Since 2010, nations in Europe have been ruled by a select group of bankers. That might seem like some sort of conspiracy theory. But it’s not considered terribly controversial in places like Greece, Italy and the UK. They found out the hard way.
The Global Financial Crisis of 2008 pushed European government debt over an invisible threshold. The fallout radically changed how politics in each country functioned.
Since then, each time elected governments tried to assert their democratic mandate, bankers blackmailed them into changing their mind. Or replaced prime ministers and presidents with one of their own. It was usually a Goldman Sachs alumnus. In Greece, the bankers even forced the government to ignore a referendum. So much for the birthplace of democracy…
Italian politician Claudio Borghi explained the general situation most eloquently at the time:
‘In a way I am very happy because we have finally wiped the bull**** off the table. We now know that it is a choice between democracy or comfortable bond spreads. You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It’s worse than a religion.
‘What we are seeing is the fundamental problem with the eurozone construction; You can’t have a government that displeases the markets or the spread club. The ECB and the Eurogroup will use this to crush your economy. You are very lucky in the United Kingdom that you still live in a free country.’
Not for long, though. The pandemic pushed the UK’s debt to GDP over the same invisible threshold that ensnared Southern Europe. And it didn’t take long for the bankers to come for the government.
Prime Minister Liz Truss and her Chancellor were both fired by the faceless men and women in 2022 for daring to question the true authority ruling Europe. The pair went rogue on economic policy by cutting the taxes that pay the debt held by the bankers. And the UK’s prime minister famously lasted shorter than a head of gradually decomposing lettuce which was being live streamed for specifically that comparison.
The continent is now littered with political careers that were cut short by the unelected bureaucrats who really hold power.
Who are the faceless men and women?
In years gone past, the bankers pulling the political strings were known as the bond vigilantes. There’s a famous quote from US President Bill Clinton’s political strategist James Carville about it:
‘I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.’
That’s right, even the US Government can be called to heal by the group of bankers controlling the bond market. Some say this is why President Bill Clinton suddenly became a fiscal conservative once in power. Just like many of Europe’s politicians.
Of course, bankers only control politicians once governments are dangerously overindebted. Australia seems comparatively safe for now thanks to our low debt ratio…compared to Europe and the US, anyway. But that doesn’t mean we’re safe from the fallout of what’ll happen in 2025.
Once your national debt is large enough, you are at the mercy of those who lend to you. Especially when that debt constantly needs to be “rolled over”. That’s a reference to borrowing new money to repay old loans. Which is standard operating procedure for national debts. They’re not actually paid off, just refinanced.
In fact, the practice of bankers controlling governments goes back to the Middle Ages, if not before. You’ll find references in Shakespeare and historical texts. It gave rise to a lot of antisemitism over the years because money lending jews had so much influence over kings, queens and governments.
But let’s not go there while discussing European politics!
Central bankers are in charge now
The way in which lenders control politicians radically changed in the aftermath of the 2008 financial crisis. Instead of a group of private bankers controlling governments by threatening to stop lending the government money, a new group of lenders emerged.
Quantitative Easing is the practice of central banks buying government bonds with newly created money. This is ostensibly an act of monetary policy, designed to manage inflation. But, suspiciously and conveniently, it also helps finance the government.
Over time, governments have become reliant on this source of funding. But that also made them reliant on the central bankers’ willingness to engage in QE.
The situation is less bizarre than it might seem. Central banks like the Bank of England were originally created to help fund the government. And their mandate to preserve financial stability arguably extends to ensuring the government bond market ticks over. If it freezes or fails, we’d probably have the biggest financial and economic crisis ever on our hands. So funding the government is arguably some of their business.
But let’s focus on the political power this gives central banks. They can choose to support or not support government borrowing in the market. And, given government’s reliance on that support, they have achieved a level of control over the government which antisemitic Medieval conspiracy theorists could never have imagined.
Trump is next
In 2025, President Trump will make the same mistake that Liz Truss, Matteo Salvini, Alexis Tsipras, Yanis Varoufakis, and countless other European politicians made. He will challenge the bankers’ authority to rule over the government. And pursue economic policy they don’t much fancy.
This will prove a fatal combination…to his political career. Not to mention unleashing hell inside your portfolio.
The bust-up between the Federal Reserve and President elect has already begun. The two had a public spat about whether the President would be able to fire the Chair of the Fed. That’s crucial because a money printer who favours Trump’s policies could back them with printed money. While a Fed Chair who wants to undermine the president has carte blanche to do so, just like in Europe and the UK.
But it’s Trump’s plans for tax cuts that put him most at risk. When the markets do the maths on his future deficits, they’ll balk. And the Federal Reserve will have to decide whether to save the day…or not.
I reckon the Fed will decline and leave the US president to his fiscal fate. The Fed won’t ride to the rescue until Trump’s reputation is in tatters and his administration hamstrung.
Trump will find himself a lame duck president for a full four years. He’ll lose the backing of even the Republicans in Congress. They’ll paint him as a President gone rogue. He’ll become an economic policy pariah. And may even be forced out well ahead of his term.
If that sounds dramatic, you haven’t been reading the papers in Europe. It would, after all, only be a repeat of how the Bank of England got rid of Liz Truss two years ago. They call it the Liz Truss playbook.
Back then, the Bank of England sabotaged the bond market the day before the government’s budget. And then allowed the bond market to crash for five days before intervening to rescue it.
It was only once the UK’s pension system was about to go bust that the Bank changed its mind. The deliberate delay to intervene almost left the nation’s retirees without their savings…
A plunge in US bond markets would be even more destabilising. US government bonds are the bedrock of the global financial and trading system. If they plunge, everything goes with it, including the economy and your portfolio.
Except perhaps gold. More on that, next week.
Investors need to be prepared for European style economic policy chaos coming out of the US government in 2025. Good luck…
Regards,
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Nick Hubble,
Editor, Strategic Intelligence Australia
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