Pessimist or a Realist? Our Present Situation – Part 2, by The Lone Canadian

(Continued from Part 1.)

While we’re on the subject of interest rates, lets explore low interest rates. I’ve mentioned that the government, through the Fed, has kept them artificially low since about 2008. Now, the general thought was that low interest rates would stimulate the economy. Low interest rates mean that you can buy that bigger house, or new car. It also means that businesses can expand because the risk on a loan is lower. It means that new businesses can start up because people can more easily qualify for a loan, and their payments are relatively low, so its easier for them to pay it back. And all these things are true, to a certain extent. There are downsides to low interest rates that are very rarely mentioned. The most obvious is your savings account – no matter how much you put into it you don’t get enough interest out of it to keep up with the cost of living. This encourages people to invest their money in things like the stock market in an attempt to get a higher return on their money, cause let’s face it, your savings alone aren’t going to get you any kind of retirement.

Even people that don’t invest in the stock market per se, actually do invest in the stock market, by putting their money into company retirement plans, or other retirement plans. You see, it’s simple math! To be able to pay you the money that they are guaranteeing for your retirement these plans need more than what you are putting in. They need a higher rate of return. If they could just put your money in a savings account and make 10% over the years, maybe they would be able to pay you your retirement benefits. (But then again, so could you) But, there’s no way that they could ever pay you out even a fraction of what they supposedly owe you at 2% or less – the numbers just don’t add up. As a result, pension funds have had to venture into riskier and riskier investments over the years in an attempt to show, at least on paper, that they were able to meet their obligations. And it’s not only private pensions, government and union pensions are also in the same situation.

Two recent examples of potential pension fund crises are the revelation that there are numerous government pension funds, including the veterans fund, that are heavily invested in Chinese stocks, owned and manipulated by the Chinese government. The other one is the Ontario Teachers Federation pension fund that had $865 million invested in FTX. You’ve gotta wonder how they’re going to resolve that one. So, much like globalization, low interest rates work great to stimulate the economy….until they don’t.

Cryptocurrency. What more can I say, that hasn’t been said in recent weeks. No different than the Fed, creating money out of thin air. Oh, sure, it’s decentralized. It’s new! It’s the “in” thing! Money that I buy with real money (okay, not real money, but fiat currency) that increases in value, at an unbelievable rate on paper, but that I can’t access to buy groceries. I know there are crypto guys out there, and I’m sorry, but I just have trouble trusting it. So, yes, I am a pessimist when it comes to crypto.

As far as all the countries that are now looking at going to a digital currency: my gut tells me that it’s some elaborate scheme to try and get away from their trillions in debt, and also a way for them to take more from us in taxes, and fees, and whatever else they decide that they need from us. You won’t be able to give your kids $20 to go to the movies without the government knowing about it. At that point in time it will truly all be the government’s money and they will arbitrarily get to decide how much we get to keep, and what we get to spend it on. Did we learn nothing from the Canadian government freezing bank accounts of anyone who supported the protesters, or the “bank holiday” that Greece implemented a few years ago. Once they have digital currency, they control it all.

The stock market is in a downturn at present. I don’t know if it will keep going down or not, but many articles that I’m seeing say that it’s still overvalued by as much as 25%. The stock market has risen to unimaginable highs thanks to low interest rates, and the Federal Reserve’s QE program. There was actually a point in the last two years where a company that went broke was still being traded on the stock market. There are a multitude of companies listed that are referred to as “zombie companies” that should have gone broke long ago, but still maintain a presence because people are still willing to buy up their stocks. How can anybody look at this and think that it can continue indefinitely?

With low interest rates and a QE policy where everything in site was being bought up by the Fed how could you lose? If I could borrow money at 3% and invest in a market where I’m pretty much guaranteed to make at least 10% or even 15% why wouldn’t I? It all sounds good until the policy changes, and they quit doing QE, and interest rates start to go up. We’ve done this for almost 15 years, and I think that many people started to believe it would go on indefinitely. The fact that the market is dropping has started a mild panic, with people buying every little dip with the expectation that it will turn around. They breathlessly hang on Jerome Powell’s every word hoping that the next time he speaks that he will tell them that interest rates are going down, that QT is at an end, and that the party will start again.

The financial crisis can be summed up in just two words: Unmitigated Greed. It is our greed, our incessant chasing of the almighty dollar that has gotten us to this point, and now we will have to pay the piper. Unfortunately, all of these financial issues are intertwined, and any or all of them could result in a crash that would make 1929 look tame in comparison.

To top it all off, the average person has to wonder if there is anybody at the top that has a clue what is going on. It often seems that we are adrift in a sea of incompetence. I’m talking about our recent financial news for December of 2022. At the start of the month the Fed announced an expected 50 basis point hike in interest rates. (another half a percentage point) The general trend in the market has been down for the month. The housing market continued to drop for the tenth month in a row. Inflation actually didn’t move up this month, and there were hopes that it may have plateaued. There was a slight glimmer of hope that maybe we had started to turn the corner in the financial market. Then the government gave us all a Christmas present by passing a 1.7 trillion-dollar omnibus bill, once more injecting huge amounts of “money from thin air” into the system, and pretty much guaranteeing that we will see inflation climb again in the new year. All we can look forward to, in my opinion, is continuing turmoil and uncertainty in the financial system in the coming year.

Wars and Rumors of Wars

With the end of World War 2, we often seem to think that we entered a time of peace and prosperity, because we were not involved in a conflict with a “major” world power. The truth is that there has been very little time in the intervening years that we have not been involved, in some way, in a dirty little war someplace. After WW II it was Korea. After Korea it was Vietnam. Let’s not forget our involvement with Cuba and the Bay of Pigs along the way. Then there was Grenada, and Panama. We took sides in the war in Nicaragua, supplying the Contras. We supplied the Mujahideen through the 80’s when the Russians were in Afghanistan. The Intervention in Bosnia and Herzegovina. We wound up in Somalia, and we’re still there. The first Gulf war. Afghanistan. Iraq. Syria. And now the Ukraine. Seems like a lot more wars than rumors. And that’s just the good ol’ U.S. of A. The truth is that we are rather insulated from the rest of the world, and because many of the conflicts didn’t touch us directly, we didn’t pay any attention to them.

There has never been a time that there are not multiple conflicts going on, just not between the major players. In fact, we have gone out of our way in the last 70 years to make sure that we didn’t come into direct conflict with another of the major world powers. We might choose up sides, like in some demented game, and supply one side or the other against our global opponents, in what we like to euphemistically call “proxy wars”, but we have always been careful in the past not to cross certain lines. There are unwritten rules that we, and our opponents, have not broken….until now.

In February of 2022, Russia invaded the Ukraine. I will state for the record that I am neither Pro-Russian, nor Pro-Ukraine. Now that may sound like a cop-out, refusing to take a side, when the U.S. is overwhelmingly supporting the Ukraine. Some might even accuse me of being a traitor because of my stance – that is their right, and their opinion. In my own defence, I have spent a lot of time researching both sides of this conflict and have come to the conclusion that neither side is the “good guy”.

Some people are of the opinion that this is in fact World War 3, or at least the beginning of it. It is a different war in many respects, as it is truly global in its effects. At the beginning of this article, I listed many different things that we are presently facing. This war in Ukraine literally touches every aspect, except for the magnetic field and the solar maximum – and I’m not discounting that at this time. It affects the energy crisis because Russia is the major supplier of oil and gas to Europe. It affects the food crisis because between Russia and the Ukraine they supply approximately 40% of the world’s wheat. And, they supply a large percentage of the world’s fertilizer. Climate change. Because of the possible oil and gas shortages many people are looking to wood to provide heat this winter, instead of relatively clean-burning natural gas. Some countries are looking at firing up coal generators to supply electricity. The U.S. alone has given over $100 billion in defence of the Ukraine.

The world’s, or more importantly, NATO’s sanctions against Russia have caused a ripple through the entire financial world. It has given rise to BRICS, an alliance of countries that are attempting to circumvent the established dominance of the Petro-Dollar, and the U.S. dollar as the world’s reserve currency. It would seem at this time that Russia is in fact trying to tie their energy exports to gold, which could prove catastrophic to fiat currencies around the world. Yep, this seemingly minor conflict has managed to check all the boxes.

For the first time since the Cuban missile crisis, we seem to have at least one of the world’s superpowers hell-bent on coming into direct conflict with another. Over the past decades we have supplied equipment and training to the enemies of our enemies, but we have never taken such an active role in a conflict. This is no longer supplying small arms, and maybe a few armoured vehicles. We have publicly acknowledged, almost arrogantly, our active involvement in Ukrainian operations. There was a time that we tried to at least maintain plausible deniability. Now we have no problem admitting that we are supplying real-time intelligence to Ukraine for use in targeting. Heck, we even hint at the fact that we are suggesting the targets for them.

We are providing the Ukranians with some of our most advanced weapons systems. They seem to start out with only short-range defensive capabilities, but then mission creep takes over and the next thing you know they are now medium range, and then long range. The Ukraine suddenly has 10,000 highly trained foreign volunteers (mercenaries) that are being paid by someone. They suddenly have the men and equipment to mount a major offensive that retakes lost ground and hands the Russians some supposedly humiliating defeats.

Yes, I have no doubt that the Russian military’s reputation was overblown. They had huge logistics failures. Morale was not the highest for this operation. But, those defeats will serve to help unify the people of Russia against what they will see as NATO’s attempt to destroy their Mother Russia. The Ukraine, and her NATO allies have not had to face the full might of the Russian military yet. And if by some chance Ukraine and her allies do manage to stand up to, and even defeat the Russian military – then what? Will Russia just meekly surrender, or will they resort to their last, desperate option? It seems to me that our illustrious leaders may not have thought this situation and its possible consequences through very well. That we are simply plunging ahead without any consideration for an exit strategy, no thought of a negotiated peace. We seem to have only one goal, one objective, and that is the total defeat of Russia.

In war, things get blown up. Things get destroyed. That’s kind of a foregone conclusion, but this conflict has seen some new and different wrinkles. The first real sign of this change was the apparent sabotage of the Nord Stream pipelines. Although the pipeline is of Russian origin, it is both privately owned, and critical infrastructure for European countries. The attack was well coordinated, precise and on a scale that ruled out some angry Greenpeacer’s on a fishing trawler. The depth that the attack was carried out at, the targeting ability, and the required munitions reeked of state-sponsored action from the start. Who? Who knows. Although there was an investigation carried out by Swedish and Danish authorities, they have not released their findings due to national security? Russia was not allowed to participate in the investigation. Then there was an attack on the Kerch bridge, the main bridge connecting Russia with Crimea. Another attack on critical infrastructure.

During the early stages of the war, it almost seemed that the Russians were trying not to completely destroy the critical infrastructure of Ukraine. That they only wanted to inflict enough pain on the country to allow them to achieve their stated goals – the repatriation of the Donbas region. All of that seemed to change following these attacks, and their poor showing on the battlefield. Russia has since instituted a program of massive destruction of any and all Ukrainian infrastructure, leaving huge swathes of the country without power, water, or heat, facing months of winter. On top of everything else, we now have a huge humanitarian crisis facing us as the civilian population struggles to survive.

At this time, it appears that the ground is finally frozen, and that Russia is gearing up for another major offensive in the new year. Only time will tell what the outcome will be, but none of the possible options seem very encouraging.

(To be continued tomorrow, in Part 3.)