[6 min read] Dear Reader, Firstly, I’d like to apologise if anyone was offended by yesterday’s Rum Rebellion. In it, I had a go at people for still wearing masks around the streets when it was no longer necessary (by law). I wasn’t referring to those who strap one on to go into the supermarket, as you’re apparently still required to do here, simply to avoid a fine. I was chatting to some neighbours and we were discussing the slow return to normal in Melbourne and the prospects of recovery. They mentioned that Dan was spending big money to get Victoria out of the hole he dug. This week revealed a $23.3 billion budget deficit. They asked me, ‘Where are they getting the money?’ Ah yes, where is all this money coming from? It’s a very good question. The simple answer is that it is coming from central bank ‘money printing’. But as I have pointed out before, central banks don’t print money. They swap assets. In the US, the Federal Reserve buys US Treasuries and gives bank reserves in return. Bank reserves cannot be lent out. Or used to buy assets. These bank reserves are held at the Fed, so in aggregate no new money is created. It’s just an asset swap that changes the liquidity profile of the banking/financial system. It’s a similar situation in Australia. The RBA buys government debt and gives banks exchange settlement funds in return. But again, these exchange settlement funds must be deposited at the RBA. So what’s going on? Well, even though the bank reserves or exchange settlement funds created by central banks must end up back at the central bank, I suspect these funds have a decent amount of velocity. That is, they go through asset prices and bid them up in the process. It’s the same as money in the stock market. One dollar of cash can ‘go through’ a share (buying and selling it) on a number of occasions, pushing the price up each time. This financial system velocity is also called liquidity. And when central banks and governments have their foot to the floor, there is plenty of liquidity. The other question relates to how governments can borrow so cheaply, given they are borrowing so much. Again, the simple answer is that central bank buying is pushing yields down. This is partly true. But the main reason interest rates are so low is because the underlying health of the economy is so poor. Heaping more debt on a weak economic structure only makes things worse. It pushes the long-term potential growth rate down even further. So what looks like a cheap borrowing cost isn’t all that cheap when you have little growth to fund the debt. Sadly, politicians don’t think this way. They see these lows rates (and the ease with which they can borrow) as manna from heaven. They will borrow and spend like crazy to get us out of the slump they created. But they won’t realise they’re only digging the hole deeper. When the spending hit wears off, they’ll find the economy under an even greater debt burden. Which will require even greater spending to ‘fix’. This virus and the response to it has ushered in an era of ever-increasing government and bureaucratic interference and control over our lives. As Maurice Newman writes in The Spectator: ‘A lasting side-effect of Covid-19 is the universal growth of state power. Despite global death rates peaking last April and immunity building even without a vaccine, authoritarian leaders are clinging to their recently acquired powers. No doubt they view individual freedom as an optional extra not an inalienable right and want their new powers to become a normal part of governing. The Victorian government is legislating to that effect.’ It’s not going to stop. Central banks are rolling out digital currencies, while governments are moving towards full-scale MMT (Modern Monetary Theory). This is the theory that says the central bank is an arm of the government, so why doesn’t it just fund the government directly (rather than indirectly as happens now) and use taxes to control inflation and shape incentives. That’s where things are heading… Capitalism is dead. I have no idea what will emerge over the next few years, but it’s not looking good. There is already a move to use the fear of the pandemic to reshape society to the benefits of the elites. The World Economic Forum is promoting a ‘Great Reset’. As Newman writes: ‘…the World Economic Forum, the United Nations and its various agencies will use the current depressed economic environment, masked as it is by endless government support, together with renewed forecasts of apocalyptic climate change, to push for a “more inclusive social contract”, a decarbonised economy and a “control without ownership” business sector, where companies “serve all stakeholders not just shareholders”. ‘Stripped of the propaganda, the Great Reset is not new. It’s another fascist experiment being pushed by controlling elitists. Economic growth and social mobility must be subordinate to the collective. Connections will be institutionalised and privilege perpetuated. History demonstrates the children of the elites will receive preferential access to higher education and elite positions. “Inclusion” and “fairness”? Forget it. Think inequality, serfdom and misery.’ Put simply. The financial system broke in 2008. Ever since, our money has been abused, debased and corrupted. This corruption is mirrored in our society. And it all starts at the top. All I can say, in the years to come, beware the sheep in wolves’ clothing. The Great Reset is really the great stitch up of the masses. Regards, Greg Canavan, Editor, The Rum Rebellion ..............................Sponsored..............................Nick Hubble’s URGENT Gold Forecast: ‘One ounce of gold could easily cost you as much as AU$4,379 just months from now’ That’s if you can even get your hands on any... If he’s right, this could possibly be your last chance to buy bullion before it jumps out of your price raange thanks to supply shortages, ridiculous premiums and waiting times. Click here to learn why you should buy gold now. | ..........................................................................
The Deep State Is Not Under Threat By Bill Bonner ‘Fight Trump! Fight Trump! Fight Trump!’ There must be rejoicing in ‘flyover country’, where the Donald is regarded as an American hero. But long faces dominate on the two coasts, where he is considered a sort of biblical curse visited on the Establishment by vengeful gods. Last night, we heard chanting out on the street near our Baltimore headquarters. A small crowd of protesters stopped traffic, briefly, on Charles Street. So far, up in our office, we’re enjoying a jolly revolution. Hillary supporters are whining and kvetching. They would be ‘soul-searching’, if they had souls to search. Instead, they are figuring out how to hold on to their zombie incomes, crony deals, and claptrap theories. Drain the Swamp? We got a report from the Soho House private members’ club in Los Angeles: ‘Oh Dad, you wouldn’t believe it. Hollywood is so liberal…so politically correct. Many of the people in the club were shrieking when the state-by-state results came in. They were in a panic. I was afraid they were going to jump off the roof.’ But we will neither celebrate nor look for a sharp object. Instead, we’ll put on our thinking caps. What will a Trump presidency really mean? To many, including many of our own dear readers, a Trump in the White House means a victory over the insiders. He is supposed to bring ‘a new political order’, says The Wall Street Journal. Didn’t he promise to ‘drain the Swamp’? Didn’t he stand up to the Deep State? Won’t he do to Washington and Wall Street roughly what Sherman did to Atlanta? ‘See,’ they say triumphantly, ‘voting does matter. With our man in the White House, no dream is too big. Now, we’ll make America great again. Won’t we?’ But you don’t pay us to cheer with the winners or chant with the losers. In fact, you don’t pay us at all, which makes our comments worth at least what you pay for them. Sometimes right…sometimes wrong…and always in doubt…we just try to connect the dots. So let’s take a look… Fox in the henhouse Trumpism hit the markets on Tuesday night, like a fox entering a henhouse. Panic broke out. Feathers flew. At one point, the Dow futures seemed to be heading to an 800-point loss. But when the sun came up, the hens were still alive. And a Trump presidency didn’t seem so bad. Mr Trump never suggested that he would root out the real problem behind low growth and high inequality: the Federal Reserve’s fantasyland credit system. Nor did he ever claim to be an austere conservative. He will not cut spending. He will increase it. ‘Stocks surge as investors put money on stimulus,’ reports The Wall Street Journal. Banks and jail operators soared. Apparently, the markets don’t think Trump will be bad for Wall Street or the prison industry. Pharmaceutical stocks rose, too. What does that mean? Investors must not expect Trump to shake up the medical cronies or lower the cost of drugs. Other big winners include defense and infrastructure stocks. What? Wasn’t Trump supposed to stop these dumbbell wars and bring the Pentagon to heel? Apparently not. Pour more concrete! And as for infrastructure…we could almost see smiles on two of our favourite claptrap economists — Larry Summers and Paul Krugman. Both have urged the feds to do precisely what Trump now proposes to do: Pour more concrete. The drumbeat for a massive infrastructure spending program will be more apparent later when the next crisis appears. But you could have seen it coming for months. The insiders are desperate to keep the feds’ credit money system alive. But monetary stimulus measures have flopped. All that is left is fiscal stimulus — old-fashioned Keynesian deficit spending. The president-elect promised it on election night. And markets have — rightly or wrongly — believed him. They are betting that Donald J Trump will come into the White House not with a stiff broom, but with more dirt…that he will come not to bury the Deep State, but to save it. They are probably right. Regards, Bill Bonner, For The Rum Rebellion
BEFORE WE BEGIN THIS FRIDAY, AN IMPORTANT ANNOUNCEMENT FROM THE GROUP PUBLISHER… The outlook could hardly be rosier for clean energy investors going into 2021. Electric vehicles (EVs) are now on track to overtake gas guzzlers inside the next decade or so. Trillions in stimulus cash is looking for a home next year — and all things low emissions are first in line. Australia is going green crazy. Extraordinary announcements seem to be made weekly. The world’s largest green power station is being planned in the Pilbara. Woolworths is promising to go 100% renewable. Super funds are dumping coal shares in droves. And, to top it all off, a green president-elect is measuring for curtains in the Oval Office. Could the case for smartly selected alternative energy shares be more bullish? Well…since you ask…yes, it could… The green revolution is already here. But it’s the evolution of the revolution where the real history-making profits will be made, banked and spent. What do I mean by this? Well, that’s what we’re going to be covering here next week. There’s something called a ‘second-order effect’ to everything that has gone down in the green energy space in 2020. You’ll see exactly what that means as next year unfolds. Next week, we unwrap it all for you. And give you some ideas on which stocks — local and international — that we think have a great shot at making headlines and rising to the top. They’re not the obvious plays here. And it’s unlikely you’ve even heard of them. But if the worldwide transition to a low-carbon economy takes the unexpected (by the mainstream) turn we’re predicting…these will be the stocks that will benefit most. I don’t think there’s a more important investment story on the planet you should be studying up on and preparing for right now. Look out for this fresh research next week. And now, back to our scheduled programming… Until then… James Woodburn, Group Publisher ..............................Advertisement..............................The Australian resources sector is on the brink of a new fortune-creating supercell boom. That’s according to analyst Ryan Dinse. He’s not alone. Philip King, one of Australia’s best-known hedge fund managers, says, ‘The fiscal stimulus we’re now seeing in Australia and most countries around the world is the largest since World War II.’ It’s filtering into resources. Most analysts don’t see it, but a new mega-boom is forming. If we’re right on this, it could be massively beneficial to you. Read our full report here. | .......................................................................... |