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The Nikkei 225 opened the week by plunging 12%, its worst day since the infamous Black Monday in 1987. European markets followed, but due to their controls on the markets ever going too far down, they declined just over two percent. The American markets are expected to open down as well. As with Europe, there are controls in place to prevent the markets from sliding too far too fast. This is determined by the Plunge Protection Team who protect the bankers.
All of this got going last week when markets began to decline and then it was revealed that the world’s most bullish investor, Warren Buffet, was dumping stocks at an unprecedented rate over the last quarter. Berkshire Hathaway dumped 58% of its Apple stock, which has been viewed as a signal that Buffett thinks the American economy is headed for a recession. In lean times, the companies hardest hit are those who make frivolous items like high end mobile devices.
Even setting aside the economic issues, the market was long overdue for a correction, and they often happen around elections. When Trump left office the Dow Jones Industrial Average was around 31,000. It peaked this year at around 40,000, which is roughly a thirty percent climb in three years. If one wants an example of irrational exuberance, there is a perfect example. The American stock market is a speculative bubble that was due to burst.
The speculation mainly rested on the assumption that the Federal Reserve would once again start handing out free money to its friends. The inflation reports had been manipulated to the point where the only people still worried about prices are the people buying things. The jobs reports and GDP numbers have similarly been set to look as if the economy could use a jolt of free money. The trouble is Jerome Powell is not in a rate cutting mood and has made this clear.
The other assumption has been that the American economy is fundamentally sound and all the bad stuff since Covid has been resolved. That has turned out to be wrong, as new bad stuff has emerged since Covid. The new Cold War launched against China and Russia is accelerating changes in the global economy, which is already putting downward pressure on Western economies. It seems that investors are now starting to understand that we are on the cusp of a new world order.
Of course, equities markets are supposed to reflect the general investor sentiment about the underlying economy. You buy a stock because you think the company will be better tomorrow than today. You sell the stock for the opposite reason. The markets are supposed to be about the future of the underlying economy, but that has not been true for close to forty years now. Instead, it has been about where to put all the extra cash the central bank creates in its role as global banker.
What happened to the American stock markets over the last half century is they went from being a place to bet on the economy and individual companies to a place to bet on the Global American Empire being the sole superpower. As long as the dollar remained the global currency and Washington controlled the rules of the global economy, there was only one bet to make. Everyone did the rational think and bet on this not changing, so over time the line went up at a steady pace.
The last two years have revealed this to be old thinking. The sanctions war against Russia has been a disaster for the empire. The Russian economy has outpaced Western economies during this time. Similarly, BRICS, which was just a worthless acronym, has now become a legitimate alternative to the Western model. Their alternative to SWIFT, the default banking transaction system, is slowly emerging as a viable and perhaps superior option for the rest of the world.
The main reason for this is the chaos at the top of the imperial order. While the endless political drama out of Washington entertains the people of the West, to those outside it looks like chaos and instability. The world’s largest economies have no idea who is in charge of imperial policy, as Joe Biden is clearly a vegetable. Further, Washington is not on speaking terms with the two most important countries at the moment. They have Russia and Iran on mute.
What we may be about to see is the canary in the coal mine fall off his perch, thus signaling the great reordering. Western economies evolved over the last half century on the assumption that Washington would control the global money supply. Over the last thirty years the assumption has been that the days of national economies were over, as all economies would be integrated. The rules based global economy using the dollar would be run from the imperial capital.
That is not going to be the future. This presents a massive problem for the West, as industrial policy, economic policy, government policy and demographic policy has all been based on the assumption that the Western managerial elite would sit atop this global system like Mustapha Mond, the world controller in Aldous Huxley’s novel Brave New World. Of course, that is the reason the dream is unraveling, as Mustapha Mond was both corrupt and cynical.
As is usually the case, the great transition will take time. It took forty years for the West to evolve down this cul-de-sac. It will take time for the world to adapt to the decline of the West and for the West to regain itself. The collapse of the Soviet system was followed by two decades of disorder. The difference is the West has further to fall, as the Russians were already poor. Americans are about to get poor because they no longer deserve to be otherwise.
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