Last week we discussed in this space the immense number of things that people “know” that aren’t so. When this author was young, the world was threatened with prophecies of a new ice age due to human impact on climate. Twenty-five years ago, it was global warming. Now, people from impressionable college students to officials at the highest level are willing to put at risk immense advances in human standards of living in obeisance to a “science” with a margin of error of 100 percent.
Well, of course, that makes climate extremists look somewhat less than brilliant. They can’t have that, so they’ve solved the problem by calling the process “climate change”—effectively reducing the margin of error to zero because climate has changed many times in the history of the world. If you can’t hit the bullseye, just redefine your target to be anything your arrow hits. Problem solved.
This problem of movable standards is endemic to a world in which any given person’s highest authority is him- or herself. No external authority can have true and lasting authority over an individual. Their own desires and identity are the extent of what must be satisfied, and those can change anytime, for any reason.
One can choose any desired creature to be one’s spouse, choose one’s gender, choose one’s species, choose one’s minimum compensation level from an employer, choose to be paid for not working, choose to steal or destroy without consequence, choose to claim victim status in order to victimize others, and much more. In short, one can create anything one desires ex nihilo—out of nothing—a power formerly reserved exclusively for God.
The only problem is that there are over eight billion souls in this world. Every single one of those individuals disagrees with every single other one of those individuals about something or other. If there are over eight billion disagreeing gods in the world, that’s a recipe for massive chaos. And chaos is always a prelude to authoritarian takeover. People can’t tolerate anarchy, so they cry out for a strong man to save them. And one always does—at a price. Usually a very, very high price that includes very little tolerance for variation in the expression of human desire or identity. Ironic.
What does all this have to do with the communications below? People in the know understand that we’re currently in the mother of all economic bubbles. And what is a bubble but an excess of passions? People see a “can’t-lose opportunity” and go for it, all in. Governments or central banks usually create the opportunity or the conditions for it, which often take the form of an excess of currency creation and some kind of regulatory loophole or opportunity regarding investment options.
Doug Noland makes clear this week the colossal cost of bubbles. The bigger the bubble, the bigger the catastrophe; and this bubble we’re seeing is astronomically larger than the subprime real estate bubble that burst in 2007-8.
The calm voice of reason and responsibility is always less compelling than the voice of exciting collective action, but the latter can destroy you. The everything bubble will ruin many when it pops. Don’t be one of them. Make the below publications part of your weekly reading, and you’ll know how to avoid the economic tsunami when it comes.
Key Takeaways:
- Taxpayers—the goose that lays golden eggs for politicians and central bankers
- Bubbles are destroyers
- Commodities in the catbird seat
- Think about platinum
The McAlvany Weekly Commentary: An Interview With Charles Goodhart
On this week’s program, David interviews British economist Charles Goodhart. Formerly of the London School of Economics and the Bank of England, Charles also formulated Goodhart’s Law (“When a measure becomes a target, it ceases to be a good measure.”) His latest book is The Great Demographic Reversal, which he and David discuss in this installment of the Commentary. David quotes as summation a sentence near the end of the book, “If favorable demography and rampant globalization were largely but not wholly responsible for the faster growth and much of the lower nominal variables, inflation, and interest rates over the last three decades, then it simply stands to reason that the next three decades will see lower growth and faster inflation and higher nominal interest rates than recently.” This means that inflation and wages will likely be high for a long time. From there, interviewer and interviewee get into the details, beginning with China but expanding to most of the world. Low death rates and low birth rates have yielded very top-heavy populations in all the world except Africa. This has ominous implications for pension and medical support for the elderly—too few givers into these programs (workers) and too many takers from them (retirees). China is already facing this problem. Most of the rest of the world will soon face it. And though Africa is the exception to this demographic trend, it does not have the political unity or education base to boost the world economy like China has done for the past 30 years. Charles gives us a look at how national budget shortfalls might be dealt with, and emphasizes the challenges ahead with this sobering thought: “It’s going to be a very difficult and problematical future, demographically.”
Credit Bubble Bulletin: Houston, We Have a Bubble Problem
“Aged. Unhealthy and deeply unsound. Worryingly unstable. Many voice serious concerns in private, with only a few willing to publicly broach the subject.” Is Doug talking about President Biden in these opening comments? One might understand the supposition, but no. Doug’s talking about the Everything Bubble. To give his analysis context, he quickly goes through an eye-opening history of bubbles and their amazing prevalence and power to destroy wealth. And while bubbles are “arguably today’s most important and pressing issue for the markets and economy…the subject…has curiously reached the point of complete radio silence.” No high-level official or analyst is talking about it, but Doug is—logically and thoroughly. He takes Houston’s current power outage as an example of the trouble that bubbles can cause: “One of the great ironies of Bubbles was on subtle display this week, offering an opportunity to turn analytical concepts into tangible reality. The perception is one of an era of incredible wealth creation. The reality of Bubbles is something different: pernicious resource misallocation, deep structural maladjustment, and true wealth destruction. For the most part, malign Bubble effects remain concealed awaiting the inevitable bursting.” This is crucial insight you won’t find elsewhere.
Hard Asset Insights: Still Dancing
In a comment on the Mississippi Scheme, Charles Mackay asserts that “John Law [the putative villain in the scheme] was neither knave nor madman, but one more deceived than deceiving, more sinned against than sinner… He did not calculate upon the avaricious frenzy of a whole nation; he did not see that confidence, like mistrust, could be increased almost ad infinitum, and that hope was as extravagant as fear.” In a similar vein, America is now in the midst of a long-in-the-tooth bubble—as Doug describes in CBB—that its confidence and hope will not allow it to acknowledge. Against these human dynamics, Morgan brings cold, hard facts; the views of experts; and unyielding reason. Granted, the party on the world’s safest ship is exhilarating, magnetic, and self-affirming, but there are icebergs ahead. To continue to party with risk indifference in such conditions is conducive to neither health nor wealth. Morgan’s balanced reporting acknowledges the very slight improvement in the consumer price index, while putting it into perspective with the PPI and other indicators. He finds that the improvement in CPI is due to goods rather than services. PPI shows the same divergence between goods and services prices, which puts the spotlight on the commodities that so deeply affect goods prices. He concludes, “In short, all eyes on commodity markets. If commodities don’t play nice, market sentiment may quickly swing right back toward the need for a higher-for-longer policy and a trapped, frozen Fed before we ever even get to September.”
Golden Rule Radio: Keeping a Balanced Portfolio
Tory and Miles begin the program with a recap of the metals action for the week. Gold and silver both advanced, but not equally. Silver is moving a bit faster, which is in keeping with its more volatile character. The result is that the silver:gold ratio got smaller, and the hosts discuss the ramifications of this development at some length. Keep in mind that the hosts have been discussing ratio trading for some time now, and listeners are beginning to see their analysis play out in real time. (They refer listeners to an excellent three-minute video by David McAlvany on the subject of ratio trading.) From there, the hosts direct the conversation toward platinum. It’s price relative to gold is at a multi-year low, and thus the opportunity is real to do some ratio trading with this metal. Doing so requires some knowledge of the process, historical values of the metals, and historical actions in their markets. You can avail yourself of these things by regularly listening in to the program, or you can call a broker at McAlvany Precious Metals to discuss the matter personally. From ratio trading, the hosts then turn to a discussion of interest rates and the historical cycle from time of raising interest rates to time of lowering them. This gives perspective of a surprising nature that is well worth your time to view. Will the pattern repeat again this time?
