Men in the city are on edge. From the busy streets of lower Manhattan to the central arrondissements of Paris, and the chaotic highways of Bogotá to the bustling skybridges betwixt Hong Kong high rises the zeitgeist hints that something big is coming. To the average man on the street, the Delta’s, the indispensable working men who make society go: cab drivers, construction workers, fire and policemen, small business owners, car salesmen, factory workers, truckers and farmers, even to the rookie suits on Wall Street, the flux in global markets stings. Prices are rising, resources are scant, economies are slowing, debt holders are defaulting, and life is getting harder. The world appears to be ambling dangerously astride a cliff because the end-of-cycle is nigh.
When human systems reach the end of paradigms it comes not with a whimper but with a bang. There are many reasons for this, perhaps most prominent among them is the natural cycle of life. Seasonal change from fall to winter and winter to spring brings death and rebirth, a purging of what once was in preparation for what will be. A changing of the guard is underway, which means that the epicenters of power become shaky, sacrosanct institutions topple, governments fall, and radical new ideas become possible. Pandemics, bankruptcies (Republic First went bust last Friday), wars, and earthquakes (see above) are symptomatic of the global transformation underway.
A changing of the guard is underway, which means sacrosanct institutions topple, governments fall, and radical new ideas become possible.
A shift in the temperament of men lies at the heart of humanity’s shift. Men atop the legacy power structure, the alphas who dominate the sexual pyramid, the lords of finance, and the Gerontocracies who pilot institutions the world over come under duress. Pressure builds until the leaders of the old guard succumb to paranoia and lash out at “monsters to destroy” and sexless men to slander. The clarity of mind they once had becomes a distortion, a “wilderness of mirrors” that sends them into a tailspin of overreaction. Rather than solve problems, past "solutions" exacerbate them at which point panic sets in. Welcome to the end-of-cycle.
Japan’s Financial Fukushima
Over the last week it appears Japan’s currency has begun to meltdown like Fukushima in 2011. Such a headline is old news since Japan’s financial system has been the best run Ponzi scheme in the history of modern finance and many have prematurely forecast its demise. Let’s recap the gambit: after Japan’s financial bubble collapsed in the '90’s, the Bank of Japan (BOJ) bailed out banks (and everything else) much like the US Government (USG) did in 2008. Since, Japan has generated meager economic growth and investment has been steered into so-called Japanese Government Bonds (JGBs) to finance a massively bloated welfare state.
There is more, to maintain low interest rates the BOJ purchased stocks, corporate bonds, basically anything and everything so that it could control the value of the Yen and manage interest rates at the same time.
Japan’s financial system has been the best run Ponzi scheme in the history of modern finance.
The gambit worked, at least until now. Helped by a trade surplus (global consumers like Japanese products) that guaranteed money flowing in to cover interest expenses, the BOJ was able to sustain massive debts at minimal cost. Further, low rates in Japan attracted foreign investors to borrow in Yen and lend it out at higher rates in other parts of the world and profit from the spread (difference), the so-called “Yen Carry Trade” was born. Such a system worked well so long as there was manageable inflation.
That all changed in 2021 when inflation spiked after the largest public spending binge in recorded history flooded the world economy in response to Covid lockdowns. As a result, interest rates around the world began to surge in 2022. For the BOJ to maintain control, indeed for the global economy as constructed to perpetuate, dollars must be cheap and US consumers must be strong. Increasingly, the dollar is strong, and American consumers are choking on debt. As a result, the BOJ has been forced to raise rates to fight inflation, something thought impossible just a couple years ago. However, despite raising interest rates ever so slightly to stabilize the currency, the Yen has begun to fall against the dollar like a manhole cover from the sky. (see above)
What happens if the BOJ is forced to raise rates you might ask?
It’s the Bond Market, Stupid
A crashing Yen means the BOJ must sell US Treasury bonds to prop it up (raising rates), and that means an already fragile global bond market may face a financial emergency by summer. James Carville famously told Bill Clinton "It’s the economy stupid;" today, it's the bond market, stupid. Wall Street is beginning to figure out (slowly) that bonds (government debt) are hot potatoes, which spells disaster for the Global Financial System and beyond. As James Grant, Jeffrey Gundlach, and Bill Gross have said, bonds move in long cycles (like everything else) and the forty year low interest rate / high bond values world we once knew is over. Bonds are revaluing to economic reality in explosive fashion as global recession, escalating wars, and supply chain realignment destroys confidence in sovereign debtors.
At the same time, the Fed is myopically focused on inflation in the US, fluctuations in prices they cannot control, nor do they have the analytical framework (Monetarism) to understand. In several alarming speeches by Fed Board members like Governor Waller, the Fed has maintained that Quantitative Tightening (selling back Fed assets [USTs and MBS] has minimal or "asymmetric effects" compared to Quantitative Easing (buying assets to prop them up). The Fed believes the appetite for government debt to be “broad and deep” because naïve Baby Boomers continue to buy it through Money Market Funds (MMFs). Such blind faith both from Boomers and the Fed may be recorded as the biggest blunder in modern monetary history.
Blind faith in stable Treasuries may be recorded as the biggest blunder in modern monetary history.
As debts skyrocket, confidence is buckling. Yields (interest rates) are rising (see above) because of DC's (and governments in general) reckless spending, which amounts to adding $1T to the national debt every 90 days. Adding fuel to the fire, DC is actively trying to confiscate (steal) and repurpose Russian assets (mostly Western sovereign bonds) held in European banks to fund Ukraine's war effort. Such a move will only accelerate a massive divestment from USD denominated assets, namely US Treasuries, as foreigners fear future confiscations. Who is left to buy the dog shit one wonders?
Crazy, Stupid, Madness
The novelist Louis de Bernières famously said, “Love is a temporary madness, it erupts like an earthquake and then subsides.” Bernières might have said end-of-cyles climax the same way, and for similar reasons. Late cycles often witness spectacularly disastrous decision-making as desperation to maintain the old ways degenerates into madness, yet another reminder that human events are not fait accompli. It is a fact that Rome’s excommunication of Martin Luther, that Louis XVI’s ill-conceived dispatch of troop to Paris, and General Ludendorff’s decision to put Lenin on a train to Moscow seemed expeditious at the time. However, in each case the end of one cycle crashed with ill-fated and avoidable errors like these.
Western governments are veering sharply into madness. Western Gerontocracies are insulting great powers in the East who also happen to be their biggest creditors, even going so far as to threaten sanctions against them. Rather than seeking de-escalation through diplomacy war hawks are trumpeting regime change and saber rattling in the process. Past guard rails on erratic “allies” have been jettisoned as special interests led by AIPAC flex their influence in the halls of power. The plebs, the masses of men who would normally call bullshit are nowhere to be found.
Wars spread, earthquakes strike, poverty rises, banks collapse, and delusion multiplies until the fireworks of truth light up the sky before cycles end. Such an operatic denouement is erupting before us with no less crazy, no less stupid, and no less madness than prior pivotal moments in human history. With any luck, financial collapse will short-circuit a major war before it starts because the Global South does not want to fight powers in decline. On the other hand, we could be facing a catastrophic shit sandwich and everyone’s gonna have a bite. Either way, the only way out is through.
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