbabwe's government has given platinum producers two years to begin refining the precious metals in Zimbabwe. This means that production of platinum will drop, because mining companies are now expected to build refineries – something which they may not do, due to the real risk of confiscation and nationalisation of assets. Both metals climbed more than 1% yesterday with platinum for April delivery rising $21.10 to settle at $1,717.2/oz. Palladium for March delivery rose $12.80 to $771.40/oz. "The worry is that it's going to restrict production," said James Steel, chief commodities analyst at HSBC in New York. "That was the prime motivator for the price movement today."

China has been a very active purchaser of gold for its reserves in the last few years, as we extensively covered here and here, but another nation has taken over the 'biggest buyer' role (for the same reasons as China). Central banks around the world have printed money to escape the global financial crisis, and as Bloomberg reports, IMF data shows Russia added 570 metric tons in the past decade. Putin's fears that "the U.S. is endangering the global economy by abusing its dollar monopoly," are clearly being taken seriously as the world's largest oil producer turns black gold into hard assets. A lawmaker in Putin's party noted, "the more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound or any other reserve currency." It appears Russia-China is now the 'hard-money' axis and perhaps, to some extent, it is the relative price of oil that defines their demand for the barbarous relic.

We make more than we’ve ever made, we owe more than we’ve ever owed, and we have less than we've had in decades which is distributed to those that did not earn the money. This is a working definition of Trouble. The stock market is at an all-time high while the financial condition of the country has seriously deteriorated. The world is in a gigantic bubble and it is going to get pricked. You cannot keep printing money without consequences and when absolute and intrinsic valuations replace relative valuations then the game is afoot. When the survival of the State puts its people in dire straits then, eventually, the citizens will rebel as the nation has forgotten just who composes its constituents. The people and institutions that have the capital will only go along quietly for so long when nations try to take what they have earned and dispossess it for others. The rich will become poorer and the poor will become poorer and when those with the capital have been deprived of it so that everyone is worse off then the Lords of Chaos will be in control once again.

For the Gov't to maintain its power and control over a growing population that has pockets of civilians who are using the advances we have in technology to share and collect information in an effort to fight the on-going information battle, it will need to restrict its citizens in another manner.  So far the intelligence of the average American has been wittled down.

2012 was an odd year in many senses. The Fed and the ECB are both verging on $4 trillion balance sheets, the total for all of the world’s central banks is $14 trillion and these small pieces of paper float around in the breeze and are plucked at will to feed the fires of Wall Street. When all of the central banks on the planet work in concert then, without off-world bourses, there is no place else left to go and the spatial restraints of our planet are the same boundaries for the investment of money. Here then we find the explanation of 2012. It is not a dot-com bubble or a real estate bubble or a specific bubble of any type at all or any we have ever seen but the Big Lebowski, the giant squid, the mother of all Blue Whales and the days of living in some place that we have never occupied before. Those that bet with the central banks have prospered, made fortunes, become vastly richer but how long does this game go on and is there a way out that is devoid of the usual pain to be found in contractions. The bet of last year was to place your money with the bankers-at-large but will that be the correct bet of this year as the plastic is stretched so thin now that a misstep, the politics of nationalism either of the funding or the funded bursts the balloon and sends it cascading around the room in some wildly gyrating manner.