Twenty-Nine Reasons to Be Angry And/Or Scared
If you’re not both angry and scared
at the world’s current situation, you’re not paying attention.
Rained out from a planned and
anticipated golf game is not a good thing. As a result, I find myself confined
to the house and computer in a less than jovial mood and decided to list a few
problems in the world today. The list grew beyond my
In no particular order, and hardly
complete, is the following enumerated list:
- The Eurozone is imploding and likely
will be unable to hold in its present constitution, if at all.
- Fiat currencies are being debased
rapidly in a “beggar thy neighbor” attempt to juice domestic economies.
Competitive devaluations provide no advantage when other countries match the
- More money/debt/federal spending is
not economic policy if you view same as being able to fix or improve something.
Such action is merely political, a form of political propaganda to convince the
masses that the economy is improving. Temporarily propping up reported GDP may
provide better headlines, but does not create jobs.
- The purpose of so-called quantitative
easing is to shore up bankrupt governments. The action itself is a form of
default, albeit in slow motion. Pretending to honor commitments while inflating
their value away is a criminal offense, but for government it passes for
- Inflation has broken out around the
world, regardless of what government statistics say. Food and commodity prices
are soaring, and these hit the least well-off the hardest. Rising prices of
necessities serves to make them poorer and more desperate.
- Citizen unrest around the world does
not reflect some idealistic demand for Democracy as claimed by our political
class and media. This unrest results from increasing hunger, loss of hope, and
desperation by people of the world. Food prices are being driven beyond their
ability to pay. They want something to eat, not some philosophy called
- Unrest will grow worse as food,
energy and other necessities become more expensive. The unrest started in
poorer countries but, as prices continue to rise, will spread to more affluent
nations. Can “Democratic movements” occur in supposedly already democratic
- The “outs” in oppressive societies
want to overthrow the “ins” in order to gain the right to plunder rather than be
plundered. Retribution also plays a role. In a very real sense, these
movements are little more than large-scale “gang wars” where one gang attempts
to gain “turf” at the expense of another. Each battles for the right to own and
exploit the “neighborhood.”
- Western social welfare states are
broke and unable to honor their commitments. Sovereign defaults and austerity
measures are inevitable.
- Citizens of social welfare states,
conditioned to believe they have the right to be supported by productive members
of society, will not accept austerity measures willingly. Rioting and bloodshed
will be most severe in the more pampered societies.
- Political fear will prevent
meaningful corrective action. Governments will continue the charade of solvency
via continued printing of money. They know it will not improve the economy, but
it will enable them to continue to send out checks.
- Inflation will ratchet up higher as a
result of money-printing. That will only exacerbate civil unrest as the poor
will be squeezed even more.
- Developed economies are no longer
growing. Most have not had true economic growth for decades. Excessive debt
and easy credit were used to hide this reality in the US. It enabled living
standards not supportable by incomes. Now debt is unsustainable and cannot be
- A massive liquidation of debt is
coming. Some of it will be via contractual paydown. Some of it may be inflated
away, but most will be via default, producing numerous bankruptcies.
- Job creation is a problem in all
Western developed countries. In the advanced social welfare states of Europe it
has been a chronic problem for decades. The US economy now suffers from the
sclerotic disease that characterizes Socialism.
- Decades of increasing regulation on
business, employment, and incomes have finally taken their toll. These
interventions have resulted in an economic climate where obtaining a reasonable
return on investment is no longer perceived to be worth the increased risk
associated with it.
- Entrepreneurs and businesses withhold
capital and refuse to hire in uncertain times.
- Many businesses have voted with their
feet, moving jobs and capital offshore to escape onerous regulations and taxes.
- The continuously increasing
redistribution of income means more has to be extracted from fewer producers to
support the growing dependency class. Anticipation of higher taxes reduces the
incentives to take risk, work hard, or employ more people. Economies do not
grow or recover under such circumstances.
- GDP numbers are inflated by wasteful
government spending. But this spending is merely window-dressing. It creates
no new wealth, products, or productive jobs. It is another form of
redistribution that moves societies closer to bankruptcy. Despite a reported
increased in GDP, nothing has improved. That is one reason why GDP can increase
without employment increasing.
- Central banks and their banking
systems are insolvent. The amount of insolvency is difficult to estimate but is
well into the trillions! Citizens have been looted to cover up this insolvency
and bail out Washington’s friends in the financial community. Sadly, all of
this has been for naught, as a collapse of fractional-reserve banking is
- China is in an inflationary bubble
with massive misallocation of resources. Underreported
riots are breaking out in China where political unrest is a national sport.
- China is the future economic world
power, but that future has not yet arrived. Its current economic condition is
likely not sustainable as a result of the distortions of central planning. It
is a house of cards, awaiting a collapse.
- Political strife in China will become
severe when the economy implodes. How this turmoil is reconciled will determine
how quickly China recovers and rises to become a world economic power. The
political leaders and their apparatchiks will try to retain control with tougher
restrictions on citizens. Ultimately they will fail, but it will prevent the
true potential of China from being realized until free markets are embraced.
That could be several generations away.
- The US and other Western democracies
have solved nothing regarding their economic problems. These countries,
including the US, are heading for currency and societal collapses.
- The massive debt problems of Western
economies are mathematically impossible to solve. Massive defaults will have to
- Real economic recovery cannot occur
until the debt excesses are eliminated. Kicking the can down the road might be
considered good political strategy, but it is terribly harmful
- The outlook for peace and tranquility
in the world is not good. Governments in danger of failing and falling
everywhere are not above using diversions to distract angry citizens. Some
countries will probably be treated to “wag the dog” endeavors. Desperate
scoundrels will stop at nothing to extend their reign in office.
- I missed my golf game.
There is another item I could have
added to this list, but it is too complex and much bigger and scarier than those
above. It deals with the notion that most of the above problems do not result
from this particular economic crisis. To be sure, most were exposed as a result
of the current crisis, but that merely determined the timing of their
revelation. Something else, much bigger and more permanent seems to be at
An economic crisis implies something
of a relatively short duration with an eventual return to whatever represents a
“normal” state. Recessions are cyclical. But so too was the Great Depression.
While it lasted longer and was more severe than a recession, conditions returned
to normal within a reasonable period of time.
What we are in, it appears to me, is
the beginning of a massive secular change that will alter the way we view
countries, economies and institutions. It is much bigger than an economic cycle
and likely will represent an epic movement in terms of history. The history
books a hundred or more years from now will recognize what happened more clearly
than contemporary participants will be able to do. The changes will be massive
and glacier-like in movement. No generation alive today will see the end of
this massive secular change.
To be continued on the next rainy
Monty Pelerin blogs at