The Tide that Turned

Last April, I predicted that the Fed will start cutting rates and returning to QE. A 25 or 50 basis point cut next week is now all but guaranteed. Powell has blamed the global economy, uncertainty and a lack of inflation for the need of a return to easing despite a good economy.

These statements betray his idiocy - or more likely, his disingenuousness. There is always uncertainty in good times and bad. Inflation is already well above the 2% target, which in itself flies in the face of the mandate of price stability. The real issue is the domestic US economy and US assets. Without the fed committing to easing, the stock market would be in deep, deep doo-doo. And as for the global economy, it is the Russel 2000, the most domestic-focused index that is doing the worst.

The US economy is simply not doing that great. The whole Obama recovery and the Trump boom have been a long period of lacklustre growth made to look better by high asset prices, a low headline unemployment number and low inflation. Trump has made a lot of hay about Obama never achieving an annual GDP growth rate of over 3%. Thing is, neither has he (2017: 2.2%, 2018: 2.9%). All of the trends, the abysmal workforce participation rate, movement from full-time to part-time work and movement out of high-paying sectors like manufacturing into low paying service-sector jobs have joined Trump's and Obama's economy together in a way that makes the transition from one to the other imperceptible on a graph. The heavily modified inflation statistics have also hidden a lot of inflation that would have revealed real GDP growth to be flat or negative this whole time.

If the above sounds like a conspiracy theory, then ask yourself: why does such a good economy need so much artificial stimulus? Why cut rates if things are so good? Why are voters so angry? The answer is simple, the economy stinks and it is rapidly rolling over and heading for a crash. The artificial boom, the bubble, (the third in my lifetime!) is bursting. We will go from a 25-50 basis point cut to zero faster than you can say "Alan Greenspan". QE will be back very soon.

So as this part of my prediction looks like it is coming true, what about the rest and what happens after that? Well, it is hard to tell how quickly all the following will happen and what might crop up to change course, however; The actions of by the Fed might keep the stock market going for a little while, but it will not be able to halt the oncoming recession. As the crisis unfolds it will increasingly lose control over the long end of interest rates. QE will then be the only tool left and the Fed will have to buy more and more types of paper to prop up the economy.

Eventually, if this policy is pursued long enough, it will spell the end of the private US debt market. Inflation will spiral out of control and a currency and sovereign debt crisis will hit the US. Under these conditions, the world will dump the Dollar standard and return to the gold standard.

Cochin, July 16th 2019

TLDR: The Fed just proved that it never had an exit strategy

Artificial Stupidity

I often find myself writing about economics. It is in this area more than anything else that policy in the west is so wrongheaded and degenerating before our eyes. The once proud bastions of freedom and free enterprise are rapidly socialising and postmodernist and neomarxist ideas seem transcendent.  But I am not an economist, and my economist friends often remind me that I am well outside the area of my expertise when I opine about such matters.

So today a post well within my remit: artificial intelligence. Specifically, the totally unjustified hysteria about the dangers of AI for the future of humanity. This ridiculous hand wringing has been encouraged by otherwise intelligent individuals such as the late Steven Hawking, Bill Gates and Elon Musk. Although they are outside their realms of expertise (astrophysics, charity and investment fraud respectively), I will not rely on the logical fallacy of arguing from  my authority as a software engineer to rubbish Elon’s 2018 claim that "the risk of something seriously dangerous happening is in the five-year timeframe" which gives us only four years of cataclysm-free existence in this particular doomsday scenario.

Of course the wider hysteria has been around for much longer, fueled by science fiction as in 2001 a Space Odyssey, the fear that computers will one day throw off the yoke of their human oppressors and enslave or destroy humanity is almost as old as electronic computers themselves. Science fiction has kept present in the public's mind this possibility presented as an almost inevitable fact of not if but when.

Now most of us who actually know how AI techniques work are decidedly less worried, although often the lay public and software professionals misunderstand each other. To be sure, like most software people, I know that it is not theoretically impossible to create a sentient AI brain. But this is altogether different from saying it is imminent, dangerous or inevitable. To make matters worse, many programmers love science fiction and are emotionally attached to the idea that an evil sentient AI will one day try and enslave or eliminate humanity. Also, just because someone can code, does not mean they understand the first thing about AI, algorithmics or computibility. So yes, when you ask coders if AI is potentially dangerous, many will say yes, but this misses the point completely.

Outside the industry it gets much worse. AI is used as a shorthand to mean a number of seemingly mysterious or clever technology-related things. AI is frequently confused with robotics where advances in bipedal mobility and more dexterous robotic hands are seen as manifestations of the new AI race taking form. AI is also confused with relevance and segmentation algorithms, the sort that promote adverts on the top of your Facebook feed or match you up with your soulmate on a dating site. AI is also used to refer to computer-controlled opponents in games and things like automated flight control.

AI is none of these things. AI is a small number of algorithmic techniques used to solve problems that computers normally find difficult to solve. That’s it. It’s really just a different approach to coding a solution to a large problem. What is a large problem for a computer? Well this might be something that is quite simple for a human to do, for example kicking a football into a goalpost. Using traditional solutions, this is a very large problem for a program (connected in this case to a robotic leg) to solve. The program must take all sorts of inputs: the size, weight and shape of the ball, the distance and dimensions of the goalpost, ground friction and wind, pressure inside the ball, the list is long and the formulae that will result in the right set of commands to the robotic leg are daunting. An AI approach to this same problem is as follows: kick the ball, if it falls short, kick it harder, if it goes to far, kick it less hard. If it ends up too far to the left, kick it more to the right, etc. Eventually, through enough repetitions, the machine will be able to perfectly kick the ball into the net almost all the time without needing to worry about why. This is much simpler and a more feasible way to solve the problem and is similar to how humans learn to do things. Of course, if the conditions are changed the machine will have to recalibrate itself before starting to score goals again.

Early researchers into AI techniques coined the term "Artificial Intelligence" to intentionally make their research sound sexy and attract funding. Such ploys are still in use today with new terms. The two main AI techniques are genetic/evolutionary algorithms and artificial neural networks (ANNs). Of course there are other techniques like swarm intelligence and experts disagree vehemently on definitions and terminology, but for our purposes it is enough to suppose when people "do" AI, they are implementing some kind of evolutionary algorithm or ANN. Evolutionary algorithms generate many candidate solutions for a given problem and then search for the best one. ANNs get a lot more attention are they are supposedly the artificial brains that are about to power the sentient life-forms that lead to our demise.

Unfortunately for the sentient artificial beings, ANNs are not artificial brains. They are implementations of a mathematical technique that compresses a multitude of inputs into a smaller set of outputs through matrix operations and self-calibrating weights. Let us suppose that you wanted to use an ANN to recognise pictures of handwritten digits 1 to 9. We would get the image and turn it into a set of inputs (for example a list of 100 pixels for a 10x10 image) we will then pass these inputs through a layered weighted node structure and squash the output to get a single answer (1, 2, 3, 4, 5, 6, 7, 8 or 9). Then you train the weights (i.e. calibrate them) on a large set of training data where the answer is already known. If your nodes are set up correctly and your training data is sufficient and with some luck, your ANN should now be able to correctly interpret unseen images of digits.

Now the above example is an ANN at its most basic and crude. Several advances have sped up the training process, allowed ANNs to learn continually as they are used and added more layers of nodes between the input and output. The state of applied AI has come a long way as anyone who remembers what fingerprint/face recognition or OCR and speech-to-text used to be like will tell you. But you can no more expect these admittedly more advanced "artificial brains" to suddenly turn on us or do something else then we can expect the football kicking robot described earlier to suddenly walk up to you and kick you in the shin.

Of course, what Musk and co are talking about is not applied AI, but general AI. These are techniques that supposedly don't have a set function and can learn and apply themselves in general. The problem is that there has been no dramatic or evident progress on this front. Although this is not technically ruled out by any limitations in computer software, there have not been any demonstrations of anything on the way to a general or complete AI and our understanding of cognition in general would have to advance substantially if we were to have any hope of trying to replicate it.

The scaremongering is due to well-meaning dogooders who do not understand the science as well as a fair number of charlatans attracting attention and funding to their projects. I suspect too that some are deliberately stoking fear in order to open a door to heavy-handed government regulation of the tech sector. It seems to me that there is more than enough hysteria and hyperbole flying around these days to make room for yet another doomsday scenario.
 
Madrid, June 26th 2019 

TLDR: AI is not about to take over the world

The ideology stikes back

"May you live in exciting times" goes the old Chinese curse. For decades since the fall of the Iron Curtain, most of us in Europe and the west have lived under a stable regime oscillating between centre-left and centre-right parties. If not in a two-party system like here in Malta, then in a system of political alliances dominated by centrist blocks.

This edifice that has been steadily eroding now shows signs of accelerating collapse. In Italy, France, Spain, Portugal and Greece parties that once dominated the political scene now share the opposition benches with their former rivals or share power with upstart new parties. In the United States and the United Kingdom old parties have been taken over from the inside or split down the middle and in Germany the establishment hangs by a thread.

The trend is clear; the dichotomy of centre-left and centre-right politics is at an end and voters are binning old parties for radical agendas and a return to ideology.

Ideology has always been a part of politics, but in the post cold war west it had become something of an after-thought. You could vote for a moderate that promised to increase the size of government through borrowing or for another moderate with the same plan and slightly different priorities.

This lack of differentiation must have bored many voters. However, until recently they mostly shied away from ideologically consistent parties like communists, anti-immigration parties and independence movements. These parties were always there and always had radical agendas, so why is it only now that the centre is being dumped for the fringes? Why is this happening in so many different countries at the same time?

Of course, sometimes the zeitgeist just happens to blow the winds of change in a particular direction, and future historians can only speculate and argue among themselves as to why a particular thing happened when and where it did. But to me it is quite clear what is going on, and understanding the cause of this transition does not fill me with hope for the future.

A similar thing happened before, not too long ago. After the Great Depression, many of Euorpe's moderate parties were defeated or taken over by radical agendas. The high unemployment and financial uncertainty angered voters who blamed their sitting governments for the malaise.

Voters punish the government and bring in the opposition. The opposition, also unable to magically improve the condition of the voters are also booted out. Voters start to cast their hopes further out as their frustration grows. Indeed it was common, as the Fascists and Communists knew, for the same voters to switch their vote from the far-left to the far-right and vice-versa. Such ideological inconsistency is actually consistent with the driver of their actions; frustration and desperation.

Hang on, you might say. Great depression era unemployment was massive and the world was gripped by a deflationary downward spiral. The economy in the west today might be a little flat, but we're not even in a recession, let alone a depression.

That's all true, however if you look beneath the surface of seemingly good ecnonomic data, a stealth depression lurks below and is entering its second decade.

Unemployment is nowhere as bad as it was in the depression, it is 8% in the Eurozone and below 5% in the US. However, that figure is misleading as it hides those who have dropped out of the labour force entirely and those who are underemployed. Shadowstats' more believable number puts unemployment in the US north of 20%.

Much worse are the governemnt's inflation figures. Hedonic substitutions, qualitative and seasonal adjustments allow governemnts to understate inflation. Their calculations ignore significant qualitative changes and shrinkflation. Here are some anecdotes: paying the same amount as you did last year for a new laptop counts as a massive saving as the CPU is faster. Your flight is €100 cheaper but the cost to add your seat, buy a meal and check in a bag are not captured in the goods basket. You pay 10% more for that bag of crisps, which now contain 20% fewer crisps.

This understating of inflation directly boosts GDP and gives the central banks cover to keep monetary conditions artifically easy. This easy money boosts asset prices which give an impression of prosperity and allows those who own assets to continue to live beyond their means. But what about those of us with no assets? Young people, loaded with student debt, look at house prices in dismay. They go to their part-time job and realise that at this rate, they will never move out of their parent's house. The parties of their parents created this mess, only the parties on the fringe are even willing to acknowlegde their plight.

So until we return to normal monetary conditions and suffer through the asset deflation we so desperately need, voters will continue to increasingly support radical agendas. There is no easy way out and it might already be too late, in some countries at least. The horses have already bolted and the best we can hope for is a rough landing and no wars.

Christchurch, UK, 2nd May 2019

 

TLDR: The transition to new political parties is a symptom of economic hardship

Dude, where's my crisis?

Predicting the future is hard. If it wasn't, I'd be a lot richer. I have dared to make some predictions in this blog which haven't come to pass. Or at least, not yet. Specifically, I predicted that the brief interlude between the 2008 crisis and its continuation was coming to an end last year. But it didn't. I don't feel too bad about this. I just think I was a little early. I still feel good about my previous predictions about the 2008 financial crisis and Trump's campaign success.

In a way predicting the next crisis is easy. There's always going to be a next crisis. The hard part is getting the specifics and the timing correct. The crisis itself however, is guaranteed. Central banks have created an artificial boom by keeping interest rates too low, monetising government debt and printing up money to buy other assets. Booms always bust. The bigger the boom, the bigger the bust.

And boy, have we had a boom. The dow is up over 350% since its 2009 low. Government, corporate and individual debt is at record levels in the western world. Loss-making companies with unproven business models are getting sky-high valuations. The crypto asset bubble, real estate prices in some markets and record prices at auctions are yet more anecdotal evidence of the boom.

But this boom is tired. It is old and it is looking for pins. Air is starting to come out and the central banks know it. In fact, the Fed has already started to ease and has already spent a lot of its ammunition. Hang on, interest rates haven’t been cut yet and quantitive tightening is still happening, how is the fed easing? The easing already began last year, when they changed their guidance about future interest rate moves. From four interest rate hikes in 2019, the guidance is for no increases. QT is no longer on "auto-pilot" and the verbal groundwork for QE4 is already being expressed.

This massive turnaround is a lot of bullets already unloaded from the feds magazine. This volley did manage to stop the slaughter in the stock market, but it hasn't been able to bring on a new bull. If the market resumes its downward trend as corporate earnings disappoint, the fed will be quick to go from 2.5% back to zero. That's not a lot of stimulus, so QE4 will also be needed. Asset purchases will likely have to be north of $100Bn a month as early as this year to try and hold back the tide of recession.

Ok, so the longest expansion in history will come to an end soon. That’s an easy prediction. The central banks will do what they said they will do, cut rates and print money, that’s an easy one too. Now on to the difficult prediction, the one actually worth making: Failure by central banks to normalise interest rates or balance sheets will finally unleash market pressures on inflation. The currencies of these markets, particularly the USD will decline markedly which will in turn create massive price increases in commodity prices and eventually consumer goods.

Asset prices simply have to return to normal, in real or nominal terms. The central banks only get to choose which: either a deflationary recession where asset prices come down or an inflationary recession where the price of everything goes up to bring asset prices back into line. This prediction is ultimately assured because of the simple fact that you cannot print prosperity. One cannot suspend a ball in mid air. However, if one throws it high enough, for a while, it can appear to be done.

So, this early phase of the next crisis didn’t happen in 2018. We've had a good quarter for financial assets. Will we have another one? Another three? Time is running out, and I hazard another prediction. ZIRP and QE are going to be back with a vengeance before 2019 is gone. The 2008 financial crisis will be remembered as a prelude to a bigger problem. The "Great Recession" will be like the "Great War": it will have to be renamed and it won't be great.

Columbus, OH April 9th 2019

TLDR: The crisis hasn't come, the crisis is coming.

Trivial Pursuit

Does life have a purpose? A lofty question, to be sure. While I cannot know for sure, I am convinced that life's purpose is not what it is believed to be by the vast majority of humans. Life is not a staging area; it is all we have.

For most people, death is not the end. An immortal part of one's essence transcends to another plane. Belief in an afterlife is very widespread, and is central to the Abrahamic religions. Indeed, the early Christians had a complete disdain for anything to do with concern of this world: possessions, the keeping track of time and the bearing of children. They yearned for the end times which they believed to be right around the corner.

Another very frequent early Christian belief, one shared with Buddhists and a surprising number of people in the west today, is reincarnation. Although the early Christian factions that won out ruled the belief in reincarnation heretical, it is still a belief held by millions, including many Christians, non-affiliated spiritualists and agnostics. The belief in reincarnation is only slightly different to the belief in a permanent afterlife in another plane. The difference is that you return to this self same plane. This still requires an immortal life essence. It is complicated by the fact that this essence needs to enter another host at birth. Indeed, for some there is a fixed number of living souls in the universe, queuing up in the ether for empty bodies.

These beliefs and beliefs that the world or the universe itself is somehow permanent or rotating and eternal all have a common thread: they are irrational. That might sound harsh and even mean, but that is a word I picked deliberately. Following a reasonable and rational argument, one cannot find any evidence or purpose for an immortal living essence, a soul. If the universe did contain such extravagant complexities it would require a much more complex explanation of the physical universe around us. Latching on to a more complex and elaborate explanation to fit the same observations is irrational. Reason and truth are not compatible with such sentimental fancies.

Fine then, one might say, I don’t have reason on my side, I have faith. Faith is by definition an unexamined and therefore an irrational belief system. I don’t personally have a problem with people having irrational beliefs. This, believe it or not, is not an attempt to turn anyone atheist, but the foundation for my main argument: the importance of the pursuit of happiness. If indeed this life is all we have, then limiting someone’s life can be understood to be a terrible, even eternal, crime.

The ultimate limitation on life, is death. Death is a limitation that is built into life, hence its finite nature. Ending someone’s life and thus limiting even further the what is already so short, is the worst thing you can do. Short of that, limiting the parameters of someone’s life, by locking them in a cage or amputating one or more of their limbs would be runner-up in this sordid hierarchy. Indeed every limitation in the duration or quality imposed on someone’s life should be, and often is, regarded as a crime.

In this way, we can understand the basic immorality of preventing people from having the widest range of freedom possible when it comes to pursuing their own happiness. Happiness as they see it, not how it is seen by anyone else. And to pursue that happiness, not to have it given to them. Of course we must limit that pursuit of happiness in some important ways. To prevent us from impeding the short, precious lives of others is the most obvious. Other details and complications arise around minors, animals and the mentally challenged. There is a lot to work out on the margins. What is clearly outside the margins in my opinion, is the interference and perversion of the pursuit for the aims and perceived benefits of third parties. Taxes, wealth redistribution, licensing, censorship, subsidies and many other government actions change our behaviour, limit our options and confiscate the fruits of our labour.

This is the fundamental problem with using government force, rather than market exchange to solve our problems. Our free decisions are limited by government policy, our choices perverted by government incentives and a large percentage of our property is confiscated for uses other than those that are of our choosing. You might think that this is necessary, even essential. If essential, it is still tainted by our robbing people of their hours and their options. Understanding this, we can appreciate the wisdom and the kindness of using this crude force as little as possible, apologise for doing it and continually seek ways to reduce the impediments imposed on people enjoying the only rational purpose of life: to make of it what we can and what we want.

Mellieħa, March 25th 2019






TLDR: Incentive schemes and taxation are crimes against our limited lives

Green Hell

I'm not an environmentalist. That to many must sound awful. It is like being in favour of cancer. Who could be against the environment? Of course, I'm not against the environment. I like clean air and water, forests, lakes, mountains and wildlife. What I am against is scaremongering. I am against unattainable utopian goals and policies that are counterproductive and fascist. I am not an environmentalist because I do not want to be associated with this growing strain of fascist and sometimes marxist movements that want to destroy either our liberty, our prosperity or even our lives.

First let us tackle the scaremongering. When I was growing up, my mandatory classes in environmental "science" tought me that by 2020 (next year!) we will have run out of oil and other fossil fuels by 2050. I was too young to know then that this was a rehash of flawed thinking that had been going on for a long time. The US Bureau of Mines predicted that we would be out of oil in 10 years in 1914. The dept of the Interior made similar predictions in 1939 and 1950. William Stanley Jevons in The Coal Question points out, in the 1860s, that unless Great Britain rationed its consumption of coal, the resource will run out in a few decades and the economy ruined. Indeed such totally wrong predictions about the environment and sustainability go back a long time. Malthus in the 18th century is usually the archetype for this sort of Chicken Little warning with his thesis that the world was going to starve due to overpopulation not quite panning out.

The green warriors were quick to pivot though. The problem shifted over the years from fossil fuel depletion to ozone layer depletion and catastrophic ocean rise. When Waterworld came out in the 90s people really believed that we were all going to be underwater. The film itself puts the impossible event of all land on earth being submerged to some time in this century. Now that ozone layer depletion and global warming seems to be reversing, the eco warriors have pivoted again to climate change, extreme weather events and plastic.

This is a moving target which is getting increasingly taken seriously. At this point, eco warriors like to deploy the label "climate change denier" to anyone who strays from the choir sheet. It's a catchy derision (sounds like holocaust denier), but I am not denying climate change. The climate has always changed. Nobody ever said it was mean to be stable. The real debate points, which the eco warriors tend to avoid are: what is causing it? is is dangerous? and what can we do about it? In the past, periods of warming have been good for humans, as they have coincided with better harvests. We know more about the past climate changes from sedimentary records than we can accurately predict about the future. The Medieval Warm Period was 300 years of relative bounty, followed by 100 harder years during The Little Ice Age (1450 to 1550). Now current warming might be more pronounced than back then, but the extent and harmfulness of these changes is hardly settled science. Now that the temperature is leveling off, the eco warriors are quickly changing the subject to extreme weather and plastic pollution.

The truth it is not about carbon. It is about values. The eco warriors, or the “anti-human league” as Alex Epstein calls them, tell us that we have to reduce our CO2 emissions before we all die. However these same people but will not endorse nuclear energy, which is the only source that can actually replace fossil fuels for electric power generation without drastically curtailing our consumption. The reason they will not endorse nuclear is that their main value is Gaia, an unspoiled mother earth utopia that never existed were all species are in balance living in natural habitats. In this Gaia, humans, to the extent that they exist at all live like primitive hunter-gatherers. I don't like pollution either, but I value human life over the Garden of Eden. The goal cannot be and should not be zero pollution. It is immoral to get rid of diesel tractors which will result in the death of millions to starvation. It would be a disaster to human life to get rid of our factories and yes it would be a disaster to get rid of plastic. Now sure, we can try and balance the cost versus benefit, but the current debate seems to be between ultra green monks who admonish guilt-stricken sinners who like warm clothes or want to read at night.

The environmentalist movement is actually a cover for fascist and marxist ideologies. This is exemplified by the asinine Green New Deal put forward by AOC. You can see the fascism when the anti-human league calls for more and more controls on industry, condemnation of capitalist material excesses and zero-tolerance for debate. The environmental marxists, on the other hand, want to destroy all industry and progress and live in regimented communes that supposedly live in harmony with nature. Both strands of collectivism ultimately turn totalitarian and if ever given a chance would result in predictable tyranny and misery, and ironically enough, a much worse environment.

That is the last reason why I am not an environmentalist. It is because I care for the environment. Environmental policies, like biofuel subsidies often backfire. But apart from this, the truth is that the environment has improved tremendously over the years as we have become more prosperous. The truth is that prosperity allows us to spend less time and energy on worrying about basic necessities and more on things like art, entertainment and the environment. This is why the worst man-made environmental disasters always happen in socialist countries. There are real environmental problems to be solved, and there good non-perfect solutions like privatisation, economic and technological progress. However, if being an environmentalist means I have to support asinine and counter-productive government solutions, count me out.


Catania, February 25th, 2019

TLDR: Beware of reds in green coats

The Trump Card

To many, the world has stopped making sense. People "out there" have lost their minds. Brand new political parties are winning big elections, Britain voted leave and of course, Donald J. Trump.

To me, this all makes perfect sense. While I did not think Trump was going to win, I did believe he had a much better chance than many were expecting. What did I know that so many missed?

Indeed, why did trump win? What will happen in 2020? It wasn't the Russians. Yes, I'm sure they try and influence elections where they can and I'm sure they try and sow instability in their rivals' turf. But to say they were able to swing the whole election with some social media bots is asinine. Advertisement is not hypnotism and we don't need such an outlandish explanation to explain why Hillary's campaign and candidature were so lacklustre and why Trump's message had legs when there is a much better explanation staring us in the face.

The real reason Trump won is the same reason Bernie almost got the Democratic nomination. It's the same reason why Jeb and the rest of the establishment tanked. Of all people, Hillary really should have known: it's the economy, stupid.

Living in Obama's recovery USA, I could see a lot of anecdotal evidence of people struggling. College grads working multiple bar jobs and moving back in with their parents and Uber drivers explaining how they used to be retired. Work trips to Ohio and Michigan really opened my eyes to a recovery that wasn't

There are lies, damned lies, and then there are statistics. Government economic data is thoroughly biased as evidenced by the changes to the formulae for inflation, GPD and unemployment that always coax out better numbers than the older formulae. Hedonic substitutions then really allow the bureaucrats to cheer-lead the economy. Shadowstats, economists or the Austrian school and contrarian thinkers had it right: the Fed's unprecedented inflationary policy had brought the good times back to Wall street, but on Main street, unemployment was still north of 10% and and inflation was a lot hotter than 2% (making real GDP negative).

One other person saw all of this: Donald. He called the stock market a "big fat ugly bubble". He said unemployment was more than 20%. He said America was no longer great. Hillary, on the other hand, stood on Obama's shoulders, who said that Trump was "pedaling fiction". But the rust belt knew what reality they were living. They voted against four more years and for something different. Anything different.

Almost as soon as he had won, Trump changed his tune and declared victory. The big fat ugly bubble was now a bull market. The worst economy in history was now the best economy in history. Excitement about tax cuts and deregulation changed sentiment and the stock market reached record highs while unemployment reached new lows. However, the underlying economy was still the same. Nothing of substance has changed. The deficits are bigger, people are still struggling, waiting for Trump's America to arrive. It's not coming. Trump's irrational cheer-leading leads me to my next prediction: Trump is toast.

Trump will be a one-term president. Trump's 2020 slogan of "Keep America great" will be another four more years the electorate won't want. As the recession worsens and the data becomes undeniable, the voters will be ready to bring in anyone, as long as they are everything that Trump is not. America is going to lurch hard to the left in 2020. Of course, that won't work either.

Similarly, and for similar reasons, the rest of the west will lurch left and right, sliding ever farther from the centre and down the slope towards totalitarianism. In some places it will be universal socialism and in others, nationalist socialism.

Our only hope is to recognise and refute this trajectory. The only answer that works is real free market capitalism. Not the crony, over-regulated special interest system we have today, but the true free markets that made us rich in the first place. Getting there will not be easy. After all, we need a recession. We might even need a depression. The real economy has been so screwed up for so long by so much bad macro policy and regulation that the transition must now be long and arduous. So much debt now has to be written down. So many people expecting a social safety net will have to be let down. So many malinvestments have to be liquidated and re-allocated. If that sounds grim, I assure you it could and might be worse. After all, 2035 might start to look a lot like 1935.

San Jose, January 24th 2019

TLDR: Economic issues are the root cause of the west's political instability