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I believe that we’re heading for another liquidity crisis or financial crisis. That doesn’t mean it’ll happen tomorrow, but there are disturbing signs that it might not be too far off.

It doesn’t mean the world’s going to end. But investors who aren’t prepared could see large portions of their portfolios wiped out. It could take years to rebuild them, and many investors just don’t have the time to recoup those losses.

But how do you prepare? You might want to start by looking at how “old money” preserves its wealth. Today I want to explore that.

On a cool evening in the fall of 2012, I joined a private dinner in Rome with a small group of the world’s wealthiest investors.

We dined at Palazzo Colonna, a private palace that’s been owned by one family for 31 generations or 900 years. My dinner companions were mainly Europeans, some Asians and relatively few from the United States.

Amid marble, gold, paintings and palatial architecture, I mused on the meaning of old money compared with the new money crowd that congregated for cocktails near the Connecticut home in which I lived at the time.

Old Money vs. New Money

Old money has proved they know how to preserve wealth over centuries, while the jury is still out on new money busy buying yachts, jets and exotic vacations.

In the United States, the “old money” is generally about 150 years old with fortunes dating to the mid-19th century. Families in this category include the Vanderbilts, Rockefellers and Carnegies.

Some U.S. family fortunes are almost 200 years old. But most of the great wealth today isn’t old at all.

It comes from success in the past 30–50 years including Mark Zuckerberg, Jeff Bezos and Warren Buffett.

…click on the above link to read the rest of the article…

The Incoming Commercial Real Estate Crisis No One Seems Prepared For

May 23, 2024

The Incoming Commercial Real Estate Crisis No One Seems Prepared For

‘I think that there’s more to come,’ said Peter Earle, research fellow at the American Institute for Economic Research.

It has been a year since a string of U.S. regional bank failures, together with the collapse of global heavyweight Credit Suisse, caused many to fear that a major financial crisis was imminent.

But, by the summer of 2023, the panicked withdrawals by frightened depositors largely subsided.

In February, however, New York Community Bank (NYCB) appeared to resurrect the crisis when it announced $2.4 billion in losses, fired its CEO, and faced credit downgrades from rating agencies Fitch and Moodys.

In what has become a familiar tale for U.S. regional banks, NYCB’s share price plummeted by 60 percent virtually overnight, erasing billions of dollars from its market value, and its depositors fled en masse.

“I think that there’s more to come,” Peter Earle, a securities analyst and senior research fellow at the American Institute for Economic Research, told The Epoch Times.

Underlying this year’s turbulence is the fact that many regional banks are sitting on large portfolios of distressed commercial real estate (CRE) loans. according to Mr. Earle. And many are attempting to cope through a process called “extend and pretend,” in which they grant insolvent borrowers more time to pay in hopes that things will get better.

“There is trouble out there, and most of it probably won’t be realized because of the ability to roll some of these loans forward and buy a few more years, and maybe things will recover by then,” he said.

“But all it does is it kicks the can down the road, and it basically means a more fragile financial system in the medium term.”

…click on the above link to read the rest of the article…

Where You (Shouldn’t) Store It: Nine Places

May 22, 2024

Where You (Shouldn’t) Store It: Nine Places

Think like a thief…

A marketing email just came from Michael Major, author of a book called No Grid Survival Projects, on where NOT to hide your valuables. His ideas are sometimes counterintuitive, which makes them potentially useful:

9 Hiding Spots In Your House Where Looters Always Look First

You may think you already have it figured out for how you can keep your stockpile a secret and hidden from any thieves or looters who may break in.

Unfortunately, thieves and looters can be a bit smarter than you may think. They’re already taking a major risk by breaking into any home, and they won’t want to leave empty-handed in exchange for taking that risk.

Furthermore, many thieves and looters will already be experienced and know exactly where to look in your home for your valuables or stockpiles.

That’s why it’s critical to be extra creative with where you hide your stockpiles and avoid hiding them in areas where looters are likely to look first.

Here are the nine hiding spots in your house that looters will always look for first:

Attics And Basements
It’s common practice for preppers to stockpile their food, water, and other supplies either in the attics or the basements of their homes.

The logic for doing so certainly makes sense. This way their stockpiles are out of the way and out of sight of any guests who come to visit. It’s important to keep your stockpiles as much of a secret as you can.

Just because your neighbors and regular guests are friendly now doesn’t mean that they won’t come knocking on your door demanding supplies later.

…click on the above link to read the rest of the article…

China Just Dumped the Largest Amount of U.S. Debt in History

May 22, 2024

China Just Dumped the Largest Amount of U.S. Debt in History

Dropping It Like a Hot Potato, the Lowest level of U.S. Debt Ownership in Decades, Not Just a “China-Leaning” Countries Problem

At this point, the government is completely and totally bankrupt. It’s like Wile E. Coyote that’s walked off a cliff, but doesn’t really realize it yet.
~ Doug Casey

We just learned that China has accelerated its de-dollarization efforts with record sales of U.S. debt.

Turns out, China dumped a staggering $53.3 billion worth of U.S. Treasuries and U.S. agency bonds in the first quarter of this year.

Interestingly, the Chinese government announced the sale right after issuing a joint statement with Russia, where both nations emphasized their resolve to keep moving away from reliance on Western countries.

No doubt, this will seriously dent the appeal of U.S. debt on the international market. But let’s take a closer look to see exactly why.

Yes, It Is a Big Deal...

Now, this isn’t the first time China has unloaded a portion of the U.S. debt it owns. For example, the country sold $21 billion in U.S. Treasuries and agency bonds in late 2023.

But what makes this latest dump stand out is that it’s the first time China has shed such a big chunk of debt so quickly.

The move brings the nation’s holdings of U.S. government debt to around $767 billion. That’s the lowest level of ownership in decades.

It’s quite something when you think about it… Just a few years back, China was leading the pack in investing in U.S. debt. Things changed around 2018 though, when the trade war with the U.S. began. By 2019, China ceded the position to Japan as the biggest holder of U.S. debt.

…click on the above link to read the rest of the article…

The Role of Energy in Production

May 22, 2024

The Role of Energy in Production

Chapter 13 from my forthcoming book Rebuilding Economics from the Top Down

Human society is energy blind. Like a fish in water, it takes for granted the existence of that without which it could not survive.

This is Chapter 13 from my forthcoming book Rebuilding Economics from the Top Down, which will be published by the Budapest Centre for Long-Term Sustainability and the Pallas Athéné Domus Meriti Foundation. I am serialising the book chapters here. A watermarked PDF of the manuscript is available to supporters.

Like so many other aspects of our blindness to the true nature of our society, the failure to comprehend the vital role that energy plays in enabling human civilisation to exist can be traced back to economists. But for once, the culprit is not a Neoclassical economist, but the person that most economists of all persuasions acknowledge as “the father of economics”, Adam Smith.

Smith’s mistake occurred in the very first sentence of The Wealth of Nations:

THE annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes… (Smith 1776, p. 10)

The error is obvious when you compare this opening to the remarkably similar—in all but one respect—opening sentence to Richard Cantillon’s An Essay on Economic Theory, which was published 21 years before Smith’s second magnum opus:

Land is the source or matter from which all wealth is drawn; man’s labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life. (Cantillon 1755, p. 21)

The critical difference between the two is Smith’s substitution of the word “labour” for “land”. By seeing labour, rather than land, as the source of the material wealth of civilisation, Smith set economics on a course that put it in conflict with the fundamental laws that govern the Universe: the “Laws of Thermodynamics”.

…click on the above link to read the rest of the article…

Reaching the end of offshored industrialization

May 22, 2024

Reaching the end of offshored industrialization

Moving industrialization offshore can look like a good idea at first. But as fossil fuel energy supplies deplete, this strategy works less well. Countries doing the mining and manufacturing may be less interested in trading. Also, the broken supply lines of 2020 and 2021 showed that transferring major industries offshore could lead to empty shelves in stores, plus unhappy customers.

The United States started moving industry offshore in 1974 (Figure 1) in response to spiking oil prices in 1973-1974 (Figure 2).

Figure 1. US industrial energy consumption per capita, divided among fossil fuels, biomass, and electricity, based on data from the US Energy Information Administration (EIA). All energy types, including electricity, are measured their capacity to generate heat. This is the approach used by the EIA, the IEA, and most researchers.

Industry is based on the use of fossil fuels. Electricity also plays a role, but it is more like the icing on the cake than the basis of industrial production. Industry is polluting in many ways, so it was an “easy sell” to move industry offshore. But now the United States is realizing that it needs to re-industrialize. At the same time, we are being told about the need to transition the entire economy to electricity to prevent climate change.

In this post, I will try to explain the situation–how fossil fuel prices have spiked many times, including 1973-1974 (oil) and more recently (coal in 2022). I will also discuss the key role fossil fuels play. Because of the key role of fossil fuels, a reduction in per-capita fossil fuel consumption likely leads to a transition to fewer goods and services, on average, per person. A transition to all electricity does not seem to be feasible. Instead, we seem to be headed for increased geopolitical conflict and the possibility of a financial crash seems greater.

…click on the above link to read the rest of the article…

Hoot of the Day: No One Wants Green Energy if It’s Too Cheap

May 22, 2024

Hoot of the Day: No One Wants Green Energy if It’s Too Cheap

Treasury Secretary Janet Yellen wants the EU to hike tariffs on China just as the US did.

Curbs on Cheap Chinese Exports

The Guardian reports Janet Yellen urges EU to join US in curbs on cheap Chinese exports

Janet Yellen, the US treasury secretary, has urged the EU to intervene urgently to dampen the growing export levels of Chinese cut-price green technology including solar panels and wind turbines, pushing European leaders to move to a full-scale trade war.

At the same time she urged German bank executives on Tuesday to step up efforts to comply with sanctions against Russia and shut down efforts to circumvent them to avoid potential penalties themselves that could see the US cut them off from dollar access.

Her remarks, in Frankfurt, come just hours after the European Commission president, Ursula von der Leyen, gave her strongest hint yet that the EU would join the US and impose tariffs on Chinese electric vehicles after a soon-to-be completed investigation into alleged state subsidies into the automotive industry in China.

Wind turbine manufacturers in the EU have protested that Chinese rivals are undercutting them by 50% in a move that is appealing to cash-strapped state and regional authorities facing targets in reductions of greenhouse gases.

China has signaled it will retaliate against any tariffs with potential duties on French brandy, EU wine and dairy products.

Von der Leyen said Europe would take a different approach to the US. While an increase in tariffs is expected, they are unlikely to match the rate imposed by the US.

Von der Leyen told the Financial Times that China had “massive overcapacity” that was “flooding” the EU market with “artificially cheap products”.

She said she expected the investigation into alleged Chinese state subsidies launched last September and due to be finished by 5 June, to conclude there were “excessive production subsidies”.

Wind Power

…click on the above link to read the rest of the article…

China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

May 22, 2024

China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

China Shock

Eurointelligence discusses China shock in its article Technology Is Why We Are Losing.

We are not sure that the effect of high tariffs on Chinese electric cars will work quite as intended. We are also skeptical of hydraulic theories of global trade flows – of Chinese goods suddenly starting to swamp European markets.

The much bigger problem at least for German industry has nothing to do with trade policy, but with China crowding in on previously monopolistic and oligopolistic markets dominated by German firms.

Handelsblatt alerts to research just published by the economics team of Allianz that in our view comes much closer to explaining the current dynamics. Previously, the partnership between Germany and China was complementary. The Germans built the factories and the Chinese made the consumer products. Or the Germans specialized in fuel-driven cars, and the Chinese in electric cars. China is now challenging Germany in areas Germany dominated previously. These are the largest parts of the German industrial economy: machines, chemical and electrical engineering. The study says that in many segments of the market, the Chinese are more successful than the Germans. Ludovic Subran, the Allianz chief economist, predicts that the China boom will be followed by a China shock.

We see this similarly. In our own research on the shifting nature of German competitiveness, we find that the most important issue is not trade, but technology. Digital technologies are encroaching on classic engineering. Apple’s latest commercial of a large steel press crushing a whole bunch of analogue devices caused a lot of criticism. Apple apologized, but the commercial is a good visualization of what is currently happening to parts of the German economy…

…click on the above link to read the rest of the article…

Russia Confiscates €800 Million From Deutsche Bank, Unicredit And Commerzbank

May 21, 2024

Russia Confiscates €800 Million From Deutsche Bank, Unicredit And Commerzbank

After two years of being on the receiving end of a weaponized global reserve currency, getting booted from SWIFT, countless (toothless) sanctions and watching some $350 billion of its assets be frozen and soon confiscated, Moscow has had enough, and over the weekend the FT reported that a St Petersburg court seized around €800 million worth of assets belonging to three western banks – Deutsche Bank, Commerzbank and UniCredit.

The seizure marks one of the largest moves against western lenders since Moscow’s invasion of Ukraine prompted most international lenders to withdraw or wind down their businesses in Russia. It comes after the ECB told Eurozone lenders with operations in the country to speed up their exit plans.

According to court documents, the court seized €463 million-worth of assets belonging to Italy’s UniCredit, equivalent to about 4.5% of its assets in the country, according to the latest financial statement from the bank’s main Russian subsidiary.

Frozen assets include shares in subsidiaries of UniCredit in Russia as well as stocks and funds it owned, according to the court decision that was dated May 16 and was published in the Russian registrar on Friday.

According to another decision on the same date, the court seized €238.6mn-worth of Deutsche Bank’s assets, including property and holdings in its accounts in Russia. The court also ruled that the bank cannot sell its business in Russia; it would already require the approval of Vladimir Putin to do so. The court agreed with Rukhimallians that the measures were necessary because the bank was “taking measures aimed at alienating its property in Russia”.

…click on the above link to read the rest of the article…

Why Unregulated Capitalism Always Leads to Enshittification

May 20, 2024

Why Unregulated Capitalism Always Leads to Enshittification

(right click to open chart in a new tab, or click here, to view full-size; like everything on my blog, my graphics are covered by Creative Commons licence)

Lots of ideas work well in theory, but many of them don’t work out so well in practice, especially when the idea becomes an ideology, pursued dogmatically without oversight to correct for malfunctions and abuses.

The idea of investment capital was one such idea, allowing, for the first time, a group of people to pool their money to enable major projects like factories or resource development or large-scale trade that no individual (other than rich monarchs) could finance.

While pooling of capital was a good idea, some people decided to turn the idea into an ideology, called capitalism, and this ideology, in its most extreme, unregulated form, now underlies many of the problems we face today. It has, in short, become utterly dysfunctional, leading to obscene disparities in wealth and income, catastrophic destruction of our environment and many people’s lives, monstrous amounts of waste of all kinds, and a globalized economy teetering on the edge of complete collapse.

Cory Doctorow has dubbed the process by which initial good ideas, without constant attention and oversight, can devolve into dysfunction, as enshittification. (His article is well worth reading in its entirety.) He explains how this has inevitably happened with Amazon, with Facebook, with Twitter, and other “platforms”, and most recently with TikTok and Google Search:

Here is how platforms die: First, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves [ie the managers and shareholders]. Then, they die.

…click on the above link to read the rest of the article…

Wall Street Journal Boosts Gold FOMO

May 20, 2024

Wall Street Journal Boosts Gold FOMO

They hate that everyone suddenly wants physical metal

The Wall Street Journal just published a long article (reposted via MSN) lamenting the fact that everyone suddenly wants gold. So thanks, WSJ, for the FOMO boost:

Inside the 21st Century Gold Rush

(MSN) – Eric Vazquez, a lineman for a power company in southwest Florida, says he’s holding a lot more gold than most financial advisers would recommend. Not just in his portfolio, but also in bars and coins spread between several secret locations.

It is a strategy for a world that he worries is growing more chaotic. The government keeps spending beyond its means. Stock prices can crash from a tweet. Ensuring his wife and children go to bed at night in peace, Vazquez said, requires owning tangible assets, not just a claim on them through some exchange-traded fund.

“At least in my adult life, nothing’s gotten better,” said Vazquez, who is 33. “And I just feel like I want to take as much of my own livelihood, my own safety, my own family’s safety, into my own hands.”

Worries about war, discord and mounting government debt have fueled a worldwide rush by individuals and institutions into what Wall Street calls “physical gold”— bars, coins, jewelry and nuggets. Widespread stockpiling has helped lift prices more than 40% since October 2022, to $2,367 a troy ounce.

The climb has at times perplexed analysts, because it didn’t coincide with a typical feature of prior rallies: mounting bullish bets in futures, options and ETF markets. Also, gold pays no income, and generally becomes less attractive to investors when rising interest rates drive up the payouts from other relatively safe assets, like bonds. Yet the metal’s sharpest ascent occurred between this past February and April, just when the Fed started signaling that rates might stay higher for longer then Wall Street expected.

…click on the above link to read the rest of the article…

A Concise History of the Global Empire

May 20, 2024

A Concise History of the Global Empire

Like all past empires, the Global Empire has gone through its parable of growth and glory and is now starting to decline. There is not much we can do about it; we must accept that this is how the universe works.

For everything that exists, there is a reason, and that’s true also for that gigantic thing that we sometimes call “The West” or perhaps “The Global Empire.” To find that reason, we may examine its origins in an older but similar empire: the Roman one.

As someone might have said (and maybe someone did), “Geography is the mother of Empires.” So, the Romans exploited the geography of the Mediterranean basin to build an empire based on maritime transportation. Rome was the center of a hub of commerce that outcompeted every other state in the Western region of Eurasia and North Africa. It was kept together by a “Lingua Franca,” Latin, and by a financial system based on coinage, in turn based on the availability of gold and silver mined from the Empire’s mines in Spain. More than all, it was based on a powerful military system created by the Roman wealth.

Like all empires, the Roman one carried inside the seeds of its own destruction: the limited amount of its mineral resources. Roman gold and silver were used to pay not just for the legions but also for expensive commodities coming from China that the Empire couldn’t produce in its territory. As long as the Romans could keep producing precious metals, the amounts lost to China to pay for silk and spices didn’t matter so much…

…click on the above link to read the rest of the article…

The Biggest Risks of This Decade

May 20, 2024

The Biggest Risks of This Decade

Since the 2020 pandemic, many things have changed, but nothing more than geopolitics. Wars and clashes that used to be largely national have given way to more regional conflicts that threaten to upend the current world order. The Ukraine War and Israel-Iran conflicts have the potential to lead to world war.

The international arena once dominated by the United States has gradually changed into a more multipolar stage. China and India have grown in economic and military significance, and Russia and Iran have reasserted their influence. Rising world powers are increasingly challenging the over-extended leading power.

“The disintegration of the old order is visible everywhere…It is close to collapse.”

The Economist

Half of world’s nations feel that they are victims of economic and political inequality. A similar sentiment is found in the rising tide of populism—even in rich countries—because most people know that their economic situation has worsened in recent decades. At the core of both is the higher cost of energy and materials.

Figure 1 shows that oil price, inflation and interest rates rise and fall in tandem, and are considerably higher now than during the period before the Covid pandemic. The Ukraine War contributed to an energy shock that has moderated but oil prices have averaged nearly 60% higher after 2020 than they were in the six previous years. U.S. interest rates and inflation are more than three times higher.

Figure 1. U.S. inflation and oil price fell in 2023 but federal funds rate increased. Inflation was lower in Q1 2024, oil price rose and federal funds rate was marginally higher.
Source: St. Louis Federal Reserve Bank, EIA & Labyrinth Consulting Services, Inc.

French president Emmanuel Macron observed in 2022 that these changes are probably secular.

…click on the above link to read the rest of the article…

Because We’re Still Not Sufficiently Indebted…

May 19, 2024

Because We’re Still Not Sufficiently Indebted…

Now the government wants your home equity

Zero Hedge just posted a long look at how the “buy now, pay later” (BNPL) industry now accounts for about $700 billion of largely unreported “phantom debt”. This, speculates ZH, is why the economy hasn’t fallen into recession.

Now come the unintended consequences:

Pernicious effects of BNPL credit are piling up: the Harris Poll survey conducted last month, provides some crucial clues about how Americans use BNPL. For one, splitting payments into smaller chunks encourages more spending, obviously.

More than half of respondents who use BNPL said it allowed them to purchase more than they could afford, while nearly a quarter agreed with the statement that their BNPL spending was “out of control.” Harris also found that 23% of users said they couldn’t afford the majority of what they bought without splitting payments, while more than a third turned to the services after maxing out credit cards…

…In other words, not only do we not know just how big the BNPL problem is, it is actively masked by credit agencies which can’t accurately calculate the FICO score of tens of millions of Americans, and as a result their credit capacity is artificially boosted with far more debt than they can handle… and that’s why the US consumer has been so “strong” in recent years, defying all conventional credit metrics.

BNPL is obviously dangerous and stupid because the last thing working people need is another way to wrack up more unpayable debt. But it’s not the worst thing the US is considering:

Enter…Government-Funded Home Equity Loans

$3 trillion could be injected into the U.S. economy without any federal spending by tweaking this corner of the mortgage market, ‘Oracle of Wall Street’ says

…click on the above link to read the rest of the article…

I’ve Got A Bad Feeling About This

May 19, 2024

I’ve Got A Bad Feeling About This

Ideally, I would have written this on May 4th not 14th, but I am going to talk Star Wars.

I was a fan in 1977, kept the flame alive when only battered VHS cassettes of the original trilogy existed, and was delighted to get prequels. Until the opening crawl announced, “The taxation of trade routes to outlying star systems is in dispute.” I recall thinking, “This is my job – boring!” But the prequels were better than the sequels and all the TV shows I don’t watch. Indeed, the prequels’ clunky theme of democracy crumbling into autocracy, dispute over trade routes, then war, seems even more prescient than my 2016 ‘Thin Ice’ report, which underlined how the 21st century could echo the 20th, and our more detailed fragmented ‘World in 2030’ report in 2020.

In just the last week: the IMF warned the world risks splitting into walled-off FX/trade blocs; The Economist stated “The liberal international order is slowly coming apart,” with “a worrying number of triggers that could set off a descent into anarchy”; Germany flagged conscription for all 18-year olds and spending over 3% of GDP on defence; China introduced military training for all High School students; Biden raised tariffs on Chinese EVs to 102.5%, and Trump said he would make it 200%, with tariffs on used cooking oil likely next; Bloomberg warned “The US, China, Russia are in a spiral towards war”; the manager of the Hong Kong trade office in London was arrested for spying; and, as some underline Russia has shifted to a full war economy that incentivises the martial, my prediction that markets will serve national security going forwards came true in Putin firing his defence minister to appoint an economist to the role instead.

…click on the above link to read the rest of the article…

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