This past week saw a shocking revelation that succinctly summarizes how populism is actually threatening to overturn the economic growth and financially still booming equities markets around the world. Bloomberg Economics analyzed the geopolitical map based on political consensus. They determined that roughly 41 percent of the world’s G20 nations (and also including Spain as well) are now run by populists. This figure does not even include the United Kingdom, which is being run on a populist agenda but technically is not governed by a populist leader or party. Compare this enormous figure to a mere four percent a decade ago in 2007.
Populists have a historical tendency to promote isolationism and to break down global trade. Eventually this leads to financial contraction and stock market pullbacks around the world every time (even when it does not always lead to international military conflict). This is all a reminder of why you need a Regal Assets IRA. The reality is that gold offers insurance and protection during market turbulence as it always has for most of the last 5,000 years of recorded human history. You need to understand what is a Regal IRA while you still have some breathing space.
The Economic Dangers from Populism Around the World
Political agreement in the world has changed over the last decade as has now become quite clear. The new governing populist parties now oversee a plurality if not majority of the global G20 economies (plus Spain). They also have their own ideas on economics. European-based Allianz Global Investors has picked up on this in research and shared it with the world. They continue to forecast more inflation, a greater amount of protectionism, and rising borrowing costs for the future.
They are also convinced that there will be a greater proliferation of national “winners” versus “losers” in the future as we return to the world of impoverish your neighbor protectionism. This chart below shows how this is already taking shape in the form of far greater volatility in emerging market economies versus those of the G7 wealthy, industrialized seven nations of the world (the United States, Japan, Germany, United Kingdom, France, Italy, and Canada):
The proof of this can be seen clearly in countries that are the new national “losers” of the more protectionist leaning world economy. Think especially Venezuela, Argentina, and Turkey, but also Indonesia, Brazil, Syria, Yemen, and much of Africa.
Argentina is a Sad Case Study in How This Plays Out in National Practice
Argentina has recently begun to rival Venezuela as the poster child for the have not’s who have been beggared by global populist and protectionist agendas. The third largest economy in Latin America is now on the brink of debt default yet again. Earlier this week on Wednesday, the national government of Argentina unexpectedly asked the International Monetary Fund to release a $50 billion IMF loan earlier than anticipated.
This request has made matters far worse and wrecked the country. The peso made all-time lows as soon as the IMF broke the story to world media. Argentina’s currency has plunged by 45 percent versus the American dollar for the year so far. Inflation is now at 25.4 percent for the year.
Thursday the Argentinian central bank desperately tried any idea it could grasp hold of to stem the worsening crisis. They increased bank reserves in an effort to prevent runs on the banks and to stabilize the currency. Then they massively boosted interest rates by 15 huge percentage points up to an eye-watering 60 percent interest rate from the previously already high 45 percent. They guaranteed that these rates will stay elevated without any cuts through December at least.
People in Argentina now will pay enormous amounts of money in interest rates for loans, home mortgages, or any type of financing, if they can even get it at all. The country had recently congratulated itself on its brilliance in issuing 100 year bonds that investors greedily grabbed up (most foolishly too, those investors are not celebrating their achievement today).
Now things look like they will go from bad to worse in Buenos Aires, considered to be the “Madrid of South America.” Keep in mind that only just over a hundred years ago, this was a country nearly equal in prosperity and industry to the United States at the time. It is a stark warning to everyone, and to the United States with its runaway $21 trillion national debt most of all. Great economies can be destroyed by runaway spending and poor national choices.
Short Term Mentality Is Rapidly Shaking Investor Confidence Around the World
There is an unintended consequence of the short-term mindedness going on inside a global economy increasingly run by the populists of the world. It is quickly draining away investors’ confidence around the U.S. and the world in general. This is forcing up volatility that has already risen dangerously because of the pullback of American dollar liquidity to world markets and the increasing interest rates in the United States and elsewhere.
It does not help matters that Turkey’s strongman populist President Recep Erdogan has massively overheated his own nation’s economy in deepening his diplomatic war of words with President Trump through insisting on a boycott of all things American, all the while Erdogan stands against much-needed rate hikes in Turkey. Italy is also playing with proverbial fire by using a fallen bridge tragedy (that killed minimally 43 individuals) as a weapon against the latest round of European Union budget talks.
It does not seem fair that volatility is so much more elevated in the developing and emerging market world than in the wealthy, developed world, but this is reality. Survival of the fittest is still the sad way the geopolitical order operates. This means that countries perceived to be safe-havens (versus everyone else) are doing comparatively well.
The U.S., Switzerland, Germany, Great Britain, Austria, Sweden, Denmark, Norway, Canada, Australia and a handful of others are riding out the storms pretty well. Investors in the G7 and friends world believe that come what may, technocratic individuals with cooler heads are still at the effective helm. This explains why the volatility in currency and stock markets in the emerging market world is vastly greater than that of the wealthy developed world.
The Danger to the U.S. and Developed Market Economies of the World Is Clear and Present
The real danger to you and to your retirement account personally is that eventually this growing uncertainty is bound to reach the core of the world economy too. Portfolio Manager David Jane of the Milton Group warns that we are:
“On a long journey to higher rising volatility around the world. Those conditions that caused the February spike higher in the VIX Volatility Index are still present — retrenched liquidity, rising rates, and hedge funds betting on price swings.”
There have been many flash points in the populist scene over the last several years. The Brexit vote in the United Kingdom is one whose ramifications will likely still get worse than they have been so far. Italy’s populists taking the helm threaten to cause a breakdown in investor confidence in first Italy and its failed banking system and second in the entire Euro Zone and even whole European Union.
This is because they are rallying other populists in Austria, Hungary, the Czech republic, Poland, and Slovakia around them (the now-infamous Visegrad 4 turned Visegrad 5 with the de-facto addition of Austria). Synchronized economic growth has already been the first casualty of all these geopolitical earth shaking events, per a recent IMF report.
Gold is your first, last, best, and ultimately only historically proven line of defense against these world altering isolationist and protectionist policies. It has been difficult to predict the end of the so-called “longest lasting bull market” of all time, but it is sheer stupidity to assume that the markets can simply continue to defy the power of geopolitical gravity indefinitely. It would be wise to consider the IRA rollover rules and regulations now. You had also better get your gold storage plan figured out today before the real pain starts.