What Will Happen When China Devalues?

Weekly Commentary • May 01 2024
What Will Happen When China Devalues?
David McAlvany Posted on May 1, 2024
  • Nietzsche “The World Is The Will To Power And Nothing Else”
  • 88 Countries Are In An “Election Year” – Unlimited Deficit Spending
  • Tactical Short 1st Quarter Recap Call

“If you think about economics, the funny thing is that they’ve actually tried to legitimize themselves in recent decades through sort of anchoring themselves to mathematical equations and in so doing, they’ve moved towards the hard sciences. Unfortunately, in the process, they’ve lost their soul. So different journeys towards the absurd seem to have one common element: Truth is no longer paramount. It’s conformity that is paramount. New orthodoxies are not to be questioned.” –David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

David, as you know, on the weekends I love going to some of the ruins in the areas that we’re in here down in southwest Colorado. It’s very, very interesting. We have Mesa Verde here. Just south, we have Chaco Canyon. We have Chimney Rock if we go east. And all of these archeological sites tell truths, and if you go over to Cortez, there’s a site that they dug up and they were identifying men and women, the skeletal remains of men and women. It’s fascinating when you read the skeletal reports, but here’s the thing. Contrary to current society’s beliefs, an archeologist is really just looking for either male or female bones. It’s interesting how in archeology you can’t play the games that you play when you’re playing with sociology and psychology of these days.

David: Yeah, it is interesting, whether it’s economics or politics, public policy, what you’re suggesting is more of in the range of psychology and sociology. Different journeys towards the absurd have this common element: Truth is no longer paramount. What you have to do is conform. Conformity is what we find to be paramount, and so we create new orthodoxies. Those orthodoxies cannot be questioned and it gets us in a tough spot. That’s what we’re discovering with sort of the new orthodoxies within economics.

Kevin: And with gender, right?

David: Yeah, exactly. It came up in conversation recently that a local school here has one of the school buses which is called the Litter Box, and it’s called the Litter Box because a number of the kids consider themselves to be cats.

Kevin: That’s just insane.

David: I like Bill Maher’s comment that you can’t really take that seriously. He considered himself to be a pirate at age six, and he’s just grateful that his parents didn’t cut off his leg and gouge out an eye to give him a patch and help him with his identity. There is a point at which you say, “Okay, that’s nice, Johnny. Now let’s move on.”

Kevin: So there is a point where you may grow out of it, and even if you don’t grow out of it, death and archeology ultimately will prove the truth.

David: But the new orthodoxies cannot be questioned.

Kevin: Conformity is what you said. Hey, before we get going, let’s remind everybody that this Thursday is the Tactical Short quarterly conference call. That’s something that anyone can listen to.

David: Yeah, join us. We’ll have a detailed discussion of market dynamics and we’ll look at what has happened following the Powell Pivot, subsequent market melt-up, and the areas of vulnerability in the financial system at present. Send your questions ahead of time and join us. That’s 2 PM, Mountain Standard. Thursday, May the second.

Kevin: We were talking about some unreal orthodoxies, and one of the unreal orthodoxies is that you can just print money forever as long as you can control your currency. That was called Modern Monetary Theory. Maybe there were some who still believe in that, but look at the yen, Dave. The yen. Are we watching just a meltdown at this point?

David: Yeah, it slid versus the US dollar to 160.17. Intervention was finally initiated at what appears to be the newest line in the sand. 152 was the previous line in the sand. In no time, we went from 152 to 160. That’s just under two weeks. So we passed the red line, we redefined it. The intervention at 160 was violent. We went from 160 back to 154, and it finally stabilized right around 156. It was sufficient volatility to erase vast sums of money, and that kind of volatility within any major currency is really damaging. 

Gavecal Research—this is Louis-Vincent Gave. Actually, I met with him in Hong Kong a number of years ago. His research team commented that moves of this magnitude in major currencies don’t typically occur outside of major economic crisis. So the yen’s deteriorated more than 11% versus the RMB, the Chinese currency, or the yuan, however you like to refer to it. And that’s just year to date. That is now the currency to watch for an official devaluation, the RMB. And what you see in China is, I think, telling there are suggestions not just in the currency markets but in the commodity markets that something is getting ready to break with their currency peg. Stockpiling of copper and gold suggests that many in mainland China are anticipating an RMB devaluation.

Kevin: Yeah, and it’s not just the central banks this time. You brought out last week that it’s the average age 24 to 34 in China [of buyers of gold], and I think a third of that demand is in bars and coins right now. So people are seeing this, but when you’re talking about a major currency devaluation, the RMB, that would be a big deal, wouldn’t it?

David: Absolutely. When you think about rising youth unemployment here in the US, it doesn’t seem to be a very big deal, and maybe it’s just a question of scale. But when you’ve got hundreds of millions of people that are unemployed, all of a sudden the connection between economics and geopolitics becomes crystal clear. You need to put those people to work or they become the revolutionaries that upset the current political regime.

Kevin: Are you hinting at military work if they don’t get it domestically?

David: Absolutely. So currency volatility throughout the Asia-Pacific region would accelerate rapidly if you have that RMB devaluation, and you’re already seeing pressure in Indonesia and in the Philippines, in South Korea, and in Thailand. So there’s already some twitchiness, if you will, within the currency markets in Asia. You just need to watch that RMB peg.

Kevin: And doesn’t that strengthen the dollar, though? I mean where the debts are, doesn’t that put even more pressure on them?

David: For sure. A break of the RMB peg is consequential. There’s a financial market feedback loop where the yen and the RMB, as they weaken the US dollar strengthens. And that in turn pressures emerging market currencies and debt markets as well. So there are growing pressures under the surface of the stock and bond markets tied to leveraging of bets via carry trades. And currency volatility can quickly translate to cross-asset class deflation. 

So again, Thursday for the Tactical Short call, keep in mind these areas of vulnerability. We’ve had the market melt-up, and that’s all well and good, but it’s not buttressed securely. There is a tremendous amount of fragility within that system. US dollar strength, real concern for emerging market debt. There’s a number of currencies in Asia that are already on thin ice. The whole setup gets very interesting. 

Gold remains well bid above 2,100, and I sure hope we see that level. A back test of 2,100 would be really strong for the gold market, and digesting the move from 1,800 to 2,400, a correction of that scale, would be super healthy. But if the Chinese devalue, you’ve got to a half dozen other currencies which follow suit and devalue thereafter, and all of a sudden you see sort of a mad rush amongst consumers for gold. I think perhaps the interest in gold has been the currency market canary in the coal mine, if you will.

Kevin: Well, and if you’re from the United States, you don’t really see that yet. Isn’t this happening in Shanghai? I mean, that’s where the demand is right now.

David: Bloomberg reported last week that we’ve got an increase in consumption. Shanghai gold trading is exploding. Consumption is up 5.94% from a year earlier to 308 tons, and that’s in the first quarter, according to the Wall Street Journal. Imports are higher by 78% over the same period. Coin and bar consumption, which is roughly a third of the total—

Kevin: —which is the man on the street.

David: Sure. And that’s 106.32 tons. What happens when global risk on—again, everyone’s happy that prices are moving higher—what if risk on turns to global risk off? In the context, we have set very leveraged financial markets. Hedge funds are borrowing, according to Reuters, at a five-year-high, putting gross leverage within the hedge fund community at 270%. So again, you might think yourself an aggressive investor if you’ve got 100,000 invested and you borrow 20. Put that trade on margin, you’re talking about a 270% exposure to underlying assets. That’s a lot of leverage bets to be unwound. This is an area that’s grown tremendously since 2008. Private fund managers, which would include hedge funds, private equity, they now control $43.5 trillion. That number was 12 trillion in 2008. Jamie Dimon’s quote is my favorite quote of the week. It captures a really critical point. “The markets will do whatever they have to, to hurt the most people.”

Kevin: This is Jamie Dimon?

David: Yep. “This time,” he says “may be one of those setups.” He’s no fool. Booms lead to busts, and I think he’s beginning to anticipate one.

Kevin: Strangely, both of my kids—my daughter, who’s married to a captain in the Air Force, he’s being stationed in a different place. And so they’re currently buying a house, but they were hoping that there would be a bust in real estate before that happened because of— There’s still this tightness in the housing market, Dave. My son and his wife, they would love to buy a house. But with interest rates high right now, the housing market has stayed fairly tight, and the price is high even though interest rates have been rising.

David: It’s very tight, and you see that relieved somewhat from new home sales. And so your builders are doing quite well. New home sales are filling the gap left by the locked-in syndrome which we’ve spoken of previously. That is just an unwillingness to move and leave behind rates that you locked in at half of their current level. To go from three, three and a half, up to seven, seven and a quarter, that’s a problem—

Kevin: You lose square footage. You move from one house at a high and then you move to another house that’s half the size because the interest rates of the new loan.

David: And you can see that the supply problem has been exaggerated by mass investor purchases of single-family homes to be used as rentals. We’re talking about hundreds of thousands of units. The Wall Street Journal— This is really an important development. The Wall Street Journal notes that legislation is being drafted to limit the number of rentals that an institution can own to no more than 50. In the state of Minnesota, it’s 20. So at present, you’ve got, again, hundreds of thousands of homes which have been bought by Wall Street firms to run as a vast rental pool. That game is up.

Kevin: Boy, that’s a big deal.

David: Yeah. “No more,” is what our legislators are saying. They’ll address it through heavy taxation as a disincentive to those pooled portfolios of single-family homes. That’ll help. That’ll ease some of the supply pressure over the next 12 to 24 months. But it also suggests that there is a down stroke for residential real estate values that seems very likely.

Kevin: I think a lot of people would welcome that, actually, who do need to try to pick up their first house or even move. Election year, Dave, every side wants to borrow more money or spend more money on an election year when they need the incumbent to get back in. This is no exception.

David: Well, and globally, this is a remarkable year. 88 elections this year. And so, US debt issuance is, in the current quarter, 20% higher than projected. Running at a pace of 243 billion, up from the previous quarter of 202 billion. 180 billion issued just last week, and the sovereign debt markets are getting saturated. And this ties to election year antics because nobody wants to stop spending. Glad to see the Treasury Department helping influence the election. It’s not just our Treasury Department that is on call. And so, too bad they can’t directly influence sentiment for the president—

Kevin: Which is— Isn’t that an all-time low?

David: Lowest on record at this stage in his tenure. Biden is bottom of the barrel. If you think about that for a moment, there has never been a president that presided over a lower unemployment rate and a lower approval rating at the same time. So what that suggests is something about the quality of employment. From looking at the unemployment figures, you have an increase in part-time workers. You have a reduction in full-time jobs. More critically is, inflation is the driver of that lower- and middle-class angst.

What is different from four years ago is that, even with wage increases, lifestyle has been punished and has experienced a major setback due to the higher costs of goods and services. So you compound, or if you’re just looking at the cumulative inflation— You can go to the BLS website and they’ve got a calculator to show you how good it is, that it’s not really that bad.

Cumulative inflation, according to the BLS, is a mere 24% from levels that were registered January 2019 to the present. That, in itself, I think explains a dimension of the political anger or the voter frustration levels. If you’re looking at what may influence the approval rating of the president, to present to the public that inflation over the last five years sums to only 24% strains credulity.

Kevin: So that takes us back to the beginning of the program when we were talking about how archaeology tells the truth. Okay. You dig the bones up a couple of hundred years later and you find out there are men and there are women. You dig the bones up with inflation, you find out, “Wait a second. Eggs went from what? Two or three bucks a dozen to—” What are they now? I mean, it’s crazy.

David: Four to six dollars. I mean, if you’re looking at inflation all in, it’s 50%, it’s 100%, and you haven’t had the same increase in wages to compensate. So you’ve got that anxiety. You’ve got the running out of money before you run out of month. If you’re going to play with the numbers, if you’re going to pretend that we’ve only had a cumulative 24% inflation, I think that idea, that’s as damaging to the field of economics as creating now dozens of genders is damaging to the credibility of science. “Depending on your preference,” you put that in quotes. Depending on your preference, you’ve got social scientists who are aggregating genders today. We’ve got 43 by one count at our local high school, 71, 82, 107—

Kevin: Genders. Wow.

David: Yeah. So soft science is sacrificing hard science on an altar of expedience, on the altar of progressivism. I wonder when. I wonder when the physicists, when the chemists, when the biologists side with the archeologists and stage a revolt. You’ll find the list, these aggregations, they’re being put together by psychologists and sociologists, not biologists. So why not have an infinite number of genders?

Kevin: It’d be like Modern Monetary Theory. Why not infinite money, right? Infinite genders, infinite money. Yeah. It just works.

David: You’re basically defining reality according to the subjective. If subjectivity transcends objectivity, why would you have any limits at all? You can see where social trust is breaking down. If this is the new science, if this is a new form of orthodoxy which we have to adhere to, what you find is, really, all that matters is power. All that matters is the ability to coerce. This is a trend over the last several years. COVID required faith in science, which turned out to be, among other things, a social experiment in coercion and fear-based manipulation covering the tracks of the NIH in Chinese labs. So we should be glad, right? We should be glad that we saved the Boomers at the expense of everyone else. So glad we set aside knowns for unknowns.

Kevin: Yeah. I’m glad you brought up coercion. Because if you look at any society, when a society sees one truth but they’re forced to accept another truth, that’s a command economy. That’s a command political system when you are forced or coerced to believe something other than the truth.

David: So what’s my point? If you play with reality long enough and change it according to whims and fancies, reality becomes farce. All of life becomes a parody. It’s a postmodern pastiche on LSD. So we find Yellen and her cohort at the Treasury, they’re transitioning from terrible fiscal policies—spending binges ultimately devastate the average American family by increasing the intensity of the inflationary gut punch—to now promising massive redistribution of assets, higher taxes to solve the problems created from absurd policies we allowed to operate in the first place. There is a massive crisis of confidence brewing as we toy with reality and pretend it’s something other than it is. Politicians on both sides of the aisle have eschewed budget management in favor of power politics in a bid to dominate—dominate the whole field. It was Nietzsche who described it best, and I think very clearly, “The world is the will to power and nothing else.”

There once was a time when truth mattered. Now only power matters. What do you think equity, inclusion, and diversity is all about? Power, and the means of attaining it. What do you think ESG is all about? Power, and the means of attaining it. What do you think the pro-Hamas protests are all about? Legitimizing a restructuring of state power.

I’m curious. I’m curious here in recent weeks why the mainstream media has ignored the George Washington University protester referencing the final solution for Jews or the Columbia University protesters declaring Zionists don’t deserve to live. I mean, at least in the case of Columbia University, you can recognize that a line has been crossed and one particular student, for that kind of comment, was dismissed. “The world is the will to power and nothing else.” Social justice is the banner held high by the dispossessed seeking to take what they do not have, power.

Kevin: The other night I watched again a movie that you and I talked about last night called Conspiracy. It was starring Kenneth Branagh. Tucci was in that, Colin Firth. It was early 2000s, made by HBO. And what it was, it was taken from a transcript of a meeting in 1942 of the top Nazi leadership to come up with what was the Final Solution. And it’s a fabulous, fabulous movie because what you actually see is, the meeting only lasted a couple of hours. The meeting was almost about the same length as the movie, and yet you had people who were coerced. This is going into the coercion, coerced to believe in something that today we look back and we say “That was heinous. How in the world could the Holocaust ever have been approved?”

David: The absurd was elevated to a level that was respectable. It was a clear scientific choice, right?

Kevin: Right.

David: But that’s what happens at the end of a cycle. 

Last week we had GDP, and the statistic was cooler at 1.6% versus the expected 2.5%, and obviously cooler than the previous quarter’s, 3.4%. So it was actually the weakest GDP print in two years. Then came the Fed’s preferred measure of inflation, also last week, PCE, hotter than expected by a bit.

Jason Furman teaches at Harvard. Previously he was the head of the President’s Council of Economic Advisers under Obama. I think he did some service for the Clinton administration as well. He noted that the core PCE inflation over the last three months has run at a 4.4% annual rate. And he went on to note that that’s higher than any time from November 1990 to March 2021. So here we are this week. Powell again going to have some significant comments. And I guess this week we’ll get to see which data the Fed is dependent on. Who is most important to the Fed, the White House or the household?

Kevin: Before I met you yesterday, Dave, I had a little bit of time. I went down to the Durango library and I remembered that I don’t remember anything about the Dewey Decimal system. So I thought, “Okay, I’ve got a little bit of time. It’s time to relearn where these books are.” And so I just walked through the various shelves. And anybody who remembers their high school, when they would go to the library, you have the 100s, which are philosophy, and then the 200s, which are religion. The 300s—I’m seeing if I can remember this now—the 300s have to do with social science. 400s are language. 500s are science. 600s are technology, on and on. And then you have arts, literature, and geography and history.

What was interesting is this: the more modern books in these various sections, Dave, were more speculative. In other words, these were books that don’t necessarily have to be based on objectivity. The older books, the classics, when you see in these same sections, whether it’s science, whether it’s history, you name it, it’s the things that have worked over and over. I’m going back to this bones thing. The archaeology tells the truth.

So what you’re talking about, politics. We have to have realism in politics, yet we’ve believed a lie. Economics. Don’t we have to have realism? How will history, when you get to that 900s section in the Dewey Decimal system and you’re looking at history, will it be talking about the fancies of psychologists or will it be talking about reality?

David: Well, I think this is one of the things I find fascinating about the Neil Howe interview we did a few weeks ago and looking at the fourth turning—The Fourth Turning Is Here, his most recent book. You’re talking about generations and the trends that play out between generations, which feeds into economic cycles and political cycles. So we come back to objectivity versus subjectivity. It seems like a revolution in realism is brewing. And political realism as we confront a world in conflict and are forced to move outside of our own provincialism. Economic realism as we deal with the aggregation of poor policy choices and contemplate solving them by other means than those that created them in the first place. Metaphysical realism as we sort through the absurdity of psychologists attempting to define ontology and parade around as the new science wrapped in a feather boa.

Kevin: It makes me think of Thomas Kuhn’s book on scientific revolutions. They take about 100 years, and I wonder how that would coincide with fourth turnings, since you brought up Neil Howe. I wonder if things do get this nebulous in a fourth turning right before we move into the reality, the ending of the fourth turning and then the beginning of the first turning.

David: Yeah, that’s what I appreciate about his study of generations because things start to get wonky in the third generation, and get even crazier still in the fourth generation before you start having the status quo fall apart. It’s no longer sustainable. If you think about economics, the funny thing is that they’ve actually tried to legitimize themselves in recent decades through anchoring themselves to mathematical equations. And in so doing, they’ve moved towards the hard sciences. Unfortunately, in the process they’ve lost their soul. So different journeys towards the absurd seem to have one common element. Truth is no longer paramount. It’s conformity that is paramount. New orthodoxies are not to be questioned.

Kevin: And that was what Thomas Kuhn’s point was with scientific revolutions as well, you have these unsustainable theorems that no longer work. And I think that applies to economics as well, don’t you?

David: Well, absolutely. The anomalies are mounting. You have more and more, which are presenting themselves. And you still have this clutching, this desperate grasp, this concerted faith effort to maintain the old ideas. And it’s what he would call the textbook bias, the way that you’ve been taught. And so you go back to, “How did the third generation teach the fourth generation? And what is the fourth generation? What whirlwind are they reaping as a result of what was sown in the previous generation?” This does resolve itself. It does resolve itself.

Niall Ferguson pointed out in a recent Bloomberg article that this is in fact a quick acceleration in the second Cold War. Bloomberg’s OpEd, he was stating that the fiscal problem is completely unsustainable. He says, “To run a 7% deficit at a time of full employment is, to put it mildly, not what the macroeconomic textbooks recommend. An inexorable rising share of revenues will have to go to servicing the debt.” Of course, we’ve been talking about that, Kevin, for a long time now.

On that final point, debt service, we put the number at 29% of revenue for 2024. And it’s very simple: 1.6 trillion in interest expense divided by what we estimate to be 5.5 trillion in tax revenue, 29%. Average interest costs continue to creep higher. We’ve reached 3.3% across all of US Government Treasury maturities. We’ve got 8.6 trillion in gross Treasury issuance through April 18th, and a total for the year of 8.9 trillion set to mature in 2024. So that’s a lot of debt to mature, obviously at higher rates. The entire yield curve is above the current average of 3.3%, so it’s pretty easy to estimate that your interest cost is going to be rising and that 3.3% is a bit of a pipe dream. We’ll be closer to 4% by the end of the year.

Kevin: But I thought we heard that deficits don’t matter. I mean, we’re finding out that gender doesn’t matter, I mean many, many genders. Deficits don’t matter anymore, Dave, as long as you can control— What is it that you need to control for Modern Monetary Theory?

David: Yeah, if you control the currency, that’s all that matters. That’s one of the new economic orthodoxies. Modern Monetary Theory, very popular just a year or two ago, stated that deficits don’t matter. You don’t have to be concerned about the amount of debt that you have. Deficits don’t matter as long as you control the ability to print your currency. You can see how crazy that is in a market where rates are finally moving up, where rates are not subject to Federal Reserve fancy. I mean, they held them at or near zero for a few years, but now they’re being marked up closer to inflation. That’s something that Modern Monetary Theory was unconcerned with. That is theory as farce. And yet you’ve got many academics that still embrace it. Ideas have consequences. Yet the academic orthodoxy across so many fields seems to neglect this basic truth.

Kevin: Well, and you brought up elections. What’d you say? 88 elections worldwide? Well, the impulse is to spend money when there are that many elections.

David: And that’s what the IMF was talking about last week in their paper about financial stability. 88 elections being held this year. And they say, “where empirical evidence points to a bias towards fiscal slippage, the political discourse, particularly loud in favor of fiscal expansion.” Of course it is. Of course it is. Who [among those up for reelection in] those 88 elections this year wants to cut spending just before a bid to take office again? And the IMF notes an even higher figure than Ferguson used. We talked about the 7% deficit at the time of full employment. They see the fiscal deficit at 8.8%, up from 4.1% of GDP in 2022, and that is despite strong growth. Power seems to be the priority over prudent fiscal decision-making.

We always read Jim Grant, continue to learn lots from him, and he borrows an idea from J.P. Morgan’s Michael Cembalest, and this isn’t his most recent missive. They’re basically talking about a passing over the Rubicon of sorts. The Federal crossover point is what he references from Michael Cembalest. The government crosses over into a kind of Ponzi finance when the sum of its mandatory entitlement spending and Federal net interest payments top 100% of revenue. So again, let that sink in.

Kevin: So let’s repeat that because what you’re saying is the government crosses into a Ponzi scheme when the sum of mandatory entitlement spending—where we’re talking about social security, Medicare, what have you—

David: Plus Federal interest payments.

Kevin: Plus interest payments—top 100% of revenue.

David: Right.

Kevin: Where are we at now?

David: We were at 99% last year. We’re there now.

Kevin: Oh, wow.

David: Ponzi finance brought to you by the Fed, by the Treasury, and by 535 members of the House and Senate. Ponzi finance is acceptable when power is at stake. Our legislators are not entirely stupid. There are practical implications to losing. Our fiscal policy train wreck is an example of ignoring tough choices and instead prioritizing or angling for control, and there will be consequences from that. It was George Steinbrenner who captured the spirit of the age. Never one to get in line for losing, he said, “Winning is the most important thing in my life after breathing.” The world is the will to power and nothing else. Winners take all.

Kevin: Speaking of power, though, you have to be able to maintain power worldwide to exert that kind of power. I’m thinking of the military, and today when Morgan Lewis was giving us his analysis, he quoted Ferguson’s Law—you had quoted Niall earlier. Niall Ferguson’s Law is that when interest expenses are greater than military spending, which we passed that this year, the country becomes much, much weaker very quickly. He had a number of examples, but Ferguson basically said, we’re going to put that to the test this year.

David: That’s right. The examples of Habsburg Spain, the ancien régime in France, the Ottoman Empire, the British Empire, you can spend more on debt service than your military, but it does tip the hat in terms of the strength of your actual— and the viability of your country going forward. So when considering the travesty of our debt and deficits, again coming back to the IMF, coming back to the World Bank, they point beyond us, beyond the United States, to one country that is far worse, where government debt to GDP is currently on a path to 241%—not talking about Japan, who’s already there, but another country which is on a path to 241% versus our trajectory, a more modest 166%—again, that would be by 2053. 

Financial repression has often been a feature in this particular country, and they have in different instances over the last 20 to 30 years built back their bank balance sheets at the expense of households. Now the question for this country is devaluation, devaluation to ease the pressures building in the debt markets. We are stuck, and we are the number one economy in the world. The number two economy in the world, China, is even more stuck and they’re on an even worse trajectory. China this week was clear to remind Antony Blinken when he was visiting with anumber of their leaders, that we must choose, we must choose between confrontation or cooperation. So we come back to this idea that economic problems ultimately feed geopolitical tensions, and that’s something that we should expect going forward.

Kevin: And we talk about the BRICS, the BRIC nations last week, that meeting in St. Petersburg, that’s telling.

David: Absolutely. You had Russia, Iran, Brazil, South Africa, India, Iraq, among others, gathering to ask a number of questions about future security arrangements and trade and cooperation. And so you see the foreshadowing in this gathering, the divided interests and the future alignments between the Western Bloc countries and the rest of the world’s interests, which are at this point keen to reshape the global economic and security landscape.

Kevin: And I think about— These countries are starting to align, and it’s a different axis and allies like we’ve seen before in other wars. But we’re also seeing within those countries, the people within the countries like China are getting out of their own currency and getting into gold.

David: So coming back to that idea of the fourth turning and it being here, I’ll end with a quote from Hard Asset Insights over the weekend. It was actually a quote from Winston Churchill, “We have entered a period of danger. The era of procrastination, of half measures, of soothing and baffling expedience, of delays, is coming to its close. In its place we are entering a period of consequences. We cannot avoid this period. We are in it now.”

*     *     *

Kevin: You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. You can find us at McAlvany.com. And you can call us at (800) 525-9556.

This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.

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