Wednesday, November 8, 2017 / Perth Australia / By Niekie Jooste
In this edition of "The WelderDestiny Compass":
Another week, another tragic mass murder event. This time in the USA, but we are seeing it happen all over the world, including Europe, the middle east, Africa and South America. Some of the attacks are ostensibly terrorist related, but some just appear to be rather random acts by people with deranged minds.
We are however also seeing a lot of organised violent protests in the USA and Europe. Organised groups appear to be protesting against president Trump, police brutality, regional independence, immigrants, racist symbols or just about anything you can imagine. More often than not, these protests turn violent.
When these events happen, there is generally some story about how events unfolded, and seemingly logical reasons why they happen. Taken in isolation, there does not appear to be any single common thread between these far flung events, but when we look at it from the bigger picture, then there is a common theme in most of these tragic stories:
Today we look at cycles of widespread hopelessness that are driven by economics, and how they have typically played out in the past. We speculate on how our current cycle may play out. You do not want to end up on the wrong side of history when these events unfold.
If you would like to add your ideas to this week’s discussion, then please send me an e-mail with your ideas, (Send your e-mails to: email@example.com) or complete the comment form on the page below.
Now let's get stuck into this week’s topics...
When widespread hopelessness takes hold of the general populace, then popular uprisings start to happen. If governments are not able to manage this effectively, then they tend to be those on the wrong side of history. This is typified by the French revolution where a lot of the local royals managed to loose their heads.
For obvious reasons, governments do not want to be exposed to this. Rather, they need to cunningly turn the events in such a way that "scape goats" end up paying the price to appease the populace.
In the recent past, the following "rebellious" events have unfolded:
There is a widespread hopelessness that drives people to acts of rebellion due to a lack of purpose in their lives. Fundamentally everyday people feel that there is something wrong in society, but they can't really pin it down to anything. Eventually they get some revolutionary ideal that they can use as their purpose in life, and try to establish some sense of fairness.
It is not difficult to see why there is this widespread sense of unfairness. The world has never been as wealthy as now, but the problem is that the wealth is spread in a very uneven way. The economic gap between the bottom 25% and the top 25% has grown to a veritable chasm in the last few decades.
In most western developed economies, the real average wage (after accounting for inflation) has not increased since the 1970's. In other words, there has been no real economic progress for the middle and lower income groups over the last 40 years.
There is a relatively well known corporate debt default cycle. It moves in roughly 6 year cycles. There is however a less well known private default cycle that turns in roughly 50 year cycles.
When the debt load on a significant proportion of the population gets to a level that they could not possibly repay, then there are calls for some way to "write off" the debt.
In the USA today, the levels of student loans, credit card debt and automobile debt is so great that it could not possibly be paid off. Private consumer debt is the highest it has ever been.
The high debt levels combined with the stagnation of salaries have resulted in the right conditions for revolution. The government will need to manage this in a cunning way to prevent their heads from rolling. What does a cunning government do to resolve these kinds of problems?
Well, in the early 1930's, at the tail end of the great depression, the USA government confiscated everyone's gold. They paid those giving up their gold at the ruling rate at the time, but as soon as the government had all the gold, it repriced the gold. Overnight the value of the US dollar was devalued by around 40%. In essence, the government took money from those with savings and put it in their own coffers. They could then use that additional money to "redistribute" in all kinds of ways.
The next great redistribution event was triggered in 1971, but it took most of the 1970's to play out. By the 1970's, the USA had such high levels of international debt, that if they honoured their promise to redeem their paper dollars held by foreign creditors for gold, then they would run out of gold. In 1971, America "closed the gold window". In effect America told the rest of the world that they could no longer get gold in exchange for their paper dollars. The paper dollars was no longer backed by gold.
Through the 1970's the resultant inflation ran at very high rates. By 1979, inflation was above 14% per annum. Anybody with savings saw the real value of their savings being cut in half by the end of the decade. This inflation was fanned by the unfettered printing of money that became possible once the US dollar was a fiat currency. In essence, the government again managed to move money from those with savings, and the foreign holders of US dollars, into their own coffers for redistribution programs.
Obviously it is not only in the USA that this happens. Confiscation of property has been a favourite pastime in Europe during every revolution. It has also happened in Zimbabwe to farms and mines, and is happening to farms in South Africa as we speak, although by a more stealthy methodology. Nationalisation of mines and oil companies have been a theme in the middle east and South America.
Given the timing and the mood of the general populace all over the developed world, we seem to again be moving to a time of "redistribution".
If we know how the next redistribution event will play out, we could prepare ourselves. As I stated earlier, when this type of thing happens, you do not want to be on the wrong side of history. It may cost you your head, or your hard earned retirement savings.
Unfortunately I do not have any definitive answer, but knowing that we are on the eve of a redistribution event will at least help us to make our plans "on the fly".
Based on past redistribution events, we will probably see the value of the predominant currency eroded through some mechanism that appears to punish the "wicked rich people" to help the unfortunate poor. In the current scenario, the people close to retirement are probably those with the most savings, so they will probably be made to pay. As usual, the rich will have their savings in foreign bank vaults and properties, so they will not be greatly affected.
Basically there will probably be some way of taking money from those with savings. Given that most people have savings in some kind of retirement vehicle, (401k; superannuation etc.) it seems possible that there will be some move on these funds, because they tend to be difficult to get hold of by the savers.
Another possible mechanism might revolve around the transition to crypto currencies. In particular, government issued crypto currencies could be manipulated in such a way that people holding fiat currencies could see a huge erosion of their purchasing power.
Another possibility is that governments start to buy up a large amount of the major cryptocurrencies, such as Bitcoin, again allowing them to depress fiat money values when compared to cryptocurrencies.
The calls for a universal basic income may also gain momentum. The way such a scheme is implemented could also result in a huge erosion of the purchasing power of money.
While there is no clear path going forward, I believe that we are moving to a world where personal freedoms and power can again be claimed by everyday people. It is however important for each one of us to equip ourselves for this bold new world.
We need to gain a reasonable understanding of economics, investments and how the new economy based on distributed ledger technology (blockchain) will play out. At its heart, this will in all probability give us the best way of not only defending against the next redistribution event, but also setting ourselves and our families up for success.
I will be surprised if this next redistribution event is not done and dusted by the middle of the next decade.
Now is the time to start taking concrete steps to get yourself prepared.
Yours in welding
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