The House of Cards

When I was a kid growing up with plaid bellbottoms and long hair in the 1970s there was a joke going around.

Q: What do South American countries and sports cars have in common.
A: RPMs.

Of course, RPMs is a acronym for revolutions per minute. The 1970s and 80s were a trying time for our neighbors south of the border. The age-old themes of poverty and corruption were egged on by a proxy fight between the U.S. and the Soviet Union.

Wall Fall Boom

But something happened in the late 1990s after the Soviet Union failed and the CIA moved on to other things. Starting perhaps with Chile and Brazil, South America endorsed the free market ideas from the Chicago School of Economics, which included smaller government and the privatization of national industries.

It led to what was called the “the Miracle of Chile” as the economy boomed.

In the 2000s the commodity super cycle drove up copper, oil, and agricultural items. Exports jumped. All of a sudden residents of South American slums or Favelas were buying refrigerators and microwaves. By 2011 the middle class grew by 50%, 63 million people climbed out of poverty.

Boom to Bust

Since then, things have changed. The pendulum has swung. Easy money exporting raw goods to China dried up as prices crashed. Fiscally conservative policies that drove foreign investment morphed into debt-generating socialist giveaways that increased government bloat, corruption, and debt.

According to the Washington Post:

On the streets of Venezuela, opponents of the left-wing government are squaring off against riot police nearly every day. In Paraguay, angry crowds sacked and firebombed the country’s parliament building after lawmakers tried to alter presidential term limits. Powerful unions in Argentina crippled the country’s transportation networks this month with a general strike.

Whether leftist or right-wing, the governments of Brazil, Colombia, Chile, Ecuador and even tiny French Guiana are all facing major demonstrations, abysmal approval ratings or both.

But times are hard everywhere. Turkey just gave its president dictatorial powers. And he seems hell-bent on returning Turkey to some ideal of a renewed Ottoman Empire with shades of Mussolini’s quest for a second Roman Empire.

The Philippine president has shot over 3,000 “drug dealers.” North Korea is on the brink of nuclear war.

In the United States people are beating each other bloody at Berkeley. In Chicago 29 people were shot in 18 hours.  Real estate prices in Baltimore and Ferguson have fallen. Every week there is another school shooting or a terrorist attack by tractor trailer.

The Hour is Late

Because, you see, all of this unrest happening in America and throughout the world is a side effect of a global economy in turmoil and on the brink of collapse.

It’s a symptom of the real sickness plaguing us.

It doesn’t matter if you’re Republican, Democrat, Libertarian… whatever.

If you’re a human being who hasn’t been living under a rock somewhere, you feel that something big and bad is about to happen.

Those “too big to fail” top-five largest financial institutions that were bailed out in 2008 are now 25% bigger than they were… and more dangerous than before.

Private businesses have taken on more debt than any other time in the past 13 years, and an astounding 863 companies had their credit ratings downgraded… the most since 2009.
Just today, home builder confidence numbers slumped and the Empire Fed announced that its manufacturing survey dropped.

Iconic American brands like Sears and Payless are heading to chapter 11.

And on top of that Donald Trump tanked the dollar. He bragged, “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me.”

The dollar index is now in a downtrend as investors take the Donald at his word.

We are currently $20 trillion in debt — a number so abstract that no one can comprehend it no matter how many Rhode Islands it fills.

The President wants to fix the economy by spending another $7 trillion on bridges and bombs.

According to the IMF global debt stands at $152 trillion. That is more than double the amount just 18 years ago. It also represents 225% of global GDP.

We are in the later stages of the longest bull market in history. Our debt is staggering. Political violence is growing.

The question is, when the next recession hits, and it will, what will the policy makers do? That’s easy. They will cut rates to negative and ramp up the printing press to $50 trillion in debt.

And when that fails…

It’s time to protect yourself.

All the best,