On June 23, the UK had a referendum in which 52% of voters opted to leave the European Union. I applaud Britain for leaving the corrupt, costly, and dysfunctional EU. It may be the best thing that’s happened to Europe since the end of World War 2. And, I think, it signals the start of some major new trends.
In principle, the idea of the European Union sounded good. All the signatory countries joined a customs union so goods and people could flow freely.
The idea was to both increase general prosperity and decrease the chances of another war. It sounds very libertarian—in principle. But in practice it turned out very differently. And may wind up doing the opposite of its intended purpose.
Europeans could have had all the benefits of free trade simply by eliminating all import duties and quotas—a very simple and costless solution. Having duties and quotas amount to putting your own country under embargo. They increase the costs and decrease the availability of foreign goods and services; that lowers a country’s competitiveness while decreasing its standard of living. It sounds insane.
Why would any country want to do that? Because some industries and unions in the country want to keep out competition. Duties and quotas can help them, even though hurting the country at large. Politicians also like duties and quotas because they give them additional power, tax revenue, and opportunities for bribery.
If a country really wants to prosper to the greatest degree, it will unilaterally drop all duties and quotas. No trade agreements are necessary.
But that would have been too easy for the Eurocrats. Instead, they set up a gigantic bureaucracy in Brussels. They did eliminate internal duties between EU members, but at the cost of regulating everything within the EU while retaining duties and quotas against non-EU members. The EU employs 50,000 functionaries, imbued with dirigiste attitudes. Pound for pound they’re much more obstructive than those working within the Washington Beltway. Europe is, after all, the ancestral home of cultural Marxism, and the people who take it most seriously all want to work in Brussels.
The EU has reduced the standard of living of the average European. But perhaps its creation was inevitable since the average European is overwhelmingly socialist or fascist in philosophy. They seem to love the idea of government, as big, and strong, and with as many layers as possible. But the bigger and more complex any organization gets, the more likely it is to fail. My prediction that the Continent will one day just be a giant petting zoo for the Chinese is intact—assuming the current wave of migrants approve.
400 million Europeans now have to deal with regulation coming from Brussels as well as from their town councils, provinces, and national governments. On a local level there was at least some semblance of control since those laws were passed by people with the same language, ethnicity, and culture. The laws were destructive, but at least they were imposed from within. But the EU adds thousands of new laws and regulations, created by a class of people who are responsible mainly to other members of their own class in Brussels. They’re united by the ridiculous ideas they picked up in university from their Marxist professors.
EU regulations dictate the shapes of bananas and cucumbers. Manufacturers of bottled water aren’t allowed to say it fights dehydration. There are laws against unsupervised children blowing up balloons. Laws against unlabeled olive oil in restaurants, the amount of cinnamon in certain pastries, the maximum size of vacuum cleaner motors, the disposal of tea bags, and the “correct” methods of producing hundreds of varieties of French cheeses.
You’ve likely heard of these regs simply because they’re so outrageous and nonsensical. They’re annoying, but actually quite trivial. What you don’t hear about is a vast body of agricultural, industrial, and labor regulations because they are technical and affect businesses more than consumers. Meanwhile, 10,000 registered lobbyists circulate around Brussels inducing Eurocrats to pass laws favoring this or outlawing that and distribute an annual budget of about 150 billion euros among the politically favored. That is where the real damage is done.
The EU also aggravates the current problem with migrants from the Middle East and Africa. All Western European governments are massive welfare states with free food, housing, medical care, schooling, and living expenses for citizens. And even for residents who aren’t citizens. Benefits like these will naturally draw in poor people from poor countries. That’s why France, Belgium, Holland, and the UK already have substantial and rapidly growing minorities of Muslims. The governments of Sweden and Norway are actually importing these people, at great expense. The EU not only promotes bad policies, but makes the whole continent bear the burden of mistakes made by its most misguided members.
The free-market solution to the migrant situation is quite simple. If all the property of a country is privately owned, anyone can come and stay as long as he can pay for his accommodations. When even the streets and parks are privately owned, trespassers and squatters have a problem. A country with 100% private property, and zero welfare, would attract people who like those conditions. And they’d undoubtedly be welcome as individuals. But “migration” would be impossible.
Some have said that Britain shouldn’t Brexit because it will cause chaos. There’s some truth to that—but not because what Britain did was in any way destructive. Their action is best compared to that of passengers on a sinking ship who are the first ones to board a lifeboat. Nietzsche had it right when he said “that which is about to fall deserves to be pushed.” Any chaos that occurs is the result of the EU’s flaws, not Britain’s exit. It’s as if you have a 100-story building which is about to collapse. It’s better to arrange a controlled demolition than wait for it to fall at a random time.
So, where will this all end? Let’s look at a few trends that Brexit will initiate, or accelerate. And also how you can insulate yourself from the fallout, or perhaps even profit from it. This has the makings of a classic speculative opportunity—one where politically caused distortions are liquidated and prices readjust. But a word of caution. It’s going to take place within the context of the Greater Depression. And, as Richard Russell, who lived through the last depression, observed: In a depression, nobody wins. The winner is just the person who loses the least.
The EU will disintegrate. It never made sense from the beginning to try to get Swedes to live by the same rules as Sicilians or Germans by the same rules as Portuguese. Not to mention that the rules are entirely arbitrary. Worse, almost all the rules are economic in nature, with legislated winners and losers. Deals like that always lead to resentment, among both the winners and the losers.
In addition to this, the EU is very problematical when it comes to immigrants. There will be more migrants trying to settle in Europe. Why? Because the Muslim world, the swath of countries extending all across northern Africa, through the Middle East, Central Asia, and the Far East, is likely to become increasingly unstable. The EU, as a very politically correct organization is loathe to turn them away. However, once they’re within Schengen, the migrants can travel anywhere. Perhaps where welfare benefits are best and where other migrants are gathering. Remember, when times get tough, both politicians and the capite censi look for someone to blame.
How to profit from this? Most people don’t think the EU will collapse just because Britain (which has always been closer to the U.S. than the Continent anyway) has left. They’re wrong. For one thing, although Brussels won’t become a ghost town, it’s going to lose scores of thousands of highly paid Eurocrats and their minions. I recall that property there was some of the cheapest in Europe in the early ’80s; it’s going to return to that status. We’ll look for a REIT to sell short, specializing in the Brussels market.
It will accelerate the disintegration of nation-states everywhere. There are about 200 nation-states in the world. The international “elite,” the “intelligentsia,” the members of the Deep State everywhere, and organizations like the EU in Brussels, would like to see a much smaller number of more powerful states. Orwell anticipated just three mega-states in his dystopia. But the actual trend is in the opposite direction.
It’s not just the UK seceding from the EU, but Scotland from the UK. The Basques and Catalans may eventually secede from Spain. Belgium, a totally artificial country, may eventually break up into Flemish-speaking Flanders and French-speaking Wallonia. France has half a dozen secession movements. Italy was only unified into its present form from scores of principalities, duchies, and baronies in 1871 by Garibaldi. It was the same with Germany until Bismarck in 1871. The break-up of the USSR in 1990 into 13 smaller states was a good start, but Russia itself is a small empire with dozens of distinct ethnic and linguistic groups. You will rarely hear about this in the mass media, but there are dozens of secession movements throughout Europe.
That’s one more reason why (in addition to the interest rate risk and the inflation risk, which are both substantial) you should stay away from long-term government bonds.
The euro will cease to exist. The Esperanto currency was doomed from the beginning. It was not just an “IOU nothing,” like the U.S. dollar, but a “Who owes you nothing” since it’s not even backed by a specific government’s taxing power. How to profit? I’ve put on long-term futures contracts, long the British pound vs. short the euro. My rationale is simple. Britain will benefit from exiting the EU, attracting capital and strengthening the pound—which is down 11% against the euro since Brexit. The euro, meanwhile, will approach its intrinsic value at an accelerating rate.
A truly major banking crisis. Much worse than that of 2007-2009. Governments, who are all bankrupt, borrow money from commercial banks. Commercial banks have lent it to them because they believe it’s a risk-free loan. Governments encourage them to lend recklessly, hoping that will jump-start sluggish economies. Central banks, which are the arms of their governments, have taken interest rates to zero and below for that reason and to make it easier for governments to service their debt. This policy has encouraged businesses to take on debt.
It’s an idiotic and reckless experiment that will end—likely in this cycle—with bankrupt central banks and governments bailing out bankrupt commercial banks and businesses. Just the way they did in 2007-2009. Except this time, the situation is much more serious.
How to profit? Don’t own European companies, stocks or bonds, and banks in particular. In fact, even though they’re already down considerably, they’re going lower and are excellent candidates for short sales, or the sale of naked calls.
A panic into gold. You’ve heard this story many times before here. But it’s truer than ever as we approach a genuine crisis. There are no stable paper currencies anywhere in the world. The dollar has been strong only because it’s liquid. Liquidity is good, but here, we’re talking about liquid like nitroglycerin. Hedge funds will start buying gold in size. As will central banks, who don’t want to hold each other’s paper. As will individual investors. Right now, few people even think about gold, much less understand it. How to profit? Buy gold. I expect we’ll see it well over $5,000 this cycle. Silver should do even better in relative terms. And gold stocks have explosive upside.
An exodus of capital and people from Europe to parts of Latin America, plus to the U.S., Canada, Australia, and New Zealand. This is, obviously, bad for Europe and good for the recipient countries. In recent years, I might not have included Latin America, but things have changed. Argentina and Colombia are liberalizing economically.
The continent isn’t involved in any entangling alliances, isn’t on the migration highway, and has low costs. Why a wealthy European would stay in that stagnant and unstable continent when he could live better, and mostly tax-free, at a fraction of the cost in Argentina is a mystery to me.
Chaos in Africa. Almost every country in Africa is an ex-European colony. Over the last 50 years, Europe, with the U.S. and now China, have shipped over a trillion dollars to the continent. Most of it has been recycled back to Europe by the African elites that stole it, and the rest has mostly been wasted. That flow is going to stop for a number of reasons, but among them is that it makes no sense in an “every-man-for-himself” world. At the same time, essentially all of the world’s population growth over the next couple of decades is going to come from sub-Saharan Africa. It’s a nasty economic environment that’s a formula for conflict. Millions of Africans will want to emigrate, especially to the homelands of their ex-colonial masters in Europe. They won’t, however, be welcome. How might one take advantage of this? The higher population is going to put upward pressure on commodities, and the chaos is going to make their production much riskier in Africa.
In conclusion, Brexit itself is likely to be good for Britain. And it augurs some big changes in the world at large. Don’t forget that it will all be in the context of the Greater Depression. Our objective here remains to not only keep you advised of what’s happening, but help you profit from opportunities while avoiding major dangers.
Editor’s Note: The coming financial collapse is going to be much worse, much longer, and very different than what we saw in 2008 and 2009.
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