The globe has
been transitioning into a major new era over the last decade or so. The
signs are everywhere, particularly in the fields of economics and
geopolitics. Some analysts see this as one realm—political economics. We
would further add that such shifts, whether political or otherwise, can
hardly take place without an associated change in societal values
(certainly so for democracies). Religions, ethics, and beliefs are
involved, although very, very few analysts have been willing to tread
this ground over the last century or so. The point we are making is that
a new era (we would call it an epoch, except that we think it will be a
relatively short transition period) has begun. Moreover, changes that
ushered in its arrival have been rapid, especially over the last two to
Gone are the
familiar characteristics of the post-World War II era that had been
beloved by so many. Legions of economists had built mathematical
forecasting models on the assumption that the underlying drivers of the
five decades between 1950 and 2000 would remain the same forever. In
reality, most never did actually seek to understand the theoretical
underpinnings to the prosperity of this period. For them, simple
rear-view gazing through quantitative measures of stock markets and
economic trends (or virtually anything that was measurable) was
sufficient to predict the future. Little appeal was made to causes; the
only focus was on results. What became future fact was the past result
itself. For instance, how many times would one have been told that the
average gain of the Dow Jones Industrials stock market index has been
“X”% for a given period in the past, with the implication that this
should be expected to continue in the future? This is a ridiculous
presumption yet countless analysts actually believed in this type of
“reading of the chicken entrails”.
We next list
an assortment of factors that defined the prosperity of the World War II
period; try to guess the commonality that applies to them all. 1. Rapid
population growth which in turn drove the growth of the work force. 2.
Higher workforce participation rate as more women entered the job
market. 3. Debt growth faster than economic expansion. 4. Productivity
growth, much of this driven by new efficiencies and also by off-shoring
manufacturing. 5. Increasing financialization of human activity. 6.
Globalization … the growth of free markets and the increasing intensity
of world trade. 7. Ample supply of cheap global labor. 8. Cheap energy
and commodities. 9. Increasing capital efficiency, i.e. companies
shrinking their working capital. 10. Corporatism and the attendant boom
in corporately-funded lobbyism. 11. A boom in financial alchemy,
creating the illusion of prosperity through a decoupling of financial
markets for the underlying industrial economy. 12. The maximization of
government deficit-spending stimulus. 13. A build-up in unsustainable
external trade and current account deficits.
All of these
factors (and more) played a contributing role — both real and illusory —
in the apparent prosperity and halcyon boom of the post-WWII period in
the Western world. What is common to all of them? All have reached their
limits or are slowing. This “causal fountain” is gone. The trends have
changed and the past has become irrelevant to the future.
We turn our
focus back to the financial markets. Here, the global foundation that
was put in place after WWII (i.e. stemming from the agreement at Bretton
Woods, these leading to the foundation and definition of such
transnational agencies as the International Monetary Fund, the World
Bank, and the Bank of International Settlements) has crumbled.
that debt could be a foundational asset for banking systems was based on
the expectation that the sovereign debt of the developed nations (these,
for the most part, being members of the rich country club of the
Organization of Economic Development and Cooperation, O.E.C.D.) would be
considered to be risk-free. That assumption was catastrophically
debunked when Greece fell into crisis two years ago. While it has not
yet officially defaulted in a technical sense, what else would explain
why a Greek government bond —which is supposed to be a risk-free
asset—has fallen over 60% in value? Now the same uncertainties have
enveloped a number of other country bond markets, from Portugal to
As we write,
massive monetary changes are occurring around the world. In fact, we
suspect that a new system is evolving right under our noses. Central
banks in the Western world have been carrying out massive interventions,
buying up the weakened collateral of banks and lending them capital in
unprecedented amounts. As a result of these types of actions by the
European Central Bank (ECB), the interbank funding market has already
been effectively nationalized, or more accurately said, Europeanized.
Why? This is because banks will no longer lend money to each other due
to their low trust in the financial solvency of other banks. How things
proceed from here will depend on the degree of desperation and further
crisis in Europe’s banking sector and sovereign bond markets.
(this basically being the manufactured money that is held on deposit
with the central monetary authority by commercial banks) of the top
eight largest central banks in the world now amount to almost one-third
of the value of global equity markets (or $13 trillion measured in U.S.
dollars). That is three times the level of just five years ago. Would
anyone believe that these large interventions will ever be reversed?
Perish the thought; it will not happen.
Suffice it to
say that one should expect anything and stay informed. The future will
not be the same as the last half of the 20th century.
warns of the mistakes that have befallen the zeitgeist of the post-WWII
era. Jesus Christ illustrated the importance of “causality” when He
said: “Woe to you, blind guides! You say, 'If anyone swears by the
temple, it means nothing; but anyone who swears by the gold of the
temple is bound by that oath.' You blind fools!” (Matthew 23:16-17).
They cared only for the gold, giving little recognition to why it was
there in the first place. Similarly, by only looking to the golden
results of a prosperous era, its foundations were not only ignored, but
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J. Hahn is a global economist/strategist. Formerly a top-ranked global
analyst, research director for a major Wall Street investment bank, and
head of Canada’s largest global investment operation, his writings focus
on the endtime roles of money, economics and globalization. He has been
quoted around the world and his writings reproduced in numerous other
publications and languages. His 2002 book The Endtime Money Snare:
How to live free accurately anticipated and prepared its readers for
the Global Financial Crisis. His newest book, Global Financial
Apocalypse Prophesied: Preserving true riches in an age of deception and
trouble, looks further into the future.