"2013: A Watershed Year"
If you weren't paying close attention, 2013 might have gone down as a quasi-normal year. After all, the Dow Jones 'Industrials' (sic) hit 50 some new record highs, mostly in the latter half of the year. The NASDAQ went above 4,000 again (can anyone say 1999?), and the world didn't end as many had predicted. That's the surface view. Well, as a good friend of mine says, we're a mile wide and an inch deep, and in that world, a few positive headlines are good enough to pacify the average American consumer.
Well, as the consumption binge-spending hangover starts to kick in, how about we take a bucket of cold water and dump it all over 2013 and the notion that it was just another normal year? I'll even provide aspirin to anyone who needs it to make this more tolerable. No, we're not going to go away just in case you were wondering. We're not required to and besides, I'd feel at least a bit honored if this piece made it into the NSA's new datacenter that is going up in Utah.
There are a couple of big trends that have been going on over the past few years. The point of this first 2cents of the new year is not to rehash what has already gone on. I'll provide links for anyone who wants to review or needs to catch up. The point is to hammer home the importance of these trends, how 2013 was different, and how it is likely to impact things moving forward.
I talked ad nauseum about the Cyprus situation, and was one of many analysts to point to the signatory status of the FDIC, and all the major players in the G20 regarding the concept of the bail-in. What has been pretty much glossed over though is the psychological impact of all this and how these events have served to lay the groundwork for recent events like…Detroit. Hmmm, I can't tell you how many emails and phone calls I received insulting me and the rest of us who think all of this is a big deal, telling us it didn't matter what happened back in March on some island. People didn't care. That's Europe's problem. Just like the ongoing Greek tragedy, and the unemployment problems of Spain, Italy, and Portugal just to name a few.
The general consensus was that it was someone else's problem. Then Poland's pension rip-off came around. It received less attention than Cyprus, and that was our fault in what I'll call the alternative economic media. We should have hammered that even harder. 50% of pensions swiped by a government in the gilded age in which we live today is a big deal. Or evidently it isn't because still nobody seemed to care. We kept saying this will happen in America, and the same people once again told myself and others we were nuts. Well, now it is happening in America and we're still nuts because those folks don't happen to live in Detroit.
What most folks don't realize is that these smaller attacks are nothing more than desensitizing events. The biggest reaction always comes the first time something happens. By the time the bail-in – and that's exactly what the situation in Detroit is – hit America, people were already accustomed to the idea of having their wealth stolen. Wait, let's think about this for a minute. When exactly did it become ok to blatantly steal someone's wealth? The actions of the not-so-USFed notwithstanding, it is generally illegal to steal someone's wealth. Rob a house, you go to jail. Rob a bank and they throw away the key. Rob the government and they'll send a SWAT team to your house, then throw you in jail if you happen to make it out alive.
It has been 6 years since Sentinel – the first documented and adjudicated instance of re-hypothecation (theft). Jon Corzine got away scot free in the MFGlobal scam and no, most of that money still hasn't been found. I would assert that they're not looking in the right places, but that is neither here nor there. We've been conditioned over time that the idea of the bail-in would be the new norm. Keep in mind that Sentinel happened even BEFORE the blow out of 2008 and the resultant TARP, etc bailouts. This conditioning has been going on for quite a while now.
The bottom line here is simple. I am not a betting man, but if I were, I'd be willing to wager that when the pension rip-off/confiscation/bail-in really gets going here in America that there will be nary a whimper of protest. Why? Because the effects won't be seen immediately. Even that will happen over time. Say Detroit ends up losing half its pension assets. Those plans can still send out checks for a while because half the money is still there, plus what is coming in from those working. So nothing will change right away even though the funds have, for all intent and purposes, been destroyed. People will still get their checks. Then the checks will get smaller and more living expenses will go on the credit card, etc. And so forth until it is all gone. It will NOT be an overnight thing. None of these big paradigm shifts ever happen overnight. That would jolt people awake.
For people not in pension plans, their retirement assets such as 401k/IRA plans will first be means tested. If you have over a certain amount, you'll get robbed. The media will call it a haircut – even the actions in Detroit are being called 'haircuts' and not ROBBERY. The socialists will call it paying your fair share (so others can sit on their behinds and do nothing while the establishment gets more engorged in wealth). I'll call it robbery. Words mean things; let's not mince them. As the process goes on, folks with smaller accounts will get the same treatment as outlined above. Your wealth will be stolen in the name of something noble like 'saving the USEconomy' or 'preserving our way of life' or 'paying the nation's bills' or 'meeting our obligations'. That way we can feel good about the larceny that has taken place. After all, it's already happened exactly that way in Cyprus and Poland. 'Take one for the team, folks!' is the line that has been pushed.
By the way, the IMF is already telegraphing their position – again. See the referenced whitepaper. Ambrose Evans-Pritchard at the UK Telegraph gets credit for breaking this. To sum it up (although I strongly encourage everyone to read the whitepaper for themselves), there will need to be 'savings taxes', defaults – yes they actually used the 'D' word, and lots of inflation to usher in a new era of economic prosperity. That is bankerspeak for 'resetting the system'. On your dime.
By the way, you don't get to default though. You don't get to do a bail-in on someone. You don't get to Cyprus your neighbor. You get to go to a debtor's prison. Laugh all you want, but they're back – right here in America. As of this point people are 'only' being tossed in jail for unpaid fines, tickets, and fees, but really, is it hard to imagine this being used for unpaid mortgages and credit card bills? If a municipality will throw a poor person in jail for an unpaid parking ticket (which ends up being a net loss for the municipality), what's to stop this from going further? Did you think I was kidding when I said we live amongst a nation of debt slaves? Was that a joke? I know, I know, it's not a big deal, it hasn't happened in my city yet, blah blah blah. It's another disturbing trend and another example of how things are headed in the wrong direction.
Seriously, read the IMF paper written by two Keynesian Harvard boys. It talks about how all we're doing is procrastinating – which is true. However, they make the point that rich countries are no different than poor countries and cannot rely on a mix of minor austerity, mild inflation, and such to create 'fiscal forbearance'. They imply that we need to get creamed; just like the third world nations. Do you understand now why we told you globalization was a bad idea? The intent was NEVER to bring the third world up to the level of the first world nations, but to bring down the first world nations, transfer the wealth to the self-proclaimed elites, then turn the first world nations into worker-bee colonies. Look at China. That will happen here. The jobs will come back. But it won't be what you thought. It'll be us football-obsessed Americans working for peanuts at the FoxConn factory instead of the Chinese. The wealth is being transferred in broad daylight. There has been no austerity in America. Those pitiful budget cuts and the sequester are a joke and everyone knows it. There is only one real way moving forward that will preserve the existing establishment: that is to rob the citizenry of its wealth, default on a portion of what the robbery won't cover, then start over with a much lower baseline standard of living for the Proletariat and use their labor to make good on whatever debt is not defaulted.
The wealth transfer has been in place for almost 20 years now. It has been a slow but steady progression. The effects have been masked by easy and 'cheap' (below equilibrium rate) credit. If things had remained constant, we'd have a good portion of the stuff we have now, but we wouldn't have had to rack up massive debt in order to get it. However, inflation and globalization have taken their toll and we've been over a thousand times what the average family's balance sheet looks like. Imported junk on one side and negative equity on the other. Expect this trend to continue. Don't expect behaviors to change meaningfully either because these behaviors will be incentivized and rewarded right up until the rug is pulled out.
USA No Longer A Geopolitical Determinant
This is going to be a hard pill to swallow for a lot of people. Most will reject it outright, but it is right there in plain sight for all to see, yet at the same time it is the 800 pound elephant in the room that nobody wants to talk about. Yes, I'm talking about Syria. Remember that whole thing?
A few months ago, we were ready to start bombing and do another coup d' etat over some alleged use of Sarin (chemically altered fertilizer) gas on Syrian civilians. Whether or not this even happened isn't the point. If it did happen, the odds are just as good that the act was pulled off by US-backed assets in the area as the Syrian government. It would have been irrational at best for Assad to gas his own people with the whole world watching, just knowing that the trigger happy military industrial complex was itching to take him off at the knees. That's the front story.
The backstory is another pipeline deal, this one involving Qatar, inked, oddly enough, just a couple of months before the very suspicious Sarin gas incident. It paralleled nicely with the Unocal/Afghan deal not long before we found ourselves at war in that country back in 2001. I covered this situation in great detail in Quarter 3's Brief.
But we still haven't gotten to the juicy part. Arguably, we got within hours of being at war yet again and suddenly the progression of the whole sequence of events stopped cold. Russia stepped in, asserted herself after the public relations gaffe of all time by Secy of State John Kerry (who remains employed) that gave Syria an 'out'. Russia backed the deal (more likely pushed the deal) and the issue disappeared from the mainstream news literally overnight. Gone. Thrown down the memory hole. Remember from the link above, there is a signed deal in place. To quote the UK Telegraph article:
"Recently Exxon Mobile and Qatar Petroleum International have made a $10 Billion deal that allows Exxon Mobile to sell natural gas through a port in Texas to the UK and Mediterranean markets. Qatar stands to make a lot of money and the only thing standing in the way of their aspirations is Syria."
We were supposed to deliver a compliant Syrian regime to the government of Qatar. We got told to go home and for the first time in recent history, we went home. Quietly and with our tail between our legs. The almighty and powerful USA got sent packing. THAT is perhaps even bigger of a sea change than the justification of asset swiping. The last instance of that kind of resistance was the Iranian hostage situation back in 1979 and there was infinitely more riding on this deal. Russia was obviously protecting her natural gas monopoly to Western Europe and Great Britain. But where did she suddenly get the leverage to pull it off?
The best guess is from her growing and strengthening alliance with China, which also happens to be pulling in all sorts of other smaller partners. The blueprint for dodging dollar hegemony has been cast. Align with Russia and China and they will protect their interests. I am not implying that either of these parties are innocent or angelic in their behavior, only that there are some new power players on the block and they are intent on getting their share of the spoils. The Anglo-American power monopoly now has some competition. This is a HUGE trend to keep an eye on for 2014 because not only does it have military ramifications, but economic ones as well. Those ramifications trickle all the way down to the living room of every American and most don't even realize it.
As 2014 unfolds, watch for more news of deals being cut between Russia and China and, more importantly, between them and others. We have seen some very odd behavior in a couple of key markets with the news coming out later that China has stated intentions to become a player. These revelations have explained quite a few things.
So in closing, what is the leverage that the Russians, and likely the Chinese, used to get America to stand down in Syria a few months back? What kind of hammer did they hold over our heads? My guess is it had something to do with the bond market and/or interest rates and ultimately the fate of the dollar as a useful monetary instrument. Maybe they threatened to destroy the confidence, which is the only thing underpinning the dollar at all. There is nothing else. The debtor is slave to the creditor and that reality is starting to become painfully evident. It might be worthwhile to consider your own position in that regard and where you stand because it is the keystone of your financial and economic well-being, ranking far ahead of what used to be important such as investments, portfolios, and dividend yields.
If you found this article informative, please consider listening to Andy's podcast 'Beat the Street'. It is free of charge and you can visit the show page, listen to shows, subscribe via RSS through Windows Media Player and iTunes, and sign up for the reminder service by clicking here. The podcast deals with similar topics and covers current economic and financial trends in great detail. The show also seeks to empower listeners to be their own advocates by providing information on various ways to navigate through a world that is fraught with risk and the unknown.