The Breaking Point

by James Dale Davidson

  Bloomberg calculated that the overnight market movements after Brexit cost the world’s 400 richest people $127 billion. And I did some admittedly back-of-the-envelope exercises to tally other aspects of the market backwash from Brexit. Take the 11 percent drop in the value of the pound. It implied a loss of £172,004 million based on the reported size of the British M2 Money Supply. In other words, £172 billion vaporized in one night—about a quarter of a trillion dollars measured against of the Thursday, June 23, high price for the pound sterling.

  Of course, these calculations call out for multiple updates, as initial price movements stand to be reversed (or amplified) by subsequent market movements. For example, the first day of Brexit wiped £200 billion (about $273 billion) off the value of British stocks. Bank stocks were particularly hard hit (Barclay’s down 20.5 percent, with Royal Bank of Scotland plunging 27.5 percent), and they continued to weaken in subsequent trading sessions.

  Shortly before the vote, one of the United Kingdom’s wealthiest billionaires, Peter Hargreaves expressed confidence that leaving the EU would be good for British business in the long run. He said it would get British “butts in gear.” In an interview with Bloomberg, Hargreaves observed, “I have more money in the stock market than any other person in the UK. I have £2 billion in the UK stock market. No one has anything like that. Do you think I would be intent on leaving if I thought that was going to endanger my wealth?”

  Evidently, Hargreaves was not day-trading his £2 billion portfolio, but hoping to optimize its value over the long run. After the relief rally in stocks, Hargreaves big bet must look better than it did after the Brexit votes were tallied.

  Why Global Pandemonium?

  You might well ask yourself why a decision by British voters to back out of the European Union triggered trillions in losses in apparently unrelated markets. Why do stocks in Shanghai, Tokyo, and Sao Paulo plunge when the United Kingdom exits the European Union? Why should the UK vote pull billions from the pockets of holders of the South African rand? And why should the Chinese yuan plunge with the pound and the euro? Why indeed?

  The Gag Is Up

  The simplest answer is that Brexit hints that “the gag is up.” It says that the well-worn tricks of the establishment—bribes, propaganda, fear, and, yes, false flag dirty tricks—are no longer dependable recipes for bending the public to the will of the crony capitalist oligarchs. This has obvious consequences. It means that the status quo is shot. Kaput. Now it is only a matter of time—probably not long—until the crony capitalists lose control and the central bankers are sent packing.

  In other words, Brexit implies the end of the global system in which “fictitious capital” is promiscuously created by central banks to inflate the value of investment assets like stocks and real estate for the benefit of speculators—while the majority suffers with a real economy that is starved for capital. It means that the prospects for stock markets around the world will no longer be levitated far above the prospects of companies in the real economy by quantitative easing. More on that below.

  Jo Cox and the Tragedy of Brexit

  Before I delve further into the dark magic of monetary policy, I need to say that for me the real tragedy of Brexit was not the trillions of fiat dollars in market losses but the assassination of Helen Joanne “Jo” Cox, (Labour) Member of Parliament for Batley and Spen, who was brutally murdered on June 16, 2016, at the age of forty-one as she campaigned for the “Remain in the EU” referendum.

  Mrs. Cox, unlike so many of her fellow politicians, seen from a distance, seemed to be an admirable character. She was good looking and exceedingly intelligent (she made it through Cambridge as the equivalent of a scholarship student—the first member of her family to earn a college degree—while working odd jobs in a toothpaste factory). She was the mother of two young children, ages three and five, and she was a former leader of the international humanitarian charity Oxfam. Both inside and outside of Parliament, Jo Cox campaigned tirelessly for refugees and the downtrodden victims of the world. You would have been hard-pressed to identify another member of Parliament who would have been such a sympathetic figure to assassinate.

  And that’s where the tragedy lies. While I can’t prove it, I can’t shake the feeling that Jo Cox was sacrificed for nothing in an unsuccessful ploy by manipulators to change the public mood a week before the vote when polls showed Brexit gaining support.

  In the days immediately following her death, I suspected that this despicable act might actually have worked to push the Remain vote to victory. Even Nigel Farage, head of the UK Independence Party, lamented, “We had momentum until this terrible tragedy.”8 Still, after a brief deflection of the momentum in favor of Brexit, the Leave campaign refound its footing, and even Cox’s own constituency voted 55 percent to 45 percent to quit the EU. The manipulators did not realize how weak their position had become. Had they understood the unpopularity of the status quo, they might not have shot Jo Cox, because sadly, she died for nothing.

  Martin Armstrong, the renowned economist, drew the connection that must have occurred to many when news of Jo Cox’s murder crossed the wires: “There is disturbing opinion circulating that Jo Cox may have been assassinated to prevent a BREXIT vote. Many are starting to believe there is a conspiracy plot connecting the dots to ensure a sympathy vote to remain within the EU. People are pointing to the familiar tool of assassination often used to achieve political agendas.” Armstrong summarized that for the powers-that-be, “there’s too much at stake to allow Brexit.”9

  Whether the powers-that-be murdered her or not is unlikely ever to be known or publically acknowledged. All that can be confidently established is that she was assassinated at a time when the powers-that-be apparently had the maximum incentive to orchestrate a false flag dirty trick.

  In case you don’t know Armstrong, he is known for his theory that boom-bust cycles recur once every 3,141 days, or 8.6 years. (That is the number pi—approximately 3.14159 times 1,000.) Armstrong is also heralded for having become a self-made millionaire at the age of fifteen.

  When Greed Turns Deadly

  Armstrong’s cynical view of the establishment was no doubt burnished by the many years he spent in prison for contempt of court on what he considered to be trumped up charges. If you are a well-bred person of good will, you may recoil from the notion that the usual suspects among the powers-that-be could be implicated in murder to influence an election result. That is totally contrary to the underlying assumptions of civilized, democratic society. A depressing thought, to be sure, but it should hardly be a shock. The establishment has often revealed itself to be without scruples.

  I say that without pretending to understand the full ugliness of the covert chain of command by which the decision to kill Jo Cox could have been put into action. I have no idea how they can come up with the warped killer Thomas Mair, who has been charged with assassinating Cox. But I am equally sure that the inquest into her death will not come close to illuminating any “trade secrets” of covert action that could pin the blame on Mair’s handlers, much less on the evil calculus that set the crime in motion. They won’t investigate themselves.

  The story, for now, is that Mair was a mentally ill British nationalist with ties to pro-Apartheid and neo-Nazi groups. Witnesses who saw the murder say they heard Mair scream something to the effect of “put Britain first” before he stabbed her.

  He also had two letters printed in the South African magazine Patriot-in-Exile. He was quoted as saying, “I still have faith that the White Race will prevail, both in Britain and in South Africa, but I fear that it’s going to be a very long and very bloody struggle.”

  In a decision I’m sure someone is regretting, on the night before the attack, Mair visited an alternative therapy center in Birstall seeking treatment for depression and was told to come back the next day.

  So did Mair kill Jo Cox because he was a “Leave” sympathizer suffering a deep bout of depression? Or did the establishment use him, and
his troubled story, to try to create a scenario in which Britain would stay in the EU?

  We may never know.

  If you think about it further, don’t forget murder for financial gain is so common it is a cliché. CNBC has aired a long-running documentary series called American Greed. A number of its programs have detailed instances of murder for money. Among the episodes I was able to review, the average sum that seemed to inspire the featured homicides was $4,954,500. Some involved amounts as low as $174,000.

  If prominent people will resort to homicide over about $5 million, much less $174,000, is it really far-fetched to suppose that powerful interests would be equally unscrupulous when trillions of dollars hang in the balance? I don’t think so. Indeed, I am sure that whole countries could be wiped out for less.

  Brexit Is “the Tip of the Iceberg”—Greenspan

  Alan Greenspan was famous for making unintelligible pronouncements about the economy back when he was chairman of the Federal Reserve Board (1987–2006). In those days, the media hung on his every word. Parsing his famously garbled sentences became a high art. He must miss his lost status as a “Master of the Universe” because he has resorted to the ultimate “sneaky trick” to see himself more widely quoted. He actually flirted with talking sense. His sentences still don’t exactly parse. But if you listen closely, you can tell what he is talking about. And some of it is even true.

  When it came to Brexit, Greenspan told CNBC that it was the worst crisis he could recall. “There’s nothing like it. Brexit is only the tip of the iceberg.” He sees much more economic and market disruption to come. In my view, Greenspan correctly identified one of the crucial issues underlying the British decision to secede from the European Union. According to Greenspan, “It is caused essentially by output per hour in virtually every country slowing to a halt. The result of this is that real income is not going anywhere. This is causing a severe political problem.”10 He added, “We are in very early days of a crisis which has got a way to go.”

  Perhaps without intending, Greenspan pointed to an important aspect of the ongoing challenge you face. Collapse is a long-term process, not merely an episodic tribulation.

  “A Terrible Mistake”?

  Lest you forget that Greenspan was a high priest of the establishment, he went on to lament the fact the British people were given a voice to determine whether they wished to remain within the EU. He called the election a “terrible mistake.” Greenspan opined, “It didn’t have to happen.”

  Or did it?

  The Megapolitics of Devolution

  For many years, I have pointed out that big governments, much less a European super state, are anachronisms. This has been true for decades. The boundary forces that determine the scale at which violence can be successfully organized have decisively altered the logic of power. Since about 1950, the smaller party in asymmetric conflict has defeated the larger, ostensibly stronger power in wars the majority of the time.

  This is exactly what you should expect if you have your eyes open. Think about it. US military outlays (including military spending disguised in the budgets of other departments than Defense) exceed those of all other countries combined. Even so, the United States failed to defeat a peasant army in Vietnam. And more recently the United States proved woefully unsuccessful in combatting ragtag bands of squalid terrorists in Iraq and Afghanistan.

  Notwithstanding these spectacular failures, few have paused to consider what this implies for the architecture of government. We have had lots of navel gazing about “foreign-policy overreach,” and the limitations of “nation-building.” And the operatives of the Deep State have outdone themselves in dreaming up far-fetched rationalizations for multi-billion-dollar weapons systems like the Littoral Combat Ship, ostensibly meant to improve the dwindling effectiveness of combatting asymmetric threats (or weaker foes). But few have dared to wonder what the faltering projection of power tells us about the viability of legacy institutions of big government.

  You only need to look back a couple of hundred years into history to see that big government as it evolved in the twentieth century came along as a side effect of industrialism. There were no governments before the Industrial Revolution that spent even 10 percent of what current governments spend in real terms. They couldn’t. It was impossible.

  The feasibility of any government is inevitably tied to the underlying physical basis of the economy. No government can spend resources that do not exist. Big government only became feasible when factories powered by hydrocarbon energy permitted a vast increase in the value of the economy and thus the scale of warfare. Armies were outfitted with mass-produced weapons that could only be afforded by taxing away a big share of a rapidly growing economy. Competition in warfare at an industrial scale, as exemplified by World Wars I and II, required the capacity to mobilize vast resources that were beyond the reach of all but a big government.

  But that time is passed now. Current events clearly show that it is no longer necessary to maintain a vast industrial base to achieve military effectiveness. Governments in the Middle East struggle to keep the upper hand over small, highly motivated groups of fanatics like ISIS.

  Advantages to scale in the organization of violence have plunged, as they have in economic organization. The result has been a widening megapolitical disconnect between legacy institutions and the underlying physical and technological foundations of the economy. This is reflected in a chronic slowdown in economic growth, sky-rocketing government budget deficits, and the accumulation of unpayable debt.

  This is part of the reason for the triumph of crony capitalism. As the late Kenneth Boulding suggested, an all-but-inevitable consequence of the growth stall is a relentless effort by special interests to make government an institution for redistributing income away from the weak and toward the powerful. The advantages enjoyed by larger enterprises in lobbying and the protections they enjoy from the rigors of the market by their success in purchasing regulatory favors entail artificial returns to scale.

  The various expedients for disguising collapse—budget deficits, conjuring money out of thin air to finance malinvestment booms, crony capitalist rip-offs (antimarket regulations)—have the perverse effect of weakening the economy and making the ultimate collapse worse.

  Contrary to Alan Greenspan, it was hardly a “terrible mistake” that “didn’t have to happen” for the UK to withdraw from the EU. It was only a matter of time until some concatenation of events occasioned a crisis to bring the institutions of the status quo into better alignment with megapolitical conditions.

  The decentralization of production as digital information has come to play a larger role in the production process implies that ever-smaller units of government could be effective in providing the conditions for free market prosperity. Equally, this implies that diseconomies plague big governments.

  Free Trade Alliance or Big Government Cartel?

  That, in turn, helps explain why the European Union was created in the first place. Not simply as a free trade alliance as it is often described, but as a cartel to help shore up big governments by protecting them from competition. The late free market economist Murray Rothbard saw the EU as “part of a very long campaign to integrate and cartelize government in order to entrench the interventionist mixed economy. In Europe, the campaign culminated in the Maastricht Treaty, the attempt to impose a single currency and central bank on Europe and force its relatively free economies to rachet up their regulatory and welfare states.” Rothbard elaborated, “Brussels has forced low-tax European countries to raise their taxes to the Euro-average or to expand their welfare state in the name of ‘fairness,’ a ‘level playing field,’ and ‘upward harmonization.’”11

  In short, quoting Rothbard’s EU critique, “the socialistic Eurocrats have tried to get Europeans to surrender to the super-statism of the European Community.”

  The leaders of this enterprise were in no mood to see it derailed by popular revolt. Martin Schulz, president of the Europ
ean Parliament, expressed a brazen contempt for the views of the “little people.” Said Schulz, “The British have violated the rules. It is not the EU philosophy that the crowd can decide its fate.”

  Unless you are a tycoon in the upper fractions of the 1 percent, he is talking about you. Charming, isn’t it?

  “Bravo for Brexit”—David Stockman

  David Stockman took the opposite attitude to that of Alan Greenspan and Martin Schulz. Stockman weighed in with a “Bravo for Brexit,” pointing out:

  At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible.

  The central bankers and their compatriots at the EU, IMF, White House/Treasury, OECD, G-7 and the rest of the Bubble Finance apparatus have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity.12

  My old friend Marc Faber, speaking to CNBC, saw that “Brexit is a victory of ordinary people, common sense and people who are prepared to take responsibility for the sake of freedom against a political and financial elite that only cares if stocks go up or down and does not care about the interests of the average British citizen.”13

  Note the contrast between Greenspan’s view—that even permitting the British public the opportunity to decide on continued EU membership was a “terrible mistake”—and Stockman’s view—that it was a good thing to slam “the tyranny of the global financial elite.” Stockman goes on to declare, “The days of the Financial Elite’s rule are numbered.”