People never intend to bring disasters upon themselves. 

But they sometimes put themselves in situations in which disaster is the only way out. 

The War Between the States was supposed to be quick and decisive. 

The glorious histories of the war were already written – at least in the minds of the combatants – by the time of the First Battle of Bull Run. 

There would be a few heroic charges; Napoleon’s Marshal Ney would have nothing on the dashing Confederate generals in their gray and red tunics. 

Mounted on their fine Tennessee horses, waving their swords and shouting encouragement to their cavalry, they would sweep the enemy from the field… send him fleeing back across the Potomac… and the war would be over. 

But even authors often don’t know how their stories will turn out. 

Events and personalities take over. Between the first chapter and the final one, there are twists and turns that few expect. The hero turns out to have a fatal flaw. Circumstances weren’t what they thought. The enemy had surprises. 

And then, at the end, the great victory turns into a nightmare defeat.

No Surrender

Once war is underway, the warriors stop thinking about peace. Instead, they focus on winning the war. 

Then they can’t stop…

The coming disaster is financial… and economic. The authorities are determined to win a war: a war against markets. 

With $35 trillion in excess debt in the U.S. alone, they figure they can’t afford to lose. They’re right. But they can’t win, either.

The big monetary guns blast away. Janet Yellen threatens to make peace with the credit markets. But it is just an idle war rumor. She can’t make peace; she can only surrender. Unconditionally. 

And if the feds abandon their artificially low interest rates, it will be impossible to finance so much debt. The war will be lost. 

And now, the people turn their lonely eyes to Field Marshal Trump… and turn their hopes to fiscal stimulus – deficit spending, in other words.

Monetary stimulus works by lowering the cost of the fake money. In a free-market economy, borrowers compete for scarce savings and discover honest interest rates. In a Fed-managed economy, at war with free markets, central-bank Ph.D.s set interest rates by committee, offering ersatz savings at artificially low prices.

People don’t know the new money is phony. They don’t care that no one earned it and no one saved it… and that there is nothing behind it other than swamp gas. It looks like the real thing. It acts like the real thing. 

But if monetary policy is a kind of precision bombing, fiscal stimulus is more like a full frontal assault. 

Money enters the economy like Sherman’s cavalry entering Atlanta. Fiscal stimulus goes more directly into the hands of the people. So, it tends to raise consumer prices more than monetary stimulus, which hangs around Wall Street, raising only financial asset prices. 

But the underlying aim for each is the same: Put more fake money into the system. And so is the purpose: Prevent the market from correcting the fake money the feds put into the system the last time. 

More Money, More Debt

That’s how a credit money system works: More money means more debt. 

As the debt builds up, the system needs more money… aka more debt… just to keep it from losing the war. But in order to add more money, someone has to be able to go further into debt. 

Households and businesses are tapped out. They are already at “peak debt,” with little collateral and little capacity to borrow more or use the borrowed funds effectively. 

That leaves only the feds. They are the only ones who can still borrow substantial sums of money. No one has to worry about not being paid back by the government; after all, the feds have a printing press.

So, the feds are preparing a major offensive. And investors are writing their books. All with happy endings. 

In January, their hero, Donald J. Trump, will present a program of tax cuts and spending increases. Commentators will tell us how the tax cuts may “pay for themselves” as they spur additional economic activity.

They will say the increased infrastructure “investments” will make the economy more productive. They will mention that we need more inflation as a way to fight our growing debt load!

Higher federal spending will put people to work in the shipyards and malls. It will cause prices to go up, reducing the weight of debt. People will spend more and owe less!

But wait… What goes wrong? 

Tune in next week to find out… 

Regards,

Bill

Market Insight

BY NICK GIAMBRUNO, SENIOR ANALYST, CRISIS INVESTING

I walked through Piazzale Loreto during a recent trip to Italy, which is suffering its worst economic downturn since 1945. And I realized that Italians are angrier now than they’ve been since the reign of Benito Mussolini.

Italy has had no productive growth since 1999. Real GDP per person is smaller than it was at the turn of the century.

That’s almost two decades of economic stagnation. By any measure, the Italian economy is in a deep depression. And things will probably get much worse.

It’s no surprise Italians are in a revolutionary mood…

The Five Star Movement (M5S) is Italy’s new populist political party. It’s anti-globalist, anti-euro, and vehemently anti-establishment. It doesn’t neatly fall into the left–right political paradigm.

M5S has become the most popular political party in Italy. It blames the country’s chronic lack of growth on the euro currency. A large plurality of Italians agrees.

M5S has promised to hold a vote to leave the euro and reinstate Italy’s old currency, the lira, as soon as it’s in power. That could be very soon.

Given the chance, Italians probably would vote to return to the lira. If that happens, it would awaken a monetary volcano.

The Financial Times recently put it this way: 

An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period.

It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.

If the Financial Times is even partially right, it means a stock market crash of historic proportions could be imminent. It could devastate anyone with a brokerage account.

Here’s how it could all happen…

On December 4, Italian Prime Minister Matteo Renzi’s current pro-EU government is holding a referendum on changing Italy’s constitution.

In effect, a “Yes” vote is a vote of approval for Renzi’s government.

A “No” vote is a chance for the average Italian to give the finger to EU bureaucrats in Brussels.

Given the intense anger Italians feel right now, it’s very likely they’ll do just that.

According to the latest polls, the “No” camp has 54% support and all of the momentum. Even prominent members of Renzi’s own party are defecting to the “No” side.

If the December 4 referendum fails, Renzi has promised to resign. Even if he doesn’t, the loss would politically castrate him. In all likelihood, his government would collapse. (Italian governments have a short shelf life. There have been 63 since 1945. That’s almost a rate of a new government each year.)

One way or another, M5S will come to power. It’s just a matter of when. If Renzi’s December 4 referendum fails—and it looks like it will—M5S will likely take over within months.

Once it’s in power, M5S will hold a referendum on leaving the euro and returning to the lira. Italians will likely vote to leave.

Italy is the third-largest member of the eurozone. If it leaves, it will have the psychological effect of yelling “Fire!” in a crowded theater. Other countries—notably France—will quickly head for the exit and return to their national currencies.

Think of the euro as the economic glue holding the EU together. Without it, economic ties weaken, and the whole EU project unravels.

The EU is the world’s largest economy. If it collapses, it would trigger an unprecedented global stock market crash. That’s how important Italy’s December 4 referendum is. It would be the first domino to fall.

Almost no one else is talking about this. That’s why I just spent several weeks in Italy, taking the pulse of the country.

Italy’s December 4 referendum could make or break your wealth this year. If it fails, the EU, which has the world’s largest economy, will likely fall apart… triggering an epic stock market crash.

It could either wipe out a big part of your savings… or be the fortune-building opportunity of a lifetime.

Best,

Nick Giambruno 
Senior Analyst, Crisis Investing