Golden records…“anarchy” in the streets…and a collapsing economy six times the size of China…
Yes, Fellow Reckoner, it’s all happening. It’s all hands on deck and all bums on seats for the spectacle of a lifetime.
Let’s take a look at the above events, not as unrelated as they may at first appear, in reverse order. First, we address the ongoing, slow motion collapse of the Anglo-Saxon Empire, centered predominantly around the Eurozone and in the United States of America.
Stock markets in the western hemisphere are down big again today after yesterday’s “dead cat bounce.” Major indexes in the US were off between 3.2 and 3.7% last we checked. Measures from the Thames to the Rhine suffered similarly, with the London’s FTSE 100 ending the session down more than 2% and averages in Paris and Berlin falling by 3.8 and 3.2% respectively.
We’ve noted in these pages before the predicaments of the lumbering, western economies. That they are drowning in debt is news to nobody…with the possible exception of spendthrift politicians whose only response to the problem is to add more burdensome obligations, more debt, to the system. The economies are trying to free themselves…but instead of throwing them a lifeline, the politicos throw them a brick.
Unsurprisingly, therefore, official growth rates in the Eurozone and the US are between zero and diddly. Real growth rates – when adjusted for inflation – are between diddly and negative. (The 2% official rate recorded in the US during the first two quarters was barely enough to keep pace with population growth.) Adding to that, the workforces in the developed world nations are shrinking. And government intervention is expanding. Populations in the west (and Japan) are aging and – in part due to that demographic shift; in part due to swelling youth unemployment – disaffected welfare recipients are multiplying. Manufacturing, too, is moving offshore to more cost-competitive, market-friendly locales. Capital, as we know, flows to where it is treated best. That is its nature.
When combined, the economies of the Eurozone and the United States total about $30 trillion in annual gross domestic product – $16.3 for the euros and $14.1 trillion for the yanks. Expressed another way, that’s a combined economy about six times the size of China’s, itself worth roughly $5 trillion. (We’ve used an “all in” measure here, mind you, one that includes both private sector productivity and public sector parasitism. The very nature of The State means there’s a lot of double counting in there…plenty of “robbing Peter to subsidize Paul” kind of caper. Nevertheless, it’s probably a near enough measure to garner a back of the envelope, apples-to-apples comparison.)
What we are witnessing, in other words, is a combined, inter-continental economy, one roughly equal to six Middle Kingdoms (or 9 Germanys…or 11 Frances…or 32 Australias), grinding to a slow, inexorable halt. It’s anyone’s guess as to when the last brick will fall…or how…or on whom. As one of our favorite non-economists, Jim Morrison, famously put it, “The future’s uncertain…but the end is always near.”
The nature of an economy is, unsurprisingly, not unlike the nature of the men (and women) who comprise it. As a man ages, as he gains a little wealth, a little luxury, he becomes complacent. He grows pudgy around the middle and is unable and/or unwilling to perform the tasks that occupied his youth. He drinks more than he probably should, develops “love handles” and begins using retrospective, nostalgic phrases like “when I was a boy” and “the good ol’ days.” He is past his prime, in other words. Torpid. Lethargic. Slow. He is, in this way, not unlike the average “first world” worker.
As for the Chinese worker, he is still young. He is lean and dynamic. He is nimble and driven, hungry for the good things in life…and he is both willing and eager to work for them. Today, there are about 780 million such Chinese men and women in the labor force, about seven times the size of the working American base…and more than double the entire US population.
Call it mean reversion…or a Great Correction…or the Greater Depression. Whatever the sobriquet, the trend is the same. Just don’t call it a “recovery”…and don’t expect it to be over anytime soon.
Equally, don’t expect this to be a quiet, peaceful transition.
On that last note, it is hardly surprising that we should see a bit of tension forming around the edges of these crumbling western economies; a few tears at the social fabric of the once-mighty western nations. Already we’ve seen protests and riots in Europe’s peripheral countries, the Club Med economies of Greece, Italy, Spain and the like. Now it appears to have spread to England, too.
Your editor was in London just last weekend, looking impossibly uncool in the nouveau chic, East End district of Hackney. The place reminded us of the DUMBO (Down Under Manhattan Bridge Overpass) area of Brooklyn a few years back. It’s a newly gentrified part of London, the kind of place where you see Maybachs and Maseratis parked out front of shabby looking buildings with gourmet cafes and boutique clothing stores inside. It’s the new “it” area, the place where the cool, edgy kids hang. Well, so we were told.
This week, London’s East End is ablaze. The inferno seems to grow around the city by the hour. Rioters storm the streets, hurling Molotov cocktails through shop fronts and indiscriminately vandalizing cars and other private property. This morning’s paper carried a picture of an iconic double-decker bus, smoke and flames billowing out from its shattered windows. Hundreds have already been arrested and many wounded. Prime Minister Cameron (returning from vacation in Italy) has ordered 10,000 more police officers into the city to bring the situation “under control.”
Thousands of social media comments express shock and amazement that a place like London – so civilized, so “first world” – could descend into such chaos. But this is no chance event. England is a socialist state, like most mature, aging western nations. It is a toad in search of a tire…a “bug in search of a windshield,” as John Mauldin puts it. As such, it is a breeding ground for ne’re-do-wells, grifters, layabouts, leeches, social parasites and welfare recipients of all stripes. These individuals, guided by the blinding force of mob mentality, are simply doing what the state conditioned them to do: They are trying to get something for nothing. They are the violent sons begat of a violent institution. And they’re giving anarchists a bad name.
The destruction we see in London – which has since spread to Birmingham, Liverpool and Bristol – is neither unexpected nor is it the work of “anarchists,” as those witless cretins in the mainstream media would have us believe. (The word anarchy, for the record, is derived from the Greek anarchíā and simply means “without ruler.” Free, in other words. Acting voluntarily. Not a slave. It has nothing to do with violence or coercion or the destruction of property, though these would, ironically, be acceptable descriptions of the nature of The State…and all it produces.)
England was looking for this, even if it didn’t know it. In many ways, Mark Duggan is to England what the self-immolating Mohamed Bouazizi was to Tunisia; a catalyst to reveal the state’s dark heart to the blissfully unaware public it rules. Expect more to come.
But wait! We’ve run out of space to talk about gold, Mother Nature’s own insurance policy against political and monetary disaster. The metal is at new highs again today, $1,780 an ounce. We’ll have to save that discussion for tomorrow…
From Riches to Riots originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. Follow the Daily Reckoning on Facebook.