Sins of the Kaiser

I used to read this newsletter during my lunch break in my previous job. While I enjoyed and looked forward to reading it each day, I often wished that it would focus a little more on conflict, and not just capital.

Be careful what you wish for. A few years on, now at the helm of this letter, the thread of conflict is entwined all through the world. I’m spoilt for choice. 

Conflict between the young generation and the old generation. Conflict between the complacent globalist and the resurgent nationalist. Conflict between free market pricing, and the will of the central banker. Conflict between the disruptive new technology and the old entrenched monopoly.

Between the political class and the everyman. Between the established West and the rising, aspiring East. Between the native and the immigrant. Between old print media and new, online media.

Conflict over narrative. Conflict over reality.

The latter two are on full show as I write this, as the French rage over the burning of Notre Dame.

One side thinks the fire was caused by a yellow vest protestor. Another side says it was a radical Islamist migrant. Yet another that it was a false flag by the French government as an excuse stamp down hard on the yellow vests.

The “official” verdict will likely not cool the flames, for belief in the institutions that once held sway in society is dissolving. There will be no catharsis.

Except, perhaps, for those who own gold. European gold ETFs, which allow investors to own a paper claim on gold in a pension or trading account, now hold record quantities of gold thanks to booming demand. As the World Gold Council states on the matter: 

European investors have seemed to exhibit a greater level of concern about the instability – both global and local – which has plagued the macroeconomy since 2016. While the US economy has fared better in recent years, Europe, continues to suffer negative interest rates and a turbulent political environment.  

Ultimately the burning of Notre Dame is just one more problem in Europe. Another conflict, amid a banquet of conflicts, albeit a very symbolic one.

The conflict that will hit hardest, the one we think may well be on the way, is that between savers and debtors. Between government guarantees and financial reality. Between the banks – and those with money in them.

The impossible war… that happened anyway

In 1909, the British journalist Norman Angell, then Paris editor of the French edition of the Daily Mail, published a pamphlet entitled Europe’s Optical Illusion.  The thesis of his slim volume was that the economic benefits of war were so illusory—hence the title—and the commercial and financial linkages between countries now so extensive that no rational country should contemplate starting a war. The economic chaos, especially the disruptions to international credit, that would ensue from a war among the Great Powers would harm all sides and the victor would lose as much as the vanquished. Even if war were to break out in Europe by accident, it would speedily be brought to an end.

– Lords of Finance, by Liaquat Ahamed (2008)

It centres around the lives of four central bankers in the US, Britain, France and Germany, and how the decisions they made “broke the world”, leading to almost total economic collapse and the Great Depression.  

I would say I’ve been enjoying it, but some of the parallels with our situation today are much too close for comfort. The quote above is just one example.

The world went through a period of what today would be called “globalisation” in the mid-to-late 1800s. The idea that war between nations was now impossible, as global supply chains require peace became hugely popular:

Angell’s pamphlet was issued in book form in 1910 under the title The Great Illusion.  The argument that it was not so much the cruelty of war as its economic futility that made it unacceptable as an instrument of state power struck a chord in that materialistic era. The work became a cult. By 1913, it had sold more than a million copies and been translated into twenty-two languages, including Chinese, Japanese, Arabic, and Persian. More than forty organizations were formed to spread its message. It was quoted by Sir Edward Grey, the British foreign secretary; by Count von Metternich; and by Jean Jaurès, the French Socialist leader. Even Kaiser Wilhelm, better known for his bellicosity than his embrace of pacifism, was said to have expressed some interest in the theory.

A materialistic society, buoyed by globalisation, adopts beliefs that totally exclude the very possibility of what becomes their future. A future more horrific than they ever could have imagined. Hmmm.

But that’s enough gloom from me for one day. I’ll be back tomorrow – with a story from our energy specialist that’s considerably less gloomy.

Until then,

Boaz Shoshan
Editor, Capital & Conflict

Category: Market updates