Rob’s comments below are in italics.Derek’s comments below are in normal font.

We’ve had the World Economic Forum meeting in Davos recently and various other events. We thought we’d review what’s gone on from a Sovereign Finance lens. Where do we start?

Well, I just wanted to point out that in the last few days, gold has broken the £4,000 an ounce mark. It’s down slightly from that, but the short answer is it’s up 50% since five months ago. It’s up by about 25% over the last three weeks, which is pretty dramatic. Once again, as I would always say, this is not the rise in the price of a substance. It really is a reflection of the currency’s decline in value.

Right, because people are more interested in gold when they lose confidence in the currency.

Yeah, it’s not an investment in the sense that it’s going to actually provide anything, but it’s a hedge against inflation is the simplest way of putting it. The central banks are making no bones about the fact that they’re stocking up on gold and replacing large amounts of their dollar reserves with gold. This is now being openly discussed. As we’ve said several times over the last few months, a feedback loop is at play. The decline of the dollar and its position in the world is likely to enter a positive feedback loop, accelerating the process much faster than many people would have expected. That was the subtext of a lot of what was going on in Davos.

All of those Davos meetings, as long as we can remember, have been a mutual admiration society of extremely wealthy people. They reinforce confidence among the “elites” in how things are moving. Of course, these people are essentially globalists: not merely being realistic about the fact that we live in one world, but that they would like a unified global power structure with them in charge.

Does that make us “localists”?

What’s the buzzword for it? The principle of subsidiarity. It would be the opposite of that, I guess: making every decision at the lowest level that it is possible to make it.

Which was how the United States was envisioned, wasn’t it?

Yeah. For the last 75 years, since the end of the Second World War, there’s been a constant set of assumptions amongst the financial and political elites. One of those assumptions is the dominance of the United States dollar as the safe harbour, if you like, to rush to when there’s any uncertainty. As the backbone of the international currency system. As a solid reserve in the accounts of central banks everywhere. The funny thing is that it made sense when the dollar was locked to gold at $35 an ounce.

That relationship has been severed for an awfully long time.

Yeah. Once that was severed, you would have thought that would have been the end of it. But it has managed to hold on for twice as long as it was actually “as good as gold”. That’s one of the assumptions that we’ve been working on for the last 75 years.

Another assumption was the unity of the European nations, at least the more prosperous Western European nations. Another was that transatlantic cooperation would exist between those prosperous European nations and the United States. Another was United States hegemony over the rest of the world, either through its economic stranglehold or its military power. That’s being projected on its fleets all over the oceans and its military bases all around the planet.

Finally, you know, again, something we’ve touched on several times is that the United States is now, whichever way you cut it, in the end-of-empire part of the cycle. Every single empire in history has followed the same trajectory, starting out as a previous one was declining. Gradually ramping up faster and faster, then reaching a plateau of complacency. Then things start to unravel and fall into a steeper and steeper decline.

The British Empire had, to all intents and purposes, about 350 years of dominance, culminating in a period when it effectively dominated the globe. Just like every other empire, it was pretty brutal towards the populations of its vassal states. Every empire is essentially grand larceny on a huge scale, enforced with brutal naked force. But it took 350 years for it to reach the end of its cycle.

In 1913, I don’t think many people could have realised where it would be by 1925 or 1930, let alone by 1946. Then we had the gradual coming to terms with reality as we severed ties with all our colonies. We turned them into members of the Commonwealth, which, of course, has not actually improved the lot of most of the population there either. The point being that in that end cycle, they become deranged. Certainly, this is the only way to view global events now, as the behaviour of the United States seems increasingly irrational.

Of course, there are a lot of people who think that Trump is the cause of this. It’s better to look at it in terms of him being the symptom, not the problem.

If they got rid of Trump and replaced him with anybody else, would it be any better? It might be handled with a bit more subtlety, that is all.

It’d still be the same s**t.

Yeah, it would be the same old thing. At Davos, we saw many presentations from various people, either trying not to face up to this or, frankly, admitting it. There was Mark Carney, the Canadian prime minister and former governor of the Bank of England, so - a globalist through and through. He said it was the end of the rules-based order. He had another phrase about values-based realism, but it’s just another cliché trying to paper over the cracks.

There is a potential for international legality, which is called the United Nations Charter. It was set up at the end of the Second World War, as we know, with the idea that this would never happen again. Of course, the promise of the European Union was that it would prevent warfare between the European nations. It would deliver peace and prosperity. We’re increasingly seeing that the European Union is visibly failing to deliver prosperity. It’s far from delivering peace. It seems to be uttering more and more warlike proclamations.

Part of the reason for the EU’s fragmentation is the loss of cheap Russian energy. There’s also the demographic collapse. The population age has peaked. We’re now getting a far larger proportion of the population being of an increasingly elderly age, such as myself. That means that there are fewer and fewer younger people.

Whether the retired people are supported by state pensions which are coming from taxation on the people who are working, or whether they’re arrangements through investments through pension funds that are invested in industrial concerns or invested in government bonds which have to be again funded from taxation, the bottom line is that the support of the no longer working part of the population has to come from the people who are. Once population peaks and goes into decline, we lose that ratio. That is happening right across Western Europe.

As I said, we’ve got political fragmentation, with more and more nationalistic rabble-rousers coming to prominence across Europe. The existing leadership, as we’ve pointed out, is not only devoid of strategic thinking but has also failed to carry the support of the electorate. The only trouble is that the alternatives coming to the fore seem even worse than the current incumbents.

The Labour Party didn’t really win the last election. It was just that the Tory party lost it. It’s looking increasingly likely that both the Tories and Labour will lose the next election, with the Reform Party under Nigel Farage being the likely alternative.

Farage is being teed up by the powers-that-ought-not-to-be as the next PM.

Yeah, it looks very much like it. It seems out of the frying pan into the fire to put it bluntly.

Yeah.

Up until now, the Davos crowd has taken for granted that global integration was well along the way and would solve all other problems. All of a sudden, over the course of literally the 12 months since the last meeting there, this is no longer looking at all plausible.

Meanwhile, on the other side, as we’ve discussed before, a parallel system is being set up by the BRICS nations. Various other combinations of Asian and the global south generally. Increasingly, they’re setting up a parallel system that will override the dollar-based global banking system. In the background, of course, we’ve got the four major areas of serious conflict in the world: Iran, Venezuela, Ukraine, and Israel.

The takeaway here is that the playbook, which has worked very reliably for the US empire over the past 70 years, is suddenly ceasing to function. We mentioned a week or two ago about Venezuela. They tried various measures to destabilise the country and bring it into line. None of them had really worked. Culminating with the kidnapping of Maduro, rather than causing the regime to collapse, it actually seems to have solidified the solidarity of the population behind their government. We could say the same thing for Iran.

This was one of the things that was admitted, not only admitted, but declared proudly at Davos by the American Treasury Secretary. Iran had been subjected to economic warfare, for want of a better term. He was openly admitting that that was one of the prongs of the attack on Iran. Then they had the attempt by Israel to decapitate the leadership, which didn’t have the desired result.

There seems to be an increasing assumption that the US will make another attempt to attack it. But the results are not entirely predictable and are certain to be catastrophic. The only question is how catastrophic and to whom. My guess is that in some conflict, Iran is the most likely one, there will be some massive loss of life of American servicemen on a scale which probably eclipses even that of Vietnam.

Yeah.

It depends. That could provoke an open revolt among the American population over the government’s mismanagement. But of course, it also carries a risk of catastrophic escalation, including nuclear escalation. Israel is obviously going to be attacked in response to any further action against Iran. Israel is probably the most likely country to unleash a nuclear weapon. Once one has exploded, there is no way to know how far it will propagate. So, alarming times.

One other announcement this morning, I don’t know whether you picked up on it, is that there has been an announcement of a truce between Ukraine and Russia not to attack each other’s energy facilities. There’s been a lot of unofficial announcements on both sides that this was in the pipeline. Now Zelensky has announced that he will honour this truce. Nobody says for how long or under what circumstances it will end.

I don’t think that there’s actually been a presidential or government announcement from the Russian side that they’re doing that. But the assumption seems to be that this will be the case for the next day or two. Then, of course, it will be broken, and each side will blame the other for its failure.

That was going to be my comment, is that a lot of these things are theatre. If you give it a couple of weeks then look back, how much has actually stuck? Usually not much.

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