by Simon Black via Sovereign Man

By the summer of 1563, all of Britain had plunged into chaos over religion and the Reformation.

King Henry VIII broke away from the Catholic church back in the 1530s, sparking a near civil war within the kingdom. Protestants killed Catholics, Catholics killed protestants, and extreme social tensions lasted for decades.

Universities were at the heart of this conflict; rather than focus on real subjects like science and mathematics, students and professors became radical social activists and turned their schools into ideological echo chambers. Sound familiar?

One of the few students who actually wanted to learn was a Scottish teenager named John Napier; Napier had been enrolled at the University of St. Andrews at the time, but he quickly realized that he would never learn a damn thing in that environment. So he dropped out… and started traveling in search of a real education.

No one quite knows exactly where he went or what he did. But when he returned to Scotland eight years later as a young man, Napier had become an intellectual giant.

You might not have ever heard of him, but John Napier was truly one of the great minds of his era. And modern science owes a tremendous debt to his work… in particular his development of logarithms.

If it’s been a few years since you studied math (or ‘maths’ for my British friends), logarithms are the inverse of exponential functions.

Simple example: we know that 102 (or 10 squared) = 10 x 10 = 100. So, the number 10 raised to the power of 2 equals 100.

The inverse of that is to say that the ‘base 10’ logarithm of 100 = 2. Or in mathematical terms, 100 log10 = 2

Napier devised an entire system of logarithms. And this was actually a tremendous leap forward in mathematics, because logarithms made it so much easier for scientists and researchers to calculate solutions to complex problems.

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One of the many important applications to come out of Napier’s work is the concept of ‘logarithmic decay,’ which models many real world phenomena.

The idea behind logarithmic decay is that something declines very, very slowly at first. But, over a long period of time, the rate of decline becomes faster… and faster… and faster.

If you look at it on a graph, logarithmic decay basically looks like a horizontal line that almost imperceptibly arcs gently downwards. But eventually the arc downward becomes steeper and steeper until it’s practically a vertical line down.

Logarithmic decay is like how Hemingway famously described going bankrupt in The Sun Also Rises– “Gradually, then suddenly.”

In fact logarithmic decay is great way to describe social and financial decline. Even the rise and fall of superpowers are often logarithmic in scale. The Kingdom of France in the 1700s infamously fell gradually… then suddenly.

We can see the same logarithmic decay in the West today, and specifically the United States.

The deterioration of government finances has been gradual, then sudden. Social conflict, censorship, and the decline in basic civility has been gradual, then sudden. Even the loss of confidence in the US dollar has been gradual… and is poised to be sudden.

Back in 2009 when I started Sovereign Man, I spoke a lot about ideas that were highly controversial at the time.

I suggested that Social Security’s trust funds would run out of money. That the US government would eventually be buried by its gargantuan national debt. That the US dollar would eventually lose its international reserve dominance. That inflation and social conflict would rise.

The main thesis, quite simply, was that the US was in decline. And whenever I spoke at events, I used to talk about logarithmic decay, saying:

“As a civilization in decline, you never really know quite where you are on the curve. You could be way over here on the horizontal line, at the very beginning of the decline… or you could be standing on the precipice about to hit the vertical slide down.”

Well, now we have a much better idea of where we are on that logarithmic decay curve. Because these ideas about the national debt, inflation, social security, social conflict, etc. are no longer theories. Nor are they even remotely controversial.

Just last week, US Speaker of the House Kevin McCarthy said in a speech that “America’s debt is a ticking time bomb”. Social Security’s looming insolvency is now openly discussed in Washington and regularly reported in the Wall Street Journal.

We’ve all seen with our own eyes (and even experienced) inflation, social divisions, and censorship.

And as for the dollar, we continue to see a multitude of cracks in its dominance. Most notably, Saudi Arabia is considering a plan to sell oil not just in US dollars, but also in Chinese yuan.

Plus the international development bank of the BRICS nations (Brazil, Russia, India, China, and South Africa) announced earlier this month that they will start moving away from the dollar.

Is it any surprise? The US government is weeks away from defaulting on its national debt over the latest debt ceiling debacle. And yet the guy who shakes hands with thin air refuses to negotiate a single penny in spending cuts to help reduce trillions of dollars in future deficit spending.

The whole world is watching in utter disbelief at the astonishing level of incompetence that has infected the highest levels of America’s once hallowed institutions, including news media, big business, and the government itself.

America– and the West by extension– really are on the precipice of that logarithmic decay curve… the part where the horizontal line becomes a vertical line down.

It has taken years… even decades to reach this point, gradually. We’re now at the “suddenly” part.

Now, it’s important to note that the outcome is far from inevitable. Plenty of declining superpowers in the past have pulled themselves out of a tailspin, at least temporarily.

Aurelian’s reforms helped re-establish Rome’s dominance in the late 200s after nearly a century of chaos. The declining Ottoman Empire recovered substantially during the Tanzimat period in the 1800s. King Charles III of Spain made many successful reforms to revive his crumbling empire in the 1700s.

There are many historical precedents for recovery, so all is not lost. But at the moment there is little evidence to suggest any major change on the horizon.

I’m not saying this to be alarmist. Quite the contrary, in fact. Because one of the key pillars of our thinking here at Sovereign Man is that, despite the ineptitude of our governments, we as individuals have the tools, power, and freedom to solve these problems for ourselves… and even prosper doing so.

Simple example: Social Security’s trust funds will run out of money within a decade, and this will be a huge problem for literally tens of millions of people who depend on the program.

However there are numerous tools available to solve this problem; a more robust and powerful retirement structure like a self-directed, solo 401(k) plan, for example, allows you to set aside up to $73,500 per year for your retirement.

Similarly, if you expect a government with deteriorating finances to raise taxes (which they almost always do), you can take completely legal steps to reduce what you owe.

If you anticipate inflation continuing, you can arrange your investments to capitalize on the surge in real assets, like minerals, energy, and productive technology.

You can also take steps to diversify geographically, even internationally, to reduce risks to your family’s freedom.

These solutions barely scratch the surface of the plentiful options at your disposal. All it takes is a sensible understanding of the problem… plus the willingness to take action.

And rational, informed action is always a better option than despair.

Authored by Mark Cudmore, Bloomberg macro strategist,

US yields [Ed. Note: interest payments] have ongoing upside pressure from the debt-ceiling debate. Even if a one-year extension is achieved this year, as House Speaker Kevin McCarthy is reported to be proposing, that just creates a far greater problem in a presidential-election year.

Everyone cites 2011 as the playbook for debt-ceiling stress: While those fraught negotiations may be the closest precedent we have, the 2023 episode is likely to be far worse for markets.

The backdrop for 2011 was that everyone viewed the debt ceiling as a purely technical issue. The US government debt pile back then was less than 100% of GDP and yields were low. The estimated annualized payments to service the debt were less than $450b per year. That sounds a lot, but it was a much smaller amount than four years earlier, so the path wasn’t worrying anybody.

It’s a very different situation now. US debt is above 120% of GDP and, far more importantly, the estimated annualized payments to service that debt rose to $773b, as of the end of January. Even more worryingly, they are rising at an almost parabolic rate due to what’s happening to yields — that number is has risen by more than $300b in just a year!

On the majority of days, it’s an issue for Treasuries that’s entirely dominated by other trading factors — but it will lead to random yield-blowouts in the future.

The estimated annual costs of servicing the US debt exceeded $800b as of the end of March — that’s more than 40% higher than any time prior to the past year.

One large extra warning: The chart above is only until the end of January. Since then, US yields have risen more than 20bps all the way out the curve.

The costs are still rising almost parabolically, so expect headline excitement when the $1T figure is likely reached later this year.

This month, Russia and China are sparking new jitters in Washington. That is primarily because of their stage-managed displays of diplomatic unity, around Ukraine and much else.

But it is also down to money: during a visit by Xi Jinping to Moscow last week, Vladimir Putin pledged to adopt the renminbi for “payments between Russia and countries of Asia, Africa, and Latin America”, in a bid to displace the dollar.

And this comes as Moscow is already increasingly using the renminbi for its swelling trade with China and embracing it in its central bank reserves, to reduce its exposure to “toxic” — American — assets.

Does this matter? Until recently, most western economists would have said “heck, no”. After all, it has long been assumed that the closed nature of China’s capital account is an impediment to wider use of its currency.

But right now Putin’s announcement is packing an unusually emotional punch. One reason is that concerns are afoot that this month’s US banking turmoil, inflation and looming debt ceiling battle is making dollar-based assets less attractive. “The dollar is being debased in order to fund the bank bailouts,” an economist said.

………

But the other factor sparking unease is that even before Xi’s visit to Moscow, the Saudi government announced that it will start invoicing some oil exports to China in renminbi. Separately, France just did its first liquid natural gas sale in RMB and Brazil has embraced the currency for some of its trade with China.

There is absolutely no sign that these token gestures are hurting the greenback right now. Yes, the dollar’s proportion of global reserves has sunk from 72 per cent in 1999 to 59 per cent, as central banks increasingly diversify their investment funds and discard currency pegs. And it is also true that the advent of wholesale (bank-to-bank) central bank digital currencies could theoretically accelerate this diversification by making it easier for non-American central banks to deal directly with each other in their own currencies.

A decade ago, it was widely assumed that another factor underpinning the dollar was the “stickiness” of trade invoicing patterns, as Gita Gopinath, deputy head of the IMF, has noted. But the CEPR paper suggests this might now be slowly shifting — as Chinese trade has expanded in recent years, RMB use has risen too.

So much so, in fact, that it now exceeds euro-usage for trade invoicing, which is “striking, given China’s low degree of capital account openness”, the CEPR says. And it argues that “contrary to conventional wisdom, lack of capital account openness may not fully prevent the RMB from playing a stronger role as an international and reserve currency”.

After all, it notes, a $200bn offshore RMB market has already emerged — and the currency is being “use[d] in invoicing and settling China’s foreign trade and payments” and “a global network of clearing and payments”.

Chart in the Financial Times: China is now as big as the US and the EU COMBINED (!) in terms of manufacturing value added (a measure of the net-output of all manufacturing activity in a country).

Just 15 years ago it was smaller than either one of these 2. Crazy fast change!

via The 2023 Cost-of-Thriving Index

While many economists argue that America’s working families are more prosperous than ever before, families themselves feel that they have come under increasing economic pressure. The families are right.

Economists rely on inflation-based adjustments to compare costs of living over time, but this method measures the cost of buying the same set of things in different eras. Perhaps a family could more easily afford a 1985 quality of life in 2015 than in 1985, but being in the middle class in 2015 means affording a 2015 quality of life.

The Cost-of-Thriving Index (COTI) offers a better way to understand the challenge for working families. It avoids reliance on inflation adjustments by instead focusing on the ratio of nominal costs to nominal wages in each year. The Index measures the number of weeks a typical worker would need to work in a given year to earn enough income to cover the major costs for a family of four in the American middle class in that year: Food, Housing, Health Care, Transportation, and Higher Education.

In 1985, COTI was 39.7. Costs totaled $17,586, while median weekly income for a man aged 25 or older working full-time was $443 ($23,036 per year).

In 2022, COTI was 62.1. Costs totaled $75,732, while median weekly income for a man aged 25 or older working full-time was $1,219 ($63,388 per year).

For exact dollars, for each year, click on the chart.

In 1985, a typical American man needed 40 weeks of income to cover his family’s major costs, leaving 20% of his income for other things; in 2022, it was 62 weeks. A man working a comparable full year does not come to close to covering that same set of essentials as in 1985.

by Simon Black via Sovereign Research

On March 2, 1629, after years of escalating tensions with his own government, King Charles I of England dissolved parliament and ordered all the politicians to go home.

He was only in the fourth year of his reign, but Charles was already a very unpopular king. One of his worst habits was frequently abusing his power and taking unilateral executive actions– raising taxes or passing new regulations– which would ordinarily require the approval of parliament.

But Charles hated going through parliament, and he routinely found ways to bypass them; often he would creatively interpret obscure passages of ancient laws as justification to do whatever he wanted.

In one instance, Charles decided that a 400+ year old law, which had first been decreed under Henry III in the early 1200s, gave him the authority to demand payment from everyone in the country making more than 40 pounds per year. It did not.

In another example, he claimed that ‘tradition’ entitled him to collect customs and duties on various imports, even though English law clearly required parliamentary approval on all imposts.

Charles also famously demanded money from wealthy merchants and banks, calling them “forced loans”. He even seized literally TONS of silver from the Royal Mint that was being stored on behalf of wealthy individuals and foreign governments.

Parliament made attempts to block Charles; when he asked for money to raise an army and go fight in the Thirty Years War (which had been raging in Europe since 1618), parliament refused. When he wanted funds to bail out a close relative in Denmark, parliament again refused him.

Sometimes their disputes even spilled into the courts, where judges had to determine the legality of the king’s taxes and regulations.

But nothing was ever settled, and no compromises reached. In fact the conflict continued to escalate, until Charles finally dissolved parliament in 1629… effectively shutting down the government.

This is an often-repeated story throughout 5,000+ years of human history; there have been countless examples of dysfunctional governments and terrible leadership that fail to reach a rational compromise over the nation’s finances.

And such examples tend to be a hallmark of a nation in decline.

In the case of Charles, he would go on to be arrested, tried, and executed, and England plunged into a civil war.

Louis XV of France, and his successor Louis XVI, also routinely fought with their parliaments over royal finances. France would soon go bankrupt and dive head-first into revolution.

These are lessons worth noting, given that the United States government is once again at the precipice of default.

The national debt now stands at nearly $31.5 trillion. This is the current statutory ‘debt ceiling’,

meaning that the Treasury Department no longer has the legal authority to borrow more money.

This means that yet another government shutdown is potentially on the table, as is a default on the national debt.

If this story sounds familiar it’s because this has already happened in recent history– in 2011. And 2013. And 2018. And 2019.

Now it’s happening again. And unsurprisingly, both sides have dug in and claim they are unwilling to negotiate their demands.

To say this is yet another humiliation for the United States is a massive understatement. The entire world can see that, not only is the US government incapable of managing its finances… but also that its politicians cannot rationally solve problems. It’s pitiful.

What I really want to focus on today, however, is the future: what do you think this problem will look like 10 years from now?

Today it’s already a terrible embarrassment… and a major problem.

The national debt is so big that, this fiscal year, the Treasury Department will spend close to $1 TRILLION just to pay INTEREST.

This is happening at a time when:

1) Interest rates are rising (which means that the government’s annual interest bill will increase)

2) The economy is slowing (so tax revenues will decrease)

3) Government spending is still outrageous, with a $1+ trillion deficit expected this fiscal year

This is a pretty disastrous scenario. And if you plot this trend line starting from where we are today, it’s easy to imagine what might happen over the next decade.

If deficits are already $1 trillion per year right now, how high will they be in a decade? If the national debt is $31.5 trillion today– roughly 120% of US GDP– how high will it be a decade from now?

It’s silly to assume that the United States can simply keep growing the national debt forever without consequence. It’s silly to assume they can run trillion dollar deficits every year without consequence.

Today those consequences are just embarrassments and minor inconveniences. Ten years from now they may be major catastrophes.

This is the entire point of having a Plan B. The future is far from certain– and it’s possible that voters finally elect competent leadership who act responsibly and arrest the nation’s decline.

And that’s a nice hope, and it would be great if it happens.

But it’s a lot more rational to focus your energy on things that you can control. And that’s a Plan B.

If your government is on a clear path to more humiliation and fiscal ruin, it makes sense to ensure you don’t have all of your eggs in one basket.

Main Statements by Russian Deputy Prime Minister Alexander Novak:

▫️Russian budget revenues from the oil and gas industry grew by 28% in 2022, despite the sanctions imposed by the West

▫️In 2022, coal production in Russia increased by 0.3%, to 442 million tons

▫️Russia increased LNG exports in 2022 by 8%, to 46 billion cubic meters.

▫️Oil exports from Russia in 2022 increased by 7%

▫️484 billion cubic metres of gas were supplied to the domestic market of the Russian Federation in 2022

▫️Gas supplies via the Power of Siberia to China in 2022 amounted to 15.5 billion cubic meters

▫️Electricity production in Russia grew by 0.7% in 2022, consumption by 1.5%

▫️In the new regions of the Russian Federation, more than 3.5 thousand kilometres of power lines and four power units at stations were restored

With the Soviet Union intact, Russia could now have had 172 million people living in it, and a 67% higher economy and income.

As a result of the destruction of the Soviet Union, Russia has lost 26 million people, 40% of its economy, and 66% of its industry, various sources have estimated. This is the difference between the actual figures and the alternative figures that would have developed under the Soviet growth rate averaged over 1980-1989.

Population loss: – 26 million 

According to the USSR Goskomstat forecast of 1990, the RSFSR could have 172.4m people by the end of 2022. But in fact, it is now 146.4 million. 

Loss of income: – 41%

The average monthly disposable income of 80% of Russians (without the rich) in 2022 will be around 25,550 rubles. At the Soviet growth rate and level of inequality, they would have been 43,000 roubles, or 68% more.

Losses to the economy: – 40%

“As you know,” there was “stagnation” in the 1980s. In 1985, economic growth slowed to as much as 2.3%, which was used as an excuse to start perestroika. But at that rate of growth, the GDP would have been 2.1 times bigger now than it was in 1990, not 26%, as in fact it was. Russia’s economy (GDP at PPP) was $7.7 trillion instead of $4.6 trillion and would have ranked 4th in the world after China, the USA, and India.

Production losses – 66%

Agricultural losses – 44%

Asset losses – 56%

Geopolitical losses – 32%

A similar assessment of the effects of the 1941-1945 war showed that Russia’s population lost 20 million people, as estimated by Rosstat. The economy of Soviet Russia lost 44%, industry lost 41%, and agriculture lost 43%. The country lost 45% of its wealth, and the population lost 37% of its income.

As we can see, the destruction of the USSR and the transition from socialism to capitalism, that is, to a lower stage of social development, caused losses in Russia that are comparable to the losses from Hitler’s occupation in 1941-1945. If we look further and consider the split of the sister republics and the world-historical consequences, the destruction of the Soviet Union is the biggest geopolitical catastrophe in the history of mankind.

#research #USSR

by SRSRocco Report

The U.S. government just released its November Treasury Statement with a shocker that the Debt-Service Interest Expense surged 50% in the first two months. This is a great deal of money when it equals nearly the same value for World Transparent Silver Holdings.

So, how much did the U.S. Interest Expense increase in the first two months of fiscal 2023? Let’s look at the following charts from the November Treasury Statements.

The U.S. government paid a total “Net Interest” Expense of $60 billion for October-November 2021.

Now, look at what was paid for October-November 2023:

The U.S. Treasury forked out an additional $30 billion for a total of $90 billion (just for October & November) to service the U.S. Debt, now at $31.3 trillion. Amazingly, this is a 50% increase year-over-year. Folks, $30 billion is a lot of money and represents nearly the same value as World Transparent Silver Holdings: Read More

by Yaroslav Lissovolik via Valdai Club