This article begins with a glimpse into the current state of global leadership as central planners grapple with looming challenges. Here’s a brief list of some prominent figures in leadership today—and their shared burden.
Angela Merkel, Donald Tusk, Mario Draghi, Donald Trump, Jerome Powell, Shinzo Abe, Haruhiko Kuroda, Theresa May, Boris Johnson, Mark Carney, Xi Jinping, Emmanuel Macron, Vladimir Putin, Justin Trudeau, Juan Trump—and many others…
These leaders may be unaware, but they find themselves ensnared in a no-win scenario. They project past successes into the future, desperately trying to maintain the status quo. However, their attempts to sustain growth amidst the inexorable march of history are ultimately futile.
The political, financial, economic, and social systems that have upheld stability for the last 75 years—and arguably for the past 220—are increasingly at risk. No amount of policy changes, interest rate tweaks, trade tariffs, five-year plans, extraordinary measures, green initiatives, or technocratic finesse will deter this impending shift. The reality is, big government is scrambling to keep its foothold amidst an unyielding decline.
The existing structure—from social welfare systems to an overly complicated capital framework—is predicated on perpetual growth. Yet growth itself has proven to be elusive. While central planners might use the rapid creation of fake currency to delay the inevitable consequences of a pronounced growth cycle, they cannot completely avoid it.
In their effort to stave off decline, central planners are resorting to emergency measures. They are embracing severe currency devaluation, imposing price controls, instigating conflicts, and manipulating populist sentiments—among other strategies. Yet, amid their desperate tactics, they are also stumbling, slipping, and flailing. This is indeed a monumental folly that will be remembered.
Perpetual Stimulus
On Tuesday, German Chancellor Angela Merkel was visibly shaken as she listened to the national anthem. Standing alongside Ukrainian President Volodymyr Zelensky at a welcome ceremony in Berlin, the weight of her responsibilities was evident. Who could blame her?
After 14 years in office, Merkel has dedicated herself to preventing the fragmentation of the European project. Staring down the specter of crisis for so long takes a toll. Thankfully, a few glasses of water helped her regain her composure.
On the same day, European Central Bank President Mario “whatever it takes” Draghi reiterated his commitment to currency devaluation, aiming to inject perpetual stimulus into the Eurozone economy. Similar to Elizabeth Warren’s economic strategies, Draghi’s approach seeks to boost exports through the erosion of monetary value.
In response to Draghi’s statements, the European bond market surged dramatically. The yield on the German 10-year bund plummeted to a historic low of negative 32 basis points, while the yield on the 10-year French OAT briefly dipped into negative territory for the first time ever. And that’s not all…
Draghi’s comments also prompted President Trump to express his concerns in a Twitter post, stating:
“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have gotten away with this for years, along with China and others.”
Interestingly, Trump’s real target was not Draghi, but rather Fed Chair Jerome Powell.
Feeling the Heat of a Civilization on the Downside
On Wednesday, it was Powell’s turn to face the mounting pressures of a civilization on the decline. Trump, eager to see the dollar devalued and a cheap credit-fueled economic boom coincide with the November 3 election, has been openly criticizing Powell’s tightening policies.
Powell’s directive following the June FOMC meeting was to placate Trump while presenting an upbeat view of the economy. Preparing to release the FOMC statement, he displayed a Pucker Factor of 9 out of 10 on the military’s scale of tension. Nevertheless, he managed to complete the task without showing any outward signs of distress.
So far, Powell seems to have fulfilled his objective. The Federal Reserve opted to keep the federal funds rate between 2.25 and 2.5 percent, and to appease Trump further, he stated:
“The case for additional accommodation has strengthened.”
This assurance led both the credit and stock markets to rally. The yield on the 10-year Treasury note sank below 2 percent, and the S&P 500 reached a new closing high of 2,954, while the DOW hit yet another milestone below 27,000.
With sufficient monetary injection and misplaced optimism, financial markets can indeed soar. But what does it amount to if the underlying economy remains stagnant?
It’s crucial to remember that building real wealth requires diligence, wisdom, and hard work. The fact that central planners are circumventing these necessary steps with an avalanche of fake money is a testament to a deteriorating mindset.
At this stage, it seems only a matter of time before we experience the consequences of this grand folly.
Sincerely,
MN Gordon
for Economic Prism
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