Category Archives: Post-WWII Era Over?

The post-WWII geopolitical regime is ending. These posts discuss why it is ending and what might replace it.

Advice from Kipling & Orwell about America’s empire. Let’s listen.

Summary: Here’s a powerful poem by Rudyard Kipling. It’s about Britain, but also about us. The past provides a mirror in which we can see ourselves, valuable given the clouded vision that afflicts us. These notes from the past can help us get a grip on ourselves, and perhaps retake the reins of America.

“Recessional” by Rudyard Kipling

Composed for Queen Victoria’s Diamond Jubilee (1897)

Rudyard Kipling

If, drunk with sight of power, we loose
Wild tongues that have not Thee in awe,
Such boastings as the Gentiles use,
Or lesser breeds without the Law —
Lord God of hosts, be with us yet,
Lest we forget — lest we forget!

For heathen heart that puts her trust
In reeking tube and iron shard,
All valiant dust that builds on dust,
And guarding, calls not Thee to guard,
For frantic boast and foolish word —
Thy mercy on Thy People, Lord!

For heathen heart that puts her trust
In reeking tube and iron shard—
All valiant dust that builds on dust,
And guarding calls not Thee to guard.
For frantic boast and foolish word,
Thy Mercy on Thy People, Lord!

Kipling’s words were a warning to Britain at its peak about the need to build its Empire on a just foundation, and that power and rapacity were just sand. By “lesser breeds” and “heathen heart” he pointed to Germany as an exemplar of a lawless people that believed that “might makes right”. (WWII proved that beyond question, after which Germany proved that people can change.)

Orwell’s comment about this poem applies as well to post-9/11 America. From his article in Horizon, February 1942

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How should we prepare, as a new era begins for the world economy?

Summary: Often the most important insight is the largest but least obvious aspect of a situation, hidden amidst the river of data that flows over us every day. Today the key thing to know is that we’ve entered a new world, once in which almost anything can happen. This creates new rules for individuals and business, with new risks and opportunities.  {1st of 2 posts today.}

“Innovation of new forms of society and technology. It is the key to our progress. It has allowed us to evolve from naked hunter-gatherers to the dominant species on this planet. This process is slow, normally taking hundreds or even thousands of years. But occasionally evolution leaps forward.”

— A slightly revised version of Professor Xavier’s words from the title sequence of the movie “X-Men”.

The new era begins

Signs of the new era

I find that even casual conversations with my fellow Boomers show that most of them feel that the world has changed since 2000, as if a tornado has carried us to Oz — a world where everything is different. Here are a few examples; you can add many more to this list (a longer list appears at the end).

The 2008 global recession was the worst since the 1930s, on a scale that economists believed could not happen again, with causes that remain poorly understood.

Bubbles are an inherent part of free market systems, randomly appearing during the past two centuries (they predate both fiat currencies and fractional reserve banking). The Wall Street adage was that “everybody gets one“. We’ve had three during the past two decades.

The post-WWII era was one of cyclical growth, as booms ended when Central Banks “took away the punch bowl” to stop inflation from rising above their limits. Now Central Banks set goals for a minimum rate of inflation to provide a cushion against deflationary busts. Despite massive increases in money and reserves they cannot bring inflation up to those targets.

Accurate economic predictions have become almost impossible, as we should expect during regime change. During the past five years we’ve seen frequent predictions by economics of inflation or hyperinflation on one hand, and on the other hand predictions of a “return to normal” or even “booming” growth. Astonishingly, both have proven wrong.

More broadly, paying attention to predictions has been a waste of time since 2010 — not just in economics. Who predicted the rise of the Islamic State (which reads like dystopian fiction), the Middle East aflame and sliding into what might become like the horrific Thirty Years War? Did any political guru predict that 3 months before the first primary, half of Republicans would support Trump or Carson, with the establishment candidates trailing far behind? Did anyone foresee the increasingly loud calls for “gender-neutral” bathrooms?

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A report card for the Republic on Independence Day!

Summary:  For the second post on this Independence Day, see this post from 4 July 2008. Written at the start of that presidential campaign, it remains as true today as then. We have to learn from these experiences and do better if we are to have a free and prosperous future.  {2nd of 2 posts today.}

History

The salons of our Versailles-on-the-Potomac ring with gossip about the election.  Every day brings exciting news… about Michelle’s and Cindy’s dresses, changes in the lineups of each team’s gladiators, the daily score of money raised, and new fantasies about the “true” values and beliefs of each candidate.

Listening to this bustle, I wonder if we remain capable of self-government?  Or, like the Romans of the late Republic, have we grown weary of the burden — and wait for someone to govern us?  To shed light on this, let’s compare the political rhetoric and literature of America’s past with today’s.

  1. The Lincoln-Douglas Debates
  2. The Federalist Papers
  3. Presidential inaugural addresses and State of the Union Speeches

(1) The Lincoln-Douglas Debates of 1858:  7 debates, 3 hours each

Take a look at the transcripts of the Lincoln-Douglas debates (also see Wikipedia). They read like term papers of today’s college sophomores.  They are longer, more complex and sophisticated than the “debates” of today, in which candidates volley sound-bites with journalists.

(2) The Federalist Papers, 1787-88  (see the text)

Consider the Federalist Papers.  Originally published as 77 articles, the demand was so great that they were reprinted and eventually published in book form (with 8 new chapters).  They were political literature directed at the American people:  merchants, farmers, and professionals (as defined at the time, male and white).

What if the New York Times were to publish the Federalist Papers, one chapter every Sunday for 85 weeks?  Would they have a large audience?  More likely they would have to donate the advertising space to Public Service advertisements and charities.

Our interests run more to 30 second attack ads (the candidates media advisers run these because they work).  What does that say about us, our minds and nature?  Perhaps this is not what the Founders hoped for, as the raw material on which to build a Republic.  They gave much thought to the character required of America’s citizens if the Republic was to survive.  Here is the conclusion to Article 55:

{Read the rest here.}

When you look back on this day & remember the bubble…

Summary: We’re in a time of great events. Like all such, it consists of breaks with the past combined with periods of deceptive calm. This is a transition between the post-WWII era and the as yet unknowable new regime that lies ahead. The stock market provides a mirror in which we can see these great events play out.   {1st of 2 posts today.}

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Contents

  1. When you look back on this moment…
  2. These things are matters of perspective.
  3. Is this an investment bubble?
  4. What’s different this time?
  5. What’s next?
  6. This series about our bubble economy.
  7. For More Information.

(1)  When you look back on this moment in history

Wise words by John P. Hussman (manager of the Hussman Funds, former professor of economics at U MI):  “When You Look Back On This Moment In History“. The full essay is well worth reading.

There are moments in time when durable history is made; history that others observe much later, shaking their heads, at a loss to understand how the events that followed could not have been obvious at the time. When you look back on this moment in history, remember these things.

When you look back on this moment in history, remember that spectacular extremes in reliable valuation measures already told you how the story would end. Among the measures best correlated with actual subsequent S&P 500 total returns, capitalization-weighted market indices such as the S&P 500 were more richly valued in only 54 weeks of history, 21 of which represented the final advance to the 2000 market peak, with the remaining 33 representing the retreat from that high to present valuation levels, on the way to a 50% loss in the S&P 500 Index and an 83% loss in the Nasdaq 100 Index.

… When you look back on this moment in history, remember that the valuation of the median stock was never higher. Ever. Even at the 2000 peak.

… When you look back on this moment in history, remember that S&P 500 returns had never materially exceeded zero over the decade following similar valuations.

…When you look back on this moment in history, remember that rich valuations had not only been associated with low subsequent market returns, but also with magnified risk of deep interim price losses over shorter horizons.

… When you look back on this moment in history, remember that dismal return/risk prospects were grounded in objective historical evidence, not simply opinion.

… When you look back on this moment in history, remember that the strongest historical prerequisites for a market crash were already in place.

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Any day something small might happen that changes the history of the world.

Summary:  These days might be ones of historic significance. America is the fault line of the world, overextended militarily, with a foreign policy of institutionalized belligerence, and papered-over internal divisions. Small events that might happen any day could have almost unimaginable consequences, overturning what we consider the bedrock of our age.  {2nd of 2 posts today.}

“There are decades when nothing happens; and there are weeks when decades happen.” — Attributed to Lenin.

Political reform will come to Romania only “when apple trees grow pears.”
— Penultimate speech of Nicolae Ceausescu (circa Nov 1989). The crowd jeered during his final speech on 21 December. The regime fell the next day. (The western press reported 64,000 deaths during the revolution; the actual total was aprox 1,000)


The social structures we see around us often seem immovable and enduring, but rest on sand. Just as natural events can sweep away our physical works in minutes, social changes can uproot societies without warning. Decades of change undermine their foundations, and then a child bumps them and — collapse, revealing a new order that’s grown unnoticed around us. These events occur in transitional periods between eras, much like the long peace of 1815-1914 ended during 1914-1945.

We’re now in the 2nd decade of the transitional period following the post-WWII era, which I arbitrarily start in 2001 — the year of 9/11 (the most effective single military action ever), China entering the World Trade Organization, the end of Europe’s national currencies (the Euro became legal tender on 1 Jan 2002), and what might be the century or millennial low price of oil (~$19 for WTI in Nov).

So far the process has been smooth as transitional periods go, unlike the previous one which started with four years of Hell in Europe followed by a calm decade. However I believe the tensions have been building yet unseen — like continental plates locked on a fault, inevitably to break at some random point in time.

Another analogy is dropping grains of sand to form a pile. Laypeople tend to think of self-organizing criticality as a process of building (e.g., intelligence as an emergent property of a growing neural network); that’s not always so.

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Embrace the weird news. It signals the transition to a new world.

Summary:  Every day brings new strangeness in the news. It’s easy to become disoriented (I am). The weirdness is a signal telling us that we’ve left the post-WWII era and begun the transition to a new world. Here we discuss three areas of oddness — and how to cope.  {1st of 2 posts today.}

Keep calm and trust the experts/

Content

  1. Weirdness is a signal; don’t ignore it.
  2. Economic weirdness.
  3. Our weird wars.
  4. Climate science weirdness
  5. Conclusions
  6. For More Information

(1)  Weirdness is a signal; don’t ignore it.

Much of the best content on the FM website during the past 8 years has been the forecasts, which have proven quite accurate. You have not seen many lately, since events have completely disoriented me. While searching for solid ground I realized that the weirdness of events is the signal — not the noise. As I have said since 2007, the post-WW2 world was ending and a new world emerging. This weirdness is a natural effect of the transition, just as it was from late 1920s through 1940s.

A side effect of this is the increased fallibility of experts. As the saying goes, accurate predictions are difficult — especially about the future. During periods of regime transition the difficult becomes almost impossible. As we see in our daily news. Here are just a few of the many examples of weirdness in the news.

(2)  Economic weirdness

A February 2 report by the San Francisco Federal Reserve stated what’s long been obvious: “Since 2007, Federal Open Market Committee participants have been persistently too optimistic about future U.S. economic growth.” Forecasts by economists in the private sector have been equally or even less accurate.

Since 2009 they have expected the economy to accelerate back to “normal” (i.e., pre-crash) levels. Remember talk of the “V-shaped” recovery? GDP in 2014 was 2.4%, within the range of the previous 4 years (2.5%, 1.6%, 2.3%, 2.2%).

As usual since the crash, 2015 was to be the break-out year. Unfortunately, it’s starting slow and slowing (e.g., retail sales down in Dec & Jan; manufacturers’ new orders down in Oct & Nov & Dec). The negative effects of the oil & natural gas price crashes have barely started (e.g, corporate bankruptcies, massive layoffs). As Christopher Woods of CLSA explained in his Feb 12 report:

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A new world comes, probably one with no place for our “lords of finance”

Summary:  The world changes as new great powers arise. The rules of international law and commerce will evolve to meet their standards of what’s right and proper. That new world order might have no place for the financial privateers, like hedge fund manager George Soros, who loot the world under the protection of the USA and other western powers. I suspect that future generations will look back on these men as colorful outlaws, wondering why we were too weak to restrain them.

Skull and Crossbones

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The Sting of Betrayal: George Soros & Cristina Kirchner

Bianca Fernet, at The Balloon

23 September 2014

This article is worth reading in full, with a hat tip for it to Wolf Street., who provides this introduction to the author: a “stilettos-on-the-ground American economist in Buenos Aires, antidote to economists who act like economics is too complicated to understand and who spout off buzzwords that make you feel inadequate. Her website The Bubble covers pop and econ topics in Argentina. ”

Excerpt:

And if you ever choose to study the modern history of economic crises, you will learn that in this tale George Soros is not so much a guest appearance, he is practically Evita’s Che Guevara (in the musical, not real life). This ever-present, vocal and proud force, bolding acting, taking strokes that in the short term brutally crush developing economy currencies and systems with the guiding principal that he was expediting market corrections and bringing to the fore economic dislocations that, if left to fester, would produce far more detrimental effects than the crisis and forced rapid correction. George Soros didn’t invent shorting and speculatively attacking weak currencies, but he certainly made it an art.

To understand how rich indeed is Mr. Soro’s relationship with economic crises, lake a look at some of the greatest hits from the 90s:

  1. 1992:  George Soros breaks the Bank of England by short selling US $10 billion worth of GBP (pounds)
  2. May 1997: Soros’s Quantum Fund takes short positions in Thai baht, betting the dollar peg was unsustainable
  3. July 1997:  George Soros attempts to “double play” the Malaysian economy by simultaneously shorting the pressured ringitt and the Malaysian Stock Market.
  4. October 1997:  Soros’s Quantum Fund borrows in Hong Kong dollars and shorts the Heng Seng index futures, positioning itself to gain if the HK dollar depreciated and putting pressure on the market to make this happen

In addition to these noteworthy showstoppers, Soros is also suspected of having a hand in the 1997 collapses of the Indonesian rupiah, the Filipino peso, the South Korean won, and the Singapore dollar.

This is well-known history, which we in the West consider unremarkable — perhaps not commendable, but routine commerce. Others see it differently. To them Soros and his fellow hedge fund managers are modern privateers, pillaging under the flags (hegemonic power) of the western nations. It’s war, as described in Unrestricted Warfare (超限战, literally “warfare beyond bounds”), one of the great texts of 4GW. It was written in 1999 by two Colonels in the China’s Air Force, Qiao Liang and Wang Xiangsui.  They describe the 1997 attack by western hedge funds on the currencies of Southeast Asia as the first example of this form of warfare in our age.

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