Fall of the House of Europe
In one case out of a hundred a point is excessively discussed because it is obscure; in the ninety-nine remaining it is obscure because it is excessively discussed – Edgar Allan Poe
European financial interests have effectively controlled the US Congress for over 100 years.It’s the reason we were dragged into two World Wars that weren’t our business.It was profitable for financial interests and that was reason enough.
The financial interests have strip-mined Europe, the US, Canada, South America, Asia, and Africa to the point where little remains to exploit which is why they need a war.They need a war to re-set global currencies to relieve them of the debt burdens that threaten to destroy their hold on the world.
We have witnessed this cycle for a thousand years and the fallout becomes bigger each time.A World War today would destroy the entire planet given the power of the weapons we can employ and this is the outcome European leaders apparently seek.
Keep in mind that these are the same people that gave us the previous two World Wars; these are the people who have given us the millions of deaths in Ukraine.The only logical conclusion is that their hold on power is more important than millions of lives.
The Age of Financialization
It is with literature as with law or empire – an established name is an estate in tenure, or a throne in possession – Edgar Allan Poe
The managerial class whose names dominate the headlines come and go but the old family names that created the World Economic Forum, the Club of Rome, the Council on Foreign Relations, the Fabian Society, and who can trace their ancestries to pre-Roman times have always been the driving force.These are the financial interests that have formed empires and destroyed them when they could no longer extract rent from them.
These are the people who destroyed Europe, China, Japan, and are now gunning for the US and Russia.If they can’t have it, they want to destroy it.
Everyone who talks about “The Great Re-Set” are doing their bidding because these people need to devalue their extraordinary debts, more so because many of the sources of their income are being cut.The war on drug cartels and human trafficking is cutting deeply into the revenues they need to maintain their power and their voluminous networks.
In short, these folks are vulnerable for the first time in centuries.We can see it in the desperate attempts to provoke Russia into wider conflict.We can see it in their feeble attempt to stage a coup in Poland using German policemen to gain access to the Trilateral Courts.We can see it in the Brazilian election.We can see it in the riots in France.We can see it in the attempt to bring Canada into the EU to gain a claim on the Arctic.
We can only see the desperation from the financial class because they are panicking.They are rapidly losing control, even as the underlying cash flow from their asset base dries up.They aggressively bet that China would supplant the US as global hegemon; that bet failed spectacularly.
They need collateral in the worst way which is why they need the US and Russia.With collateral, they can devalue debt without losing underlying relative value, forcing the rest of the world to cover the costs.
In 2018, I likened this process to the Fibonacci sequence where previous cycles were extracted such that the potential return on assets keeps declining prompting the use of excess leverage to generate acceptable return on equity.As the ROA declined, the level of risk elevated due to using debt for leverage.And now, we’re at the point where the law of diminishing marginal return has turned negative – at the center of the cycle.More debt leads to inflation and negative returns on assets.The Central Bank model is no longer tenable.
This is why I believe we’ve hit the point where deflation will ensue.The Covid years where we increased M1 money supply by 80% failed to restore the underlying profitability of our asset base.Despite the life-line, Credit Suisse was the first domino to fall.Others will fall before long.
Nobody is more levered to this cycle than the people with the most assets – the old money families that made their fortunes on resource extraction and illegal trafficking.It’s why they are desperate and it is why we can finally see their fingerprints on everything bad in the world.
The Next Crisis
The enormous multiplication of books in every branch of knowledge is one of the greatest evils of this age; since it presents one of the most serious obstacles to the acquisition of correct information, by throwing in the reader’s way piles of lumber in which he must painfully grope for scraps of useful matter, per adventure interspersed – Edgar Allan Poe
Social media makes Poe’s difficulties astronomically worse because it introduces an infinite number of ways to distort reality and perception.This distortion of reality is the reason why the world has been led into governing and social arrangements that are antithetical to our long-term prosperity and happiness.Combine the above with easy credit and we find ourselves at the precipice of enacting a new feudal system.
The herd is confused and that makes it deadly because it can rush off in any direction.Financial leverage compounds the problem because much of the population is saddled with onerous levels of debt for housing, automobiles, education, and for useless stuff.Just about everyone lives at the margin or limit in some form.
High levels of debt combined with low returns on assets is the combination that economic depressions are made of.Historically, the financial elite have been able to make money in both good and bad times by controlling the various channels of government.
We last saw this in 2008/2009 when liquid “White Knights” swooped in to buy the damaged assets, with ample government guarantees, knowing that the Federal Reserve was going to flood the country with money.JP Morgan, the right arm of the Fed, bought Washington Mutual and Bear Stearns in 2008.Barclays Bank bought Lehman Brothers.Bank of America received Merrill Lynch.All three acquiring banks profited handsomely in later years.
It’s been a brilliant run for the bankers yet all they have done is harvest; they haven’t built anything.They’ve been protected from their own excesses even as they have gobbled up the seed-corn of tomorrow’s harvest.In short, they have gotten too large and like every apex predator, they can only be as healthy as those they consume.This includes the Federal Reserve.
If the global banking system, which emanates out of the City of London (separate from Great Britain), is unable to get its hands on the remaining choice assets of this world, namely the vast resources of Russia and the US, or if they are unable to engender a global re-set of debt values, I fear that their time of prominence is at an end.This will mean deflation and depression for those levered to the financialization model.
Battle Enjoined
I am above the weakness of seeking to establish a sequence of cause and effect between the disaster and the atrocity – Edgar Allan Poe
Unlike Poe, I am not above the weakness of seeking to establish cause/effect between the disaster and the atrocity.There is a long association between debt growth and disaster; they are two sides of the same coin and the Central Bank model is the chief purveyor of this coin.
We’re going to get economic dislocation this time around because there is no more room to print money to further the insanity of the Central Bank model.The only question is whether we stultify and accept a welfare state within a socialist model like Europe and China or do we break away from the tightening bonds of neo-serfdom? We’re going to find out before Christmas because I strongly suspect that the fight for the US is only getting started…
I’ve written about the risks for years, so it’s no surprise to us.This is why we’ve turned our attention to the opportunity that chaos brings.The financial interests have played their hand with the outcome of the election but the industrial interests have yet to respond.Chaos will break out when they do.
Keep in mind that once battle is enjoined, victory favors the side that best adapts to the changing nature of the battlefield and has the right mix of assets at the front at the right time.This is especially true for the side that has asymmetrical optionality. This doesn’t favor the banking interests because they have depleted their reserves maintaining unsustainable trends for 25 years.
The banking interests also lack the immense power of the US government, even though they have dominant influence in the US Congress.Congress controls the purse but doesn’t get to wield direct power.They can only react and can never be ahead of the curve.
The banking interests control the media and with it the dominant narrative.Going back to Lord Palmerston of 1848 Britain, the banking interests are masters of controlling the narrative but narratives can prove ephemeral when confronted with hard data.Joseph Goebbels said that a lie told often enough becomes truth but let’s not forget his fate; he died by his own hand in a bunker in Berlin in 1945.
Blockchain
There is then no analogy whatever between the operations of the Chess-Player, and those of the calculating machine of Mr. Babbage, and if we choose to call the former a pure machine, we must be prepared to admit that it is, beyond comparison, the most wonderful of the inventions of mankind – Edgar Allan Poe
The City of London, which is separate from Great Britain, and Wall Street get a piece of every foreign currency and energy transaction.They control the exchanges and the global transfers of banking assets.They get a piece of the action regardless of whether the transaction involves individuals, corporations, or governments.
Blockchain holds the potential to cut them out of these transactions along with their ability to manipulate markets.It’s the Sword of Damocles held over their heads.This is why major banks are in a rush to embrace artificial intelligence – they need to cut costs as quickly as possible to be competitive.
In short, blockchain represents an existential crisis for financial interests because it represents a clear path between buyers and sellers.When combined with the fact that the global financial interests have ruined the global economy, they have a very good reason to panic.
Blockchain will allow for true market signals to direct capital investment going forward because we will see capital flow to areas of opportunity and away from non-performing areas in real-time.There won’t be middle-men to buffer one side versus the other.
Blockchain is a digital accounting ledger – think of it as one worldwide ledger that is updated within seconds to ten minutes around the world, depending on the speed of the machines used.The ledger is unalterable.
This may give you the impression that I favor Bitcoin and Ethereum; I don’t.The value of these crypto currencies is dependent on the amount of money printed by global central banks.As I wrote in The End of Europe, https://geovestadvisors.com/the-end-of-europe/ we are in the “Twilight of the Central Bank model” which suggests that they won’t be able to create unlimited new money for long.If I’m right, crypto currencies will shift from inflation hedges like Bitcoin to stable coins, backed by real assets.
If I’m wrong and the Central Bank model wins the current conflict, Bitcoin and Ethereum may prevail, assuming authoritarian actions don’t outlaw them.But I don’t believe this will happen.Instead, I expect Bitcoin and Ethereum will cease to be relevant over time.
Conclusion
Experience has shown, and a true philosophy will always show, that a vast, perhaps the larger portion of the truth arises from the seemingly irrelevant – Edgar Allan Poe
We’re witnessing two sides circling each other for a fight.In truth, it’s not the two dominant political parties in the US vying for control, it’s international financial interests versus US domestic interests.
The acrimony among Americans is contrived similar to the way Iago convinced Othello of Desdemona’s infidelity.This will be readily apparent after the fighting stops.Regretfully, we’re just going to need to ignore the vitriol until that time.
When it’s over, I expect the House of Europe to collapse in on itself, much like the House of Usher, and for the members of the EU to go their separate ways.I also expect the great Houses of Europe to suffer a fate similar to Sauron at the end of the Lord of the Rings.They will continue to exist but their power, fortunes, and prestige will be extinguished.Today’s panic is justified.
The financialization cycle is over after 125 years.The future is about re-building a destroyed industrial base, not about trading crypto and Mag 7 stocks.If you’re interested in learning more, visit us at https://geovestadvisors.com/ and give us a call.
Philip M. Byrne, CFA