Mike Krieger On The Death Of Globalization, The Death Of Currency And The Death Spiral

Submitted by Mike Krieger of KAM LP


They had then learned how easy it is to issue it; how difficult it is to check its over issue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes, salaries or wages; how securely it creates on the ruins of the prosperity of all men of meager means a class of debauched speculators, the most injurious class that a nation can harbor,—more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality. All this France had been thoroughly taught by experience.

Everything was enormously inflated in price except the wages of labor. As manufacturers had closed, wages had fallen, until all that kept them up seemed to be the fact that so many laborers were drafted off into the army. From this state of things came grievous wrong and gross fraud.

-  Andrew Dickson White, “Fiat Money Inflation in France”, How it Came, What it Brought and How it Ended

Where the road is dark and the seed is sowed
Where the gun is cocked and the bullet's cold
Where the miles are marked in the blood and gold
I'll meet you further on up the road

Further on up the road
Further on up the road
Where the way dark and the night is cold
One sunny morning we'll rise I know
And I'll meet you further on up the road.

-  Bruce Springsteen, “Further On”

Globalization is Dead

I debated whether or not to write today.  To be completely honest I feel as if I have said as much as I can and don’t want to start sounding like a broken record.  That said, we have clearly entered the next stage in this tragic circus called the global monetary and financial system death spiral.  The final stage comes when the system consumes itself as a result of its refusal to reform and we are there now.  The fact that most people are completely unaware of it or have such strong “normalcy bias” they can’t see what is directly in front of their faces is immaterial.  It is here, it is irreversible, and it will unleash a cyclone of chaos and confusion that will leave many literally suspended in disbelief as the entire false paradigm most of humanity has lived under for their entire existence is washed away forever. 

Last week, I wrote about what is happening in Egypt and what it means.  The key point I want to emphasize is that there is no going back from where we are.  The notion of stocking up on the limited food and resources available today is no longer theoretical for governments it is a matter of survival.  While many wake up in cold sweats with the memories of 2008’s commodity crash and the concurrent U.S. dollar rally fresh in their minds, these nightmares are misplaced.  The U.S. dollar has been hyper-inflated since 2008 and the only thing that has kept commodities under wraps has been the absence of a sudden and violent mobilization of those dollars into real goods.  Since so many of these dollars are sitting at the central banks of governments around the world, they key was always what would spark governments to mobilize those reverses.  The spark has been food supply shocks and revolution at the periphery of the American empire.  The gun is cocked, the bullets are cold and the heretofore benign tumor that we call the dollar will puke its malignancy all over the world at once in desperate attempts to own something that will have value in the next monetary system.  The days of governments playing nice with one another is long over.  This is the survival stage and every decision that is made from officials from here on out will be entirely self-serving.  You want to go long protectionism.  Globalization is dead.

So now I want to discuss the Korean Won.  For a very long time I have maintained that we would know we are at the big turning point when the Asia currencies start to properly break out versus the U.S. dollar.  Asian central banks and many others have been resisting a major appreciation of their currencies for two major reasons.  First, their entire economies have been based on the export to the West model.  Although this makes no sense any longer as they are the creditors and those in the West are the debtors, old habits are hard to break.  Secondly, China has refused to budge in any meaningful way and so the other nations don’t want to give China a free ride.  If China was forced to appreciate in a big way all the other Asian nations would immediately follow suit.  I always like to look at this Won-Dollar cross since South Korea is one of those exporting nations that imports virtually all of its resources.  So as resource prices surge and export prices do not keep up the terms of trade start going against them hard.  One option to fight this that has been resisted is a strengthening currency.  I have always said at some point they will be forced to bite the bullet.  As you can see from the chart below the Won has recently strengthened considerably and is close to some serious resistance (the chart is inverted).   

Korean Won vs. Dollar

It’s not just the Koren Won though, take a look at the chart below of the Dollar versus Asian currencies Index, Bloomberg ticker ADXY.  This looks like it is about to bust out.  The dollar is completely collapsing and nobody is knows it!  Sadly, many of the allocators of capital in this world are among the most brainwashed people on the planet.  No guts, no imagination and no ability to see outside of the box.  I don’t feel bad about what is coming to them and their reputations but I feel extreme sadness for the fate that awaits their clients.

JP Morgan Asia Dollar Index

Crimes Against Humanity

I believe that many of the executives of the major financial institutions on this planet and their puppets in government and central banking from earlier this decade and into today have committed and continue to commit crimes against humanity.  Their crimes are subtle and hard for most to understand.  As Keynes quoted Lenin to have said: 

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.   

The subtleties of their crimes do not make the perpetrators any less guilty nor the consequences any less severe.  That said, we must be careful and deliberate as this thing plays out to not let our passions get out of hand as they have in so many similar circumstances in world history.  The next stage coming from the corrupt “leaders” in place will be a crackdown on commodity “speculators” as governments try to take the moral high ground like the bunch of disingenuous crooks many of them are.  This will potentially push people out of futures and into physical precious metals and these will move to heights completely incomprehensible to most.

For all those out there whether in government, financial institutions, or elsewhere that are “playing along” and making fortunes at the expense of their fellow humans I do not know how you look at yourselves in the mirror in the morning.  You may look and think you are master of the universe but no one else sees you that way.  The world sees you as the greedy little pigs that you are and the universe has ways of dealing with this kind of karma.

Further on up the Road
I love Johnny’s version.


Stay safe and warm,