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Yellow vests and the Davos freeze

Are looming global economic problems understated both internationally and at home?
Civil unrest … if every South African protestor was given a yellow vest and gathered in one place at the same time, they could eclipse the number and intensity of the French action. Picture: Siphiwe Sibeko, Reuters

I’ve never been to Davos. To some that may reflect a serious gap in my experience as a financial journalist, although I have attended dozens of gatherings similar to the World Economic Forum, including International Monetary Fund and World Bank meetings when they were in their heyday as the primary events for business networking and addressing global economic issues.

Davos has certainly eclipsed all others in attention, recognising its power as a gathering of the business and bureaucratic elites; a platform for brandishing national investment begging bowls, powerful networking opportunities and a specific focus on well-researched issues on the agenda. It is easy to get caught up in the hype and façade of importance, both as a journalist or other representative. To be sure, many emerge with successful network agreements and exclusive interviews in the media, but on reflection, and with some jaundice that accompanies age, I cannot say any of them have emerged with real practical solutions that would shift the global economy off a dangerous trajectory.

Bloomberg’s review on what participants took out of this year’s meeting in Davos indicates that it will not be much different.

Read: What the global elites are worrying about as Davos concludes

The tone was set not by the planned agenda, but by a distributed letter by investment mogul Seth Klarman, who wrote: “It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions.”

That sentiment was starkly illustrated by the absence of some key figures such as Donald Trump, Theresa May and Emmanuel Macron (against the backdrop of a government shutdown in the US, Brexit in the UK and yellow vest protests in France).

Yellow vests

Intensified civil unrest, in which the yellow vest protests appear to be growing and spreading, runs counterintuitive to the findings of the latest Edelman Global Trust report, which has found a marginal improvement in global trust. This anomaly is even greater for South Africa. While the general population is largely still distrusting at 45%, this is 7% lower than the previous year’s distrust measurement. The improvement in the informed group is even higher at 8%, with more than half now trusting their institutions.

While this improvement may be attributed to South African president Cyril Ramaphosa’s presidency, it contradicts research showing that 2018 had the highest number of civil protests on record. We may be underestimating the true dimension of civil unrest in South Africa because of its localised and scattered nature both in time and place. If one were to give each protestor a yellow vest and get them out in protest at one place and at the same time, they could eclipse the number and intensity of the French action. The research also could not capture the fallout from the Zondo Commission’s corruption allegations and only time will tell whether the open catharsis will impact negatively or positively on trust – particularly investment confidence.

What is telling about the Edelman report, and perhaps the real issue, is that it shows the biggest gap ever between global trust of the informed public as against global trust of the general population. The 16 point gap clearly reflects class marginalisation between the elite and the general population.

Understated impact

Bringing global trends back home, it is a moot point and to my mind quite likely that all of our predictions and expectations for the next year or two will again be overwhelmed by global events. The dangers they present are being mostly understated. This year seems particularly precarious for forecasters. In short: an extremely volatile year with little improvement in growth prospects. At home, that volatility will no doubt be enhanced by the national elections – and one cost we often ignore in elections is the price that has to be paid over time in inflated expectations that simply cannot be met.

Global growth forecasts are modest at best, and the world is beset with many uncertainties – including the continuing prospect of trade wars, a faltering Chinese economy against its mounting debt, Brexit, US interest rate uncertainties, and the intensifying and spreading of civil unrest. One could go on, but for me, the big storm still hovering is the mountain of global debt and the prospect of another major financial crisis sparked no doubt by a big financial institution collapsing.

The reversal of decades of low-interest rates in the United States, the only viable mechanism to slow debt growth and counter inflation, could be the opening of a Pandora’s Box that will rewrite the economic textbooks. The Fed’s cautious and slow-paced approach to raising rates reflects this, but at the same time it creates an opening for market speculation around each decision and it’s debatable whether the Fed doesn’t send out mixed signals at times to manipulate these markets.

Both inequality-driven civil unrest and the growing threat of global debt were mentioned by Klarman in his letter. He could have done so at Davos last year – and the year before. Indeed these threats have been present for a number of years. It is inconceivable that they have stagnated or diminished over the years. The fact that the World Economic Forum has not placed them at the top of its own agenda each year of the past decade raises the valid question of how long Davos will remain relevant as a force for addressing global issues. 

More ominously, are there answers to be found? 

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The way i see it is that the inequality cycle, that is market by populism, civil unrest and anti-globalization, is part of the Kondratieff cycle. The debasement of currencies has been the driving force behind this cycle since the empire of the Genghis Khan.

What can protect us from these inevitable consequences of devaluation? Sound money. That is the only answer. As long as we have Fiat currencies we will have credit cycles that leads to rising inequality. So the easy option is simply to protect yourself from anarchy. For the currency system won’t change any time soon….

Although in life there are differing ideas of what constitutes ‘moral’ I like to think that there is somewhere an absolute morality. Kind of an ultimate arbitrator between what is right and wrong or judge of last resort, if you like. If we are really highly evolved pond scum, then the concept of morality has no meaning. Why should killing another human be “wrong”? Likewise nor does life have meaning as we are merely generically programmed machines that interact with our environment in an manner consistent with our learning and experiences. There is then no concept of free will in such a case.

Now from what I interpret from Jerry’s philosophy is that we engage in productive activity (work) to serve one another. Inherent in this idea is that we produce a good of service that others need or want (productive economy). Since our innate abilities vary tremendously there are those amongst us that produce a lot of wealth (Bill Gates) and those who produce none (take your pick of billions). The mere activity of producing wealth creates inequality. Equality of outcomes is not compatible with freedom.

However, there exists a parasitic economy is parallel with the productive economy: all those who consume wealth without creating it. This would include the politicians who live the high life on taxpayers’ backs, other beneficiaries of tax largess (wealth destroying state owned enterprises), those who benefit from fiat money and the parasitic underclass of the welfare state. The latter have been excluded from the market by minimum wages, government handouts and labour legislation that is skewed in favour of the worker disincentivising employing people. This in effect, has removed life’s purpose from the unemployed masses of the welfare state. They then take to the streets and protest demanding more from the state and more from those who create wealth. The politburo, however live it up on high, irrespective and hand out the plundered wealth to the unwashed hordes to placate them. But still life got no meaning.

I see this as a moral issue and a failing of democracy where the masses can vote in a manner that enables such as situation and are blind to the consequences.

The following quote from the work of Prof. Huerta de Soto confirms the validity of your statement:

“Anything that guarantees the private ownership of what each person creates and contributes to the production process, that defends the peaceful possession of what each person conceives or discovers, and that facilitates (or does not impede) voluntary exchanges (which are always mutually satisfactory in the sense that they mean an improvement for each party) generates prosperity, increases the population, and furthers the quantitative and qualitative advancement of civilization. Likewise, any attack on the peaceful possession of goods and on the property rights that pertain to them, any coercive manipulation of the free process of voluntary exchange, in short, any state intervention in a free market economy always brings about undesired effects, stifles individual initiative, corrupts moral and responsible behavior habits, makes the masses childish and irresponsible, hastens the decline of the social fabric, consumes accumulated wealth, and blocks the expansion of human population and the advancement of civilization, while everywhere increasing poverty.” – Huerta De Soto “Socialism and Decivilization”.

End of comments.

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