I was a featured guest on the Contrary Investors Cafe Network internet radio show, "Spin Cycle," with host Andy Sutton. For a downloadable podcast of our wide-ranging discussion on markets, the economy, and the outlook for the future, click here.
More and more people are starting to realize that one reason why the U.S. and other established powers are in big trouble right now is because they borrowed and spent far more than they could afford for way too long.
Yet while other nations have also made mistakes, many up-and-comers were nonetheless able to put something away for a rainy day, leaving them relatively better off amid the global downturn.
In "New Power Brokers of the World," Reuters' MacroScope blog highlights a publication from McKinsey & Company's economic research arm suggesting that the differential in the emerging powers' favor could widen even further in the years ahead.
It’s been a few years since oil exporters, Asian governments, hedge funds and private equity firms became the new power brokers of the world given their growing wealth in the global economy.
But there is no doubt that the credit crisis has halted the power brokers’ rapid ascent. According to a new report from McKinsey Global Institute, their collective assets posted no growth at the end of 2008 from the previous year, holding steady at $12 trillion.
However, they are expected to sharply boost their wealth in the next four years. The report expects foreign financial assets held by Asian sovereign investors and oil-exporting nations to more than double to $21.7 trillion by 2013 from the current $9.7 trillion.
Already in 2008, oil investors and Asian governments combined were providing the world’s financial markets with roughly $4.5 billion per day in new capital—up from $2.5 billion in 2007.
In oil-producing nations, central banks, sovereign wealth funds, high-net-worth individuals and other petrodollar investors invested more than $1.3 trillion in foreign financial assets in 2008—a 58 percent increase over the previous year.
Here is the report's Executive Summary:
The global financial crisis and recession altered the paths of four influential groups of investors: oil exporters, Asian sovereign investors, hedge funds and private equity. While Asian sovereigns and petrodollar investors emerged as more influential than ever, hedge funds and private equity saw their previously rapid growth interrupted.
In a 2007 report, MGI labeled these four groups of investors the “new power brokers” because they had gained enough wealth and clout to influence global financial markets. MGI revisited the power brokers to examine how their fortunes diverged over the during the financial crisis that unfolded in 2008 and projects where they may go from here, using a scenario approach.
Petrodollar investors and Asian sovereign investors became even more important players in global capital markets in 2008. Their foreign financial assets grew in 2008, in sharp contrast to other large investors, such as pension funds, mutual funds, and endowments. Oil exporters and Asian sovereign investors made $1.7 trillion—or more than $4.5 billion per day—in new foreign investments last year. And their assets are likely to grow further. In a conservative, base-case scenario—which assumes oil at $70 a barrel and a substantial decline in China's current account surplus—MGI projects oil exporters' foreign financial assets will grow to $8.9 trillion in 2013, while Asian sovereign foreign assets rise to $7.5 trillion. This growth would be twice as fast as that of other institutional investors.
Hedge funds and private equity buyout funds are down but not out. Hedge funds' total assets under management fell 27 percent in 2008, to $1.4 trillion, reflecting both investment losses and net asset withdrawals. However, many individual funds—nearly 40 percent in one database—delivered positive returns for the year. Moreover, MGI research shows that a significant portion of hedge funds has delivered higher and less volatile returns than investments in public equities and bonds over time. Investors will remain committed to such funds. Although their assets have declined further this year, MGI projects their growth will resume, with assets reaching $1.5 trillion by 2013 in our base-case scenario.
Meanwhile, the leveraged buyout boom of 2005 through 2007 came to an abrupt end last year. It remains unclear today whether or when the “megadeals,” worth more than $3 billion each, will make a comeback, given tight credit markets and slack investor appetite for such deals. Moreover, the industry has $535 billion in capital committed by investors but not yet deployed. Therefore, buyout fund assets are projected to remain flat over the next five years at $1 trillion. However, other types of private equity funds—including distressed debt, infrastructure, real estate, and other investments—will likely continue to grow modestly.
Jim Rawles, author of Patriots: A Novel of Survival in the Coming Collapse and publisher of SurvivalBlog.com, has just posted an exhaustive list of reader-selected books containing knowledge that may come in quite handy in the years ahead, in a column entitled "Survey Results: Your Favorite Books on Preparedness, Self-Sufficiency, and Practical Skills":
In descending order of frequency, the 78 readers that responded to my latest survey recommended the following non-fiction books on preparedness, self-sufficiency, and practical skills:
The Encyclopedia of Country Living by Carla Emery (Far and away the most often-mentioned book. This book is an absolute "must" for every well-prepared family!)
The Foxfire Book series (in 11 volumes, but IMHO, the first five are the best)
Where There Is No Dentist
by Murray Dickson
"Rawles on Retreats and Relocation"
Making the Best of Basics: Family Preparedness Handbook
by James Talmage Stevens
The "Rawles Gets You Ready" preparedness course
Crisis Preparedness Handbook: A Comprehensive Guide to Home Storage and Physical Survival
by Jack A. Spigarelli
Gardening When It Counts: Growing Food in Hard Times by Steve Solomon
Tappan on Survival
by Mel Tappan
Boston's Gun Bible
by Boston T. Party
Seed to Seed: Seed Saving and Growing Techniques for Vegetable Gardeners
by Suzanne Ashworth
Survival Guns
by Mel Tappan
Boy Scouts Handbook: The First Edition, 1911 (Most readers recommend getting pre-1970 editions.)
All New Square Foot Gardening
by Mel Bartholomew
When Technology Fails: A Manual for Self-Reliance, Sustainability, and Surviving the Long Emergency
by Matthew Stein
Back to Basics: A Complete Guide to Traditional Skills, Third Edition
by Abigail R. Gehring
Preparedness Now!: An Emergency Survival Guide (Expanded and Revised Edition)
by Aton Edwards
Putting Food By
by Janet Greene
First Aid (American Red Cross Handbook) Responding To Emergencies
Making the Best of Basics: Family Preparedness Handbook
Nuclear War Survival Skills by Cresson H. Kearney (Available for free download.)
Cookin' with Home Storage
by Vicki Tate
SAS Survival Handbookby John "Lofty" Wiseman
Root Cellaring: Natural Cold Storage of Fruits & Vegetables
by Mike Bubel
Outdoor Survival Skillsby Larry Dean Olsen
Stocking Up: The Third Edition of America's Classic Preserving Guide
by Carol Hupping
The American Boy's Handybook of Camp Lore and Woodcraft
Emergency Food Storage & Survival Handbook by Peggy Layton
98.6 Degrees: The Art of Keeping Your Ass Aliveby Cody Lundin
Emergency: This Book Will Save Your Life by Neil Strauss
Five Acres and Independence: A Handbook for Small Farm Management
by Maurice G. Kains
Essential Bushcraft
by Ray Mears
The Survivor book series by Kurt Saxon. Many are out of print in hard copy, but they are all available on DVD. Here, I must issue a caveat lector ("reader beware"): Mr. Saxon has some very controversial views that I do not agree with. Among other things he is a eugenicist.
How to Stay Alive in the Woods by Bradford Angier
The New Organic Grower by Eliot Coleman
Tom Brown Jr.'s series of books, especially:
Tom Brown's Field Guide to Wilderness Survival
Tom Brown's Field Guide to Nature Observation and Tracking
Tom Brown's Guide to Wild Edible and Medicinal Plants (Field Guide)
Total Resistance
by H. von Dach
Ditch Medicine: Advanced Field Procedures For Emergencies
by Hugh Coffee
Living Well on Practically Nothing
by Ed Romney
The Secure Home
by Joel Skousen
Outdoor Survival Skills
When All Hell Breaks Loose: Stuff You Need To Survive When Disaster Strikesby Cody Lundin
The Last Hundred Yards: The NCO's Contribution to Warfare
by John Poole.
Camping & Wilderness Survival: The Ultimate Outdoors Book by Paul Tawrell
Engineer Field Data (US Army FM 5-34) --Available online free of charge, with registration, but I recommend getting a hard copy. preferably with the heavy-duty plastic binding.
Great Livin' in Grubby Times
by Don Paul
Just in Case
by Kathy Harrison
Nuclear War Survival Skills by Cresson H. Kearney (Available for free download.)
How to Survive Anything, Anywhere: A Handbook of Survival Skills for Every Scenario and Environment
by Chris McNab
Storey's Basic Country Skills: A Practical Guide to Self-Reliance
by John & Martha Storey
Adventure Medical Kits A Comprehensive Guide to Wilderness & Travel Medicineby Eric A. Weiss, M.D.
US Army Special Forces Medical Handbook
(ST31-91B)
Wilderness Medicine, 5th Edition
by Paul S. Auerbach
Four-Season Harvest: Organic Vegetables from Your Home Garden All Year Long
by Elliot Coleman
Back to Basics: A Complete Guide to Traditional Skills, Third Edition
Government By Emergency
by Dr. Gary North
The Weed Cookbook: Naturally Nutritious - Yours Free for the Taking!
by Adrienne Crowhurst
The Modern Survival Retreat
by Ragnar Benson
Last of the Mountain Men
by Harold Peterson
Primitive Wilderness Living & Survival Skills: Naked into the Wilderness
by John McPherson
LDS Preparedness Manual, edited by Christopher M. Parrett
The Long Emergency: Surviving the End of Oil, Climate Change, and Other Converging Catastrophes of the Twenty-First Century
by James H. Kunstler
Principles of Personal Defense - Revised Edition
by Jeff Cooper
Survival Poachingby Ragnar Benson
I guess it depends where you get your news from.
If you read the newspaper or tune into news channels in the U.S. or in other established Western powers, you might think this week's annual Group of 8 (G8) Summit in the central Italian city of L'Aquila is all that really matters in the global scheme of things.
However, if you step back and listen to what those based elsewhere are saying -- as with the following Xinhua News Agency column by staff writer Tian Fan, "Commentary: Multi-Polar World on Horizon" -- you get an altogether different perspective.
On the first day of the Group of Eight (G8) summit this year, the most eye-catching event is the small gathering and a follow-up news conference of the leaders from five non-G8 countries.
Obviously, leaders of the five developing countries, namely China, India, Brazil, South Africa and Mexico, hope their voices on international affairs could be clearly heard.
It shows not only the increasing aspirations of developing countries to partake international affairs, but also a steady formation of a multi-polar world.
The G8 summit was originated in 1975 when the world economy entered recession as a result of the U.S. dollar crisis and high oil prices. In a bid to cope with those crises, leaders from France, the United States, Britain, Germany, Italy and Japan held a meeting to coordinate their economic policies.
At present, the most significant challenge facing the international community is undoubtedly the ever-spreading international financial and economic crisis. However, the policy coordination platform to respond to the crisis is no longer the G8, which is composed almost entirely of developed countries.
The Group of 20 (G20), which groups both developed and developing countries, has taken a prominent role.
To some extent, such a change indicates the profound development of the international situation. For decades, Western powers have dominated world affairs by formulating rules and coordinating policies. However, with the development of globalization and multi-polarization, the G8 is forced to admit that it can no longer deal with global challenges on its own.
In recent years, the G8 has been trying to strengthen dialogues with developing countries, which also reflects the world is undergoing unprecedented changes.
The international financial chaos resulting from U.S. sub-prime mortgage crisis exposed the weakness of the Western model of economic and social development.
Under such circumstances, the rise of the G20 on the international arena is not out of the blue.
The developing countries are no longer standers-by of major decision-making processes, but equal participators.
Unsurprisingly, the interests of developing countries and Western countries vary in many areas. Therefore, dialogues and cooperation among developing countries are necessary.
The first-ever full-scale meeting of leaders from Brazil, Russia, India and China (BRIC) in Russia's Yekaterinburg in June was a useful attempt. BRIC has not only translated itself from an economic concept eight years ago into a tangible mechanism of dialogue and cooperation, but also formed a significant force to safeguard the overall interests of developing countries.
As major emerging economies, the four BRIC nations accounted for 42 percent of the world's population, 14.6 percent of global GDP and 12.8 percent of the global trade volume in 2008.
The world listens when the BRIC leaders gather together on international issues.
A multi-polar world is emerging when developing countries speak loudly on the international arena.
In today's rundown at UrbanSurvival, one of my long-time must-read sites, George Ure, publisher of the Peoplenomics newsletter, features a link to the following (excerpted) article by Claire Wolfe at Backwoods Home Magazine, entitled "11 Ways To Prepare for Civil Unrest," that I thought WGF visitors might find useful:
People Are Angry, and Politicians Are Nervous
The most remarkable thing about civil unrest is that there hasn't been more of it.
Politicians are making a hash of this country – and much of the rest of the civilized world. We know it. They know it. They know we know it. But we don't feel we can do anything much to stop them.
That right there is the pre-condition for civil unrest – when people are frustrated and politicians are nervous.
Worse, that was how things stood before last fall's crash. Before pols on both left and right launched the biggest mass transfer of wealth in history – transferring our wealth (what we had left of it!) to their friends on Wall Street and in the banking industry. In other words, that's how things were before things got bad!
Now everybody's talking about the ongoing catastrophe (even if we are in a momentarily sunny mood). But almost nobody is talking about the logical – maybe even inevitable – consequences of cynical or desperate politicians abusing an already fed-up populace: civil unrest.
I mean people taking to the streets. Or mass resistance. Or crackdowns because the government fears we might do something to upset its apple cart. It's going to happen. Somewhere. At some time. It's going to.
One of the few VIPs to mention the matter openly was Zbigniew Brzezinski, former National Security Advisor and the ultimate insider's insider. He commented on the millions of unemployed or soon-to-be-unemployed and the "...public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America." He told "Morning Joe" Scarborough, "Hell, there could be even riots." I'd say that's an understatement.
Although few in power are talking about it, rumors abound that governments at many levels are planning for civil unrest. One rumor is about a document supposedly being circulated right now among top federal officials. It's called the "C&R Document" – with C&R standing for "conflict & revolution." The much-storied paper is said to be a plan for controlling the American people when we get out of hand. True? Who knows. But the very rumor tells us a lot about these times.
Other things are not mere rumor. When the federal government established a North American Army command in 2002, its purpose wasn't to repel foreign invaders. It was domestic operations – something long and rightly forbidden by the Posse Comitatus Act. In February of 2009, when military commanders in Canada and the U.S. signed a pact allowing their armies to operate inside each other's country they didn't even bother to get authorization from Congress – an illegal and unprecedented move. And once again, the purpose was handling "domestic civil emergencies."
For several years, the Centers for Disease Control tried to get states to adopt something called the Model State Emergency Health Powers Act (MEHPA). This act would allow state governments to become police-state dictatorships in event of any ill-defined health emergency – vaccinating people by force, destroying or seizing property without compensation, and rationing medical supplies, food, and fuel. To their credit, most state governments rejected the act. A few adopted portions of it before a fervent opposition campaign caused the CDC to back off. However, the concept of a health dictatorship hasn't gone away. Not hardly. Within days of the news that a new strain of swine flu had arisen in Mexico in April 2009, states were again considering legislation to give themselves martial-law powers in event of an epidemic.
And what of the dozens and dozens of federal agencies that now have SWAT teams? Seriously, what justifies the Bureau of Land Management or the Department of Housing and Urban Development having paramilitary units?
Now maybe you like the idea of an Army that watches over its own citizens. Maybe it makes sense to have a government seize total dictatorial power in event of a health emergency. Maybe you believe SWAT teams will never be used except against bad guys. But do you really trust these people?
After all, these are the same folks, and this is the same mentality, that not only spent $325,000 to produce a souvenir photo of a presidential 747 zooming low over the Statue of Liberty, but ordered the New York Police Department, the FBI, the Secret Service, and the New York mayor's office not to tell the public. Never mind that they realized full well that passenger jets and military planes plunging low over Manhattan would evoke panic.Still, peace reigns. Mostly. At least here in North America. But not everywhere. Not long ago, France was brought to its knees by night after night of rioting. In that country it's become almost common for workers to hold their bosses hostage in hopes of winning economic concessions. Greece, too, saw its normal life and business shut down by days of rioting. So did Iceland – a country that's normally the picture of civility.
Can the U.S. be forever immune?
It might not take much – and it could be something out of the blue, something impossible to anticipate – to set us against each other and against the "Trust us; we'll fix it" political crowd.
In a way, this national silence on a matter so many people are afraid of is similar to the silence about general preparedness issues before 9-11 or Hurricane Katrina. Only Mormons and us wingnuts spoke of preparedness way back when. Since then, of course, advice on preparedness is mainstream and common.
In another sense, this silence is different. Because when unrest finally erupts, it's not going to be us merely taking care of ourselves. It's going to be "us against them." It might be workers against bosses. Or the poor against bankers. Or blacks against Hispanics. Or little folk against Big Men in public office. Or farmers against the USDA. Or xenophobes against xenophiles. But however it happens, the implications aren't as Boy-Scoutish as just taking care of ourselves in an emergency.
Defining civil unrest
Look up "preparations for civil unrest" on Google and...What's that echo I hear?—you'll find nothing that's going to help you. In fact, you won't even easily turn up a good definition of what civil unrest is.
Like "indecency," the definition seems to be in the eye of the beholder.
I wouldn't consider a peaceful anti-war march to be civil unrest, for instance, but a police chief might. Similarly, I wouldn't consider acts of localized non-violent lawbreaking (like environmental activists chaining themselves to a tree) to be civil unrest; but a timber company official probably believes otherwise.
Civil unrest occurs when anger, frustration, or fear turn disruptive on a mass scale. Or when government officials crack down because they anticipate such disruptions. Crackdowns can lead to further frustration, leading to further crackdowns and so on—especially when the crackdowns look unwarranted and tyrannical.
In other words, civil unrest can arise from the anger of people or the folly of government or both together.
Anger over an unpopular policy, a new war, a collapse of the currency, panic over a pandemic, a food shortage, a bank run—anything like that could cause civil unrest, especially in a population that's already on edge and no longer trusts its authority figures.
Another thing you won't find via Google is how various types or levels of unrest are likely to affect us and how we should respond, if we're affected. Again, although the men and women at the top are quite concerned for their own sakes, they (and their media mouthpieces) would rather not talk about what we should do in event of civil panic.
But that's not good enough for we independent-minded people, is it?
Here are my definitions of levels of civil unrest and a little bit about how they might affect us:
LEVEL ONE: The lowest level of civil unrest is when people turn on their own neighborhoods—as happened during the race riots of the 1960s and the Rodney King riots in Los Angeles. Level One civil unrest can be deadly and destructive, but primarily to people who live, work, or must travel in the immediate area. Level One unrest is spontaneous, Dionysian, is confined to a narrow geographical zone where the protestors live. Police response may be harsh, but it's localized. Unless you're in the middle of it, you're unaffected.
LEVEL TWO: Level Two civil unrest may also be focused on a single area. But in this case, rioters or protesters have deliberately targeted a business district, a facility, a transportation system, or an organization to impose maximum disruption. One example: the World Trade Organization protests in Seattle in 1999; young people with violence in mind and rage in their hearts attacked an entire downtown, affecting hundreds of businesses and tens of thousands of workers who hardly knew what hit them. Another example: This spring, protesters in Thailand shut down the Bangkok airport, affecting who knows how many individuals and businesses. Level Two unrest is usually planned or semi-planned. The target is chosen deliberately. Although still focused in one area, Level Two can disrupt normal life and business in a whole region or country.
LEVEL THREE: Level Three comes when mass unrest or authoritarian crackdown causes disruption at state or regional level. Then, no matter what the original cause or location of the trouble, everyone in the region is affected. Effects might include travel restrictions, random ID checks, mass arrests, food and fuel rationing, controls on money and banking, roadblocks, and other harsh "emergency" restrictions.
LEVEL FOUR: Level Four is Level Three—but on a national or even international scale. It's martial law. If things ever get this bad, it's likely that the government itself will be a far bigger threat to everyone's well being than whatever the original cause of the clampdown was.
And of course, any level of civil unrest can lead to laws, regulations, and harsher police policies that end up affecting everybody in the long run.
Yes, it can involve us
We make a mistake if we think civil unrest is strictly an urban phenomena. It can happen anywhere.
When 400 government agents and soldiers descended on one isolated family in the Idaho mountains, the roadblocks, helicopters, Humvees, media presence, and furious protestors surrounded the Randy Weaver family and brought the normal life of Boundary County, Idaho, to a halt. The siege against the Branch Davidian church in Waco, Texas, wasn't conducted in the inner-city, either. Yet both of these were large scale catastrophes with all the hallmarks of civil unrest—individuals or groups resisting, government insisting.
I can easily envision strictly rural-based unrest that urban dwellers will never even hear about (except perhaps in highly distorted reports). What happens, for instance, if farmers, 4H families, owners of saddle horses, and holders of small chicken flocks decide to resist en masse the National Animal Identification System (NAIS)? It's easy to imagine, in these crazy days, USDA SWAT teams descending on the countryside to make arrests, forcibly register or destroy non-compliant animals, and burn down non-registered facilities.
The future could see rural resistance to invasive census-taking, forced vaccination programs, land takings, water-rights policies, or the destruction of herds for real or bogus health reasons. As country people increasingly see governments as foreign organizations driven by the interests of city dwellers, pharmaceutical companies, and mega-agri-business, it wouldn't surprise me.
If we ever have serious food shortages, expect rural areas to be besieged.
Even when civil unrest confines itself to the cities, airports, or highways it can affect us in crazy ways. Here's a funny example of unpredictable (in this case mild) consequences. A friend was due to have her first book published in Canada. She was very excited—then disappointed when weeks dragged by and the book didn't appear. Turns out that a band of Indians was blocking a highway bridge the printer's truck had to cross. The union truckers, in solidarity, refused to route around the protest. Just one small consequence. But you can see the unpredictability.
The simple truth is that we don't know what kinds of unrest to anticipate. We don't know when, or if, we'll see civil unrest. But thinking about the problem and preparing ourselves mentally and physically to deal with it should be just another aspect of our personal preparedness.
What we can do
1. Keep standard emergency preps up to date. First thing to do is make sure all our typical household preparedness supplies and plans are current. As BHM readers know, backup food, water, and other supplies are our mainstay for everything from bad storms to long-term unemployment, from power outages to social breakdowns. During civil unrest, especially at Level Three or Four, we might not be able to get out to buy things we need—or we might consider it more prudent to stay at home. On the other hand, if we ourselves are part of the unrest, we may need those supplies to sit out a siege.
2. Don't fall into foolish complacency. We who live in the country tend to have an "it can't happen here" attitude toward political violence or social upheaval. We see those things as urban pheonomena. And mostly, they are. But there's no ironclad rule that says they have to be. If anything disrupts the supply chain, for instance, rural areas could be the first to be cut off from food, medicines, fuel, or other necessities. If government breaks down to the point where it can't deliver food stamps, housing vouchers, social security, or bureaucrats' pay, the rural poor and unemployed could become just as restive as their urban counterparts.
3. Watch your health. As I write this, the airwaves are shrilling about swine flu. This outbreak may fizzle; after all, perfectly normal flu kills many every year without causing panic, martial law, or incessant media coverage. On the other hand, it's certain that one day some illness will rampage across the globe. Few things inspire public panic more quickly than contagious disease, and once again rural areas are not immune. Take all the standard recommended precautions like frequent handwashing. Make sure your preparedness kit includes surgical masks and disposable gloves as well as a selection of frequently updated medications. And be ready to lay low at home for a long time in the event a serious plague gets loose.
4. Make common cause with your neighbors. I've said it before, but establishing a strong bond with people in your community—right now—is vital to every sort of emergency preparedness. In event of a Level One or Two emergency, these are the folks who could come to your house to make sure you're okay. They might give you a ride out or a place to sleep if you accidentally end up in a "hot zone" of riot or protest. In a deeper or more long-term emergency, they could pool resources with you to make supply runs. They can advise you if they've spotted a roadblock. They might let you cross their land to avoid a route that has become dangerous.
5. If you grow crops or raise food animals and the unrest is due to a food shortage (or something has driven city people out into the countryside), prepare to protect your resources day and night. Here again neighbors can do each other valuable services, like taking shifts guarding fields, barns, private roads, and gardens. Yes, this is an apocalyptic scenario. Not a likely one. But if it happens, it's a Level Three or Level Four emergency—delivered to your own front yard.
6. Get advance word on local conditions when traveling. We're used to hopping into our vehicles or onto airplanes and going wherever we want to go. But as the worldwide economy deteriorates, it's wise to keep an eye on our destination. Right now, this warning pertains more to overseas travel than jaunts within the U.S. If you plan to go abroad, visit online sites like Travelfish.org. They'll have bulletins about adverse conditions in areas you plan to visit; you may even be able to receive alerts via email that will warn you about anything from political protests to disease outbreaks in places you plan to go.
Click here to read the rest.
Once operating costs, economic conditions, and the appetite for equities are taken into account, many commodity investors are indifferent as to whether they own mining stocks or the physical commodities.
However, as I've noted here at When Giants Fall and in my book of the same name, the structural dynamics of global resource markets and a changing geopolitical landscape mean that another factor will increasingly come into play: resource nationalism.
In essence, the more a commodity is worth, the greater the risk that those who control the sources of supply or means of production will see those assets nationalized, expropriated, taxed to death, stolen by non-state actors, etc. leaving them in the lurch.
But that is not to say those risks are not already present. With economic and political pressures growing as the global crisis continues to play out, it's no surprise that some resource-rich regimes are already considering the full range of options, as Credit Writedowns reveals in a brief snippet from "South Africa: Nationalising Mines?":
This comes via Brown Bothers Harriman’s Win Thin (no link available):
South Africa’s ruling ANC said that it was open to discussing demands by its labor union allies to nationalize its mines. This is an astounding admission, and confirms our worst political fears with regards to the new Zuma administration. First, they get rid of respected Fin Min Manuel, now they’re talking about nationalization?
According to Wikipedia, "onomatopoeia" refers to "words that imitate or suggest the source of the sound they are describing."
When I read the following Telegraph report, "US Lurching Towards 'Debt Explosion' With Long-Term Interest Rates on Course to Double," I immediately had this image in my mind of those old cartoons where terms like "kaboom," "crash," "boom," "crack," "bang," "pop," "bam," "wham," and "pow" -- followed by one or more exclamation points -- let you know fairly quickly that a bone-jarring explosion was occurring.
The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank
In a 2003 paper, Thomas Laubach, the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national debt, long-term interests rates will double from their current 3.5pc.
The impact would be devastating by making it punitively expensive to finance national borrowings and leading to what Tim Congdon, founder of Lombard Street Research, called a “debt explosion”. Mr Laubach’s study has implications for the UK, too, as public debt is soaring. A US crisis would have implications for the rest of the world, in any case.
Using historical examples for his paper, New Evidence on the Interest Rate Effects of Budget Deficits and Debt, Mr Laubach came to the conclusion that “a percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points, a typical estimate is about 25 basis points”.
The US deficit has blown out from 3pc to 13.5pc in the past year but long-term rates are largely unchanged. Assuming Mr Laubach’s “typical estimate”, long-term rates have to climb 2.5 percentage points.
He added: “Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points.” Economists are predicting a wide range of ratios but Mr Congdon said it was “not unreasonable” to assume debt doubling to 140pc. At that level, Mr Laubach’s calculations would see long-term rates rise by 3.5 percentage points.
The study is damning because Mr Laubach was the Fed’s economist at the time, going on to become its senior economist between 2005 and 2008, when he stepped down. As a result, the doubling in rates is the US central bank’s own prediction.
Mr Congdon said the study illustrated the “horrifying” consequences for leading western economies of bailing out their banks and attempting to stimulate markets by cutting taxes and boosting public spending. He said the markets had failed to digest fully the scale of fiscal largesse and said “current gilt yields [public debt] are extraordinary low given the size of deficits”.
Should the cost of raising or refinancing public debt in the markets double, “the debt could just explode”, he said, adding that it would come to a head in “five to 10 years”.
Ouch! That hurts!
When I wrote Financial Armageddon and, later, When Giants Fall, my sense was that the Great Unraveling would entail a series of overlapping crises: first financial, then economic, social, and finally geopolitical.
So far, in my view, we have moved some way through the initial phase (though there are still a few more disasters still to come), and the next stage, the economic crisis, has probably shifted into second gear.
In regard to the third or "social" phase, however, we've yet to see any real traction. However, I believe it is only a matter of time -- and, apparently, so does The Telegraph's Ambrose Evans-Pritchard, as he notes below in "The Unemployment Timebomb Is Quietly Ticking" -- before things begin to flare up on that front.
One dog has yet to bark in this long winding crisis. Beyond riots in Athens and a Baltic bust-up, we have not seen evidence of bitter political protest as the slump eats away at the legitimacy of governing elites in North America, Europe, and Japan. It may just be a matter of time.
One of my odd experiences covering the US in the early 1990s was visiting militia groups that sprang up in Texas, Idaho, and Ohio in the aftermath of recession. These were mostly blue-collar workers, – early victims of global "labour arbitrage" – angry enough with Washington to spend weekends in fatigues with M16 rifles. Most backed protest candidate Ross Perot, who won 19pc of the presidential vote in 1992 with talk of shutting trade with Mexico.
The inchoate protest dissipated once recovery fed through to jobs, although one fringe group blew up the Oklahoma City Federal Building in 1995. Unfortunately, there will be no such jobs this time. Capacity use has fallen to record-low levels (68pc in the US, 71 in the eurozone). A deep purge of labour is yet to come.
The shocker last week was not just that the US lost 467,000 jobs in May, but also that time worked fell 6.9pc from a year earlier, dropping to 33 hours a week. "At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure," said David Rosenberg from Glukin Sheff. "We have lost a record nine million full-time jobs this cycle."
Earnings have fallen at a 1.6pc annual rate over the last three months. Wage deflation is setting in – like Japan. Interestingly, The International Labour Organisation is worried enough to push for a global pact, fearing countries may set off a ruinous spiral by chipping away at wages try to gain beggar-thy-neighbour advantage.
Some of the US pay cuts are disguised. Over 238,000 state workers in California have been working two days less a month without pay since February. Variants of this are happening in 22 states.
The Centre for Labour Market Studies (CLMS) in Boston says US unemployment is now 18.2pc, counting the old-fashioned way. The reason why this does not "feel" like the 1930s is that we tend to compress the chronology of the Depression. It takes time for people to deplete their savings and sink into destitution. Perhaps our greater cushion of wealth today will prevent another Grapes of Wrath, but 20m US homeowners are already in negative equity (zillow.com data). Evictions are running at a terrifying pace.
Some 342,000 homes were foreclosed in April, pushing a small army of children into a network of charity shelters. This compares to 273,000 homes lost in the entire year of 1932. Sheriffs in Michigan and Illinois are quietly refusing to toss families on to the streets, like the non-compliance of Catholic police in the Slump.
Europe is a year or so behind, but catching up fast. Unemployment has reached 18.7pc in Spain (37pc for youths), and 16.3pc in Latvia. Germany has delayed the cliff-edge effect by paying companies to keep furloughed workers through "Kurzarbeit". Germany's "Wise Men" fear that the jobless rate will jump from 3.7m to 5.1m by next year. The OECD expects unemployment to reach 57m in the rich countries by the end of next year.
This is the deadly lag effect. What is so disturbing is that governments have not even begun the spending squeeze that must come to stop their countries spiralling into a debt compound trap.
French president Nicolas Sarkozy, with a good nose for popular moods, says: "We must overhaul everything. We cannot have a system of rentiers and social dumping under globalisation. Either we have justice or we will have violence. It is a chimera to think that this crisis is just a footnote and that we can carry on as before."
The message has not reached Wall Street or the City. If bankers know what is good for them, they will take a teacher's salary for a few years until the storm passes. If they proceed with the bonuses now on the table, even as taxpayers pay for the errors of their caste, they must expect a ferocious backlash.
We are fortunate that the US has a new president enjoying a great reservoir of sympathy, and a clean-broom Congress. Other nations must limp on with carcass governments: Germany's paralysed Left-Right coalition, the burned-out relics of Japan's LDP, and Labour's death march in Britain. Some are taking precautions: Silvio Berlusconi is trying to emasculate Italy's parliament (with little protest) while the Kremlin has activated "anti-crisis" units to nip protest in the bud.
We are moving into Phase II of the Great Unwinding. It may be time to put away our texts of Keynes, Friedman, and Fisher, so useful for Phase 1, and start studying what happened to society when global unemployment went haywire in 1932.
Earlier this week, I highlighted a post from Window on Eurasia detailing assertions by a leading Russian commentator, Yuri Simonian, that the "scent of war" was spreading across the Commonwealth of Independent States -- a confederation that includes Russia and many former Soviet Republics.
Well, based on the following Independent report, "Troops Gather on Georgian Border," it looks like others are also warning of trouble in Russia's backyard. And as with the wave of protectionism that is gaining strength around the globe, emotions, egotism, and politics, rather than cool-headed logic, appear to be the driving force.
Less than a year after the enclave of South Ossetia erupted in war, this tinder box of the Caucasus is primed to flare up again, writes Shaun Walker
It's easy to see how things could spiral out of control: the two sides are braced for combat. At Ergneti on Georgia's border with South Ossetia, Georgian military police stand guard behind high barricades made of sandbags and two metre-high slabs of concrete. Out of sight barely 20 metres away, the forces of South Ossetia and Russia are mustered behind barricades of their own, their national flags fluttering.
The tranquility of the rolling green fields and lush vineyards belie it, but many fear that another summer war between Russia and Georgia like the one 11 months ago which killed hundreds of civilians is no more than a stutter of automatic gunfire away from breaking out. And if it happens, this standoff at Ergneti could be the flashpoint.
In the valley below is Tskhinvali, the South Ossetian capital. Today it shimmers in the heat but last August it was the epicentre of the war as the forces of the Russian Federation punished the Georgian army for asserting its right to rule the ethnically distinct entity of South Ossetia on its northern edge.
The tension is palpable. And the fear today is that this time, the Russian forces may carry out what last year they only threatened and topple the regime of the Western-leaning Georgian President, Mikheil Saakashvili.
Russian troops this week embarked on large-scale war games in the North Caucasus, just a few dozen miles away, preparation for "potential conflict situations in the region," the generals say. Similar exercises preceded the war last summer.
The mood at the Ergneti checkpoint is tense and the Georgian soldiers say there is absolutely no human contact between the two sides, despite the proximity. With the exception of a mangy stray dog, which wanders freely between the two posts, nobody is allowed to cross the border.
Locals need no reminding of how deadly a new war would be. In Ergneti itself, which before the war was home to about 200 people, only a few villagers have returned. Many houses here, and in other villages on the way to the Georgian city of Gori 20 miles away, suffered heavy damage from Russian aerial bombardment last August. The houses that remained standing were ruthlessly looted and torched by marauding Ossetian militias.
"I lost absolutely everything," says Gia Cheladze, 42, who has lived his whole life in Ergneti. With his family he escaped to Gori during the war. When he returned, he found his two-story house was a charred wreck. The windows and roof had been destroyed and everything of value looted. "I've worked hard all my life and in a couple of weeks it was all destroyed," he says.
He now lives with his elderly parents in a shack, beside the shell of his old house, a constant reminder of the threat of war. The money he received from the Georgian government was not enough to rebuild the house, and he claims that European aid distributed in the region was appropriated by a few families and then put up for sale.
Now, says Mr Cheladze, the villagers fear that their lives will be disrupted by war once again. "Everyone here is tense," he says. "This morning there was a huge explosion, I don't know where it came from. People say that 6 July is the day that something might happen. Maybe we'll leave for a few days around then; I can't bear yet another war."
Some Russian analysts dismiss the theory that Russia is looking for a new war and suggest that the Caucasus war games were a response to Nato military exercises which took place in Georgia recently and infuriated Moscow. There are some, however, such as Andrei Illarionov, a former adviser to Vladimir Putin, who say that Russia is looking to oust Mr Saakashvili permanently and may launch an invasion of the country on 6 July, the date that President Barack Obama makes his much-hyped first official visit to Moscow.
Mr Putin, now the Russian Prime Minister and still widely seen as the most powerful person in Russia, has a deep personal hatred of Mr Saakashvili and has expressed a desire to see him "hung by the balls".
"For Moscow it's quite galling to see that Saakashvili is still in power nearly a year after losing the war," says Lawrence Sheets, from the International Crisis Group in Tbilisi. "The statements coming out of Moscow with increasing regularity look very ominous."
Mr Sheets says the Georgian tactics in the event of an invasion by the Russian army are likely to revolve around guerrilla warfare and a defence of the capital, Tbilisi.
In a worrying sign, the Organisation for Security and Co-operation in Europe (OSCE), which has had a mission in South Ossetia for more than a decade and had been monitoring the border region since last summer's war, was forced to close its mission in Georgia this week. Russia had insisted that for the mission to continue, it must recognise South Ossetia's independence. Apart from Russia, only Nicaragua has recognised South Ossetia and Abkhazia – Georgia's other breakaway zone – as independent countries, with the rest of the world still insistent that they are separatist territories that are officially part of Georgia.
Unwilling to change the mission's status, the OSCE has had to shut down shop and its Finnish head of mission left the country for good on Tuesday morning. For the same reason, a UN mission in Abkhazia is closing down.
The departure of the OSCE is "hugely important symbolically and psychologically," says Mr Sheets. Georgian officials fear that without international observers in place, it will be easy for the Russians to launch an attack in response to supposed Georgian provocations. Russia has stationed thousands of troops in South Ossetia since last summer.
With the situation volatile, even if Russia is not actively seeking a new war, a minor spat or a stray bullet could lead to disastrous consequences in the region.
"I don't think people in Europe and the US really understand just how dangerous this situation is," says Mr Sheets. "It's very scary and very explosive."
In an interview with The Independent yesterday, Mr Saakashvili expressed his concern about the situation. "Of course I'm worried," he said. "The idea of invasion looks crazy if you apply normal political logic... but [the Russians] operate with the logic of a street bully."
The U.S. Empire of Bases -- at $102 billion a year already the world's costliest military enterprise -- just got a good deal more expensive. As a start, on May 27th, we learned that the State Department will build a new "embassy" in Islamabad, Pakistan, which at $736 million will be the second priciest ever constructed, only $4 million less, if cost overruns don't occur, than the Vatican-City-sized one the Bush administration put up in Baghdad. The State Department was also reportedly planning to buy the five-star Pearl Continental Hotel (complete with pool) in Peshawar, near the border with Afghanistan, to use as a consulate and living quarters for its staff there.
Unfortunately for such plans, on June 9th Pakistani militants rammed a truck filled with explosives into the hotel, killing 18 occupants, wounding at least 55, and collapsing one entire wing of the structure. There has been no news since about whether the State Department is still going ahead with the purchase.
Whatever the costs turn out to be, they will not be included in our already bloated military budget, even though none of these structures is designed to be a true embassy -- a place, that is, where local people come for visas and American officials represent the commercial and diplomatic interests of their country. Instead these so-called embassies will actually be walled compounds, akin to medieval fortresses, where American spies, soldiers, intelligence officials, and diplomats try to keep an eye on hostile populations in a region at war. One can predict with certainty that they will house a large contingent of Marines and include roof-top helicopter pads for quick get-aways.
While it may be comforting for State Department employees working in dangerous places to know that they have some physical protection, it must also be obvious to them, as well as the people in the countries where they serve, that they will now be visibly part of an in-your-face American imperial presence. We shouldn't be surprised when militants attacking the U.S. find one of our base-like embassies, however heavily guarded, an easier target than a large military base.
And what is being done about those military bases anyway -- now close to 800 of them dotted across the globe in other people's countries? Even as Congress and the Obama administration wrangle over the cost of bank bailouts, a new health plan, pollution controls, and other much needed domestic expenditures, no one suggests that closing some of these unpopular, expensive imperial enclaves might be a good way to save some money.
Instead, they are evidently about to become even more expensive. On June 23rd, we learned that Kyrgyzstan, the former Central Asian Soviet Republic which, back in February 2009, announced that it was going to kick the U.S. military out of Manas Air Base (used since 2001 as a staging area for the Afghan War), has been persuaded to let us stay. But here's the catch: In return for doing us that favor, the annual rent Washington pays for use of the base will more than triple from $17.4 million to $60 million, with millions more to go into promised improvements in airport facilities and other financial sweeteners. All this because the Obama administration, having committed itself to a widening war in the region, is convinced it needs this base to store and trans-ship supplies to Afghanistan.
I suspect this development will not go unnoticed in other countries where Americans are also unpopular occupiers. For example, the Ecuadorians have told us to leave Manta Air Base by this November. Of course, they have their pride to consider, not to speak of the fact that they don't like American soldiers mucking about in Colombia and Peru. Nonetheless, they could probably use a spot more money.
And what about the Japanese who, for more than 57 years, have been paying big bucks to host American bases on their soil? Recently, they reached a deal with Washington to move some American Marines from bases on Okinawa to the U.S. territory of Guam. In the process, however, they were forced to shell out not only for the cost of the Marines' removal, but also to build new facilities on Guam for their arrival. Is it possible that they will now take a cue from the government of Kyrgyzstan and just tell the Americans to get out and pay for it themselves? Or might they at least stop funding the same American military personnel who regularly rape Japanese women (at the rate of about two per month) and make life miserable for whoever lives near the 38 U.S. bases on Okinawa. This is certainly what the Okinawans have been hoping and praying for ever since we arrived in 1945.
In fact, I have a suggestion for other countries that are getting a bit weary of the American military presence on their soil: cash in now, before it's too late. Either up the ante or tell the Americans to go home. I encourage this behavior because I'm convinced that the U.S. Empire of Bases will soon enough bankrupt our country, and so -- on the analogy of a financial bubble or a pyramid scheme -- if you're an investor, it's better to get your money out while you still can.
This is, of course, something that has occurred to the Chinese and other financiers of the American national debt. Only they're cashing in quietly and slowly in order not to tank the dollar while they're still holding onto such a bundle of them. Make no mistake, though: whether we're being bled rapidly or slowly, we are bleeding; and hanging onto our military empire and all the bases that go with it will ultimately spell the end of the United States as we know it.
Count on this, future generations of Americans traveling abroad decades from now won't find the landscape dotted with near-billion-dollar "embassies."
Chalmers Johnson is the author of The Blowback Trilogy -- Blowback (2000), The Sorrows of Empire (2004), and Nemesis (2006), all published by Metropolitan Books. Check out a TomDispatch audio interview with Johnson about the U.S. Empire of Bases by clicking here.
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