1920s Revisited? Or the Great Reset?

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The last week has seen me in reflective mood, 

I read a piece by Bob Bauman, who was reflecting on his studies as a student at Georgetown Universaity, back when most men wore suspenders to hold up their socks, and a side parting was de rigeur, with a neat square finish on the neck-line.

The first World War began as many are aware, when a disgruntled Serb, shot and killed Austro-Hungarian Archduke Franz Ferdinand (and his wife – Sophie)  in June 1914.  This particular Serb, was Serbian nationalist Gavrilo Princip, and this was the spark that ignited the war to end all wars, as it later became known.

His (Bauman’s) fascination with World War I though, went back even further, as his father fought in France after enlisting when he was 18 in Baltimore and serving in the U.S. Army’s 29th Division, made up of National Guard troops from Maryland, Virginia and North Carolina.

The archduke’s assassination took place in that part of Europe, where more recently, our own Paddy Ashdown, helped rebuild that battered ancient principality of Kosovo as NATO fought Serb Nationalism once more, but that was far from where the heavy fighting subsequently occurred in WWI. Few people at the time though expected that incident in Sarajevo to be followed by four years of human butchery and bloody turmoil. Most people expected wiser heads to prevail.

BUT, if history has taught us anything, it is that wiser heads do not always prevail.

Yet, at the same time, history is not necessarily destined to repeat itself either -.at least not exactly.

In the run-up to the 100th anniversary of the outbreak of the war, scholars have ruminated on the obvious historical parallel: Is 2014 another 1914? Are we poised for global conflagration?

In an earlier post, I hinted that maybe we were… Japan and China are firing verbal insults across the South China Seas. Japanese factories were recently attacked by Chinese infuriated by the apparent lack of care taken, when the new Japanese Prime MInister – Shinzo Abe, visited a graveyard to honour the Japanese war dead, and has steadfastly refused to apologise. The Chinese have also attempted to impose rules over previously international waters, about notifying flight plans to Chinese authorities. And the U.S. have been getting drawn into this.  The Chinese criticism of Federal Reserve policies has not helped either.

After all, just like in 1914, there are two superpowers, one in decline and one in ascendancy, contending for economic and political dominance.  There is once again widespread dissatisfaction with the institutions and arrangements governing global affairs, paradoxically and perhaps “delusionally,” combined with a belief that “it can’t happen here.”

There is even a far-off (from the U.S.)  geographical flashpoint — the disputed waters and islands of the East China Sea. There, China faces off against a U.S. “proxy,” Japan.

In 1914, it was Austria-Hungary facing off against Serbia, a Russian proxy.

All this historical speculation, not to mention the economic, financial and political differences sees growing potential for another global conflagration, and that got me thinking. The jury is still out on whether wiser heads will prevail this time — whether the superpowers will move toward a meaningful partnership, as Germany and Britain should have done — or whether the U.S. and China repeat the folly of 1914.

Of course the period after the world war was particularly difficult too, because as I have also previously mentioned the time was a transition from phase one of the Industrial Revolution – The  coal and steam phase, to the oil and petroleum phase.

John Galey, famous Pennsylvania oilman, formerly of Corsicana Oil Development Company, was persuaded to return to Beaumont, Texas to search for oil. On January 10th, 1901 Spindletop oil well in Texas, gushed forth, reaching peak production of 100,000 barrels per day; doubling the US output in a single day, and changed the face of industry in the U.S., and the world.

It took 9 days to bring that particular gusher under control, and the rate of production was such, that it influenced other oil companies to explore, and over the next few years some 1500 oil companies were incorporated. Over 100 oil companies jockeyed for position at the Spindletop reservoir alone.

By 1908, Ford was producing the Model T, and hundreds of other car companies had sprung up all over America, Europe and the world. Skoda even likes to claim it was in business before Ford too.

The Steam train though, would continue in production for 40 more years, and in use into the 1960s and even amongst its devotees to today.

But the 1920s which followed all this innovation and conflagration meant we had 3 million unemployed in Britain, with Jarrow marches for work and 20%+ unemployment in the U.S.  In fact so disturbed by this situation was the outgoing Fed Chairman – Ben Bernanke, he fought tooth and nail to stop the economic malaise that caused this misery to so many, and his answer, may yet furnish us with hyper-inflation, as the Germans and Austrians faced after the war.

The parallels to today though are legion.

We’re at the end of the Personal Computer revolution, and possibly the Industrial Revolution phase too, but like the Steam train, they won’t disappear overnight.

Laptops and Desktop PCs still have their uses, The Internet which began life as plain text evolved, and pictures, video, and audio soon followed. The smartphone shrunk the display area and made us all slaves to “Push” technology, as more and more companies – “pushed” their “Apps” (or Mini-Applications) as they were first known. This meant surrendering information so that we couldn’t use facilities anonymously, and the marketing geeks could track our every move to push Ads to us. But it was also in response to people demanding that someone – anyone – solve THEIR problems.

Of course all this logging of IP addresses means the NSA, and GCHQ can follow our every move too.

BUT, the recent trend in Manufacturing which meant out-sourcing manufacturing to lower cost countries in the Far-East, is changing, and looking increasingly likely it will return to western shores.

Like in the early 1900s, America, and possibly the UK too, are undergoing an energy revolution. Fracking – (Hydraulic Fracturing) is changing the game for Americans, as their domestic oil and gas production is making the U.S. one of the cheapest places on the planet for energy . (Perhaps excepting the oil-producing middle-east) and big American corporations are returning home to re-build factories.

Initial estimates were that they would be energy independent by 2017, but it appears they were overly pessimistic. – California alone now produces over 500,000 barrels per day, and the Bakken fields in the North West, the Texas – Eagle Ford shale, and the shale under the Appalachians are making increasingly larger contributions. – Estimates now are that they will be independent by 2015, or earlier..

Of course fracking is not without its critics, and many would not want it going on in their back yard, but when viewed through the prism of the unemployment rate, it might just be worth it. RT has shown video clips of Gas emerging from water pipes in people’s homes, and others have had their silence bought by big checks.

BUT the BIG changes are taking place in Bio-Tech, Metals-Technology, Cyber and Military Hardware, 3D printing and the “Internet of things”.

Whole industries will likely disappear, and as these 3D printers, able to print in a range of materials become commonplace, manufacturing will face an inglorious revolution.

Harry Dent Junior, a major author of books on economics and finance, who calls it “The Great Reset” has written that he expects the demographic timebomb of the West to lower demand for raw materials and expects oil to go to $10, Housing to fall in price perhaps 50% more and precious metals to head lower too as interest rates rise by mid-year causing massive problems for the over-leveraged consumer and manufacturer alike. Since April 2012, the number of Americans retiring reached 10,000 PER DAY…

Europe is also in a similar position, and while Greece had the earliest retirement age in Europe, which is perhaps why they’re in the mess they’re in. He also expects mild inflation first, with a deflation in the middle, and a mild inflation later rather than the hyper-inflation many are predicting. He also feels Gold could fall to circa $750/oz.

However, Inflation is not measured in price terms. If you speak to an monetarist economist it is measured in an increase in the supply of money, over and above the increase in the supply of goods and services. The money supply needs to grow in what is sometimes called the “Goldiocks zone”, but of course, if the amount of money stays the same, the VALUE of money has to change – it goes down when goods are plentiful i.e. a boom (people want more of it), and up when goods are scarce – a bust (people will take less).

Of course, for new industries to emerge, old industries have to disappear, and they don’t always do so in the same places, or with the same people – Joseph Schumpeter called it “Creative Destruction” and it is what drives the world economy.

It also pays for all those expensive politicians and local government workers, military personnel, Police, Fire and Ambulance workers and of course the teachers, hospital workers and road workers who repair the motorways so speedily or not.

It also pays for the huge spending on military hardware, and the nice spy equipment that those nice boys in the NSA and GCHQ get to play with.

So if the money dries up?

The Fed (or BoE, BoJ, PBoC, or ECB) steps in, and pays for it, and you get to pay off the debt with the taxes that you’re going to maybe earn down the road. BUT where does the Fed get it from?.They conjour it up from the printing presses that they own.

Nice work if you can get it.

More on the new industries next time.

If this floats your boat, and you think your friends might like it, don’t forget to let them know, and if you want to drop me a line, you can do so at: WA1Marketing [at] AOL [dot] COM.

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