Brexit – Revolt of Contagion Victims

Last week we wrote in our article The Fed Capitulates To The Contagion

  • It is the big broad electorate, the commoners who have been suffering. There are signs they are getting fed up. Next week’s Brexit vote is one sign of this nascent revolt. The Trump candidacy is another. Whether these revolts succeed or fail remain to be seen. Perhaps the pain is not yet acute enough for pitchforks & storming the Bastille

Well, the English people stormed their own proverbial Bastille or more appropriately demolished the new Berlin Wall that had imprisoned them. To paraphrase Nigel Farage, Thursday June 23 was the day England declared its independence by cutting the chains of group-think that imprison today’s world.

Every “elite” champion had come out against the Brexit vote. Every “intellectual”, every think-tanker, every globally elite “journalist” had publicly warned the English to vote for remaining within the new Berlin Wall of Euro-globalism. Gillian Tett, the US managing editor for the Financial Times of London, said she could produce a list of 100 economists who support remaining within Europe. Talk about group-think. The English people gave them the proverbial finger & declared their mental independence. By doing so, England became a beacon for others in Europe who are forced to remain beholden to neo-colonial rulers from Brussels.

Why has England become a beacon to others in Europe & even to many in America? Because the Brexit vote is “just the tip of the iceberg“. Who said that? Alan Greenspan, the maestro, the longest serving Chairman of the US Federal Reserve. He added:

  • “the reason I say that is that this problem that is causing the British problem is far more widespread; fundamentally what we are looking at is a massive slowing in the rate of real incomes across the whole European spectrum; real incomes are not going anywhere; that is creating a serious political problem which is not easy to resolve”

Frankly, this problem was created in America, principally by Alan Greenspan. Just look at our favorite chart below, the chart created by Greenspan’s own beloved institution:

Fed income chart

The chart begins in 1998, the year Greenspan launched his initiative to save the world by opening the spigots of monetary liquidity. Greenspan drenched the US economy with money because he was deadly afraid of the US financial system breaking down in the Long Term Capital crisis. His panic was unwarranted and his cure proved far deadlier than the disease. The torrent of monetary liquidity unleashed by Greenspan created the Tech & Telecom bubble of 1999-2000. His efforts to end that bubble led to the bust of 2001-2002. To recover from that bust, Greenspan poured in much more liquidity from 2002 to 2006 and created the housing & credit bubble of 2007-2008.  

Greenspan’s successor Bernanke went much farther than his mentor and launched a series of Quantitative Easings which were a fancy name for pouring trillions of dollars into the world’s financial system. Mario Draghi, Chairman of the ECB, adopted Bernanke’s methods & poured liquidity into European banks & financial institutions. 

What has been the result? An ginormous explosion in debt across the world. America’s debt has doubled from 10 trillion to 20 trillion in the last 8 years under President Obama. And America has actually been more circumspect than Europe & an angel of rectitude compared to China.

Where has this money gone? Into the pockets of those who make money on money and the “intellectual” class who benefit by either supporting them or getting money from them. You see this in the increase in the number of Think Tanks, political action committees, salaries of TV anchors. They have earned their money by propagating today’s group-think across the world & trumpeting it in America & Europe. 

These people don’t see what this flood of money and the consequent explosion of debt has done to the 90% of people in their countries. They don’t see the resultant financial contagion spreading through the entire debt-ridden world – falling incomes, falling demand, falling trade, falling capital investment, falling growth, falling interest rates.  No wonder the progenitor of all this, Alan Greenspan, is now petrified to see what his creation has metamorphosed into:

  • “This is the worst period  I recall since I’ve been in public service. There is nothing like it including the crisis including – remember October 19, 1987, the day the Dow went down … by 23%; I thought that was the bottom of all potential problems …. This has a corrosive effect that will not go away easily…”

What is corrosion? It is the contagion of rust into iron. It begins in one place & slowly eats into the body of the iron. Corrosion does not go away; it has to be eradicated. Greenspan’s use of “corrosive” shows that he sees the same contagion we have been talking about since October 2014. He knows this financial contagion has to be eradicated. 

But who can eradicate it & how? Remember what we wrote in our first contagion article on October 11, 2014:

  • “… remember that medical science knows how to cure contagions like Ebola. But economic science has never been able to cure a deflationary contagion.”

So who can cure it? A determined political revolution. And where? The place where it all began. In America. England showed it has learned the lesson America taught in 1776. Will Americans demonstrate that they still remember what they taught the world?  

 

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