by Randall Stevens
After the Fall
In the sixth year of the reign of Obama, the Dow Jones Industrial Average broke the 17,000 mark. When he took office in January 2009, the DJIA was in the low 8,000s. As there is any time the stock market hits a new high, there is rampant speculation that this newest bubble is about to pop – see this article on the WSJ’s MarketWatch, for example. Writes the columnist, succinctly:
“Before you jump on the bulls’ bandwagon, let me call to your attention a couple of salient statistics. At today’s level, the Dow industrials are up 5% since the beginning of this year. This is on top of a 35% leap in 2013. And in case you are keeping score, the Dow is now a whopping 155% above its low back in March 2009… All that said, there are a number of warning signs out there that suggest the party may soon be over. .. For one thing the economy has not grown anywhere near as much as stocks over the past 5-1/3 years; neither have corporate profits… Robert Shiller, the noted Yale professor, economist and author, thinks that the market today is about at the valuation it was running at in 2008, just before stocks plunged. “
While there are several reasons for this bubble, the single largest contributor is the Federal Reserve’s easy money policies. Since the crash in 2008, the Fed has kept interest rates exceptionally low (which is why your savings account doesn’t appreciate in value anymore), and has done so through a policy of ceaseless “quantitative easing.” In the days before electronic cash, this was called printing money, but such straightforward terminology is unbecoming to these new age cyber technocrats. Instead of running the printing presses all day and all night, they simply press the ZERO key a few more times per day, and magically banks find themselves with more cash on their balance sheets. If this sounds too simplistic, it’s only because there’s no need to make it more complicated. Going through the actual money creation process step-by-step, using the bureaucrat’s terminology, gives it an air of respectability it does not deserve. The Fed’s creation of new electronic cash, by and large, is the reason why the markets are up 155%.
It is the opinion of this author that the best measure of the health of an economy in a free society is not the stock market but unemployment, or more broadly, labor force participation. While the stock market is overinflated, unemployment remains dangerously elevated. The government Bureau of Labor and Statistics touts an (U-3) unemployment rate of 6.5%, a reasonable number, but the BLS U-6 unemployment figure still stands at an unacceptably high 12.1%. John Williams at ShadowStats, using alternative statistical methods, estimates the true unemployment rate is closer to 23% and on the rise. Moreover, the government BLS admits that there are a record 92 million Americans who do not participate in the labor force. Yet perhaps the most startling statistics is this – in 20% of American families, not one person is employed.
Costs Measured in Lives
These are cold figures, detached from life, so it helps to think in human terms. Nearly one in five individuals cannot find work. One in five families does not have any income, other than (presumably) welfare. Nearly one in three, 92 million, do not have any real connection to the economy, for they are not involved in the labor force.
The psychological effect this will have on the next generation is impossible to quantify, but it is hard to overstate. As anyone who has been laid off and/or unemployed will tell you, an individual’s self-worth is correlated to their productivity and ability to earn a living. Not only that, but social ethics are developed in those who work and produce for their neighbors, while those who do not participate in society are deprived of this ethical and social education. Having a paid job implies that you are creating something of value that another can use, and you are compensated precisely because of this contribution. As long as 20% of families remain outside the workforce, subsequent generations will not know what it means to serve the greater good by being a part of the market economy.
For those with investments whose portfolios are inflated, the Fed is giving them a false and deadly sense of security. The reality of this bull market is that it does not match the underlying economy. In Q1, 2014, the economy actually SHRANK, down -2.9%. At the same time, inflation – the devaluation of the dollar and the cost of regulation – was palpable to consumers. Food prices are up anywhere from 2%-6.5% from a year ago, while national gasoline prices are up 20 cents to $3.67, just shy of their 2008 record high.
In other words, if you’re lucky enough to still have a job, it is getting harder to make ends meet. The average American is struggling mightily. The wealth inequality gap, the main talking point of the Democrats, really has reached critical juncture – under the tutelage of Barack Obama’s regulatory czars. According to a University of Michigan study, from 2003-2013, the wealth gap nearly doubled. In 2003, the top 5th percentile of households had 13x more wealth than the median household; by 2013, that number had risen to 24. Meanwhile, in Obama’s America, almost one-third of the population lacks access to basic banking services, and one in nine households doesn’t even have a checking account. (More information on Unbanked and Underbanked Households can be found here.)
Looking at the unemployment numbers, along with the growing wealth gap and the lack of access to banking and financial services, it is fair to say that Obama’s economic policies over the last five years have created an underclass of American citizens. These people, sadly, are largely forgotten by both political parties. The Democrats benefit from their dependence, nurturing a block of voters who cannot afford to see any cuts to the welfare system, $17.5 trillion national debt and inflation be damned. The Republicans, who appear to be deaf, dumb, and blind – or perhaps just bought off by corporate interests – see “lower taxes” as the answer to these complex problems. Hey, we’re all for lower taxes, but unless the case is articulated to the people who are otherwise disaffected, they’ll only shrug their shoulders. And rightfully so. If you’re not in the game, if you don’t have a 401k, hell if you don’t even have a bank account or a job, what do you care if taxes, corporate or otherwise, are lowered? You are worried about feeding your family, and not much else.
Into the Shadows
In 2014, illegal immigration has spiked from countries south of the border. This influx of undocumented residents promises to add another, you might say a shadowy, dimension to this underclass. Just at a time when the American government is building a new serf class of legal Americans, many who cannot find work and/or lack access to the financial system, Obama appears determined to add to this pool of workers by importing illegals. Fears of assimilation, political loyalties, and disease aside, the fact is that in countries like El Salvador, Honduras, and Mexico, the way out of abject poverty for many adolescents is to join a gang. Gangs offer camaraderie, action, excitement, a common credo, and most importantly a paycheck! (Though believe me, you’ve got to “work” for it: shaking down businesses, killing, peddling drugs, etc.) Is any surprise, then, that the most corrupt governments generally have gang problems among the citizenry? Just look at El Salvador, where MS13 is backing the current party in political power. Or Mexico, where the police are on the payroll of the cartels to the tune of (at least) $100 million per month.
It’s axiomatic: an America with little opportunity is one that will be ripe for gang recruitment. That’s “decline” folks, that’s “fall.”
These cartels/gangs have an unlikely partner, half a world away. Al Qaeda and other Islamist cartels have a substantial footprint in Latin America. African al Qaeda groups (like AQIM, Boko Haram) transport South American cocaine across the Sahara and into Europe. (In case you were wondering, this trans-Atlantic business is rather agnostic… Insha’Allah!, Vaya con Dios!… whatever.) But like any trade, it goes two ways. It is not be surprising, then, to learn that Qatar, whose involvement with the international drug traffic is undeniable (see below), actually funds educational projects in the American Southwest with groups like La Raza. Yes, Tucson Unified School District, who implemented a curriculum of “Race Studies,” in 2008, as per La Raza, was also awarded at $465,000 grant by the Qatar Foundation to teach students Arabic in 2013. Of all school districts in the country to give money, Qatar chose the one in Arizona who has an alliance with an activist organization for illegal immigrants.
A Cloudy Crystal Ball
What happens with this market collapses? Let’s take a quick survey around the globe, with political considerations. A few trends stand out.
- $USD. The dollar has been inflated to a remarkable degree. Excess reserves at depository institutions, which are essentially fodder for loans (though at this point they may be collateral, possibly insurance in the event of collapse), were at $2.552 trillion as of May 2014. That is $2,552 billion. Before the crash of 2008, excess reserves were practically $0. Though an actual hyperinflationary scenario is unlikely, for the reason that the dollar is used as a currency around the world (in countries like Ecuador, El Salvador, Panama, Zimbabwe, and Lebanon), which essentially mitigates risk, other major economies are getting wary. China, Russia, and Iran, for example, held a “de-dollarization meeting” in May. Domestically, mundane inflation eats away at the value of a buck daily.
- Stagnancy. The European Central Bank, concerned with the possibility of deflation, has instituted a negative interest rate. This means that banks in the European Union are now charged a fee to keep reserves on deposit with their central bank. Imagine being charged for having a savings account, and you’ll get the gist. How/Why is this possible? Banks in the EU, despite a loose monetary policy, evidently cannot find enough worthy borrowers, even at low interest rates. Selfish regulatory regimes, such as the EU, whose bureaucrats work to enrich Brussels and key institutional allies at the expense of the rest of Europeans, tend to have that effect on an economy.
- Russia and Ukraine. In March, Russia decided to annex Crimea and launch an attempt to take Ukraine. Now that these plans to dominate Ukraine seem to have failed (Putin wants to talk, and Ukraine has taken steps to join the EU, signing an association agreement), Russia finds itself in a bind. Crimea is proving an expensive addition (Russia dramatically increased pensions in Crimea), and sanctions are having an effect, even as the West threatens more. Russia’s economy is based on exported energy resources – natural gas, oil, etc. – and also largely organized crime/money laundering. Should the West continue to push forward with additional sanctions, it is likely Russia would have to retaliate or face depression. In this, they would benefit greatly from the fallout of the Arab Spring, which Obama has backed wholeheartedly from the beginning. While retaliation can take several forms, it is plausible that Russia would use her new influence in the Middle East – with Iraq, Iran, Saudi Arabia, and Jordan – to make life more complicated for the EU and USA and the Gulf’s oil exporting nations.
- Qatar. Even the state sponsor of terrorism, the brain of the Arab Spring, the boss of the Obama administration, the benefactor of the Taliban and profiteer from their heroin – tiny, peninsular Qatar – is apparently concerned with market stability. Research by GeoEconomica, a Switzerland-based firm, suggests that the Qatar Investment Authority is shifting strategies to be more “conservative,” in response to the fallout of the Arab Spring. It is difficult to give this Swiss report too much weight, however, considering that Qatar is perfectly positioned to benefit precisely from an increase in gang activity in North America. As explained in a previous article, Qatar and South American cartels have overlapping interests, both benefitting from extended criminal smuggling networks. If Qatar is affected by the crisis on the American border, it will almost certainly be to gain financially.
o Refugees from the Arab Spring. Taking this analysis one step further, note that the number refugees fleeing Arab Spring violence and crossing the Mediterranean, from countries like Libya, Syria, Mali, and Nigeria, is also at an all time high. Undoubtedly mixed in with these refugees are terrorists and professional smugglers, as is the case of the South American refugees to the United States. It is plausible to surmise that these parallel migrations are coordinated, and ultimately benefit Islamist terrorists and criminal networks who can infiltrate western countries under the guise of refuge from violence.
What will be left, post-stock market crash, post-Obama, post-Arab Spring? These are timely questions to consider. This conclusion is meant to say what could happen, not what is inevitable.
- Socially, the United States is a country that is divided as ever, with very little faith in government and its leaders. Due to a long and purposeful depression, a new generation will emerge that is out of touch with American values, does not understand nor support capitalism, and is comfortable with gangs entering popular culture and the lives of the former middle class.
- Politically, the establishment wings of both Democrat and Republican parties are out touch, and seem perfectly content feeding the beast that is the Federal Government’s bureaucracy. The regulatory state, which exists to perpetuate itself while burdening the tax payer and business owner, is already, but will become more so, predatory. Obama, with his disregard for the rule of law, will leave an office of the presidency (that is, we hope he’ll leave) that does indeed resemble the office of a dictator. The Constitution is already in tatters due to selective enforcement and executive orders, and neither party seems to want to address this fundamental issue. The normative state – the Constitution, the laws on the books –will continue to erode, while a prerogative state – the dictatorial – gains new acceptance. Targeting of political enemies may become routine.
- Economically, the underclass that already exists may fuse with a shadow class of quasi-legal citizens, who very well may not be deported, but also not made citizens. When the market crashes, and the US dollar suffers a commensurate hit in global respectability, the upper classes too will be impoverished. Existing businesses will be forced to comply with impossible regulations, offering payments of “fines” tantamount to bribes, while beginning a new business will only be possible through political connections.
- Internationally, the United States will be known as the backer of and muscle for a new narco-Caliphate, rogue and genocidal. Obama and his administration will be hailed as a hero among jihadis. The Middle East and Africa, as well as possibly Ukraine, under siege by the jihad, will be the battleground of a long war. Russia will try to compel America’s former allies to work against the Caliphate and the United States.
How can the worst of this be avoided? Whistle blowers, impeachment, and investigations. Trials, and sentences when appropriate. Should the status quo be allowed to continue for another 2.5 years, the above scenarios, and many derivatives, very well may play out to the great chagrin of the world.