Sovereign Finance

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

We're talking about debt today. Last time out, we were talking about how debt can be a good thing or a bad thing at individual, business and national level. It appears in the last week or so that Britain is in a much worse state than the authorities have led us to believe. It seems we might actually be bailed out by the International Monetary Fund, which doesn't bode very well for ordinary folk like you and I. So what do we have to say about that?

Well, we were both watching a brief Neil Oliver monologue this morning, where he was saying that suggestions are circulating that Britain's finances are in such a bad state that we may need a bailout from the IMF. This happened once before in 1968 during the Harold Wilson Labour government.

The press had a field day saying this is all a response. The outcome of Labour's fiscal incompetence and irresponsibility. In fact, the reason for that was that there was a run on the Bank of England caused by the fact that the pound was overvalued relative to the dollar. At the time, they were still on the fixed exchange rate, which came in at the end of the Second World War during the Bretton Woods negotiations of $2.80 to the pound. It was put down to $2.40, which was regarded as a tremendous humiliation at the time, although we'd be delighted if we could get $2.40 for a pound these days.

The reason for that mismatch had nothing to do with the immediate year or two that the Labour government had been in power. It was the cumulative effect of the 23 years since the end of the Second World War. During the majority of which time the conservatives had been in power. So really everybody was equally to blame insofar as blame is relevant. The American economy was obviously in a far stronger position at the end of the war than at any other time. This calls into question the entire degree of realism associated with fixed exchange rates, even though in principle it sounds like a great idea.

Anyway, whenever the IMF are called in anywhere, their prescriptions are pretty standard. It essentially lets the elites off the hook and absorbs any government expenditure that benefits the wider majority of the population.

I don't know how much further we can go down in that regard. But what is weird is that at the same time as we're in this position, as we mentioned last week, we're talking about spending money that we haven't got subsidising the war in Ukraine. So is the rest of Europe, which is in a similar position across the board. Apparently, Germany has just pledged to give nine billion pounds worth of support to the Ukrainian side in the war, whether by buying weapons from America and sending them out there or sending the money straight there.

This seems pretty odd at a time when the German economy is in a desperate state and they've been cutting their welfare programmes. They've been put in a much disadvantaged position since the cutoff of the supply of cheap Russian gas and oil. Yeah, the destruction of the Nord Stream pipeline. Apparently, Norway has pledged $8 billion to support Ukraine. I don't know what state Norway's been in generally over the last few decades. Norway's finances have been in a pretty healthy state due to the North Sea oil and gas. I'm not sure whether that's still the case or not.

The point, apart from anything else, it seems to me pretty certain that any weaponry which is sent to Ukraine is likely to be destroyed before it even gets used very effectively if you take a realistic look at the battlefield.

We've said in the past that warfare in the last resort is armed robbery on a grand scale and we're seeing that very clearly in this case. We are over a barrel in both directions. Some of the support given to Ukraine is in the form of loans, which can be shown on our balance sheet as sound assets if Ukraine wins the war, but will have to be written off if it loses. Conversely, there was the $300 billion worth of Russian assets which Western banks have seized: a small proportion, no more than about $5 billion, is held by American banks.

About $47 billion from British institutions and considerably more from France and Germany, and Belgium. We've all been effectively stealing the interest due on those loans since they were frozen.

Nobody really knows to what extent the actual principle may have been dipped into and diverted elsewhere. Should Russia be victorious, those assets would have Russia's claim restored to them.

The war will end when Russia wants and how Russia wants. Anyone with half a brain should probably know that. So then the question is, why are they just using it to keep the magic money tree flowing in the meantime?

Well, this comes back to a conversation we had some time back, asking, ‘Is it really true that the love of money is the root of all evil?’ It's certainly the root of a lot of evil. It's undoubtedly the root of the motivation of people who make these weapons of war. For them, it's just more business and more profit, and they're prepared to ignore the tragic human loss on a grand scale, which is the result of warfare.

This has been going on for a long time. I recently read that the same American companies basically financed both sides of the Second World War, including both the Allies and I.G. Farben.

Yeah, absolutely. This is now well known. I have a book about it. I can't remember the title at the moment, but there's enormous detail about the extent of that.

Anyway, so that's where we stand. The additional funds being sent to Ukraine or spent on weapons, which will be sent there, is a case of good money being thrown after bad.

Especially since the Ukrainians have stated that they can't account for so many billions of it that has already been sent, anyway, so who knows?

It's truly tragic. It will be very interesting to see how long it takes for an objective summary of the validity of the different narratives about the war to emerge. I'm not sure how plausible the mainstream narrative seems to people. But there are plenty of clearly very knowledgeable commentators in the alternative media space who are all unanimous in what the real situation is.

It would appear that most Ukrainians want it to end. The only ones who don't are the ones who are far away from the fighting. Or the West wants it to continue. So then you have to query, well, why exactly is that the case? You have to say borderline evil reasons that we've been aligning.

It’s a rather gloomy outlook!

But things can unravel quite quickly.

Well, the real joker in the pack is at what point the American economy collapses totally, because America has very little to export except arms. It looks as though the Russians have pulled a long way ahead in terms of their missile technology and rate of production. This is another significant factor: the Russian industrial capacity for producing war machines and ammunition outstrips that of all the Western nations combined. Nobody really knows where the Chinese are.

No, no, and hopefully we never find out.

Well, I certainly hope we're not going to find out the hard way. Anyway, it's a very fluid situation. I hope we managed to live through it and that we will see a brighter outcome within our lifetimes.

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

We're going to revisit a topic today that we've been talking about quite a bit recently - debt. So yeah, what's going on that people need to know about?

What prompted me to think about this again was a broadcast I listened to the other day. It gave a rundown of the state of the United Kingdom's finances, which are in a dreadful state. We recently borrowed an additional £20 billion, and three-quarters of that is simply going to pay interest on the debt we already have.

We have also discussed interest rates in the past and how they've been artificially held down. There's only so long that you can do this before the markets will no longer trade debt at the prices and interest rates that governments have been used to for the last 20 years or so.

In this context, I would like to revisit the distinction between good debt and bad debt that I've previously discussed. From the point of view of business, personal finances and national level, there are parallels between the three. The easiest one to grasp is with business.

Business Level

Suppose you're running a business and you negotiate a loan with the bank, for example. That's not necessarily a bad thing. If you are investing that in something which is going to—

If there's a bigger rate of return than the interest that you're paying on the loan, then it makes sense to do.

Yeah, absolutely. That's the one-line summary. If you buy, for instance, a piece of machinery that you can use to manufacture things that you wouldn't have been able to do previously, and there's a ready market for those, you can sell them and make more profit than you're paying on the loan. Then it's a sound proposition.

If, on the other hand, you take that loan and use it for frivolous purposes - you redecorate your office or use it to pay yourself to go on holiday - then all that's happened is you've spent it on things that don't actually bring any new customers in.

Or splashed it on Google Ads!

Exactly, there are any number of ways that it can be frittered away. That means you then have to repay the loan, paying the interest on it, and your balance sheet is worse off than if you hadn't done it.

Personal Level

It's very easy to see that parallel if we bring it down to a personal level. There are all manner of things that we might not be able to afford, but if we had them, it would increase our ability to bring in an income. There are also any number of ways that we could just fritter it away. We could go out for a lot of expensive meals, or go on holiday. Once again, that means we still have to pay the money back. We will still pay the interest on it.

National Level

The same principle applies at the national level. There are things that a nation-state could invest in which make the nation a more viable proposition. This was John Maynard Keynes' advice to governments during the Great Depression of the 1930s.

The whole thing had seized up. There was nobody to harvest the crops. They were rotting in the fields because there was no money to pay the labourers to do the harvesting. Because there was no money to pay the labourers, they were unable to go out and buy things in the local shops, which kept the local businesses going. It was all stagnant.

So Keynes's solution was that the governments should effectively create money out of thin air. Whether they do it themselves or have the banks do it and then the banks give it to them, it comes to the same thing. It's money that hadn't been earned previously. But then by paying people to do something constructive, that creates a certain amount of wealth and puts money into their hands. There is also a cumulative effect from it.

It creates circulation, doesn't it?

Now Keynes receives a lot of criticism from economists who accuse him of encouraging fiscal irresponsibility in governments, which is somewhat unfair to him. He planned that when the business cycle picked up again as a result of that stimulation, we would go into the boom phase. At that point, the governments could pay back the loans.

I don't know whether he was being naive here or simply being realistic and dealing with the most pressing problem that was immediately at hand. However, the trouble is that when the boom times come, governments are only too ready to take advantage of them and enjoy the benefits. They don't want to start spoiling the party by running things down and being tight on expenditure, so they have the money to pay back the debt.

There's no incentive for them to do that. If you just follow the incentives, it's pretty clear what any government is going to do.

Exactly so. The worst possible thing we could do, particularly in the current circumstances of this country, is to run down the situation regarding the scale of debt in the United States. The UK's relative to its economic activity is probably even worse.

At times when all manner of penny-pinching measures are being taken by the government, such as cutting off winter fuel payments for old age pensioners and attempting to reduce disability allowances, we can't run our health service adequately. We can't maintain the buildings of our schools. We can't fill the holes in our roads.

Against this background, Starmer appears to be seriously considering purchasing a substantial amount of weaponry and sending it to Ukraine, where, as we've seen, it rapidly becomes scrap. So this makes no sense whatsoever.

We said that there is a terrible situation if you borrow money and then do nothing constructive with it. Of course, it's even worse if you're spending it on weapons and ammunition, which actually have a negative impact on the total amount of wealth and circulation, as we're seeing.

It's essential to go beyond merely financial accounting of this and examine what it means in terms of the cost of energy, in particular, and raw materials generally. One of these days, I'm going to conduct an analysis of the amount of energy invested in the two notable conflicts currently underway - the one in Israel and the one in Ukraine.

Bearing in mind that it seems pretty clear to me that over the course of the next 20 years, we're going to pretty much exhaust our readily available sources of fossil fuels. As we've discussed at other times, there doesn't seem to be any contingency plan in place for maintaining the standard of living we've come to expect.

As that goes out, it's not at all impossible that we could rejig things to live within the budget of our available solar energy. This is surely what must happen. Whether it's through a significantly reduced human population living a much more primitive lifestyle, or whether we make a smooth transition to a high-tech one based on completely different energy sources.

Yes, my understanding is that the small proportion of people in the world who essentially own and control everything will have plenty of energy, while the rest of us will either not exist or be left in the cold. That seems to be the grand plot.

Yeah. Against this, we must consider the enormous amounts of energy that are being wasted. Even if you are using all of your munitions effectively in battle, it's still a tremendous amount of energy that's gone into that shell or that bomb or that missile, which all gets consumed in a matter of a few seconds or a few minutes.

Every time one of these military aircraft goes on a sortie, that's a huge amount of fuel consumed. This is even before you get into the situation where there's an ammunition depot and the whole thing gets exploded without even being used, which is happening all the time in Ukraine.

There are wanton, vandalistic attacks on oil refineries, gas pumping stations, and oil pipelines, which have also been carried out extensively by both sides. This is a consumption of energy that could have provided years or decades of continued constructive civilian use.

More importantly, it will take energy to construct the solar infrastructure, which we need to make a transition to a technologically sophisticated, sustainable life. To me, that should be a clear priority.

Yeah, looking at the climate narrative and how we're being told to worry about carbon dioxide and all of these things - if that actually were true, then that would apply first and foremost to the war-making activities that have by far and away the biggest environmental impact. This just shows that what they are saying and what they value are completely different things.

Absolutely, yeah. You could go on a lot of car trips, foreign holidays, or even hot baths for the cost of one missile strike.

Yeah. If I were attending a climate conference and actually cared about these things, I probably wouldn't take a private jet there. But there we go.

Yeah, we've gone into that before, too. So, against this background, there has been, of course, an apparent attempt to bring a conclusion to the Ukrainian war with the summit meeting between Putin and Trump.

Of course, there's been a chorus of shrill complaints that this even took place. Why should anybody imagine that we're going to improve our chances of survival by cutting off communication between nuclear-armed superpowers? I cannot imagine. It can only increase the likelihood of some catastrophe occurring due to misjudgment or confusion.

I would have thought it was critical to restore the diplomatic relationship to a situation that was regarded as normal and essential until the last decade or so. Whatever else one thinks of Trump, that it was a monumental achievement to have even made this start.

Of course, the fact that the primary objective many people assumed was to settle the war in Ukraine, obviously hasn't happened. That doesn't make a difference because we have no idea what other agreements they've made.

The most important one is that they're talking to each other, which gives some chance that the Strategic Arms Limitation Treaty, which is due to expire next February, will be renewed. The world will clearly be in a more perilous situation if that's allowed to expire. That's in none of our interests.

Once again, the best way to avoid warfare is to have mutually beneficial trade going on between nations. So that would be a bonus too. There seems to be every intention to wreck the likelihood of that on the parts of some of the players. So who knows how that will come out?

The notion that a ceasefire should be declared now, while the combatants simply regroup and rearm, was obviously a ridiculous suggestion. The fact that this has now been taken off the table, and we've said that what we need is an actual peacemaking agreement, which is clear and addresses the underlying problems, once again, this appears to me to be elementary common sense. In contrast, it has been depicted as a sellout, particularly by our own government and that of all Western European leaders.

How much the population at large supports this position isn't at all clear to me. Probably a majority are still swallowing the official propaganda line. What's your view?

I probably live in my own echo chamber. I've been reading Caitlin Johnstone's emails recently, and she actually has more hope in the next generation than in the current or previous ones. So in the longer term, maybe there was some hope there as well.

Yeah, well, one of the things that I'm interested in - as I said in a recent podcast of ours - I look at the alternative viewpoints on YouTube. I'm greatly heartened by, first of all, the fact that views that go against the mainstream narrative get through and aren't censored. But also by the size of the followings of some of these commentators. There are excellent channels by Scott Ritter, Douglas MacGregor, John Mearsheimer, and many others.

I see that the material initially produced on those channels is being repurposed on many other podcasts. Many of these have followings in the hundreds of thousands, and some reach millions. So amongst the younger generation, there are probably more followers of that. Let's see how we go from here.

The only other thing I'd say is that there has been a lot of confusion since the meetings that Trump had with Zelensky and the European leaders that followed. They've been talking about security guarantees and a lot of this, which is a vague term. It's not spelt out what that actually means.

But a lot of the things that have been speculated by Western leaders and commentary in the media are clearly not going to be acceptable to Russians and could not possibly have been agreed to at Trump's talk with Putin. They're unlikely to be approved anytime soon.

Whether Trump deliberately misdirected, provided some misdirection, or allowed people to read more into his remarks than he intended - or whether people have taken the ball and run with wishful thinking - I don't know.

Of course, the next question is whether there will be a meeting between Trump, Putin, and Zelensky, or a bilateral meeting between Zelensky and Putin. We don't know.

I personally think it's unlikely to be a three-way meeting purely because it will likely fail. Zelensky's position is totally incompatible with Putin's, and there's no point in having a meeting at that level unless all the details are finalised, which was clearly not the case with the Trump-Putin meeting.

That would not have happened unless both of them had an obvious idea about what they were going to discuss beforehand, which had clearly been arranged through the discussions that Steve Witkoff had with Putin and through direct conversations between Trump and Putin before they began.

Yeah, so the meeting itself is like a PR exercise for something that's already been agreed...

Yeah, yeah. Although that was announced at a week's notice, it was absolutely clear that there was much more than a week's worth of planning to get all of that in place. They must have been aiming for that for at least a couple of months, if not longer.

So interesting times. Many things are not what they seem. Short answer: watch this space.

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

We're discussing big numbers today, a topic we've explored before in how billions and trillions are used in public discourse. We're going to talk about that today in the context of US debt. So what do people need to know about this?

Right, so I'll just give a bit of a recap. When we talked about an idea of how to get a handle on millions and billions in the past, I said that there are various ways we can envisage these things, but a very useful one is to say that if you take somebody who's earning £25,000 a year, pounds or dollars or euros or whatever it might be. They've got a working life of 40 years. Their total income over that lifetime is a million.

We could say, as a rule of thumb, that a million pounds or a million dollars is the lifetime earnings of a typical individual. You might want to play around with that if you reckon the earnings rate is a bit lower, a bit higher or the lifetime. But that's a good order of magnitude.

It seems to be in line with the stated averages for what people typically earn…

Yeah, anyway, so then if you move up to a billion, then obviously this is the lifetime earnings of a thousand people. It would be, let's say, the entire population of a fairly large village, a thousand people. A billion pounds or a billion dollars would be the equivalent of what that whole population earned.

Given that trillions have been cropping up lately, extending this to a trillion would represent the lifetime earnings of a million people. In other words, in a substantial city, the entire earnings of that city for a lifetime adds up to a trillion.

So in light of that, let's look at the various debts that are running about in the United States. The US federal debt outstanding is just under $37 trillion. The way things are going it won't take long to get it past that number. Then on top of that, you've got the total municipal debt. That's bonds issued by cities and urban and rural authorities across the country. So that's another four trillion.

Then you've got debt bonds issued by individual states. California alone is 1.6 trillion. That's significantly larger than the next largest single state, which is Illinois. But two trillion for the total of all of the 52 states would be a very conservative estimate. So I put that in at 2 trillion.

Then you've got US corporate bonds, debt issued by large corporations like General Motors and IBM and so forth, whereby they borrow money for a fixed period of time from investors. They agree to pay a rate of interest that is higher than the government rate. Some people might opt for this to earn a larger income, but they should be aware that, as a private financial organisation, it may not be as reliable as the government. Although the government is probably not very reliable at the moment!

Anyway, the total of the US corporate bond issues is 10.5 trillion. Then on top of that, you've got the US household debt, debt owned by the general population, credit cards, bank overdrafts, car loans, and mortgages. That's another 18.2 trillion.

So when you add that all up, it comes to 72 trillion. So if you then compare that with the US population of 340 million, what this amounts to is that the total outstanding debt in the United States is approximately 20% of the entire lifetime earnings of the entire population.

Looked at in those terms, it clearly is beyond the bounds of possibility that that is something which is ever going to be repaid in the normal sense. You know, if I borrowed a hundred pounds off you because I was a bit short one month and said I'd pay you back the next month, that would be the normal way we think about debt. But when you've got debt which is completely out of proportion to any chance of repayment, such as that across the whole of the United States. It's just not going to happen.

No, I think that was never the intention.

Well, of course, that's another whole point. I'll do a similar exercise next week for Britain. Of course, Britain had a substantial amount of debt on undated bonds, issued in the 19th or early 20th century, when British government obligations were considered as good as gold.

They could have kept that rolling, but some financial genius in the treasury decided to redeem them at a time when two and a half per cent seemed an excessive rate of interest because temporarily it was below that. Not included in those figures are social security obligations, Medicaid, Medicare, and state and federal pension obligations, none of which are included in that figure. That is a form of debt which is not even included in that figure.

So there's either going to be a default at some stage or there is going to be inflation on a much more massive scale than the inflation that we've seen over the last few decades, which will in the end bring the obligations down to nothing.

Of course, a lot of this debt is held by Americans themselves, but a lot of it has been held by other trading parties around the world, in particular the oil producing states and in particular China, because for the last 30 years that China's been accelerating its economic and industrial expansion and selling goods to United States and other parts of the world. If I want to buy anything from China, I have to pay in United States dollars. So I've got to change my pounds to dollars and then send the dollars to China.

They have been, of course, recycling these by, for the most part, buying United States Treasury bonds. So they've been lending that money back to the United States government, or they've been buying significant but minority shares in US industries. Of course, this presented them with something of a dilemma when, over the last few years, they decided this is possibly no longer looking like a sound investment.

Had they dumped their treasury bonds it would have crashed the prices of the securities. So they didn't do that. But of course, all of these treasury bonds have an expiry date when they have to be repaid. The US Treasury has been rolling over its debt by issuing new bond issues, hoping that the people who sell the expired bonds will buy the new ones. This approach has generally held up over the past couple of decades.

Of course, the unfortunate thing is that over the last year or so, the interest rates have risen. So although they might be able to issue an amount of debt, they're having to issue it at a higher rate of interest. So, this is draining the US federal economy at an increasingly rapid rate. However, overseas bondholders, particularly China, have been cashing in their expiring bonds and saying, “thank you very much, but we’re not buying the new issues.”

The brokers responsible for selling these bonds are increasingly struggling to find buyers. What the Chinese have been doing instead is they've been investing internally. They've been investing in numerous countries around the world.

This, I would say, is genuine investment. It's building roads, railways, viaducts, oil refineries, and water purification plants across large areas of the underdeveloped world. Of course, this has also rattled the United States Washington establishment because they are jumping up and down complaining about the fact that China and Russia are exerting undue influence in Africa, for example. Many African countries are beginning to realise which side their bread's buttered on.

That was pretty much what I wanted to say today for my summary of where we're at. Any thoughts?

Yeah, it ties quite closely to last week's discussion about the BRICS nations. But the clear emergence of a multipolar world and people coming to separate arrangements outside of the US dollar. So we are seeing a continuation of that.

What do you make of the assertion that if all of this debt were just wiped off, that essentially all money would disappear? In other words, why can't we just wipe off the debts? That's happened in the past in the form of debt jubilees.

Deby jubilees were pursued as a deliberate social stabilisation in the ancient world. That was part of certainly the Judaic code that there would be a Jubilee every 50 years or every seven times seven years, which was 49 years when debts would be written off and slaves would be freed because there was a recognition that as a matter of practicality having the majority of the population in hock to a small minority was socially destabilising.

Whereas our current rulers do not care about such trivialities!

Exactly. But sooner or later, equilibrium will be restored one way or another.

How much of what's going on, for instance inflation, do you think is being put in place deliberately? Or is it more like a runaway train that can't be stopped?

I think it's a runaway train that can't be stopped.

Anybody who thinks deeply about this knows that it's not a sustainable situation. At the same time, everybody concerned hopes that it will be somebody else's problem later rather than theirs in some impending present moment. Does that make sense?

I guess to take away from this episode, when millions, billions and trillions get thrown about, you make this mental heuristic that a trillion is a few billion, but it's not. It's many, many, many times more. A thousand times more. So having that mental visualisation of the village versus the city is essentially quite helpful.

Yeah it's a thousand billion.

Good, OK, well, we'll hopefully be back next week with some more comments on the more insane goings on.

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

We're going to talk a little bit about a book called the Mighty Micro?

This is a book written in 1979. As far as I was concerned, he was preaching to the converted. I'd already been using microcomputers and indeed designing with microprocessors for two or three years at the time the book came out. But I've kept it on the shelf, and I pull it down from time to time to remind myself of the extraordinary changes that we've experienced over the last 46 years since it was written.

1979 was really the outset of macro computing as well, wasn't it?

I'd been working with them for two or three years, but they were completely off most people's radar. In fact, in 1979, I was a co-director and part-owner of an Apple dealership, which could have...

Which I think we discussed previously on an episode about “all the money I could have made but didn't!”

Quite so. Anyway, two things are interesting looking at this, but one is the way he tentatively speculates about all sorts of things that may be possible. Pretty well all of those on a technical and development front have now happened. They've exceeded what he predicted, and most of these we've just got accustomed to. It's very interesting to hear him cautiously suggest the possibility that these things were going to happen and continually reassure the readers that although this sounds like science fiction, it isn't really. Even the laborious way that he speculates about the fact that we might not have to write letters to each other anymore because we can sit down at a computer and type something in which can be printed off at the other end.

I’ve got friends who don't even speak on the telephone. They just send each other voice notes on WhatsApp, and that's how they communicate.

Right, well, best of luck! Do they ever meet in person?

Yeah, it doesn't bode well. Well, sometimes, yeah. But I don't know. It's not how I choose to operate. But there we go.

However, there are also some ironic aspects on the social, economic, and political fronts that he turned out to have been wildly overoptimistic about. He discusses the idea that everything will become significantly more efficient, rendering the current level of work unnecessary. He says, the first practical evidence of this shift will be reflected in a cut in the working week to an average of 30 hours, a retirement option with strong inducements at 55 or even 50, and annual vacations of at least six working weeks. In tandem with these questions must come the first significant questioning of the work ethic, leaving aside a discussion of the use to which people will put their increased non-working life. The notion is that it is morally reprehensible not to work hard all the time. The idea that the devil finds work for idle hands to do is deeply ingrained in our culture. It would have been very nice if we had had a 30-hour working week.

Sounds great. Yeah. He underestimated the determination of the world's billionaires to work everyone into the earth!

On a practical level, if we could sort out the psychological and political dimensions of it, the possibility of a much more satisfactory existence than the one that most of us are experiencing now is very real.

I'm further reflecting on some of the things we discussed in the last few episodes about the various threads of narrative that are going on on the planet at the moment. One of those in last week's recording, I alluded to the fact that Trump's attempt to backpedal on the revelations about the Epstein case was beginning to backfire on him. I was saying that it's very difficult. You said it was pretty much par for the course that some politicians make promises to get elected and then discard them. But he didn't even do a very good job of discarding it, starting off by announcing that there were revelations on the way and then trying to backpedal suddenly.

It just astounds me that this has happened twice as well. This all happened in 2016. How many times do we have to go around the merry-go-round to learn that the people making promises during elections do not have our best interests at heart?

Well, there is that, but the most astonishing bit of the misjudgement is to imagine that having gone into office and made various announcements to the fact this was going ahead and then suddenly decide that it isn't, he completely failed to realise how much that was going to enrage everybody, particularly a large proportion of his own supporters. Last week, I felt that he couldn't have possibly been involved in the sexual manipulation of underage people himself, even if his friendship with Epstein was pretty suspect. However, what has emerged over the last few days is a torrent of accusations, repeated on various channels, particularly on YouTube, which is the most important one because it is widely viewed.

The proportion of people who are seriously questioning mainstream media narratives has increased. I don't know what proportion of the population that is, but the ones who are serious about it disregard YouTube at least. But it's worth looking at YouTube from the point of view that this has got a far bigger audience reach than Substack and Odyssey and Rumble, and things like that.

It's clearly an approved narrative.

Well, it certainly hasn't been clamped down yet.

Obviously, the powers that be want that message to get out, otherwise those videos would, like many of us, contravene community guidelines…

Yep. Anyway, I cannot believe he can survive this, even with the thick skin we know Trump has. On the other fronts, it's difficult to know where to start. Still, one of the things I've been reflecting on is that a lot of aspects of the goings on in the world which appear to be entirely distinct, like the Israeli behaviour towards the Palestinians, like the Ukraine and Russia conflict, like the unravelling of the American dollar-centric hold on world trade and world economics. They are all in a way different aspects of the same process. Does that make sense?

Yes, these are symptoms, not necessarily independent things that are just happening. Maybe symptoms of the same root metaphors that we are living under and operating by. Perhaps these root metaphors have been at work for hundreds of years and are still manifesting in this way here.

Yeah. Meanwhile, the government seems to be hell-bent on self-destruction. The mere idea of arming ourselves and taking up a combative stance towards Russia, which is the only way you put the latest treaty between the UK and Germany. To the best of my knowledge, it hasn't even been discussed in Parliament. It seems that Keir Starmer just decided to go off and sign it on his own initiative, as far as I can tell.

Apart from the fact that it strikes me, it should be obvious to any sane human being that any war is something that should be avoided at all costs. Certainly, rushing into potential conflict with someone whose military resources completely dwarf one's own seems to be the height of recklessness on practical terms, much less morality.

It'd be like the financial crisis though, wouldn't it? Think of all the profits BlackRock would make rebuilding everything afterwards!

Well, if there is anything left to rebuild.

Yeah, that's it.

So once again, we just have to watch this space, watch it unfold and see how it goes. The only ray of hope I can see is that America becomes impotent by running out of cash and running out of credit before they unleash the end of the world. Or whether they might, that might prompt them to rush ahead and do just that.

Well, it certainly feels like things are speeding up, doesn't it?

The other thing that is interesting I was having a look in the Observer came out on Sunday and there's a whole lot of stuff about Starmer and there's one pretty well whole page article saying essentially that his own supporters in this country may not be fully behind him, but he's widely respected in international circles for his diplomatic moves. Well, I don't know. I would have thought he was widely derided internationally, but who knows?

Whoever wrote that needs to lay off the spice!

Haha, exactly.

As we've discussed before, most people are underwater as far as their own personal balance sheet goes. This again is something that wasn't the case 50 years ago.

Yes, if you consider the amount of work required or the value you'd have to provide to achieve the same outcomes, it's not even remotely comparable.

Unless you've found a high-growth, highly leveraged way of operating, such as leveraging technology or AI, or building a network that connects people together. I don't know if you've read Perry Marshall's emails today, but he outlined three businesses that would be immune to developments in AI.

One was building a platform, in other words, making use of AI. One was building a network that connects people together. And one was providing a service that has some human touch that AI cannot automate. So, if you have to decide strategically how to invest your efforts, whether in employment or business, then those three areas sound good to me.

No, I haven't read that yet. I'll take a look at it.

Very good, we'll catch up next week.

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

The news this week has been dominated by Trump backtracking on his commitment to be fully transparent about what was going on with Jeffrey Epstein.

Do you think he's on the list, presumably?

It's undeniable that he was friends with Jeffrey Epstein for 10 or 15 years. According to his biographer, they fell out not over any misgivings about what might have been going on with Epstein's sexual escapades, but over a difference of opinion over a rivalry over some real estate deal that they were both involved with. Whether that's true or not, I'm unsure. I thought it was extraordinary that Trump made the offer to come clean about Epstein, bearing in mind that it was open knowledge that he and Epstein had been on very friendly terms for a number of years.

He was on the flight logs...

I can't believe that he would have even made that offer had he been seriously implicated in anything likely to be revealed personally. The two main theories that have come up as to why he suddenly, having made that offer, decided to backtrack on it is either that it had been drawn to his attention that a whole lot of people that he didn't want to embarrass might be implicated in unsavoury goings on there, or that he decided it would be more advantageous to him to continue with being able to blackmail or coerce various people who were involved if the details remain secret rather than coming out into the public domain. Either of those seems plausible to me. What mystifies me is that he didn't foresee the difficulties in fulfilling that promise or the fact that the general public, including many of his supporters, would react so violently to the sudden reversal of the activity on that front.

Yeah, I agree. I think it's quite an obvious bait and switch pre and post-election. I think paying quite obvious lip service to whatever was said to get voted in. Whether someone is pulling the strings above him or whatever goes back to the usual questions of who's really in charge?

Ghislaine Maxwell remains the only person in prison in the world for human trafficking to nobody!

He clearly underestimated the determination of the general public to demand justice on these particular issues.

It's obvious also that the secret services, the intelligence services, are heavily involved with this. It's well known that MI6 and the CIA on Mossad have sexual blackmailers as one of their main weapons in their armoury to pursue their own goals.

The revelations that have come out over the Kennedy assassination have had less impact on public sentiment than I would have expected.

The apathy is quite astounding, isn't it?

I expected that that would cause much more of a public outcry.

You know, it's now... It's now been made abundantly clear that the CIA was involved with the assassination of their own head of state and was seriously involved in the cover-up afterwards.

Which is old news to anyone of a conspiratorial bent. However, it appears to me that for many people, if it's not literally on BBC News or written in The Guardian, it's as if it never happened. I don't know how much clearer it has to be.

Anna Paulina Luna, who has done such good work uncovering all the details, is also totally committed to revelations about Epstein, which is in itself quite interesting. It'd be interesting to see if that brings her out of favour with Donald Trump.

But once again, we could say that the parallel with the United States at this point in history is very much reminiscent of the state of the British Empire and, for that matter, the French one in 1914. Although Germany was blamed for starting the First World War, it was clear that the British had a strong interest in restraining Germany, which was rapidly overtaking Britain as a dominant industrial power.

Many of these issues appear to stem from geopolitical control rather than the reasons they are actually given.

Yeah. Now we've a situation where the United States has clearly fallen behind Russia in terms of industrial output, sophistication, technology, and infrastructure development. The railways in this country are a joke, but they're even more of a joke in the United States. Yeah, the trains still chug along at 50 miles an hour. I'm surprised they're not burning logs. So there we are. But of course, the worrying thing is that Britain and France didn't have nuclear weapons in 1914, and the United States does now. When all of the other attempts to bring the situation under control to their liking fail, you know, there seems to be a real possibility that they might go, oh, well, let's go for broke, which of course would be catastrophic for all of us. Alarming times we're moving through.

Amtrak is the biggest joke in the United States.

Another thing is that in the early 19th century, as bankers and industrialists rose to prominence and prosperity, British industry could produce a wide range of goods much more cheaply than other countries could. They could then export those goods, import food, and import any raw materials that we couldn't source ourselves. The traditional ruling classes, which had been the landowners, were alarmed by this prospect. In particular, they didn't want cheap imported grain entering the country and undercutting what they could earn from their landholdings and the rents they could charge their tenant farmers. So there was an attempt to impose tariffs on imported corn. David Ricardo, an economist from the banking class, was strongly in favour of free trade.

It took 30 years of squabbling and going back and forth before we eventually abolished the Corn Laws and introduced a free trade regime worldwide. We now have a very similar situation in the United States, where the entire economy has been undercut and effectively deindustrialised, apart from the manufacture of weapons. Essentially, this is a form of rent seeking. It's a form of charging interest for money. It's making money by moving things around, conducting financial transactions, rather than by actually producing goods and trading them.

All of this talk about tariffs is likely to increase the costs to American consumers and, by extension, to American industry. They've only just woken up to the fact that a lot of the raw materials that they need, even to make their weapons systems, come from China, which is ironic.

So, the world's in flux. More and more countries are aligning themselves with China. China has experienced an enormous increase in the prosperity of its citizens. It took me a while to realise that the China we have today is not at all the China of our imagination from the Chairman Mao years and the great leap forward in the Cultural Revolution and poverty-stricken masses. A considerable proportion has been moved from landless peasants into some kind of middle-class existence. There's very little sign that the Chinese population are unhappy with their leadership. It looks coercive to us. However, it appears that what the Chinese population strives for more than anything is stability, and their current leadership has delivered that to them, along with

Because they invested heavily in educating their workforce, sending them abroad to Western universities, amongst other things, they managed to provide a whole level of competence which has faded out in this country and perhaps even more drastically in America. Those are the things to look out for. Additionally, the shift away from reliance on the dollar as an international reserve currency and a key component of the global trading system could occur much more rapidly than many people anticipate.

There could be a tipping point in the chain of events.

Okay, that's my review for this week. Once again, let's hope we're still here in time for next week's broadcast.

Depending on how quickly I get this episode out, we are talking on Sunday evening as well with a free live discussion on Zoom (register here).

Yeah, by all means, bring any questions you have or raise any topics for discussion when we meet on Sunday.

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

Okay, so it’s the 10th of July. It's a full moon rising today or tomorrow. We'll review some of the contemporary events insofar as they're likely to have an impact on your finances.

How much importance do you put on the changing of the moon by the way? I know some people who organise their lives around it, and many others who just think it's woo woo. I wondered where you stood on these things. It's quite hard to know, is my stance.

Yeah, absolutely. As I've said before, I'm agnostic about most things in principle. Even things I'm 99% certain of, I'm open to seeing evidence which causes me to revise my view. However, if it's under 99%, I'd be very surprised if such evidence appeared. The impact of the moon, I don't know.

My subjective impression is that quite often, around a full moon, the psychic tension peaks. There could be all types of really mundane, prosaic explanations for that. The mere fact that it's a lot brighter at night and very few people have completely blacked out bedrooms that makes it that bit more difficult to sleep. That could be a factor.

It could just be a placebo effect as well, where if you think it makes a difference, then it probably does.

Yeah, it could be that, too. Although the placebo effect is often overrated when it's used as a dismissal that there's anything real going on.

This touches on a point which is often not nearly as widely realised as it ought to be, which is that looking for causes and effects is almost invariably an oversimplification because anything which is non-trivial. This certainly applies to all of finance, all of markets, all of governments, all of politics, all of public opinion, as well as, you know, more concrete things like population growth or reduction, food supplies, energy supplies, prices of things.

All of these are part of the dynamic system, which consists of multiple nested feedback loops. So consequently, to choose one factor in a situation, assume that it is the cause of something else and that there's a cause and effect. It may well be, but it's itself the cause of something else, which is the cause of something else. Before you've gone too many times around the chain, it's going to be the cause of the thing that you think is causing the effect. Does that make sense? Was that clear?

I once read someone describe homo sapiens should be called homo explanicusbecause we just go through trying to assign explanations for things that may be quite complicated. We then create a story, narrative, and worldview based on that, which may have some directional accuracy, but it's never completely accurate.

Yep, that is absolutely the case. That ties into George Soros's key insight on reflexivity, that markets go up because some people think that they're going to go up, which makes them go up, which makes more people think they're going to go up and so on. So you get that feedback loop.

Until it becomes clear that it's overshot any realistic possible outcome, at which point the same thing goes into reverse and usually much more rapidly. That is a general factor of any dynamic system. As we've discussed before, that's built into the model of the limits to growth. We clearly are in overshoot on a number of fronts.

This is one major perspective on trying to make sense of what's going on in the world at the moment. Another major perspective on it is that the American Empire is clearly in its latter phase. One of the things that always happens in the latter phase of empires is that the people responsible for operating the empire are in acute denial of this.

Somebody was pointing out the other day that America hasn't fought a war against any opponent which is remotely comparable in strength and organisation since 1945. It's been at war continuously somewhere or other in between, invariably in a very unequal context.

That leaves amongst the warmongers in the American establishment, which is still in the ascendant...

I saw that Trump had been nominated by Netanyahu for the Nobel Peace Prize!

You couldn't make it up, could you? That was one of the more ridiculous events of recent days.

Caitlin Johnson's newsletter today raised a very interesting perspective on it. It says the Empire is a non-stop insult to our intelligence. Marco Rubio just denounced Francesca Albanese, the UN rapporteur on the Israeli Holocaust in Gaza. Of course, the UK government has listed Palestine Action as a terrorist group.

Meanwhile, HDS, which is the Al-Qaeda proxy running the Syrian government, has now just been delisted as a terrorist group. So, you put all those things together, it's certainly reaching the point that we keep thinking we've reached where satire is no longer possible, because nothing is more absurd than what's going on in the real world.

Yeah, I definitely, given that I have some ambitions to write novels, I don't think I can make this s**t up.

No. Incidentally, talking of novels, I just read an Ian Banks one. It must have been one of his last, I should think. It's called Transition. Have you been a follower of Ian Banks at all?

No, I'm not familiar.

It was very interesting. I couldn't help feeling it was an allegory for the Deep State. I won't go into that; we'll get too far off track. That's the first novel I've read in a long long time. I've mostly been reading non-fiction of one sort or another, as anything is non-fiction.

BRICS Summit

So, in the past week, they completed the BRICS summit. By all of the accounts that I find credible, it was a considerable success. In the Western press, there have been the usual attempts to marginalise it and discredit it. This is obviously going to be a very significant development in terms of world trade. It's primarily world trade.

Certainly, what's called the global south, the ex-colonial countries seem to be putting a great deal of faith in this as an avenue to the real prosperity that they thought when they attained their nominal independence from the colonial empires...

If not financial independence, saddled by loans and all sorts of things.

Exactly. The really brilliant speech by Lavrov, about a 30-minute speech followed by 15 minutes of questions and answers. That's available in full on the YouTube channel from the Hindustan Times. It's a very sound investment of 45 minutes or less, depending on the speed you tend to listen to these things.

What he says appears to me, A, to make sense and B, to be absolutely sincerely meant. I listen to what everybody says, whether they're people that I'm sympathetic to or not. I think it's more important that we listen to people we disagree with. First of all, hear what's going on outside our own particular chosen chamber. Secondly, because it's conceivable that even if somebody that I'm completely unsympathetic to might have something to say, which shifts my opinion or my perspective to some degree. But also it's deeply fascinating.

There are two things that I'm on the lookout for when I listen to what anybody has to say, particularly anybody in a position of political power or influence or financial power or influence. The first thing I'm looking for is, do I get the impression that this person sincerely believes what he's saying, or is he deliberately fabricating it to serve some other agenda? Definitely with Lavrov, I haven't seen a single thing which suggests to me that he's making stuff up.

The second thing that I'm on the lookout for is, assuming they are sincere, do I believe that they are significantly mistaken in the position that they've embraced? If I believe that they're sincere and basing their assertions and opinions on, as best I can judge, an accurate reading of events, I think they're well worth listening to and well worth taking on board.

One of the things that he said and that Putin has said as well over and over again is that the world could work a lot better by adhering to the charter of the United Nations, which we've all nominally signed up for. Clearly, the Americans cynically disregard at every turn. People have to look at the record and make up their own minds whether they think the Russians and the Chinese disregard that or whether they more broadly adhere to it.

You can understand why the BRICS Nations have backed the other horse.

Yeah, absolutely you can. They certainly haven't got anywhere by backing the other one. The events of the past month, even more than the past year or two, have ever seriously undermined the credibility of the West.

Seriously undermined people's ability to accept any public pronouncements from any of the Western nations without taking it with a pinch of salt. Which moves on to probably a very major factor, which we should all be investigating under our own best attempts at due diligence, which is the shift away from the dollar as a global reserve currency.

I wanted to say one other thing about the treatment in the Western press of the British nations. There was quite a lot made of the fact that neither Putin nor Xi Jinping attended it in person, which they are trying to put some spin on as reducing the credibility of the organisation or reducing the commitment of those individuals to it. You know, calling it, calling into question whether they are in some way having their power diminished or something.

It's perfectly understandable that heads of state no longer feel that it's necessary and that they can send other ministers. One of the notable developments at this BRICS summit was the increase in breakout groups. Meetings were held among experts from various countries to discuss matters. To make practical arrangements about various aspects of how they should work together more closely.

One of these is that an increasing amount of trade is being done by the various members and the associates of BRICS directly between one another in their own currencies. There was speculation a couple of years back that they were going to come up with their own currency. That was obviously entirely premature.

I believe that in the future, before the end of the century, there will be a single global currency used for all transactions, because of the ratio between international trade and internal trade that almost every country has. It makes no sense to have separate currencies per nation.

It doesn't serve working people to have all these crazy fluctuations and to have the gambling on it essentially, which is all it is.

Well apart from the fact that some people are doing very nicely by gambling on it, of course, cancelled out by the losses that other people make because it's a zero-sum game. The only real reason for the continuing attachment is that the governments of every country want to be able to manipulate their currency for their own purposes.

So it doesn't solve anything. I think we will make a full circle to having that currency defined by reference to gold, because that is ultimately the only reason, the only mechanism that has ever been implemented which really works to prevent abuse through devaluation of the currency.

Yeah, every fiat currency has crashed and burned, hasn't it?

Yeah, or even the supposedly non-Fiat currencies. The Roman Empire supposedly had a silver-based currency, but as time went on, they debased the metal in the coinage more and more. As they say, history doesn't repeat itself, but it rhymes.

Each time around, we've got a slightly different arrangement. So once again, we all need to take a look at that, see what our assets are denominated in, what is substantial, what is based on something and what is built on sand.

Do you think we're gonna get this big financial crash that has been promised for a while, possibly to then usher in digital ID and control matrix on top of that?

Whether or not it's clear that they would like to usher in a digital ID, it's also clear to me from my own experience…

It's being introduced anyway. There will be slow incentives coming in. Then they'll try to enforce it or make it mandatory. A proportion of the population will say no, which will likely undermine the whole thing. Hopefully, we'll end up with a system that actually works for everyone. But it's gonna be rocky.

Yeah, it's going to be rocky. That is one of my current themes. The outcomes are not set in stone. If they were, we'd be living in a much less interesting world. We all knew what was definitely going to be the future. So, it's just a question of watching it day by day.

The Ukraine war is clearly now set in for the long haul, barring some unexpected event. It seems as though both sides are absolutely locked into incompatible positions. Russia has said yet again that it would prefer a diplomatic solution. It's ready to talk anytime. If there isn't a diplomatic solution, it will be determined on the battlefield.

It doesn't serve the interests of the US empire to have a diplomatic solution, which means that a lot of people are going to be pointlessly fed into the meat grinder.

I'm amazed that they still have enough morale to continue the fight, but there you go. Of course, every day that the war goes on, not only are lives lost tragically on all sides, far more on the Ukrainian side than on the Russian one, but whoever they are, they're human beings. They've got wives, sons, daughters, mothers, partners.

But not only that, every day of warfare is a destruction of wealth. It's far easier to destroy things than to build them.

I've seen that with my kids. It's far easier to pull the house apart than it is to tidy everything up!

Yep, absolutely entropy. Anyway, a collection of observations today, but hopefully there’s something of interest to people in today’s discussion.

P.S. Don’t forget you can register here for Sunday’s live discussion.

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

Our topic today is the BRICS annual conference, which started a few days ago. We've seen several trends accelerating that we've been discussing for a while. So we thought we'd talk about those today. Where do we need to start?

As you are aware, it was originally a group of five nations: Brazil, India, Russia, China, and South Africa. Now, the main hitters there are Russia and China. Brazil has the presidency of BRICS this year, and that's where the summit has been held.

They've now got up to 15 members. Iran has just become a full member, which is highly significant given the conflict with Israel and the United States. In addition to the 15 members, they've another dozen or so associate members.

This now represents approximately half the world's population and a substantial portion of the global industrial and economic activity. There has been an accelerating process of arranging international payments between them and establishing a system that's entirely independent of the American banking system, the SWIFT international money transfer system, and the dollar-based trading mechanisms.

It's been given an extra impetus by the attack on Iran. It's no secret that America is desperate and growing increasingly desperate to preserve its privileges of the dollar being the world reserve currency and one which has no anchor in linkage to gold, which was the way that it was originally set up in 1945. So this could all accelerate very rapidly. The dual processes of them trading with each other in a way which is independent of that system.

De-dollarization of the world currency system. It's very likely that, for a while now, it has been obvious that the currency system they introduce will almost certainly be ultimately anchored to gold in some way or another, whether they eventually move towards a single currency or not. If they're trading with one another, they've got to have some mechanism for confidence that the value of one country's currency is going to have some stability over at least the time that it takes to complete delivery and payment, which of course with floating currencies around the world, it is one thing that nobody could depend upon.

It sounds like we're witnessing the emergence of a multipolar world before our eyes.

Yeah, exactly. Once again, both Russia and China have been very forthright in laying out their vision of what a more equitable future world would look like. It would certainly be one where no single state has the imperial dominion over everybody else that for the last half a century or three quarters of a century the United States has had.

Do you think this heralds the potential end of the dollar?

Well, it's the beginning of the end of the dollar as the global reserve currency, I would say, as a matter of clear fact.

It sounds a bit like when the pound was the global reserve currency and now it’s an irrelevant footnote really to anyone outside of Britain.

When the pound was the de facto reserve currency, it was a gold-based currency. Each pound was, at that time, worth about a quarter of an ounce of gold.

It's debatable now whether we have much gold at all!

Well, yes, as we've mentioned in the past, it was a spectacular own goal for Gordon Brown to think it was a smart move to flog off about half of Britain's gold reserves to raise some quick cash shortly before the accelerating climb in the gold price.

So, the attack on Iran once again shifted the urgency, I would imagine, for that country to make its own independent arrangements.

They're going to need some powerful friends if they're going to get through the coming times.

Clearly they've been astonishingly lax in their own intelligence gathering and security to allow such a preemptive strike. It really, even if one takes at face value the ostensible reason for it, which was to prevent Iran from developing a nuclear weapon, which is hardly plausible anyway.

It's far more likely that it was an attempt to weaken that regime and replace it with one that would be more amenable to American and allied interests. From that point of view, it clearly had a spectacularly opposite effect. Rather than triggering a revolt against the current regime, it's had the effect of uniting the population entirely behind the present government.

That's what happened in the Second World War as well? Was it Germany that first started bombing civilian centres or did Britain bomb German civilian centres?

No, it was the German tactic, the blitzkrieg, the attack on particularly London and Coventry and the various industrial centres of Britain, which was fought off in the Battle of Britain. But it then set the standard, and the bombing of civilian centres has been a constant feature of warfare ever since.

In the ancient world, there was a convention of not attacking civilians. It wasn't really for humanitarian reasons. It was because the civilian population of the defeated nation would become enslaved. So you didn't want to kill your potential future slaves!

Nonetheless, it was a convention right up until the point where Franco, with support from Mussolini and Hitler, bombed Guernica, which horrified the world. Yet, less than 10 years later, this had become standard practice on all sides of the conflict.

But the point is it never demoralises the civilian population. It tends to cause people to rally around the cause instead.

Yeah. Of course, there could not possibly have been any expectation of the effectiveness of Iran's response from a military point of view. I'm not clear whether the ceasefire that Trump declared after the 12 days of conflict has been universally observed. Israel's record of honouring ceasefire arrangements speaks for itself. Anyway, one result of that has been a much strengthening of whatever arrangements Russia and Iran had for universal support on the military front. Another factor is that within the country, there was a significant body of opinion that advocated for greater rapprochement with the West.

An ending of the sanctions regimes and everything. This is now almost completely collapsed. They've presented one united front. Even the people who were, if you like, pro-Western have now concluded, well, we plainly can't trust them. So once again, that has been completely counterproductive. So this means that there is a considerable focus on building up the alternative arrangements with the rest of the world, which is not part of the American-led factions. So all of these are working together.

Trump's attempt to bully the rest of the nations by imposing tariffs on them has again been counterproductive. The attitude of China has been, well, if the Americans don't want to buy our goods, we'll sell them to other people.

They just come to other arrangements with more amenable trading partners.

Yeah. The other thing is that we don't generally in the Western world recognise the enormous success that China and India have had in getting large segments of their population out of poverty and into something resembling at least a lower middle-class standard of living.

Across China, India, and Southeast Asia, we've a population that is close to 50% of the entire world's population, of which approximately 90% were in poverty 20 years ago. This has now been reduced from 90 percent to getting pretty close to half and the process is continuing to accelerate because, once again, economics is not a zero-sum game. It's something which is self-reinforcing. The more prosperous people you have, the more they have to spend and the more they have to spend, the more they create prosperity for other people, which is the opposite of what's been happening in Britain, America, Europe, and the English-speaking world generally.

Especially when they're not required to spend it in dollars.

Yeah, exactly!

The majority of the population has seen their standard of living decline steadily since around 1975.

It's been an astonishing period to live through and to witness first-hand. The stories of the standard of living that was taken for granted across the British population when I was a child, a teenager, or a young adult seem completely fanciful compared with today. Almost nobody seems to be able to live within their income.

Not only that, but we also have a disintegrating infrastructure, including potholes in the roads. We have all the visible signs of decay and a tiny elite drawing more and more wealth towards themselves, which is then effectively being taken out of circulation. Not only that, you look at the civil engineering projects in China, the bridges, the tunnels, the dams. It's quite extraordinary.

There’s nothing like that happening here.

No, exactly. So, this is the thing to keep an eye on, to see the self-reinforcing changes take place.

There are 193 member states in the United Nations, but the decisions made by the United Nations are paralysed by the fact that the five permanent members of the Security Council, Britain, France, Russia, China and the United States, have a veto power. So they can prevent any significant alteration of the structure of the United States, and they can prevent any resolution being adopted that any one of them objects to. The United States has a solid record of vetoing proposals which have near-universal acceptance by the rest of the members. This is obviously a source of great frustration, and it renders the entire thing, whatever the ideals were, impotent.

Because eventually people will just leave and form alternative arrangements.

This is becoming increasingly clear day by day, and it is unavoidable to notice.

—

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

We're talking about warfare today, which is definitely a relevant topic, given worldly goings on and the connection to the financial system. So what do we need to know?

We had the so-called 12 days of what you could call it, Israel and Iran, terminated by a ceasefire that Donald Trump is taking credit for. It's worth examining the broader implications of this. Before we get back to that, I wanted to review the nature of warfare, as this has been a phenomenon that has been ongoing for approximately 6,000 years.

In the ancient world, it was a straightforward case of basically robbery with violence on a grand scale. That's what it remains. In the ancient world, there were essentially two forms of wealth. One was land, productive agricultural land, and the other was a means of labouring on the land.

Rulers would initiate warfare to grab more land from their neighbours and to grab more men and women that they could turn into slaves. Obviously, there's always a cost of warfare that has to be borne before you reap the dividend from it.

Throughout history, they've either financed it by building up a war chest beforehand or hoping to obtain enough plunder as they go about it to finance it, or in some cases, by borrowing it. There have been moneylenders prepared to lend to kings to finance warfare. Sometimes, that has been a very unsatisfactory bargain from their point of view. Probably one of the most prominent cases in history is the Knights Templar who loaned money to King Philip of France to finance his crusades.

He decided that he either couldn't pay it back or didn't want to. Therefore, he accused the Knights Templars of heresy and had them burned at the stake.

Yeah, I was thinking of Edward the First, who raised money from the Italians for some of his crusades.

This is topical because we had the NATO summit meeting yesterday. All of our European governments duly fell into line and promised to spend 5% of GDP on so-called defence. Considering that we're spending two and a half percent and struggling to get that up to 2.6. How we're going to reach 5% without even deeper cuts in the things that taxpayers of this country want the government to be doing for them is something we just have to see.

Meanwhile, the warlike rhetoric is going up. We're told every day that we're under threat from the Russians. One of the conclusions that NATO came to is that they want to create a minefield all down the edge of the Russian border. Why they imagine that Russia is likely to trample across Europe, I can't imagine. There's not much sign of it.

We won't delve into the pros and cons of the war in Ukraine or its origins here, but it doesn't seem to be going very well at all for Ukraine. Zelensky attended the NATO meeting but wasn't allowed to participate in it. He had a very short meeting with Donald Trump, apparently offering to pay for more weapons from America. Whether that goes anywhere or not, we'll have to wait and see. As far as I understand, his government is bankrupt. It's unable to pay the war pensions for its deceased soldiers and is unable to service its debts. So where the money is going to come from to buy more weapons, we don't know.

Of course, we've had the dramatic attacks on Iran by Israel. This is a breach of international law by any standards. They sustained far more damage in return than they had ever expected. We don't know the full extent of that because it's been heavily censored.

The justification for this attack was alleged to be to prevent Iran from developing nuclear weapons, although there was no evidence that it was doing so. It has now reduced its level of cooperation with the International Atomic Energy Authority, which had been monitoring it. Not surprisingly, seeing as that authority clearly provided Israel with the intelligence it needed to know exactly where to target the nuclear facilities. Furthermore, the somewhat ambiguous report that they just put in was what provided the nominal excuse for the attack.

Bear in mind that whether Israel carried out the initial attack or not, this is a client state of the United States. However, there seems to be a lot of debate at the moment about whether the United States is in thrall to Israel or Israel's thrall to the United States. The US has had an attack on Iran as part of its agenda for at least the past 20 years. Currently, you need to view this within the context of the BRICS Alliance, which is gaining strength and credibility as an alternative to the American-dominated World Financial System. It's valid to examine all the other wars America has been involved in as part of its efforts to maintain its hegemony over the global financial system.

Yeah, it's never really about weapons of mass destruction or preventing some state from having nuclear weapons or whatever excuse they give. It's about geopolitical hegemony and control.

Iraq had been seriously considering accepting payments for its oil in euros rather than dollars. Some people regarded that as the real reason for the invasion of Iraq, the two invasions of Iraq. Gaddafi had been discussing the establishment of a Pan-African gold-based currency and offering to accept it as payment for Libya's oil.

I was listening to an interesting discussion this morning about the Yugoslav war in the early 90s. The story in the Western press was that Milosevic was a ruthless dictator. We had to attack Serbia to prevent its humanitarian purges against the other parts of Yugoslavia. In fact, when Yugoslavia broke up after the dissolution of the Soviet Union in 1991, the various fragments of it except Serbia, all adopted Western-oriented governments. Serbia was the only one that elected a communist government, which was a significant part of the motivation for the NATO intervention.

From a humanitarian point of view, it didn't improve the fortunes of any people who were subject to Serbian oppression because there were an extra 10,000 non-Serbian ethnics who were massacred after the bombing started. It's also interesting that this was the point at which Europeans wanted to resolve the difficulties in the former Yugoslavia through negotiation. Rather than doing so peacefully through the European Union, which was originally established to prevent war in Europe. It was taken over by NATO which resolved it with a bombing campaign. This shift significantly altered the approach from one of peacemaking to one of resolution by violence.

It’s one of the great inversions, isn't there, where all of these things get cached as a defence fund or a defence force. It's not defence when you're going and picking a fight, is it?

Exactly. One of the things that I would have thought was the lesson from what we've seen in Ukraine is that the whole project of warfare has become self-defeating insofar as you pour all this money into advanced war-making machinery of one sort or another, whether it's fighters, bombers, tanks, personnel carriers and the rest of it. These are destroyed at a far faster rate than they can be produced.

Another significant aspect of the picture is that we must consider the costs in terms of materials and energy, which involve colossal amounts of energy in the manufacture of high explosives, as well as in the delivery mechanisms for those explosives, whether it's shells, missiles, or bombs. This is an ultimately finite resource that is being taken away from activities that produce genuine benefits.

I wonder how much silver is required to produce a fighter jet.

Yeah exactly so. What's your reaction to what we've said so far?

There's a significant difference between the narrative of what they're saying and the actions that actually occur. I come back to what Caitlin Johnson says about keeping a close eye on the movements of both military hardware and troops around the world. That gives you a much better idea of what's going on.

This relates to what I was saying about the systems established at the end of the Second World War during the Bretton Woods Conference. America had been essentially undamaged by the war itself. Lost 150,000 troops compared with the 27 million that had been lost by Russia, civilians and troops in that war, and the absolute devastation right across Europe and the destruction. America then demanded repayment of the loans it had made to the Allies during the war, which further crippled the European economies. They then generously had the Marshall Plan, which was provided to the Europeans to spend with American manufacturers re-equipping and rebuilding themselves.

Seems to be a great financial incentive for war, not against war. Some of the perhaps worst people in the world stand to benefit greatly by more war happening, not less.

This system that America established after the Second World War was one in which the dollar was tightly linked to gold. Of course, that was terminated by Richard Nixon in 1972, when largely as a result of the Vietnam War, money was being spent overseas. Particularly Charles de Gaulle wanted to send the dollars back to the United States and cash them in for gold. So they suspended that convertibility.

Since then, America has been able to spend as freely as it wished all over the world. The recipients were expected to hold the dollars and reinvest them in the United States, either in the form of treasury bonds or perhaps commercial bonds or stocks and shares, but without achieving a controlling stake in any American enterprises. Now, over the last decade, it has become increasingly clear to the rest of the world that this is not a good idea, that the dollar is not going to maintain its value. They're not going to play.

That brings us back full circle to the attempts to coerce the rest of the world to fall into line by military means. This could become self-defeating very much more rapidly than anyone would realise.

It feels to me like they're trying to kick the can down the road even further, and there isn't any more road.

That is increasingly looking like it. I'm not sure how willingly the Russians, Chinese and Iranians have been investing in the weaponry and military equipment that they've built up, which has obviously been enormous and has completely shifted the balance. It's astonishing the sophistication of these weapons have been produced internally by countries that we hadn't thought of as being technologically sophisticated or advanced.

But they've realised that as a matter of realism, they have to be in a position to defend themselves forcefully. It's certainly going to be a very interesting year and a very frustrating time for all of us as we watch our standards of living decline in the pursuit of trying to catch up and match this. Across Europe, I can't imagine that the population can be at all looking forward to larger amounts of their taxation going on something which is certainly not contributing to our well-being. Arguably, it makes the world more dangerous rather than safer.

Most people just don't understand what level taxation really sits at, and then also how it's used. It's clear that if they want to invest money on roads or something, they just get the magic money machine spinning and creating more money for it. They don't need to tax for this, it's just to make everyone poor.

But yeah, if everyone understood that taxation was really at 90% when you look at it, spend it, you tax them on what you earn, and you tax them on what you spend. It's not going to be the things that they tell us it's going on, like emptying the bins, fixing the roads and all of the things that we want to pay taxes for. Income tax was only introduced in the Napoleonic Wars as a temporary measure. So, but yeah, it strikes me that taxation could be more like 10% to cover the things that we all agree are beneficial to be done centrally.

Yeah, that's right. Quite so. Exactly so. Right, that's about it for today.

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

We're talking about wealth creation and wealth acquisition today. Where do we need to begin?

Well, I was reflecting on the fact that, as we discussed in earlier issues, wealth is brought into existence by purposeful work. You could take a bunch of bricks and turn them into a house. You could take a bunch of wood and turn it into furniture. You could connect up some pipes and create a plumbing system for a home.

All of these would be examples of creating something that didn't exist before through the action of purposeful work. It would take a certain amount of materials, one or another, a certain amount of energy and some intentionality.

Once we've created something with our activity, we can then trade that with someone who has created different work. This is the core of all economic activity, as long as there has been any organised human society. As an analogy to the energy laws, there is a similar pair of laws in the realm of economics and wealth creation.

There's a constancy law which is essentially that at any given period of time, the amount of wealth which is created is going to be equal to the amount of wealth which is acquired by somebody else. Either the creator of the wealth keeps it, in which case they acquire it, or they trade it or engage in some other transaction with someone else, and then it is theirs. In a reasonably equitable, balanced, fair, just society, it would be traded with somebody who has created a more or less equivalent amount of wealth. Obviously, the equivalence is in the eyes of the beholder.

I was going to mention that, so different people, you know, one man's junk is another man's gold.

Yeah. Having said that, there's an analogy with the other energy law. We've got a conservation law, and then we've got the entropy law, which is essentially that every time there's an energy transaction, a proportion of it becomes unavailable for doing useful work. It dissipates as low-grade heat.

If an electric current is flowing down a wire, the wire has a certain amount of resistance, regardless of how small it is. That will dissipate a certain amount of energy in the form of heat. If you're pushing, doing any mechanical movement, there's going to be a certain amount of friction and rolling resistance and so forth again, which turns it into heat. So you never get 100% conversion.

The same thing applies to any trade or exchange of the products of one person's labour with another. There's always a certain amount of transactional cost of one or another, which doesn't quite even it out.

We need to look at is how it's working out in contemporary society. The transactional costs represent a significant portion of the wealth that has been created. This is because a great deal of it is going to either people who are managing to extract more value than they're bringing.

I was just thinking about all of the taxes that I pay!

Yeah. We've mentioned before that, if you look at it in a certain way, you might find that you've been taxed at a total rate of 95%. We're not just talking about the actual taxes paid to the government, but also the various layers of profit that exist between the manufacturing of, let's say, a bar of soap and the cost of that bar of soap to the eventual consumer.

Now, some of those are legitimate transactions. The retailer who sells it to you is going to make a living out of making it available to you in a convenient way. There's a certain amount of transportation involved, but also a vast amount of, to put it bluntly, sheer profiteering in the entire system. There is a significant amount of internal bureaucracy.

If there is a highly inefficient transfer like that or if it becomes deeply inequitable at some point, the system must either topple over or implode. It can't carry on forever.

Yeah, exactly. It's reached that point, you know. It's a worthwhile exercise to look around at the items in your supermarket cart and ask what it took to produce this bar of shaving soap, for example, or this carton of washing-up liquid, or whatever. You'll find that many of these products are primarily made of water, or they're composed mainly of very inexpensive oil or a combination of the two. They've traces of various active chemicals, which are often not expensive in themselves.

Very often, the actual genuine costs of an item that costs maybe three or four or five pounds or more might be literally pennies. Then you've the packaging, which is typically discarded at the end of the day. In many cases, I'm convinced that the packaging costs more than the contents. So we're all doing that. That does hold out a quite optimistic opportunity for the future, because these things could come full circle.

Small entrepreneurs have been priced out by large corporations that have economies of scale, which, on the face of it, we can't compete with. However, they also face diseconomies in terms of their superstructure, particularly in the centralisation of their manufacturing and distribution hubs, which necessitates the transportation of goods throughout the country.

There is a real opportunity for small, local, ethical, and honest businesses to move in and reestablish that territory. That is a worthwhile opportunity that we should start exploring and considering.

More of a localisation rather than a globalisation.

Yeah.

My mum buys some chocolate from a lady who lives near where my parents live, and she just serves the local area; it’s all handmade. It's easier to put together something that's more crafted and human, rather than having a mass-produced feel. There's probably a snap back on that as well, where people feel like they've lost that local connection.

Yeah. For instance, if you want really good-quality marmalade, it costs about £8 a kilogram in the shops. If you get the absolute most basic marmalade, it's still about £3 a kilogram. To make it yourself, the cost is approximately £1 per kilogram.

Okay, you've to use a bit of energy to cook it on the stove, and you've to spend some time doing it. But it's a big gap. That marmalade you make yourself for a pound a kilogram is going to be better than all but the very most luxurious top-end of the range. In the future, I see us doing far more of that.

I've got a habit of buying quite expensive local honeys. But I'll maybe skip the ‘manufacturing’ part myself!

Well, it'd be even cheaper if you had your own beehive!

Yeah, it would. It would be good to have some more bees. Full stop.

So that was what I was reflecting on. Perhaps if we all start looking around ourselves and conducting a quick, informal audit of what's gone into this and what that really ought to cost, it could be quite hopeful.

That could lead you down some wild rabbit holes when you start investigating what's in your toothpaste, where the ingredients come from, and how they make it.

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

I’d like to discuss how interest rates would work in a sane world, and how they have in fact been working for at least the last couple of decades. Plus, how this relates to the unfolding of geopolitical shifts that we're in the middle of.

Interest Rates…

In theory, the way it used to work, when I was working in the financial industry around 1970, prevailing interest rates were determined mainly by market perception. When I talk about interest rates, it applies to all these things: bank loans, mortgages, the rest of it.

I'm primarily discussing the bond market, particularly the government bond market. There are several elements in theory that lenders and borrowers can agree on regarding a rate of interest.

The core rate, if you like, is what the market is prepared to rent the use of money for a duration.

That obviously, like anything else in the market, is determined by supply and demand, the rate between people wanting to borrow money and people having surplus money to lend. Historically, the core rate has been approximately 2.5%. So if you had a million pounds that you'd lent out, you'd be getting £25,000 a year interest on it.

Additionally, you must consider a few other factors. One of them is the borrower's reliability. How confident the lender is that the borrower will continue to make the interest payments. Whether they're going to be in a position to repay the loan at the end of the period or over the period, depending on the way it's structured. That is, you have an insurance element.

Suppose a lender had 100 borrowers to whom they were lending money, and they expected that one in 20 of them would default. Then, they'd need to have an additional payment for the interest they were collecting. To reconcile them for the situation where one of those borrowers had defaulted. You can see that the more likely it would be to default the higher the interest rate that you'd want to allow for that.

Then, a third factor is whether the money you're going to get back will be worth as much as the money you lent out at the beginning of the period. Which of course, in times of inflation, you can guarantee that it isn't. So you'd have to take a view.

That would determine an additional premium that you'd have to allow, which obviously, if nobody knows the future, you'd have to take a view on what the likely rate of devaluation of the currency or rising prices is. Which is the way around you tend to look at it. Historically, government debt has been generally regarded as more stable and reliable for repayment and servicing than commercial debt.

For the two or three hundred years, the British government was able to issue bonds that typically paid out around the two and a half percent basic core money rental rate. They were even able to issue bonds which had no period during which they would be guaranteed to be redeemed. There were two main classes. One was called consols, short for a consolidated loan portfolio. They had a nominal interest rate of two and a half percent. The other one was a war loan, which was issued to fund the First World War, although the actual funding was a bit of a scam as it turned out. They had a nominal interest rate of three and a half percent.

Can we just cover why that was a scam?

It was a scam because, prior to the First World War, when it was issued, it was not taken up by members of the public who wanted to take advantage of the extra 1%. There wasn't a great deal of conviction among the property-owning classes of England that they knew how well the war would turn out. Of course, it turned out disastrously for Britain, even though we supposedly won it, or our group of allies won it.

So we're told anyway…

Yeah, Britain had greatly impoverished itself. It had also lost a great deal of its manpower disproportionately amongst the bright, well-educated young men who became junior officers and bravely led their platoons into assaults on machine gun nests. Of course, the enemy soldiers took great pains to shoot the officers if they could identify them.

Anyway, although the loan wasn't taken up very widely, the Bank of England loaned three and a half million pounds, which was the amount they were trying to raise, to two of its senior employees. These employees then used the loans to purchase £3 million worth of government stocks. So, from a balance sheet perspective, the Bank of England was square. From a balance sheet point of view, their senior executives were square.

Let's assume that the bank started out with whatever capital it had. At the end of this exercise, it had assets of three million pounds, consisting of the loans that it had lent to these two individuals. The individuals lodged the bond certificates with the bank as security for the loan. The bank had an asset in the form of the loan to these purchasers and a liability in the amount of the money it had lent. They had on the face of it an asset of three million pounds worth of government bonds and a liability of a three million pound loan to the bank, which cancel each other out, leaving them with a balance of zero on that account.

However, the government then had three million pounds to spend on weapons, ammunition, uniforms, boots, and paying the soldiers, which, of course, explains why by the time the war ended, the country was in a disastrous economic position. The attempts by Winston Churchill, who was the Chancellor of the Exchequer in the 1920s, to put Britain back on the gold standard at the pre-war rate caused an immediate run on the pound which led to the general strike. Anyway, so getting back...

These government bonds that were yielding two and a half or three and a half percent by 1970, we'd got something like inflation running at 10% or so. Of course, it went on and up from there. Consequently, nobody was going to pay a hundred pounds for a hundred pounds nominal version of British bonds that were only paying two and a half percent interest.

As a result, the interest rates prevailing on government bonds increased to around 16%, which meant that people's bank loans, consumer credit, and mortgages rose to even higher levels than that.

Consequently, if you've got a bond that pays a nominal 3.5%, and the prevailing rate of interest you're looking for is about 16%, you'd have to buy or sell that £100 nominal bond for about £16. That would yield approximately 16% on your investment.

Now, of course, people who bought bonds at that price in 1970 and hung onto them would have been able to see their price go up to over the £100 nominal in the early 2000s.

The British government thought it would be a smart move at this time of very low interest rates to redeem those bonds, as new government debt was being issued at around 2% in 2009 and 2010. So, bonds in the market that had a nominal interest rate of 4% were selling for £50 on the nominal £100 bond. Is that clear? How does that mechanism work? If the prevailing interest rate increases, the bond price decreases. If the prevailing interest rate decreases, the bond price increases.

Yeah, because the nominal bond price was fixed in the past.

Which will be the price when it's redeemed. Until very recently, that has been sustained. Of course, the way it's been sustained is by the Federal Reserve effectively printing more and more money and the other central banks doing likewise.

Yes, the “Magic Money Tree”...

Yeah. Of course, all good things must come to an end. Just recently, United States bonds have been downgraded from their AAA rating. The US Treasury is finding it increasingly difficult to attract buyers for new issues of bonds. At the same time, foreign US bondholders have been trying to strike a balance.

Probably looking at Russian bonds instead!

Well exactly. The holders, probably the biggest foreign holders of US bonds, are the Chinese. I don't know how they compare with the Saudis, but the Saudis have huge holdings, as do the other oil-exporting states, due to the arrangement that Kissinger made with them in the 1970s. They agreed to sell their oil for dollars and then use those dollars to buy various assets, primarily US treasury securities, because gold would not yield them any interest, and they would get interest payments on the government bonds.

Of course, this assumes that the purchasing power of the dollar at the end of the loan period will hold up and that the assets are sound. When the United States immediately confiscated Russian assets on the invasion of Ukraine, it must have given other US bondholders cause for thought. Well, maybe that could happen to me, too, which makes it a bit less attractive to hold them.

Meanwhile, to stimulate the economy, as they say, the Federal Reserve is attempting to keep interest rates low. Obviously, when interest rates go up, people have more outgoings, particularly if they're highly leveraged with a lot of borrowing. They don't have so much money to spend on goods and services.

To help keep the economy moving, the Federal Reserve has been attempting to keep interest rates low. It can only do this by flooding the market with more and more dollars. Of course, as it floods the market with more and more dollars, more and more people will be concerned about inflation.

So it could be that the confidence trick, really the only way I can describe it, whereby America has been buying goods from the rest of the world and paying them in this newly printed funny money without having to redress the balance, maybe coming to an end. Against this background, we've got 36 trillion of American government debt. If prevailing interest rates rise, the amount the American government will have to pay in interest will increase accordingly.

There are only two sources of government spending. It can either come from selling more government bonds or from taxation. The American population is probably not in a position to be paying more taxes, especially if they're subjected to rising prices in every direction.

The ability to refinance loans as they mature by issuing new bonds may simply not be available. Foreign holders of US bonds are in a difficult position. If they rush to sell their existing holdings, it will crash the price and reduce the return they can get from liquidating those bonds. However, if they don't, they may end up being saddled with them anyway, as the price plummets.

The real significance of this is that, because America has spent the last 20 years hollowing out its industrial base and manufacturing capabilities, it has been cheaper to do so in China...

Or wherever, yeah.

Or Mexico or Vietnam or wherever. America has very little to export apart from, well, I don't think it has a great agricultural produce surplus over what it needs to feed its population these days. The only other thing it has to export is arms.

Ironically, of course, it's not even getting cash for a lot of the arms that it's exporting because these are being subsidised by American taxpayers for ostensibly geopolitical reasons. Essentially, this is a transfer of wealth from the general population into the pockets of arms manufacturers. So we could well find that America simply no longer has the wherewithal to pay its government employees, to maintain its infrastructure, in particular to pay its military personnel, maintain all its overseas bases and continue to run that protection racket, to put it bluntly, which has been operating since the Second World War.

It's a globe-spanning setup as well, isn't it? If you think about all of the military bases across the world.

Yes, there are about 800 of them altogether. So, meanwhile, we've got Starmer and Macron and Scholz and Merz all suggesting that we should be ramping up our investment in our armaments, which, as we pointed out before, is not creating any wealth.

It is putting money in the pockets of the people who happen to be employees or contractors of the arms manufacturers, so that they can go out and spend. Unless we're actually producing the goods that they're going to buy, they'll be spending that abroad. That will be an additional drain on the economy. So my point is that these things could reinforce one another. It could unravel very much more rapidly than anybody seems to imagine.

Sounds like a perfect storm, doesn't it? The end of the road appears to be a lot closer than it seems.

I would say so. We'll watch this space.

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