Sovereign Finance

Rob’s comments below are in italics.Derek’s comments below are in normal font.We’re recording on the 5th of November, which is Bonfire Night in the UK, a couple of days after the US midterm elections. So we’re going to pass comment on some of these events. Where do we stand at the moment, Derek?Right, okay. Before we go any further, the fifth of November is also my birthday. My mother tells me that if she had a boy, she had intended to call him Guy. Of course, people didn’t know in advance in those days. When I arrived on the fifth of November, she thought, “No, I can’t do that to him!”‘Guy Fawkes Dearden.’ That’s too much…So I became Derek, which suits me just fine. Anyway, personal trivia aside, it’s been a pretty dramatic week, not least for the election results in the United States. It’s fair to say the result was widely anticipated. Even so, the results have exceeded the expectations of everyone who wanted Trump to get a black eye.It was more or less a foregone conclusion that the House of Representatives would shift to the Democrats. It was touch-and-go whether that would happen in the Senate as well. What’s turned out is that the Senate has gone decisively to the Democrats, as well as the House. A few results are still to come, so we don’t yet know how dramatic the difference is. They’ve certainly got a simple majority. They certainly don’t have a two-thirds majority, which is necessary under the American system to convict in an impeachment.To recap for those who are not clear, to impeach is to accuse a member of the government of high crimes or misdemeanours. That needs a simple majority vote in the House. The change comes after the end of this year, because this week’s results don’t take effect until about sixty days after the election. In this country, the outgoing government departs as soon as the election is held. But in America, they have a handover period. That may well have been relevant in the eighteenth or nineteenth century, but today it’s another unnecessary period of confusion.Anyway, to convict on an impeachment requires not just a simple majority in the Senate, but a two-thirds majority. There are already signs that Pete Hegseth is likely to be impeached, even before the changeover. I would have thought the attacks on Venezuelan fishing boats would be ample grounds for that. There are plenty of other displays of sheer incompetence and malfeasance in government too. So there’s every chance that will happen, even while the existing Republican majority holds for the next two months.If any impeachment proceedings are brought, there’s a good chance they would be carried anyway. Many Republicans in the Senate have held on to their seats. A significant proportion of them might well want to distance themselves from the present administration and its actions.Another thing has become clear. I just caught a glimpse of some breakdowns by segment of the population. Roman Catholic voters have deserted the Republicans en masse, which is quite remarkable. And a large majority of Jewish voters have voted against the government. That shows that even among American Jews, unquestioning support for Israel and its behaviour is not a foregone conclusion.It’s quite remarkable that Israel has run an extremely effective public relations campaign over the past eighty years. It has had most of the Western world going along with it, seeing them as the beleaguered holdout of democratic institutions in the Middle East. Over the last two or three years, a very large majority of the general population has changed their opinion. They are finding this totally unconscionable. So that’s where we stand with the American events.My one word of caution is not to expect too much of this. It’s just like the last general election in this country, which resulted in a landslide for Labour. It wasn’t so much a vote for Labour as a vote against the Tories. In a couple of years, they’ve managed to turn that into a desire to vote against Labour. Most of the population is deeply disappointed by the lack of practical improvements.I don’t have a real estimate, but I suspect many people are unhappy, if only because of resources. We see the public services we want being cut back, certainly the NHS. Investment in our schools and universities is being cut, along with support for the most deprived parts of the population. All this is to send billions of dollars to Ukraine to prolong a war that is increasingly looking futile.Yeah. Fuel prices are also insane. We haven’t really seen the knock-on effect on food prices yet, but surely that will come at some point.Well, we’ve already seen some of it.In the meantime, we’re seeing a continuation of the humiliation of the Ukrainian government. A few interesting developments have emerged in the last few days. NABU, Ukraine’s anti-corruption investigation agency, has started investigating the chief prosecutor’s office and the SBU. Both are among Zelensky’s solid supporters. NABU is investigating them for corruption, embezzlement and links with organised crime. So it looks as though Zelensky’s image as a shining light of democracy and freedom is finally under attack. One negative aspect of the swing to the Democrats is that they might well be inclined to swing back. That could mean more support for the military, more support for the arms manufacturers and more support for Ukraine. The Trump administration seems to have been moving away from that.It’s always more war, just in different places.Yeah. The most dramatic instance of the growing distance between Trump and Zelensky, you might say hostility, came recently. Trump very publicly asked him not to attack Russian oil refineries. His grounds were that this was a major factor in the diesel price rises hitting the United States.I don’t know how many people were convinced by that. It may be a small contributory factor, but the main one is obviously the war in Iran. That war is extremely unpopular in America, and everywhere else as far as I can see. I don’t know how many people are convinced that Iran is on the path to manufacturing nuclear bombs, or that this war is likely to stop them. There is still speculation that Iran could move very rapidly from wherever it is technologically to manufacturing atomic bombs. These would be fairly crude, basic types, like those used on Hiroshima.One thing would push them to reverse their decision and go ahead with that manufacture. That would be the Americans or the Israelis launching any nuclear weapon at all, anywhere in Iran. There’s quite a lot of speculation in some circles that Trump might be planning to launch one onto Pickaxe Mountain, which was identified as the site of some of the nuclear enrichment facilities. I have it on very convincing authority that the Iranians moved all the nuclear material and machinery out of Pickaxe Mountain a long time ago. Any betting man would take that as almost a foregone conclusion. The idea that they would leave it there, after so much talk of targeting the place, is laughable. Not only that, it’s not at all clear that even a nuclear weapon would strike through a hundred feet of granite mountain. It would have to reach whatever underground facilities they’ve got beneath it.So it would be a fiasco. It would also irradiate the whole of the Middle East. It would utterly destroy whatever’s left of the energy production facilities in the area.The way I’m looking at the unfolding saga in the Persian Gulf, we’re seeing an acceleration of what will happen anyway over the next few decades. That is the exhaustion of fossil fuels. We will have to find alternative arrangements. We will have to decide what life we want to live, and can live, in practical terms under that dispensation. Some people still seem to think they can deal with that by flatly denying reality.The point is that we’ll have to accommodate reality in one way or another. The war in the Middle East has simply brought forward the time to deal with it.On the plus … This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.We’re taking a pass at current affairs that mainstream media isn’t covering. (Note: this conversation happened on Friday 30th October, before the US midterm elections; commentary on that to follow.) So what’s been going on this week, Derek?Well, the biggest single item of news is Lula winning the election in Brazil, with Bolsonaro basically doing a bolt. Bolsonaro looked like winning. He was plainly a puppet of the US Empire, and it looked like he was a dead cert to win, one way or another. He didn’t.He then slipped over the border into Argentina. After a certain amount of to-and-fro, he caught a private plane to Miami. He was let into the United States without a passport or a visa.Funny how that never happens to you or me!I’ve never tried it, and I wouldn’t want to! Anyway, now everyone on that side is saying this was a stitch-up and that it wasn’t a fair election.Funnily enough, this is more or less the pattern. We’re supposed to have democracies in lots of countries. Every time there’s an election, some people win and some people lose, as happens in elections. Increasingly, the people who lose say it’s been a stitch-up, and it’s not valid for one reason or another. So this one is no different.The other thing, of course, is that there’s been an election in Israel. As we speak, Netanyahu is still Prime Minister. They’re still struggling to stitch together a coalition so he can form a government. He hasn’t got an absolute majority, and his support has gone down. There are a whole variety of factors. We’ll have to review this next week and see how it’s working out.But the short answer is that there’s no majority. Whoever is going to govern Israel will have to stitch together a coalition. The various minority parties all have reasons for not wanting to collaborate with each other, most of them completely irrational. So we’ll see where it goes from here.For Netanyahu, this is a very personal thing. If he’s no longer Prime Minister, he’ll be back in court facing corruption charges. He could quite possibly spend the rest of his life in jail.It’s mad, isn’t it, that the only job that gets you off the hook is being Prime Minister...So it seems. Another thing from Israel was an interview with an actress. She was talking during a commercial break, thinking she was off the record, saying some incredibly damning things. She said how horrified and ashamed she was to be part of the Israeli establishment, given the appalling things they were doing. At the end, they said, “By the way, we’re broadcasting this.” Not only was it broadcast in Israel, but the video has now gone viral online.That’s what we have the internet for, isn’t it? For spreading these things far and wide!So anyway, that’s yet another crack in the narrative.On other fronts, I was just listening to a video on Neutrality Studies, which is hosted by a Swiss guy called Pascal Lottaz. Are you aware of it? It’s well worth a watch. He is totally brilliant. Lottaz was interviewing a mainstream economist called Jeffrey Tucker, who is broadly in the neoconservative camp. That makes the topic of the interview all the more surprising: that capitalism led by the US is on the brink of collapse.In short, he was saying the root of all the problems was fiat currencies, which gave the ability to create endless amounts of money and funnel it to where it would get the most dramatic financial returns. The highest returns are in warfare, arms manufacturing and pharmaceuticals.The whole point of economic and financial systems is to create wealth. You create wealth by investing in productive activities that produce things people want. That is wealth.Warfare is essentially vandalism and armed theft on a grand scale. It doesn’t create wealth; it destroys it. This is what we’re seeing in all the conflicts of this century and the last one. We see it in the three major conflicts going on right now, and they’re still going from bad to worse.The armies of this world seem to be mercenary forces for capital interests.Yeah. As we speak, of course, the next big election is the US midterms, which are in four days’ time, next Tuesday. Meanwhile, Trump has been making a number of ambiguous statements about what he’s going to do. His main focus is obviously the conflict with Iran.I would have thought it obvious to everybody in the world that the United States is out of options. It’s very nearly out of ammunition and missiles of all sorts. It’s out of tactics, much less strategies. It’s been made abundantly clear what would follow any fresh round of attacks on Iran. The responses would be catastrophic and out of all proportion. That applies to the United States, to its allies in the region, and to the economy everywhere in the world.Of course, in Ukraine there have been enormous attacks this week, or at least enormous attempted attacks, from Ukraine into Russia. Last night or the night before, apparently over 1,200 drones were launched towards Moscow.I don’t know how many actually got through. It will have been a very small proportion. Even a small proportion of a launch that size can cause very significant damage. They have hit various chemical factories, arms factories and oil refineries. They’ve also hit oil distribution sites.Yet again, though, the Russian attacks have been larger, and a much higher proportion of them have got through. This is not necessarily reported accurately in the Western media.At some point, European nations, including ours, the United Kingdom, will have to face facts. Whatever outcome they expected from this conflict is unlikely to happen. More and more money has been funnelled into Ukraine. More and more money has been funnelled into producing weapons that have been sent there. The premise was that we would be repaid once Ukraine won the conflict and Russia was forced to pay reparations. I’m sure it’s becoming more and more obvious that this simply won’t happen.It’s highly unlikely, whatever the outcome at the end of the day. When the fighting stops, as it will have to, even if only from complete exhaustion, Russia won’t have suffered an unambiguous defeat. They’re not going to pay reparations. Any money poured into this ridiculous enterprise will have to be written off. Apparently, the UK government has just suggested another £13 billion of finance to support Ukraine in some form or another.Once again, insofar as money is being created, it could be disbursed in a number of ways. It could certainly be spent alleviating problems in this country, rather than pissing it up the wall, to put it bluntly.Yeah. I think we only really need government to build roads and fill in potholes. And how much money do you need for that, really? Plus you could have some safety nets in place for people who need them. Even that wouldn’t be very expensive in the context of all the money they spend on war.Yeah. So that’s where we stand right now.When we speak next week, we’ll have the outcome of the American midterm elections. We’ll see what the implications are. Trump is going around the country trying to drum up support for Republican candidates in various states.All right, thanks, Derek.Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.It’s been a few weeks since we’ve done a roundup of current affairs. A lot can happen in a few weeks, so we thought we’d do an update. What’s going on, Derek?Okay, well, in a way it’s as confusing as ever. It’s déjà vu all over again. Sometimes I see a YouTube video on one of the commentary channels I follow and think it looks interesting, then I start watching and realise it’s from two years ago! So all these events go backwards, forwards and round in circles.To get a big-picture overview, the place I keep coming back to is that we’re in the end-of-empire part of the cycle. Every single empire in history so far has followed broadly the same trajectory. They’ve started off insignificant. They’ve been on a roll while on the rising part of the curve. Then they’ve had a roughly equilibrium state at the peak of their power. At equilibrium, a certain complacency sets in. People think this is the way it’s going to be forever. They become less and less committed to the intentionality they had when they built the empire. Meanwhile, the various parties they’re oppressing see more and more clearly that things don’t have to be the way they are and become highly motivated to do something about it! Bob Dylan had so many great one-liners, but the one that applies here is that “When you ain’t got nothing, you got nothing to lose“.Even Russia, by any standards a global superpower, was knocked out of that position after the collapse of the Soviet Union. It had a very bleak decade and a very hard time internally. In the 1990’s, most of the Russian population viewed the communist years with some nostalgia.The average person was actually much worse off after the Soviet Union collapsed than before. The country was being pillaged on a grand scale by Western interests and their collaborators, the oligarchs. It was only when Putin came in that the country started working again. A lot of people still imagine we’re dealing with the Soviet Union, with people queuing for loaves of bread under Stalin. They picture peasants starving because their food was requisitioned to feed the cities. Internally, though, Putin plainly got the whole country back on its feet.Interestingly, they mothballed all of their defence industry, so when the so-called “unprovoked” invasion of Ukraine happened, the military had been slimmed down considerably and the arms factories had been mothballed. It was only after it became apparent that Ukraine would not be forced to address Russia’s very real grievances that they managed to gear up production. Those grievances were the repression of the Russian-speaking part of Ukraine’s population and the likelihood of a growing NATO presence right on Russia’s borders.Obviously, in terms of arms production, they’ve now completely outstripped the West. At the outset, I thought a conflict between Ukraine and Russia could only have one possible outcome. Even in its run-down state, Russia had vastly more population, vastly more capacity for arms production and vastly more resources across its territory. There could only be one winner. In a way, it was a misnomer to think of it as a conflict between Russia and Ukraine. It was really Russia against all thirty-two nations of NATO standing behind Ukraine. Even those thirty-two nations haven’t managed to overrun the Russian presence in the country.I heard Andrew Bridgen say a few years ago that we actually went to war with Russia and our leaders just forgot to tell us.Yes, and we still are.Anyway, we’ve got to also look at the other major conflicts. Apparently, there are about fifty conflicts of one sort or another going on in the world at the moment. Apart from Russia and Ukraine, the main ones are the US against Iran and Saudi Arabia against Ansar Allah. It’s worth looking at the way these are portrayed in the media, because the asymmetry between the accounts is ludicrous.Take Ukraine for a start. Western commentators continually state that the battlefield is in a stalemate. One channel claimed the Russians have only conquered ninety square kilometres of Ukraine over the past five years. According to sources seen as more sympathetic to Russia, the actual figure is around six thousand square kilometres. There’s obviously a margin for error in the way they’re calculated. If one side said three thousand and the other said three and a half, you’d think they were both connected to reality. When the disparity is that size, it’s obvious some people are kidding themselves very convincingly. At the very least, they’re trying to kid everybody else.If we look at this as an end-of-empire situation for the United States, it’s quite easy to see all three conflicts as part of the same pattern. That includes, of course, the Israeli aggression in Gaza, the West Bank, Lebanon and the surrounding area. It’s all part of the insanity that shows up at the end of empire cycle. As they realise they’re not having such an easy ride, empires get more and more desperate to double down.We saw this too with the British Empire. Britain did a good job of dressing up the dissolution of the empire. It turned the colonies into a Commonwealth, granted them independence and helped set up so-called democracies. Even so, it was a pretty bloody period after the end of the Second World War. I was fortunately just young enough to miss being drafted into national service. If I’d been born ten years earlier, I’d have had at least two years trying to beat down people in Malaya, Nigeria, the Gold Coast (now Ghana), Kenya or Burma. These were places where the natives had had enough and wanted to get rid of the British. The empire wasn’t let go gracefully until it became inevitable.We’re seeing a similar pattern now. For the last eighty years, the US has been able to send a threatening military or naval presence anywhere. It could either threaten people into submission or bomb them until there was nothing left to reject its influence.On the one hand, you’ve got Iran, a civilisational state that has existed in one form or another for over three thousand years. Yemen is also a civilisational state. Most other nations in that part of the world were set up by the British and French under the Sykes-Picot Agreement at the end of the First World War; they arbitrarily drew boundaries and treated the countries as colonies of one European state or another.Most African countries are like that.Yes, same story.Again, there’s an asymmetry in the way the conflict between Yemen and Saudi Arabia is reported. The British media always call them the “Houthis”, as though they’re a ragtag, insignificant band of rebels. In fact, Ansar Allah has the support of the overwhelming majority of Yemen. Yemen is in a dreadful state of poverty because of an embargo Saudi Arabia has imposed for over ten years. That embargo has the support of Britain, the United States and several other European nations. In spite of that, they haven’t broken the will of the people.Another asymmetry is that Yemen’s population is far larger than Saudi Arabia’s. You lose sight of that when you look at the map, because Yemen looks much smaller.Arabia is mostly desert though, isn’t it?Exactly. Saudi Arabia is mostly desert, so it’s got a much smaller population.It’s also only “Saudi” Arabia because of the House of Saud, which must have been a post-war thing?Well, that was set up in the 1930s by the British. They went in and machine-gunned the other tribes to give the House of Saud rule over the country. The deal was that they would play ball by providing their oil at knockdown prices to the British, and later to the Americans.It’s very unfortunate to be living on top of oil, isn’t it? It doesn’t bode well for your future prospects!Inheriting any kind of wealth seems to be a double-edged sword. Look at how few people manage to handle it well on an individual or family level. That’s a story for another day, though.But once again, you’ve got this a… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.We talked about the role of energy in the economy. If you missed last week’s conversation, we were talking about how we really need to rethink how energy is harnessed, captured and distributed.Since then, I read an article from Caitlin Johnstone, called ‘Advanced Technology Will Not Save Us’. She makes the point that even if Nikola Tesla was right, and we might somehow discover a source of infinite free energy, the powers that ought not to be would still find a way to commandeer it, hide it and make it expensive. It wouldn’t filter down to us. The system is set up the way it is because energy is one of the levers of control, along with money and food. I wonder what your thoughts are on that, Derek.Well, I thought that was a great article. This has been a recurring argument since the early seventies, when the first report called The Limits to Growth came out. At the time, I thought the arguments it put forward were unassailable. At its most basic level, it boils down to the fact that in a finite world, or a finite subset of the universe, there is nothing material that can carry on growing forever. Not only that, but the mechanisms we operate invariably lead to exponential growth. Indeed, many economic projections are worked on the assumption that growth will be exponential and will continue indefinitely.An important point to note is that with exponential growth, the situation can turn around and bite you much faster than you expected.The faster the bus is going, the more likely the wheels are to fall off.Yes, exactly. From the word go, the backlash against The Limits to Growth came down to three points. One was simply to say, “Well, Malthus said this in 1798, and look how wrong he was.” That’s no argument at all.We’ve covered that in a previous episode.The short answer is that he was wrong because we were on the eve of the Industrial Revolution. Britain made a great many goods that it could sell to the rest of the world, and it imported food to keep the country going. Now, though, we’re dealing with the same situation on the planet as a whole.Another argument put forward against The Limits to Growth hypothesis was that human ingenuity has always come up with solutions, so maybe - hopefully - it will this time, too.That’s called hopium, isn’t it? Hopeium is endemic among business owners.Yes, it’s called hopium, exactly. The third argument was that some technological fix would come along and solve the problem. That misses the point of the argument, which is that these things are all interlinked. The outputs of one thing, like the birth rate, feed through to something else, such as population size. That feeds through to the amount of food required, which feeds through to the amount of energy, industrial capital and transportation required. All of these things are interconnected. Apart from anything else, the essential idea that technology will fix it is fanciful unless you’re more specific about what technology you have in mind. How will the new technology work? What are its inputs, and where will they come from? What are its waste products, and where will they go? These are the things we’ve got to address.In a way, we’re being forced to address them far faster than we otherwise would have done. We were dead set on barreling along in the same old way until the conflict between the United States and Iran blew up. That caused major disruptions to the world’s energy supplies. In a way, particularly in Europe, we’ve had a foretaste of this for the last few years. All the European nations, including Britain, scored an own goal by cutting off their noses to spite their faces. They interrupted the supply of energy from Russia, which was a major supplier.It surprises me that nobody has really connected the dots publicly. Our electricity bills are three times what they were a few years ago, and we’ve sabotaged ourselves by cutting off the most economical energy sources. At least it’s brought those of us who are awake face to face with the fact that, sooner or later, we’ll have to bite the bullet and address where we get our energy and how we supply it.It’s much easier to have ostrich syndrome when you have a steady stream of tankers coming in.Yes. Related to this is the vogue for enthusiasm about artificial intelligence. As far as I’m concerned, the jury’s out on how beneficial artificial intelligence is going to be.Very beneficial if you want to surveil everyone, apparently.Yes. Or target your missiles.I can say that I use AI in a limited capacity in my work and my business. However, there’s a micro level and a macro level to how it’s being used - especially in the context of energy requirements for data centres. These are not being built for our benefit.Well, they’re simultaneously expecting huge growth in the amount of energy going into the data centres being built to support artificial intelligence. The question I would ask is, first of all, where is the real wealth being generated?With a lot of the technology we’ve developed so far, it’s been fairly obvious what the real wealth is. Go back to the Industrial Revolution and the automation of spinning and weaving machines. This obviously produced more fabric, providing clothes more efficiently with less physical labour involved. There was a clear indication of the resulting increase in wealth. In all other aspects of mechanisation, whether machinery, transport or manufacturing, there was a very clear, direct effect on the wealth being produced. Similarly, with the arrival of microcomputers, all sorts of things were being done far more efficiently. It was easy to see how wealth, in the sense of things people want, was being produced more efficiently.With AI, there are an awful lot of trivial applications.There are a lot more words in the world!However, it’s far from clear that the energy being consumed is commensurate with the benefits being produced. We’ll just have to see how this works out. At the same time, energy is becoming increasingly expensive and problematic to obtain in the ways we have, through the explosion in fossil fuel consumption. We’ll also have to see to what extent we can continue in this form.I guess the authorities are expecting pushback on data centres at some point. They’re expecting a lot of anger about it, especially with energy bills so high. They seem braced for that.This is, in fact, distorting the marketplace. If they require huge amounts of energy and supply can’t expand at that rate, they’ve obviously got to bid against you and me heating our homes.Super. Well, you’ve just been chopping down trees in your garden, so you can always burn that this winter!Well, I certainly will be.Thanks for reading Sovereign Finance! Subscribe for free to receive new posts. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.We’re returning to one of our core topics today: the role of energy in economic affairs. Which is also a current topic, with the cost of energy escalating. So what do we have to cover on this?*Right. Okay, well, it’s been really obvious to me over the last fifty years that we’re going to have to adjust to a different way of doing things. The fossil-fuel bonanza, particularly oil and natural gas, has a finite lifespan. People could argue whether that is ten, twenty, thirty, fifty, or a hundred years. By any standards, though, it’s going to be significantly less than a hundred years. That means it will happen within the lifetime of people alive on the planet right now.To the extent that there’s any thought or activity about catering for this, it seems to me both woefully inadequate and unrealistic in its parameters. The short answer is that a finite resource cannot be consumed indefinitely at any rate. It certainly can’t be consumed at ever-increasing, exponential rates, which many people assume in their economic thinking. Planning for how we deal with that situation won’t simply be a question of replacing all the internal combustion vehicles with electric vehicles. It’s going to take a radical rethink of how we approach it.You’ve still got to power an electric vehicle. That power doesn’t come from nowhere.Well, that’s one thing. Another thing that amazes me is that people are still thinking in those terms. Have they never been out on a motorway during the rush hour? It’s a woefully ineffective way of meeting people’s need to get from one place to another. You have them all sitting in quite large vehicles, mostly with one person in each, going to the same place at the same time.It feels to me like public transport is woefully inadequate. It’s been handed off to private companies with no real incentive to invest in it and every incentive to raise prices.Yes, indeed. That whole dilemma has been brought to the forefront, particularly by the Iran war that’s going on. The Ansar Allah conflict with Saudi Arabia has reinforced it. There’s a lot of discussion about whether this will provoke a recession or even a depression.It’s interesting to look at how these terms are defined, since definitions vary. Nearly all define them in terms of either slowing GDP growth or a contraction.We’re back to GDP again as the single measure we’re supposed to watch.The single measure, exactly. Even people who seem to be having a sensible conversation still take it as read that GDP measures wellbeing. All GDP measures is financial churn.We desperately need to get away from the idea that the flow of cash, assets and resources is the only relevant factor. Material wealth is actually a measure of the stock of assets you have, not the rate at which you’re burning through them.So the common definition of a recession, as I say, is a couple of months of poor or negative GDP growth. A common definition of a depression is a contraction of GDP lasting more than three months. With society geared up the way it is, all of these things obviously cause people considerable distress. People don’t have enough to eat, can’t keep their houses and the rest of it. I saw an estimate today that restrictions in the Strait of Hormuz have reduced the availability of 3.3 billion barrels of oil. Given that global consumption is 100 million barrels a day, that’s a month of the world’s oil and oil products.Now, I don’t know what factors have been taken into account, or whether that’s just the reduction in shipping through the strait. I don’t know how much it accounts for oil lost from tankers being struck or from storage tanks being destroyed. We haven’t even begun to estimate the lost productivity from attacks on refineries, wellheads and pipelines. Nor do we know how long it will take to restore them.People are already estimating at least two years to get back to “normal”. We don’t know how much total production will be lost by then. Of course, we have to account for more than just the wars in West Asia. There’s also the destruction of oil storage and production facilities in Russia and Ukraine. There’s also the shipping on the Black Sea, with all the tankers struck there. So the short answer, from where I stand, is that in a sane world we’d be planning to phase out our dependence on fossil fuels. We’d be considering what life might be like afterwards.My thesis, once again, is that it’s entirely possible for the whole human race to have what I’d regard as an acceptable standard of living. We could do it with the energy flows arriving on the Earth daily, in real time, from the sun. By an acceptable standard of living I mean food, clothing, shelter and medical attention as required. I don’t believe it’s particularly plutocratic or sybaritic to include a modest supply of modern technological conveniences around the home. What do you think, Rob?That echoes doughnut economics, doesn’t it? It’s the minimum levels to achieve wellbeing, without exceeding the maximum the environment can sustain.Exactly. It is possible, but there’s no sign of anybody in charge taking any interest in it.No, because it comes back to money, doesn’t it? If you get that high up, you’ve got a vested interest in maintaining the status quo. It’s almost like there has to be a big breakdown.Yes. Well, we’re well on the way to a big breakdown.It’s a bit mad that we rely on an energy source from halfway across the world, isn’t it? Surely localising energy capture and storage alleviates those problems. Whether it’s oil or something else, if it’s coming from halfway across the world, it’s going to break at some point.Funnily enough, someone made that point to me in conversation yesterday.Another factor in what’s going on right now is that we have no idea what the permanent impact of the interruptions will be. The wellheads in an oil field may be destroyed or simply shut down.They’re designed for continuous production. If production is interrupted, restarting them isn’t just a matter of switching them on. The same goes for all the processes in an oil refinery. You’ve got interlinked physical and chemical processes which all rely on running together continuously. It’s rather like the coalfields in this country. When Margaret Thatcher’s government battled the coal miners and shut down many mines, there was still a substantial amount of good-quality coal underground on these islands.We’ve still got loads of coal; we just don’t mine it.Well, it’s no longer available. Once you’ve shut a coal mine and let it fall into disuse, the tunnels collapse and fill with water. You’d have to start from scratch, which probably wouldn’t be economical. If they’d kept it going, we could have had a substantial energy source. That’s aside from other factors like environmental impact and so forth.The same applies to the oil fields. Across the Middle East, there’s no way to know what output they’ll achieve. That’s even after maybe two years to get them and the shipping running again. So we’re definitely heading into a difficult time.Another conversation I heard recently was a version of the old question: is it a conspiracy or a cock up? The decision-making around all these conflicts seems so harebrained, short-sighted, and counterproductive that it’s difficult to work out.It could be both conspiracy and cock up. That’s my stance.You could well be right. It couldn’t be a pure cock up, because even the ruling elites couldn’t be quite as stupid as they’ve appeared over the past month or two. The conversation for the future, if you like, is: what standard of living do we want? How do we deliver it more equitably to the planet’s population as a whole, rather than to a few fortunate people like you and me?How much energy would that take, and which energy systems could we use? Incidentally, the opponents of so-called green or sustainable energy do have some validity to their arguments. Most of the pr… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.Another month’s worth of developments seems to have happened within seven days. Derek, as always, you’re my source of intel on what’s going on. So what’s happened that people need to know about?Right, okay. First, I’ll say a bit more about why it’s important to talk about these things. This series wasn’t really meant to be a current affairs programme…The ‘powers that ought not to be’ have got other ideas about that!Well, pretty much everything that’s going on has a fairly direct bearing on your prosperity and your likely quality of life for the foreseeable future. We’ll see how that ties in as we go through.First of all, I find it interesting how quickly things are unfolding now. Alternative media are developing, and really good quality people are getting into journalism and attracting enormous followings.The tools are there for anyone to be an independent journalist. I feel like the authorities are playing whack-a-mole with their censorship efforts.Yeah, I’m surprised they haven’t been more effective at closing channels down. It’s not for lack of desire. But there’s a growing awareness of various things that you and I have probably known about for many years. The most prominent example concerns Iran.Few people were aware that the hostility with Iran goes back to 1953. That was when the British and the Americans overthrew Iran’s elected Prime Minister, Mosaddegh.The Brits were at the root of a lot of these things, usually for short-term geopolitical reasons, trying to shore up influence in the Middle East. That’s how Israel came about, too, with the Balfour Declaration. If you go back far enough, you can find British fingerprints everywhere.Precisely. But that was completely off people’s radar. Many millions of people have now learned about that background, which puts the situation in a very different light. Another thing many people have probably been unaware of is how prevalent false flag operations are.If you brought this up, a lot of people would wave it aside and call it a conspiracy theory. Of course, the term “conspiracy theory” itself begs a lot of questions.Because the world’s richest people are conspiring with each other to cause these events. So yes, I’d say it’s a conspiracy in some sense.Well, the way I look at it is this. When they say that’s a conspiracy theory, my answer is: I know it’s a theory that something is a conspiracy. The question is not whether it’s a conspiracy theory. The question is whether it’s true!So, false flags. People are probably fairly ready to acknowledge that Hitler’s invasion of Poland was triggered by a false flag operation. Dead bodies were dressed in Polish uniforms.The story put out was that these men had been trying to invade Germany. That gave Hitler the excuse to invade Poland in retaliation, or in defence, or whatever. A significant event that escalated the Vietnam War was the Gulf of Tonkin incident. Allegedly, an American destroyer in international waters was fired on by the North Vietnamese.That gave the Americans an excuse for further aggression against North Vietnam.In World War I, Belgian neutrality was the reason given. Yet the Germans had offered Belgium pretty solid guarantees that, given safe passage to France, Belgian’s neutrality would have been respected.Yeah. So this week we’ve had two events that are bizarre and peculiar, to say the least. The first is the apparent terrorist attack on RAF Fairford, which of course is really a US Air Force base.The whole thing doesn’t even make sense as a plausible storyline. Three very conspicuous white vans full of oil drums, which turned out to be empty, drove round the area. They then parked in a lane and waited for a farmer’s wife to come along. She phoned the MOD police, who didn’t answer the phone.She then dialled 999 and the police came round. Meanwhile, the miscreants had run into a nearby wood and waited for the police to come and find them. The police then arrested them and released them on bail. For terrorist offences, they could easily have detained them for at least fourteen days. So there was obviously no attempt whatsoever.Then, a day or two later, our Prime Minister Andy Burnham was interviewed by the BBC. He said there was solid evidence of an Iran connection.That base has been used as the takeoff point for bombing sorties into Iran. Bearing that in mind, it would be entirely justifiable by any standards for Iran to attack the base. It would be a legitimate target. But if they did attack, it seems extremely unlikely they would do it by driving three white vans around.It sounds like a plot straight from the Netflix series ‘Prison Break’.So we’ll watch this space. Meanwhile, it seems to be producing more laughs than serious concern among onlookers.The other one, which raises more questions than it answers, is the flight from the UAE to Tel Aviv that sent out an emergency hijack signal. The initial story was that the co-pilot attacked the captain with a knife and stabbed him. He was supposedly intending to crash the aeroplane in a terrorist incident.This sounds like another false flag event from the past, doesn’t it? Like, haven’t we tried this plotline before, guys?A bunch of intrepid passengers apparently broke into the cabin. However, since 2001 it hasn’t been possible to open the flight deck door from the passenger side. It has to be opened from inside. So the story now is that the pilot, despite being stabbed, managed to get to the door and open it. That enabled some intrepid passengers to get in and overpower him. At least, according to Israel, it was intrepid passengers who overpowered him. According to the airline, it was the cabin crew who got in. Then it turned out that both pilots had been stabbed. So they apparently stabbed each other, which is not impossible.It’s a nice plot twist; I’ll give them that.We haven’t yet heard how badly either of them is injured, at least not to my knowledge. Apparently neither of them was capable of flying the plane at this point. Somehow they were neutralised. It just so happened that two qualified pilots were among the passengers. Not only that, they were familiar enough with this particular aircraft type to bring it in for an emergency landing in Saudi Arabia, en route to Israel.The passengers were fairly soon transferred back to Tel Aviv amid scenes of much rejoicing. I don’t know what anybody will make of this. The story has so many peculiarities that it definitely raises a question mark.Yeah, next time I’m bored on an EasyJet flight, I’ll count my lucky stars!Well, don’t fly to Tel Aviv. It’s pretty difficult, actually.Anyway, apart from that, we obviously have three main focuses of conflict now. First, there’s the US and Israel against Iran, the closure of the Strait of Hormuz and the ensuing blockade.Second, there’s the conflict between Saudi Arabia and Ansar Allah, universally referred to in the West as the Houthis. They appear to represent, and have the support of, the majority of Yemen’s population. Once again, the official government appears to be essentially a proxy appointed by the US Empire.Ansar Allah have been making all the running in this conflict. This week Saudi Arabia bombed a market in Yemen. I can’t remember which town, but they killed a large number of civilians, mostly women and children. Needless to say, this enraged the population at large.It also spurred Ansar Allah to step up their attacks. They’ve caused considerable damage to the pipeline running east to west across Saudi Arabia, which was the remaining route for Saudi oil. But they’ve now attacked the port of Yanbu, where this oil was loaded. This may have cut off the route south through the Bab el-Mandeb Strait. It may also have stopped any oil being loaded for the time being.Super.Meanwhile, the repercussions for the world economy are still accumulating. There are credible reports that Xi Jinping firmly told Trump to remove the blockad… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.We’re taking another stab at current affairs today. We’ve done quite a few of these episodes recently because things are changing rapidly. So what has happened in the last week or so?Well, of course, the big event this week has been the UN General Assembly. I don’t know whether this is an annual gathering of those people, but it was a pretty big deal. Trump gave an address to the assembly, which was both embarrassing and rather scary.I don’t know how many people will have actually watched extracts from it. If it had been delivered anywhere, it would be pretty chilling. From the podium of the United Nations General Assembly, though, it was astounding to me that even Trump could say the things he did. Effectively, it was bullying, bravado and bragging.For instance, on the subject of Venezuela, he essentially said that they had subjugated them and were stealing all their oil. He actually said, “To the victor go the spoils.”But to actually assert that anywhere out loud is something else. It may be what your policy is in private. To be prepared to declare it, and apparently be proud of it, is another matter. Essentially saying we’re the toughest kids on the block and we can take whatever we want is pretty chilling. The Cuban delegation walked out almost as soon as he started, because he kicked off by describing Cuba as a failed state. To the extent that Cuba has failed, it’s because of the relentless embargoes. These have prevented it from carrying on any normal commerce with the rest of the world for what, the last fifty years or more?That sounds about right, I guess.Absolutely. Well, there you go. So there’s no sign of it letting up. What’s quite interesting to me is that Sergei Lavrov has said out loud that he’s concluded it’s a waste of time trying to talk to the Americans. It’s an even bigger waste of time talking to any of the Europeans. That’s a dire state for the world to be in.Also interesting is that a whole group of people from alternative internet media were in Moscow this week. Lavrov spent three hours with them. That included Larry Johnson, Alastair Crooke and various other people from alternative information channels on the internet. He has now decided it’s worth spending that much of his time with people like that. Meanwhile, he’s essentially given up talking to authorised government representatives.Then he went straight from there to the United Nations in New York. Iran’s President Pezeshkian gave an incredibly forthright speech. In summary, he said that Iran was the one being sanctioned. He said they weren’t the terrorists and that the Americans and the Israelis were the terrorists. Once again, the Western press has given all of this fairly light treatment. However, it’s there for the rest of the world to see, and it’s clearly authoritative. This in itself is pretty dramatic. Meanwhile, we now have three major conflicts going on.One of them is obviously Ukraine versus Russia. Another is the attack on Iran, principally by the United States, having been egged on by Israel, which then sits on the sidelines letting them get on with it. The third involves Ansar Allah.The Western media describes them as the Houthis, even though that is only one of several tribes involved in the movement. Once again, there’s a so-called recognised government of Yemen which is actually a Western puppet. In the same way, there’s an official government of Lebanon which is also a Western puppet.You could indeed say the same of the entire Zelensky regime. It was installed, again with public bragging, by Victoria Nuland, the Assistant Secretary of State at the time. She acknowledged that America manipulated the situation to install a government that would do its bidding. It was before Zelensky was in position, but the legitimate president of Ukraine had been driven out in an armed coup in 2014. That is what started this entire thing.The Saudis provoked Ansar Allah by bombing Sanaa airport when a flight of Yemeni mourners was returning from Iran. This was both reckless and obviously self-defeating, because it provoked Ansar Allah to respond. How could they have expected anything else? This has been simmering, but it had quieted down for several years.However, the Saudis have been trying to impose their will through the puppet government in Yemen, which has almost no support from the population at large. Ansar Allah, by contrast, does have that support. Not only that, the so-called legitimate government of Yemen has not managed to prevail against them. That is despite carrying on this so-called civil war with enormous support from the West, including the United Kingdom, it has to be said.Clearly, the Saudis haven’t got any serious military force of their own. They’re relying entirely on mercenaries. Of course, mercenaries who are just in it for the money run away as soon as they face a serious response. They have left behind, it has to be said, incredible amounts of modern military equipment, mostly American but generally Western. This has fallen into the hands of the so-called rebels, who have now taken control of a large stretch of the Red Sea coastline. That includes the Bab el Mandeb Strait.That’s quite significant, isn’t it? There was some oil coming out through there, and that’s no longer happening.Yes, exactly. Before the Strait of Hormuz was shut, in the very predictable response to the American attack on Iran, twenty million barrels a day of crude oil were coming out of the Gulf states. When the Strait of Hormuz was shut, that went down to maybe seven million, although some estimates put it closer to four million.That was being shipped across Saudi Arabia by pipeline to the port of Yanbu and out through the Red Sea. Of course, now that the Bab el Mandeb Strait has been closed, no oil is coming out of there.It certainly went down to zero when three pumping stations on the pipeline were hit, plus four or five other locations along it. They seem to have managed to get some through since then. Some estimates put it at about 1.6 million barrels a day.However, that can’t get out into the Indian Ocean through the bottom of the Red Sea. It’s having to be loaded onto smaller tankers that can get through the Suez Canal. For that oil to reach Asia, where the bulk of Saudi exports were going, it now has to go up through the Suez Canal. From there, it goes across the Mediterranean and around the Horn of Africa into the Indian Ocean. As a result, virtually all East Asian nations are now being hit very hard by petrol and diesel shortages. Three factors have prevented the rest of the world from being as hard hit so far by these shipping restrictions.One is that China has cut its own imports back enormously, from twelve million barrels a day to seven. It was relying on its own reserves to a degree. That is now coming to an end, because China is gradually increasing its oil imports again. This is taking a significant portion of what is managing to get out.Another factor has been the drawing down of strategic reserves. Current estimates suggest US strategic reserves have fallen to 285 million barrels. Apparently, 250 million is about as low as they can go. Below that, the salt caverns they’re stored in could collapse. So that buffer is now coming to an end.Once again, projections suggest this is bound to cause a global recession. It might even be a global depression. Some people are now describing it as an economic dislocation. That would mean not just that the numbers expressed in economic transactions are shrinking. It would mean that real economic activity around the world would be brought to a standstill in places. We’re all going to have to adjust to it. There doesn’t seem to be much recognition that this is coming. What do you say, Rob?Well, as we’ve discussed on the show before, any work requires energy. That’s why we’ve dedicated episodes to energy, its importance and its role in any finance… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.Editor’s note: the audio/video version contains two conversations held a day apart, but hopefully they flow together.Derek, you were just saying there’s a lot not being covered in the mainstream news. So what aren’t they telling us about?Right. Well, there are two main themes. One is the obvious thing: the conflicts in Ukraine and Iran, which have now boiled over into the conflict between Ansar Allah and Saudi Arabia. So there’s all that, but there’s also a great deal happening on the economic and trade front.This has been almost completely ignored. I can’t believe how little attention it’s had in the mainstream media, as far as I can tell. The last time we talked, we mentioned in passing that the Shanghai Cooperation Organisation (SCO) had met. We’d also had the Eurasian Economic Forum meeting.We were about to have the BRICS annual forum, which was held in India this year. A number of commentators widely expected it to be a bit of a damp squib. There was a feeling that India’s hosting it was a problem, given its rather ambivalent position. One issue is its possible subservience to the United States. Another is its apparent tolerance, or even tacit support, of the Zionists in Israel. That clearly put India out on a limb.I haven’t got the actual membership at my fingertips, but it’s far wider than the original five. Those five gave rise to the acronym BRICS: Brazil, Russia, India, China and South Africa. There are now five other full members as well. Iran is certainly one, and probably a very major one, for reasons I might allude to in a moment.So there are ten full members and ten associate members. There are also a great many other nations in the global south, or global majority, or whatever the polite term now is for what we used to call the third world. They’re actively watching this, broadly encouraging it and seeing how it goes. Despite people’s expectations, it was obviously an extremely popular and vibrant meeting. That applied not only to the official plenary sessions.As with any other international conference, what happens outside the main forum is at least as important. That means the bilateral meetings, the chats in the corridor and the meetings in the coffee lounge or the bar, according to taste. There were lots of those. There were candid pictures of the leaders, particularly of Russia, China, India and Iran.Conversations at the bar are where my deals get done.They all looked very chummy and cordial, chatting completely relaxed. Incidentally, I couldn’t help noticing a huge contrast in body language. To take probably one of the most controversial examples, look at Araghchi, the foreign minister of Iran, and Wang Yi, the foreign minister of China. They were having candid chats around the water cooler or the coffee table, or wherever it was. Their body language was plainly what I would call authentic and unforced.In my view, that contrasts with what we see every time the European “leaders” meet. Particularly when they meet Zelensky, they all give a frozen handshake while looking towards the camera. They embrace one another, but it doesn’t look like the kind of embrace I’d want to be held in. The BRICS meeting, by contrast, was plainly a lot more relaxed. These people are all clearly committed to what they say they’re committed to. That is a multipolar world of justice, prosperity and mutual benefit.More and more, the West is plainly on the way out. It had two hundred years of world dominance, between about 1750 and 1950. It’s still using the same techniques it always used, which are essentially brutality and military suppression. Suddenly, those no longer work, because the West is no longer dominant. I’ll say a bit more about that, but...If I can just add to that, I was telling you before the call that I’ve just started reading a book. It’s called Hidden History: The Secret Origins of the First World War. It starts with the shenanigans the British Empire got up to in South Africa. I’ve been reading it thinking, my word, this is how we’re still trying to behave today. Only it’s not working any more.Yes. Well, that is exactly it. The most extreme example is Ansar Allah, the group disparagingly referred to as the Houthis. That’s the name of one of the tribes, admittedly a dominant one. However, it isn’t what they call themselves or how they want to be referred to.Anyway, these are literally sandal-wearing militia dressed in rags. Most are armed with nothing larger than an assault rifle. Even so, they’ve totally driven out the essentially mercenary army employed and equipped by the Saudi Arabians. They’ve taken control of five thousand square kilometres of the country. Yemen is another of these countries with a so-called official government. In reality, that government is a tiny minority bankrolled one way or another by the Western elites.They’ve been utterly defeated. They ran away in disarray, leaving behind a huge amount of state-of-the-art American military equipment, which Ansar Allah has now taken over. Anyway, getting back to the BRICS summit, the closing statement condemned unilateral and secondary sanctions. It declared them illegal and invalid under international law, which is absolutely true.We’ve got so used to countries declaring that they’ve decided to sanction certain nations. It’s mainly America, but also Britain, France and Germany. We’ve come to take it for granted that this is somehow legitimate.In fact, there is no basis for it in international law. The only exceptions are sanctions imposed by agreement of the United Nations Security Council. Most of the sanctions imposed on Russia or Iran haven’t had United Nations approval, so they’re not valid. The same goes for those imposed on just about everybody else in the world by America’s scattershot approach. It’s very interesting that the Chinese have just said no, we’re not going to comply. Not only that, they’ve passed a law...That’s the way to treat bullies, isn’t it?Yes, absolutely. So that was one of the statements made jointly at the close of the BRICS conference. The other was to reveal more details of the evolving international financial arrangements. They’re setting these up as an alternative to the SWIFT interbank system. SWIFT is obviously dominated by the Americans. It has been roundly abused over the last few years to victimise countries the United States’ elites disapprove of for one reason or another.Yes, that’s what Visa and Mastercard run on, isn’t it?It’s what all financial transfers between one country and another rely on, including Visa and Mastercard, yes. In a way, the alternative that BRICS is setting up is the opposite. It’s a decentralised, peer-to-peer system.It doesn’t involve a common currency. The little comment there has been in the Western media about the BRICS forum included the claim that they’d decided against a common currency. Well, they decided that two or three years ago. They debated the idea, looked at it and decided it wasn’t really practical. Personally, though, the arrangement they’ve adopted will eventually result in a global common currency in the long term.So I’ll say a bit about how it works at the moment. As I say, it’s a peer-to-peer system. So the idea is that if, say, Indonesia wants to...With a blockchain involved?Well, it certainly has some form of cryptographic signature, obviously. Whether that’s blockchain technology as such, I’m not sure. I don’t know how much of the technical specification has been revealed. I don’t even know how far along they are in finalising the details.Decentralisation is the key, though, isn’t it? These are all the good things we have with Bitcoin. It’s peer-to-peer and decentralised. There’s no issuing body.Yes, decentralisation is the key. I’m agnostic about the future role of Bitcoin, but I wouldn’t be at all surprised if it’s the principles that hold true...Those principles are what we need: people dealing with peo… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.Editor’s note: the following conversation happened a few weeks back on Monday 7th September, however we fully stand by our analysis here!We’re going to talk about recent current affairs, in particular the things that influence interest rates. We think there are some changing developments with US bonds. So what do people need to know here, Derek?Well, okay. Previously, we discussed how interest rates in the various bond markets and money markets would work in a sane world. We said there were essentially three factors. These determine the rate of interest the market would be prepared to accept on any loans.Logically, the first of these three factors is the prevailing rate for using money for a period of time. Historically, that has been somewhere around 2.5%. Like any other market-driven phenomenon, it goes up and down a bit. This depends on the relative supply of people willing to lend money and people who want to borrow it. Hopefully, they borrow it to invest in something constructive.The entire history of banking has really been about connecting two groups. One is people with funds they’re not quite sure how to use effectively. The other is people with entrepreneurial ideas who need capital to develop them.That’s how many railways were built 150 years ago.Yes, indeed. Well, the railways were actually largely financed by equity shares, meaning part ownership of the railways, rather than by loans to the companies. Both factors came into play, though.We’ve touched on that from the perspective of a company’s proprietors. If you were starting up a railway line, you’d need to raise capital. You’d need to buy land or negotiate rights of way across it for the track. You’d need to build the stations at each end. You’d need to get a lot of navvies in to dig the cuttings, build up the embankments and lay the tracks.You’d also need to build the engines and the rolling stock and get them on there. Obviously, that took more money than most individuals had. Even those who had it wouldn’t be prepared to invest it all in a risky venture. Of course, you then have to share the profits out amongst all the owners. So if you can borrow part of the money at an interest rate below your expected profit, that leaves more to share among the owners.Of course, if you don’t make that much profit and you’re still committed to the interest payments, you’re worse off than if you hadn’t used loans. The same thing really applies to governments. Sensible borrowing would be to invest in something that makes the country more prosperous. Building railways might indeed be part of that.However, what most governments have been doing, particularly over the past few decades, is borrowing money simply to subsidise their monthly expenditure. The most useful context for what we’re seeing is a classic end-of-empire situation.Every empire has a beginning, a peak and an end. This happened to the Babylonians, the Romans and the Greeks. More recently, it happened to the Spanish, the Portuguese, the Dutch, and then the British. The American Empire really took over from all of those. It likes to pretend it’s not an empire, but to all intents and purposes it has the characteristics of one.Especially when viewed through a finance lens.Yes, exactly. The thing about the American Empire is that its trajectory has been more rapid than any of the others. It’s also far more in public view now. So, going back to the three factors for the interest rate, I got as far as the first one. That was the basic rental of money. The second factor is an insurance premium, if you like. It reflects how reliable you judge the debtor you’re lending the money to.If you have some doubt about whether they’ll keep up the interest payments, you want to add something to the interest rate. Worse still, they might default on the repayment at the end of the loan term. Of course, this makes very little sense for an individual loan if you think about it. You’ll either reach the end and find it’s been serviced properly and repaid, in which case you’ll be fine. Otherwise it will default, and you’ll lose the money.However, large financial institutions spread their loans over many different borrowers. You could regard these as independent of one another, and they’re not necessarily all going to go bust at the same time. So the risk premium you add should even out over all of them. Hopefully, that leaves you roughly on the right side. The third factor is whether the currency will hold its purchasing power. In other words, will you be able to buy as much with it as you could when you entered into the loan?Historically, that was a reasonably sound assumption. For almost 300 years, the value of the British pound was constant. In fact, its purchasing power increased as we went through the Industrial Revolution. Manufacturing became more and more efficient, and more goods could be made for a similar amount of money. So you’d actually get an appreciating currency. Right now, it’s difficult to believe how interest rates could rationally be held down to the level they’ve been at. This is particularly true since the global financial crisis of 2008.Nobody could seriously believe that the purchasing power of the dollar, the pound or the euro would bear any resemblance in 30 years’ time to what it does today. Even so, the financial markets were still prepared to buy government bonds paying 1% or 1.5%. In Japan, it was even less than that. This was despite central banks making no bones about their 2% inflation target. Even if that 2% figure were accurate, the currency’s purchasing power would almost halve over 30 years. Strictly, it would take 35 years to halve.Of course, the statistics on the real rate of inflation are always a bit rigged, or perhaps even a lot rigged.I heard someone say recently that if you want to know what’s actually happening with inflation, just look at how much steak costs. You can’t make the packaging bigger. You can’t do all the other things they do to hide it. You could try injecting it with water, I suppose, but it pretty much is what it is.Yes. The reason, of course, was that more and more money was being flooded into the market out of thin air. This came from the Federal Reserve System in the United States, the central banks in other countries and the banking system as a whole. Once a sum of money goes into a bank account anywhere because of a loan, it becomes part of that bank’s reserves. The bank can then issue further loans in proportion to that, according to whatever ratios it operates.So why would anybody be prepared to buy bonds at those rates and under those circumstances? The answer really comes down to financial markets being essentially short-term in their thinking. As a bond trader, I might know it makes no sense to buy a 30-year bond. This is especially so at the ridiculously low interest rates that were prevalent until very recently. However, my motivations as a trader aren’t fixated on a 30-year time span. It’s much more about how my trades will look next month, next week or even tomorrow.As John Maynard Keynes memorably said, the market can remain irrational longer than you can remain solvent. So a trader who took the long view would probably find his portfolio looking fairly bleak. However, as Bob Dylan quoted Abraham Lincoln as saying, you can fool all of the people some of the time and some of the people all of the time. You can’t fool all of the people all of the time, though.There’s a similar saying about rugby league referees: they can only please half the fans at any one time.Yes, I bet!So what we’re now seeing is the wheels finally coming off. The United States has kept the show on the road largely because the dollar is the world reserve currency. No convenient, viable alternative existed until now. That situation is changing rapidly, as I’ll come to in a moment. Part of the reason was that the United States effectively had… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com

Rob’s comments below are in italics.Derek’s comments below are in normal font.On last week’s show, we were talking about how to get rich. (If that sounds like a big statement and you missed last week’s episode, go back and see how we outlined what we mean by getting rich!) On this episode, we’re going to talk about how to measure how rich you are. In other words, what’s your dashboard? What do you monitor and pay attention to?So, where do we start with this one?Yes, I’ve cheekily entitled this “How Rich Are You?” because unless you can answer that question, you can’t tell whether you’re getting anywhere. What you’re not measuring, you can’t see, and what you can’t see, you can’t move.Funnily enough, I had a very vivid dream the other night, where I was flying a small plane, something I’ve never done. I’ve been in a small plane once, which was quite fun, and I found that they mostly fly themselves, as far as being fairly stable.Starting your own business does feel like flying a plane without prior guidance. Suddenly you go up into the sky and think, “S**t, how does this work??”Absolutely. Yes.So maybe we can cast a bit of light on that. In this dream I was flying the plane, and suddenly a big fog came down. An instructor, or a passenger, told me not to look out the window but to look at the instruments.That’s a pretty good analogy for what I’m going to talk about. Unless we have up-to-date summaries of where we stand with certain aspects of our finances, we don’t know what’s going on. We don’t know what our options are, and we don’t know which of our behaviours are working in harmony with the long-term objectives we’ve set for where we want to get to at a certain point in life.1. Your Balance SheetThe first and most important of these display dials, if you like, is what’s called your balance sheet. All of these things we’re going to talk about in this episode are things that in a sane world you would have learned at school. They would have been part of the curriculum, part of what prepares you for life.But most of us either never learn these at all, or we just pick things up at random if we’re fortunate. Although this is very simple, and you might think it’s obvious, the question is: are you doing this? Are you paying attention to it?This first display, as I say, is your balance sheet, and it’s a very simple document. You have two columns in it. One column is your assets, and the other is your liabilities.You summarise these by putting a monetary value on them. That doesn’t mean money is the be-all and end-all, but it’s just the measure of it. It’s the same as if you were measuring wire, cable, or fabric: you’d measure it in metres or feet, or whatever units you choose. That doesn’t mean there’s significance to that thing divorced from the context in which you’re doing it.In your assets column, if you own a house, you’d put the house in. In the liabilities column, if you used a loan, like most people do, to buy the house, you’d put the current value of the remaining loan outstanding.You have to maintain it, of course. You have to do the repairs and pay whatever rates, community charge, or property tax, depending on which jurisdiction you’re in. There’s all that to factor in. But overall, that would be an asset.If you’re building up an investment account, whether it’s a pension plan or some other investment vehicle, that would also go in the assets column. If you’ve got a savings account at a bank or another institution, that would go in the assets column too.If you’ve got any overdrawn bank accounts, that would go in the liabilities column, and if you’ve got any credit card debts, which most people have, that would also go in the liabilities column too.At the end of the day, you add up all the assets, add up all the liabilities, and see the difference between the two. The difference between the two has various terms. It could personally be your “net worth”. If you’re talking specifically about the house, or some other property and the loan against that property, the difference between the two is generally referred to as the “equity”. That’s the same term used for a corporation, particularly one with publicly traded shares. These are often referred to as equity shares, because a share is a share in the equity of the company, which is the difference between its assets and its liabilities.As a shareholder, you’d hope equity grows, ideally by increasing assets over time. When we talk about assets in this context, we mean the capital: the tangible items the corporation uses to pursue its business. These are the factories, machine tools, vehicles, office equipment, and so on.Coming back to the personal account, if you have some system, which is pretty easy these days with personal computers and spreadsheets, you could easily keep a record of these figures. Update your numbers monthly, then look for openings for action or shifts in behaviour, based on whether your asset base is really growing. For a lot of people, it’s actually shrinking or going negative.If you’re flying the plane and the plane is about to crash into the ground, then you at least need to know about that.Absolutely, yes.Incidentally, these principles of reporting remain exactly the same whether it’s for you as an individual, for an enterprise you’re running, for an enterprise you might be considering investing in, or for a nation-state as a whole. The same principles and documents apply in all of these circumstances. But if we start from a personal level, you can then see how each dashboard relates to the bigger entities.So the balance sheet gives a static picture of your circumstances. The other two dials or displays are dynamic: they indicate the change over a period of time.If you’re doing this monthly, the look-back period would be what happened over the past month. If you’re doing it yearly, it’s what happened over the past year. Of course, you could do it daily if you wanted to.2. Your Cash Flow SummaryThe first of these dynamic dashboards shows what happened to the cash flowing in and out of your control. Logically enough, this is called a cash flow summary.Over the course of a month, you might have had a certain income, typically your salary or wages if you’re working for somebody else, or the cash you’ve extracted from the business for your own expenditure. If you’ve got investments bringing in income, if you own property you’re renting out, or have an investment account paying dividends or interest, that would all be cash coming in.The cash going out is whatever you’re paying in various categories. You’d perhaps be paying rent or a mortgage repayment, paying off some or all of your credit card balances, and spending on food and household expenses.So it’s a very simple dashboard. You’ve got one column with all the cash coming in, and one column with all the cash going out. The difference between the two is the amount of cash you’ve either got left over, or you’ve dipped into savings, or gone into debt, to fund.Does that relate directly to your balance sheet? Well, it obviously affects it. For instance, if you paid out something to pay off the balance of a loan or a credit card debt, that would reduce your liabilities on the balance sheet. Similarly, if you put money into your investment account or savings account, that would increase those assets on the balance sheet. But a lot of the money that passes through doesn’t affect the balance sheet at all.It mostly gets spent all day on extortionate groceries, or extortionate petrol, etc.Exactly.If you buy food and your family eats it, that hasn’t affected your balance sheet at the end of the month. If you go out and have a slap-up meal to celebrate something, that doesn’t affect your balance sheet either. If you spend a thousand pounds on a holiday, that doesn’t mean you shouldn’t do these things, but there’s a distinction between those expenditures and the ones that do affect it.Similarly, in a business, if you’re paying for fuel and… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit sovereignfinance.substack.com