The inevitable is happening. The omnipresent socialism is reaping its fruits. Both developed countries and developing ones are battling with huge debt levels, budget deficits, and an overgrown public sector. The mechanism always looks the same: the government begins the term with low taxes, a small administration and then starts to give away money under the pretence of helping the poor. It doesn’t take long for the number of the poor to increase as authorities cannot make ends meet with ever bigger deficits. To cover them they borrow big sums. Of course, they have to pay for additional liabilities: more bureaucrats are employed to manage an ever bigger system of controls and amount of certificates, while in the fog of blurred legislation the multinational corporations have enough space to flourish and avoid taxes. Before anyone could stop this avalanche, it is too late to intervene. The society lured into a ‘free give away’ policy will vote for those who can outbid the opponent.
I understand that many articles on this portal may not have an overly optimistic tone. We are going to see another crisis which will make every meltdown before pale. The feature of every economic depression is a jump in the unemployment rate. The society stops spending, companies receive fewer orders and workers are fired, unemployment is on the rise, as a result, the society stops spending and so on.
Last month James Rickards increased his presence in the media. It coincides with him promoting his new book. I try to follow his thoughts and reports as he is connected with people in the central bank, the World Bank, and Pentagon circles.
What grabbed my attention is his thoughts about the shape of the future IMF governed the monetary system. Rickard’s is definitely not a prophet but where he draws the line may be similar to what we are going to see in the near future. What you will read is a combination of his suggestions, opinions of myself and people who I occasionally consult investment decisions with.
Hungary issued first bonds in Yuan
Viktor Orban tipped his hat towards Beijing. Bonds are worth only 1 bn CNY – 154 bn USD. Not only the amount of money is small but also the interest rate is high – 6.25%. If Budapest decided to use USD and then denominate their bonds thanks to swaps into Yuan, Orban could have saved even 1%.
This begs a question: if profit was not the goal, was all this a test to check demand for a new instrument? The decision is also a clear political signal in which direction (East or West) Hungary wants to intensify cooperation. Orban hopes to be included in the New Silk Road project and with weakening position of the US we can anticipate more demonstrations of this sort.
Goal of the Sino-Russian cooperation
First and foremost this collaboration has the political foundation but the economic part is also essential. After being isolated from a share of the European trade revenue Russia is in a bad spot. China due to the attempt to transform their economy from exporting powerhouse to one where consumption drives growth has to advance the relationship with Russia.
The XXth century was an example of the unequivocal dominance of the USA. For the last 100 years, many countries tried to liberate themselves from the auspices of the US. They were losing either financially or militarily. What we know from history is that every empire collapses under its own weight and the United States of America is no exception here.
No longer than a month ago our reader – Rafikol – touched on very important topic reminding me not to forget about people who are just starting building their capital.
"I have a big favour to ask of you, Trader. Can you write an article about investing small sums – let it be $200/month with medium to long term perspective. I’m thinking about equities, commodities, bonds and currencies”.
It was over a year ago when we first heard about solvency issues of the Austrian bank Hypo Alpe Adria. Six months and price of bonds dropped by half and the institution itself became bankrupt with 7.6 bn EUR deficit. You can point fingers and shift the blame but let us take a closer look at this patient and define the ‘cause of death’ which is more and more common these days.
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