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Submitted by Armstrong Economics
A friend of mine was taking a class in geography in university for the credits. The professor was all about brainwashing the class about Global Warming. The pitch was that with reducing air pollution from cars, it would be possible to save the Netherlands otherwise the seas will rise and the country will vanish from the face of the earth.
I find it really incredible how these people promote that everything on the planet is somehow our fault. Most of the ancient city of Alexandria, Egypt, from the time of Cleopatra is under water. Sure, that must have been caused by too many chariots in rush hour and the farting of horses like cows that the EU regulates.
Then there is the discovery of ancient sea fossils in the middle of Australia which shows that obviously, Australia was once under water. Dinosaur-age fossilized remains of extremely tiny organisms that are found in the sea have been discovered in the center of the arid Australian desert. This confirms that this area was, at least for a short time, under by sea water some 40 million years before Australia’s large inland sea existed.
I grew up in New Jersey. One of the few memories I have as a child was going down to the clay pits with the boys in search of dinosaurs since they had found one in the area. Sort of a pre-Indiana Jones excursion. But they also found ancient sea creatures in the area. During the Precambrian period, New Jersey was covered by a shallow sea that was home to stromatolite forming bacteria. During the early part of the Paleozoic, New Jersey was still under water. Fossils of various sea creatures were discovered in New Jersey. The state was home to creatures like brachiopods and trilobites. By the Silurian period, the northern part of the state was home to a river system. Sea levels rose and fell throughout the remainder of the state’s Paleozoic rock record long before people existed. There are no local rocks of Carboniferous or Permian age and then during the Triassic, the state became a terrestrial ecoregion. Then there were local lakes which became the home to various crustaceans. On land, dinosaurs left behind footprints and continued to do so into the Jurassic period. Much of the state was covered by sand which became known as the Pinelands.
The rise and fall of land have been going on for millions of years. It is part of the ecosystem itself and we are a bunch of narcissists to think that we are somehow even capable of changing the climate. We are no more than a flea on the back of a dog that can be shaken off when we become too annoying. When my friend texted me what the professor said that if we stopped driving our cars we could save the Netherlands, I texted back the ancient source I had read back in school.
There was a Greek geographer and explorer by the name of Pytheas of Massalia, but no copies of this work have survived. Nonetheless, we have others who have quoted Pytheas who recorded an account of the Low Countries, or what we call the Netherlands. Pytheas passed the Low Countries on his way to Heligoland around c. 325 BC. He wrote that “more people died in the struggle against water than in the struggle against men”. This is our earliest account of the region. Then we have the Roman author Pliny from the 1st century AD who wrote:
There, twice in every twenty-four hours, the ocean’s vast tide sweeps in a flood over a large stretch of land and hides Nature’s everlasting controversy about whether this region belongs to the land or to the sea. There these wretched peoples occupy high ground, or manmade platforms constructed above the level of the highest tide they experience; they live in huts built on the site so chosen and are like sailors in ships when the waters cover the surrounding land, but when the tide has receded they are like shipwrecked victims. Around their huts they catch fish as they try to escape with the ebbing tide. It does not fall to their lot to keep herds and live on milk, like neighboring tribes, nor even to fight with wild animals, since all undergrowth has been pushed far back.
Going back about 2,000 years ago, much of the Netherlands was covered by extensive peat swamps. The coastal dunes formed a natural embankment which prevented the swamps from draining. The first inhabitants were attracted to the rich soil compared to the peat swamps and sandy soil. They appear to have begun to protect themselves against floods by constructing their homes on artificial hills they created of which Pliny wrote about. Archeological evidence suggests that there was a cycle to the region between 500BC and 700AD where there were periods of habitation and abandonment as the sea level rose and fell.
It was not until the 9th century when the sea level rose again which forced people to raise their artificial hills higher. These small hills began to be connected forming villages and they began to construct dikes when communities could act in unison. It was not until after 1000AD that the population began to grow dramatically. This created more labor but a demand for more land. This is when we see the construction of dikes become more widespread. By 1250 most dikes had been connected into a continuous sea defense.
The Edict of Expulsion was a royal decree issued by King Edward I (1272-1307) of England on July 18th, 1290, expelling all Jews from the Kingdom of England. Why? The Jews were the king’s personal property, and he was free to tax them at will whereas British citizens could not be taxed without their consent which was obtained from Parliament. Edward I borrowed extensively from the Jews and taxes them to the point that they were no longer a source of revenue. He then expelled them and they were not allowed to take their property so it was the final confiscation to fund his war with France. Meanwhile, it was Philip IV (1268-1314AD) of France who seized the Knights Templar, the Catholic Church moving it to Avignon installing a French Pope, and confiscating the assets of Italian bankers who were lending money to Edward I. This greed for taxation contributed to the first migration of the Jews to the Low Countries.
Sephardic Spanish Jews had once constituted one of the largest and most prosperous Jewish communities in the world and were regarded as the unquestioned leader of the Jewish world. During this period Sephardic Spanish Jews ended definitively with the anti-Jewish riots of 1391 about 100 years after the 1290 expulsion from England. Then about 100 years later, there was in Spain the Alhambra Decree of 1492 against the Jews. It seems that every time society could not repay the Jewish bankers, the borrowers suddenly discovered they were OMG Jewish. Consequently, the majority of Jews in Spain around 200,000 converted to Catholicism after the Alhambra Decree. Those who refused were forced into exile and migrated to the Netherlands where they began insurance and trading of commodities, bonds, and stocks in Amsterdam.
So to me, to even listen to some university professor claim that we can save the Netherlands by reducing CO2, I just cannot believe we have such idiots who know nothing and ignore history entirely while professing to students what amounts to just propaganda. And they want tens of thousands of dollars annually per student to be brainwashed. Unbelievable! Tell a lie often enough, it become a fact and then truth.
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A different kind of hurricane slammed into the American East coast, the nation and ultimately the world ten years ago today.
Amidst the multiple introspective columns and soul searching that naturally occurred this week, which looked back on the missed warning signs behind the 2008 financial collapse exactly a decade ago this weekend, there is a small group of people whose opinions are actually worth paying attention to.
Though arguably no single individual accurately called all aspects of the crisis in its entirety, precipitated by the implosion of Lehman Brothers, some did very publicly predict key facets with prophetic clarity. As Market Watch’s Howard Gold explains in his profile of four analysts the world should have been listening to: “People warned about subprime mortgage loans, derivatives, and too much leverage, but nobody, to my knowledge, said a bursting housing bubble would cause a global crisis that would lead to the demise of venerable financial firms, require trillion-dollar taxpayer bailouts, and cause a recession that rivaled only the Great Depression in its magnitude.”
Trouble is like many religious prophets of ancient history, they were rejected at the time, cast as dour harbingers of gloom and doom.
Here are four names and their very public warnings that attempted to jolt the financial and banking sectors out of their sleepy stroll toward the abyss before 2008, as well as their predictions for the next big one, and what to look out for.
Howard Gold interviewed each, and laid out the key quotes summarizing then and now…
Economist A. Gary Shilling
President of consultancy A. Gary Shilling & Co., he started writing about a housing bubble in the early 2000s which Greg Lippmann (of “The Big Short” fame), credits with giving him the idea to bet against subprime mortgages. Describes Gold, “he warned his newsletter subscribers about a housing bust and wholesale deleveraging of household debt that would hobble the economy for years.”
And this epic anecdote from the interview:
John Paulson contacted Shilling in August 2006. “He talked about credit default swaps. I didn’t know what they were,” Shilling recalled.
Shilling did some consulting for Paulson’s hedge fund and even invested what “was for the Shillings a major piece of money in this.” Paulson, of course, loaded up on CDS’s and made $4 billion in what has been called “the greatest trade ever.” “We made 15 times our money,” Shilling says.
His predictions pre-2008:
“Subprime loans are probably the greatest financial problem facing the nation in the years ahead.” —January 2004
“The [speculative housing] bubble’s break will cause widespread pain…and be much worse economically than the 2000-2002 bear market.”—June 2006
“We continue to forecast a 25% fall in median single-family house prices nationwide.” —November 2006.
What he says now:
“The ultimate thing that brings down financial markets is excess leverage … So, you look where’s the big leverage, and right now I think it’s in emerging markets.”
Shilling is particularly worried about the $8 trillion in dollar-denominated emerging-market corporate and sovereign debt, especially as the U.S. dollar rises along with interest rates. “The problem is as the dollar increases,” he said, “it gets tougher and tougher for them to service [that debt] because it takes more and more of their local currency to do so.” Of that, $249 billion must be repaid or refinanced through next year, Bloomberg reported.
* * *
Money manager Jim Stack
President of Stack Financial Management, which manages $1.3 billion, and InvesTech Research, a newsletter he launched in 1979, Jim Stack as a young analyst first gained some notoriety for calling the 1987 stock market crash. Describes Gold, “As housing prices kept rising, Stack built a proprietary tool called the Housing Bellwether Barometer. He called housing a bubble a year before it peaked and warned of bigger problems ahead for the economy and the markets.”
His predictions of a new bear market coming were issued even as stocks were hitting all-time highs.
His predictions pre-2008:
“We are officially calling it a dangerous bubble…I see a trillion+-dollar government bailout of the mortgage industry at some point over the next decade.”—July 2005
“Our Housing Bubble Index has dropped into a freefall that rivals the dot-com bust of the late 1990s… We are moving to a full bear market defensive mode.”—July 2007
“We are nowhere near the bottom…It’s only a matter of time…until the housing debacle and credit crisis adversely impact the overall economy, increasing the likelihood of a recession.”—Interview with Equities magazine, November 2007
What he says now:
That housing-related stocks “saw a parabolic run-up” in 2016-17, but in January his index “peaked and now it’s coming down hard.” And this spells “bad news on the housing market looking 12 months down the road.”
Per Howard Gold’s interview:
But the biggest danger, Stack told me, is from low-quality corporate debt. Issuance of corporate bonds has “gone from around $700 billion in 2008 to about two and a half times that [today].”
And, he added, more and more of that debt is subprime. Uh-oh.
In 2005, he pointed out, companies issued five times as much high-quality as subprime debt, but last year “we had as much subprime debt, poor quality-debt issued, as quality debt on the corporate level,” he said, warning “this is the kind of debt that does get defaulted on dramatically in an economic downturn.”
Banker Raghuram Rajan
Previously the IMF’s chief economist and former head of the Reserve Bank of India, Rajan famously presented a paper at the Federal Reserve Bank of Kansas City’s annual retreat at Jackson Hole, in August 2005. To illustrate the general obsequiousness and self-congratulatory atmosphere of those times, Rajan recalled that some papers at the conference “focused on whether Alan Greenspan was the best central banker in history, or only among the best.”
Per Howard Gold:
Rajan turned out to be a party pooper, questioning whether “advances” in the financial sector actually increased, rather than reduced, systemic risk. Former Treasury Secretary Larry Summers called him a Luddite. “…I felt like an early Christian who had wandered into a convention of half-starved lions,” he wrote. But though delivered in genteel academic lingo, his paper was powerful and prescient.
His predictions pre-2008:
“Managers…have greater incentive to take risk…because the upside is significant, while the downside is limited.”
“Moreover, the linkages between markets, and between markets and institutions, are now more pronounced. While this helps the system diversify across small shocks, it also exposes the system to large systemic shocks…”
“The financial risks that are being created by the system are indeed greater… [potentially creating] a greater (albeit still small) probability of a catastrophic meltdown.”
What he says now:
“There has been a shift of risk from the formal banking system to the shadow financial system.” He also told me the post-crisis reforms did not address central banks’ role in creating asset bubbles through accommodative monetary policy, which he sees as the financial markets’ biggest long-term challenge.
“You get hooked on leverage. It’s cheap, it’s easy to refinance, so why not take more of it? You get lulled into taking more leverage than perhaps you can handle.”
And what might be coming:
Rajan also sees potential problems in U.S. corporate debt, particularly as rates rise, and in emerging markets, though he thinks the current problems in Turkey and Argentina are “not full-blown contagion.”
“But are there accidents waiting to happen? Yes, there are.”
* * *
Writer John Mauldin
Best known for his free weekly e-letter “Thoughts from the Frontline,” the Dallas-based chairman of Mauldin Economics, John Mauldin began worrying about housing very early, sometimes featuring commentary from Gary Shilling during the run-up to the crisis. Described by Gold, he “said a housing bust would lead to a drop in consumer spending, a bear market, and a recession (though at first he thought it would be a mild one), and that credit default swaps (CDSs) posed a systemic risk.”
His predictions pre-2008:
“A slowing of the housing market, and thus the economy, is in our future… This in turn suggests that as growth in consumer spending slows, a bear market in equities is a high-probability outcome.”—March 2006
“…The stock market is going to be under considerable pressure next year. The average drop of the markets is about 40% before and in a recession….Dow 9,000 is a real possibility, if not probability”—December 2006. (The Dow bottomed at 6,547.05 in March 2009.)
“The one true risk that is simply not knowable at this point is in the Credit Default Swap (CDS) market….The CDS market is huge, in the hundreds of trillions of dollars and growing dramatically… There is no agency overseeing counter-party risk. This is the one true systemic risk that I see.”—July 2007.
What he says now:
“I think the choice of Europe is… going to have to put [all the debt] on the balance sheet of the European Central Bank. If they don’t, then the euro zone breaks apart and we’re going to get a 50% valuation collapse.”
“Greece…is a rounding error. Italy is not…. And Brussels and Germany are going to have to allow Italy to overshoot their persistent debt, and the ECB is going to have to buy that debt.”
“If it doesn’t happen, the debt triggers a crisis in Europe, [and] that triggers the beginning of a global recession” but… “there are so many little dominoes, if they all start falling, one leads to the next.”
Comments Howard Gold,
Mauldin estimates the world has almost “half a quadrillion dollars,” or $500 trillion, in debt and unfunded pension and other liabilities, which he views as unsustainable.
But the flashpoint for the next crisis is likely to be in Europe, especially Italy, he maintains.