These Are The Top Risks 'We, Average Americans' Face In 2018

Authored by Peter Diekmeyer via The Mises Institute,

A decade ago, Ian Bremmer, president of Eurasia Group, launched one of the geopolitical world’s greatest marketing coups: an annual list of key global risks.

The 2018 version is finely balanced to generate maximum interest among the consultancy’s global banking, defence and government sector clients. China, Russia, North Korea and Iran all figure highly, as do terrorism, Islamic- and cyber- threats.

Naturally, it has made Bremmer a favorite among the plutocracy and Bilderberg set. But what would the list look like if it targeted the needs of ordinary Americans?

Following are our suggestions:

1. The Krugman con

The biggestthreatto America (and the rest of the world) is the coming implosion of the Krugman Con . This “con” gets its name from the Nobel Prize-winning economist and New York Times columnist who (like most of the economics profession) has spent decades advocating the continuous growth of government spending, taxation, borrowing and money-printing at a pace that is faster than economic growth.

The policies—camouflaged in terms like “fiscal stimulus,” “multiplier effect” and “Phillips curve”—are worse than a Ponzi scheme. They are a Ponzi scheme any grade 10 student can understand.

2. Governments, businesses and ordinary Americans powerless to act.

A couple of years back, McKinsey group published a study which showed that global government, business and private sector debts had reached 289% of GDP. However, few public sector officials have grasped the implications of this key statistic: if everyone is strapped, there is no one left to bail anyone out. That means even the slightest tremor could bring down the entire system.

A couple of examples suffice. First, economists say that things could never get as bad as in Japan, now capping two “lost decades” of economic growth. In fact, things could get much worse, because Japan’s “lost” two decades were cushioned by massive exports to still-growing US and European economies.

In a similar fashion, China helped prop up the rest of the global economy following the 2008 global financial crisis by borrowing and printing tens of trillions of dollars and importing a lot of stuff—a move that created jobs both in China and elsewhere. But if the entire global economy goes down together, there won’t be any Martians who will boost their imports to bail us out.

3. Free markets are dead, but will be blamed for the coming crisis

As the late Murray Rothbard pointed out in his magisterial workAmerica’s Great Depression , the US government and the Federal Reserve largely fueled the 1929 stock market bubble, crash and ensuing depression through massive monetary expansion. But free markets got blamed.

The same thing is happening right now with the Krugman con . The Federal Reserve’s low interest rate policies have sparked “everything” bubbles in stocks, bonds and real estate. Worse, the US public sector, juiced by free printed money, now controls more than half the economy (particularly when you include the hidden $2.4 trillion Powell Tax ).

When the inevitable collapse occurs, politicians, bureaucrats and regulators will duck responsibility. They will instead blame capitalism and ask for more powers. If past is prologue, they will get them.

4. Faulty signals

Massive central bank interventions have butchered price discovery to the point that Americans can no longer make effective economic and financial decisions.

Why have stock prices tripled since 2009? Should you borrow to go back to school or to buy an overpriced house? Is it better to save, spend or pay down debt? What is the true cost of government?

The US Federal Reserve’s money-printing has so skewered economic signals—ranging from GDP to inflation and business earnings data—that Americans have no good metrics they can use to effectively answer these questions. It’s like driving around New York with a GPS map of Botswana.

5. Blowback

By now, Americans have forgotten all about the seven Muslim countries that the Trump Administration bombed in the three months after the last US election. But the families of the tens of thousands of civilians killed by those bombs have not.

The CIA has a term for the damage those survivors could cause:Blowback. If the US eventually gets hit with a sizable “terrorist” response from its bombing victims, average Americans will never know what caused it. The US government will thus be able to blame any enemy it chooses.

6. Trump picks on the wrong guy

The US government has distracted the American public from its economic hardships by attacking various “enemies” for so long, it’s hard to remember a time when it was not the case.

The big challenge facing the Trump Administration is that Americans are no longer distracted by small wars, in which the US Air Force annihilates the enemy with drone strikes from afar. Therefore, there is a huge threat that President Trump, in his quest for a good newsworthy opponent, might pick on the wrong guy.

North Korea, for example, which Trump has been trash-talking lately, just might have the tools to defend itself. Worse, China has quietly drawn a red line and said it would come to North Korea’s defence if that country is attacked.1

7. Trump’s “yes men”

One of the most fascinating aspects of the Trump Presidency is the obsequiousness he demands from his aides, who have been forced to smile, stand by and thus tacitly endorse racist, misogynist and borderline psychopathic rhetoric. The upshot is that most of Trump’s closest staff is comprised of either family, generals and … “yes men.”

This is particularly dangerous during an Imperial Presidency in which the Oval Office has acquired increasing powers. If Trump ever does veer off course, don’t expect his advisors to contain him.

8. Complex societies and clueless experts

Warren Buffet’s golden rule is: never invest in a company you don’t understand. Taking that example a step further, who would invest in the US dollar, when government actions have made American monetary policy impossible to comprehend?

One example suffices. As hard as it is to believe, the US government has printed so much money, it does not know how much is out there. As a result, the Federal Reserve does not publish conclusive statistics about the total money supply (M1 and M2 are only base estimates).

Innovations such as fractional reserve banking, the financial stability board, derivatives, the Fed’s secret trading desk—which we know exists, but government officials won’t fully disclose its activities—and the Euro dollar market mean a variety of players can expand or contract the money supply.

Like Bitcoin and other crypto-currencies (which can fork and expand effortlessly), the US dollar is fraught with huge risks because holders can’t value the asset if they don’t know how much of it exists.

More broadly: the fact that Buffet is heavily invested in the US dollar (even though he almost certainly understands the risks) should provide huge cause for concern about the valuations of all other asset classes.

9. Derivatives and interconnected markets

Foreign exchange, interest rate and equity-linked derivatives are the most complex, opaque and sizeable markets. Yet few American experts (let alone politicians, media and ordinary folk) know what they are, how big they are, or understand the risks involved—despite the fact that the failure of a derivatives player, AIG, caused the last global financial crisis.

The Bank for International Settlements recently estimated the total notional value of over-the-counter derivatives at $542 trillion—roughly eight times global GDP. But the market is actually larger because much of the trading was done off the books.

There are only two things you can be sure about derivatives:

  1. A failure in any one of the major counterparties will bring the entire system down, and

  2. Because AIG clients were bailed out last time, there were no incentives to remove bad actors and faulty practices.

10. An unaccountable accounting profession

US and global corporate financial statements run hundreds of pages. But experts neither understand nor trust them. Current rules enable corporations to massage profits and hide much of their debts off the balance sheets—making it impossible to assess operational performance.

The wealthy would never trust a corporate financial statement. They always hire their own experts to perform due diligence prior to investing serious money in a firm. Despite this, politicians allow US accountants to publish more, and increasingly complex, rules—so they can charge ever-greater fees to interpret them.

The problem is larger than it appears. The fact that Americans can’t trust or rely upon corporate data means they can’t trust the CEOs who run those businesses, either.

Therefore, when politicians blame the private sector (and capitalism) following the coming crisis, there will be few CEOs with any credibility left to defend it.

A final note. While risks abound, there are some short-term positives. Public officials can mitigate or deal with many of the threats listed above if they muster the courage or the political will.

Furthermore, while the US and global economies are being run as quasi-Ponzi schemes, the hedging community has been warning of the risks for more than two decades. While an implosion is inevitable, it is by no means imminent.

That said, the “Krugman con” Ponzi is a like a “sword of Damocles,” which - while not always visible - hangs over the actions of all states, businesses and individuals.

Comments

directaction Fri, 01/12/2018 - 19:07 Permalink

As it is every year, the biggest risks we shall all face are peak oil and widespread resource depletion brought about by over-population and over-consumption.

All this political stuff is essentially meaningless compared to these two. 

roddy6667 directaction Fri, 01/12/2018 - 19:51 Permalink

I have been hearing that tune since I was in college in the Sixties. Malthus was wrong, and so are you. As far as peak oil, they find more every year. Yes, it costs more, but that is because of inflation, not scarcity. Gasoline is cheaper, adjusted for inflation and disposable income, than it was when in 1971 when I was 21 and it costs 28 cents a gallon at the pump in CT.

You will have to find some other bogeyman to scare people. Have you considered Global Warming/Global Cooling/Climate Change? Or maybe you could become a Jehovah's Witless and go door-to-door babbling about the end of the world and those 144,000 saved people.

In reply to by directaction

LightBeamCowboy roddy6667 Sat, 01/13/2018 - 10:38 Permalink

Funny how all the people who think Malthus was wrong live in the last great continent to be stolen from low-population hunter-gatherers and somehow don't notice that the population here has tripled in the space of my lifetime. You need to go live in one of those countries where the streets are wall-to-wall people breeding like rats and the air smells like human shit all the time because they can't get their act together well enough to build a sewage system. Then come back and find a nice clean, quiet place in the countryside and tell me which you like better.

In reply to by roddy6667

Endgame Napoleon LightBeamCowboy Sat, 01/13/2018 - 12:03 Permalink

More pay-per-birth from government does not grow an economy with widespread prosperity. Prior to their growth streak, which was spurred greatly by American offshoring of jobs and importing of Chinese-made goods, the Chinese figured that out. However, they did not buy much stuff from Western countries, other than raw materials that do not create many jobs in the West.

In reply to by LightBeamCowboy

Farqued Up roddy6667 Sat, 01/13/2018 - 15:31 Permalink

Not one single person of that 144,000 going to the KINGDOM falls outside the creme de la creme of the Jehovah's Witnesses. I suppose you have to have connections because we are talking about throughout time, history, if you lived before this late blooming protestant religion was formed, tough shit! Carlin said it best, it's a small club and we ain't in it.

I believe that there is a limit on the oil available unless there are some alien gremlins underground eating dirt and magma and pissing oil. However, you make a valid point, I remember Peanut Prez declaring that we would be out of gas by the year 2000.

In reply to by roddy6667

Code Duello directaction Fri, 01/12/2018 - 23:15 Permalink

You need to acquire both historical perspective and a sound understanding of economic theory (i.e. the classics such as Menger rather than charlatans such as Keynes).  The Malthusian fallacy to which you attribute "biggest risks" has persisted since 1793 but any thinking individual knows that reality - especially in the form of an observable ongoing exponential technological growth - has demonstrated for 224 years otherwise.

In reply to by directaction

LightBeamCowboy Non-Corporate Entity Sat, 01/13/2018 - 10:49 Permalink

Really, it's all people who can't retain enough historical perspective to map out a coherent picture of the world. Like the author above saying, "Americans have forgotten all about the seven Muslim countries that the Trump Administration bombed in the three months after the last US election", when it's the author who has forgotten that these bombings were planned under Bill Clinton, begun under GW Bush, and expanded under Obama, who had explicitly promised to stop them. But everything is Trump's fault...

In reply to by Non-Corporate Entity

nmewn Fri, 01/12/2018 - 19:16 Permalink

The top risk to .gov is the general populace (consisting of, can we at least be frank?...illiterate basket weavers & baristas etc) discovering the rule of law is dead and only applies to them not..."their betters"...in .gov. 

The illusion must be kept up or it all crumples up into a fetid mass of utter bullshit. 

And believe me, they will keep up the illusion no matter who has to swing from the gallows ;-)

Deep Snorkeler Fri, 01/12/2018 - 19:18 Permalink

Biggests Threats in 2018

1. Trump has gaseous holes in his cerebrum

2. An army of robots wait for the coming wave of pink slips

3. The US military is defeated in Afghanistan (wait.. is that bad?)

Ghost who Walks Fri, 01/12/2018 - 19:43 Permalink

I can see a few other major risks to the status quo.

1./ The Wright Brothers effect. Randall C. Mills finally gets his energy technology running which is hugely disruptive to the Oil Industry and maybe Transport and Aerospace industries. Any industrial re-tooling in these industries lowers the barriers for competitors

2./ The Inca effect. There is contact with Aliens or Hi-Tech technology is released. One the one hand existing social orders will crumble when other successful social systems are reviewed. Technology that simplifies our lives and expands our freedoms will cut through the Laws and Regulations erected to protect special interests.

3./ The Wikileaks effect. Release of accurate information showing the truth behind powerful relationships will mobilise the populations to take actions.

4./ The Rumsfield effect. An unknown-unknown comes through and devastates important systems. An example might be the recent flaws in Computer chips with memory handling that make them susceptible to hacking.

5./ A Carrington event. Massive disruption from a Solar flare to surface electrical equipment that is similar to an Electromagnetic Pulse from a Nuclear weapon, but longer lasting and covering major parts of the globe. This is the highest risk of all, based on the severity of outcomes. May occur every about every 150 years and we are overdue for another.

Jasher Fri, 01/12/2018 - 20:30 Permalink

15 Because ye have said, We have made a covenant with death, and with hell are we at agreement; when the overflowing scourge shall pass through, it shall not come unto us: for we have made lies our refuge, and under falsehood have we hid ourselves:

g3h Fri, 01/12/2018 - 21:02 Permalink

"Average American" is a misnomer. There is no such a thing.

There are only ordinary Americans, rich Americans, the elites and the swamp.

 

The rich Americans, the elites and the swamp are doing fantastic. So they flood our sensories with Apple, Amazons, Google, Facebook, Netflix, who then produce movie stars, sports stars, entertainment stars, gurus, experts, pundits, Alexa and Siri.

Just one happy family. We America is already great. Look at the stock markets. Look and Walmart's minimum wage hike.

uhland62 Fri, 01/12/2018 - 21:39 Permalink

What other enemy should Trump & Co have picked? You have to have an enemy to paper over the divisions but you need to pick your enemies wisely. While Russia, Iran, and China looked like good picks some assessment must have changed. 

If America can start implementing 'America First', i.e. focus on what needs to be done in the country, stop fussing about other countries and what happens there internally, we might get somewhere.

What's the point in spending money on travelling to the Forum in Davos? Davos is just another internationalist NGO like Bilderberg, not accountable to anyone other than their money men. They haven't improved anything in their decades of existence.

austrianboy Sat, 01/13/2018 - 09:23 Permalink

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11. The US dollar crashes after the Shanghai exchange launches its yuan oil futures contract

Algo Rhythm Sat, 01/13/2018 - 09:54 Permalink

Okay, so something is going to take the US down...let's get ahead of it and go out in fantastic revolutionary move against the banks and bankers. Andrew Jackson will be so proud.