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Financial Bubbles & War
January 23 and March 10, 2003
FINANCIAL BUBBLES AND WAR
BOB HOYE
JANUARY 23, 2003
It has been popular to look at the outstanding stock market that followed
the last Gulf conflict and assume that the next one will prompt another
bull market. This seems to be inadequately researched.
Great bull markets have only followed the last business cycle of the "old"
era of inflation, which was always accompanied by a war. In the previous
example, the "Roaring Twenties" followed World War I and the first - the
South Sea Bubble of 1720 - was preceded by the War of the Spanish
Succession.
Minor conflict between France and Spain erupted in 1719-1720, but it did
not alter the timing of the 1720 blowout and the lengthy contraction.
Because it will likely be a brief attack, we have considered the takedown
of the Saddam Regime as "gunboat" diplomacy. Until it is accomplished,
wild geopolitical speculations will continue to punctuate the volatility
normal to the post-bubble condition, but not materially change its
inevitable course.
The best instruction is from the new financial era that ran the usual 9
years to 1873. The U.S. portion of the bubble concluded in September 1873
and the bear lasted until 1878. In England, which was the senior economy,
it lasted until 1879 and leading economists referred to the 1873 to 1895
period as "The Great Depression" until as late as 1939.
The Franco-Prussian War engaged the two great powers of Europe from July
19, 1870 to May, 1871. Paris was surrounded in September, 1870 and
besieged until capitulation in January, 1871. Huge guns bombarded the city
with some 300 shells each night until the siege ended. While the mayhem
terrorized Paris with starvation, civilian casualties, and property
damage, it did not materially alter that bubble and its demise.
PROTEST AND APPEASEMENT
Over the January 19 weekend, protests were planned and carried out in many
countries, with some individuals making the key media outlets, but it is
only one mob. As with the cycle of protests that started in the 1960s, the
hostility, in our recollection, has never been directed towards the
aggressions of authoritarian regimes, but towards the U.S. If it can
really be called a peace movement, its goal is sordid in preferring the
"peace" provided by a police state.
Otherwise, it is just against the freedom and prosperity that America
currently represents and the movement reached its full expression on 9/11.
The movement is misguided and the "peace" part should be relabeled as
"appeasement" which, in the 1930s, gave Hitler everything he needed to
devastate Europe.
One Canadian protester referred to the 1930s and pointed out that the
fascists could have been thwarted then, which is correct, but angrily
identified the U.S. as fascist now and in need of constraint.
The irony is that, while dictators have exploited the disarmament faction
permitted in democracies, such protest has been brutally prohibited in
authoritarian states. General MacArthur, of World War II, noted that "Wars
are caused by undefended property.". The World Trade Center was made
undefended by the 1970s' mob that impaired the abilities of the CIA and
otherwise turned government into a wish machine for the politically
ambitious.
Beyond never protesting blatant aggression by each authoritarian country,
the crowd over most of the 20th Century never protested the expansion of
international communism (Comintern). Then at the close of the century it
found that this movement had been overshadowed by the benefits of
practically free markets. Then the crowd that had embraced the
globalization of tyrannical government took to the streets with an
"anti-globalization" movement. Even the impartial would find it difficult
to pinpoint the moment when naiveté morphed into stupidity. The
globalization of tyranny is touted, but the globalization of freedom is
condemned. Weird, but it goes with the only example of a government having
to build a wall to keep its citizens from escaping.
The consequence of the 1930s' appeasement hysteria was World War II and,
in their subsequent exhaustion, the Western democracies were unable to
prevent the horrors of Stalin, Mao, Castro, and Saddam. The record is some
100 million political murders committed in the cause of social engineering
and some 25 million deaths suffered in wars in defence of freedom.
When the Roman Republic was well governed, the "Pax Romana" prevailed.
When she was weak and corrupt, Mediterranean "pirates" did their damage.
Until WW II, the Brits generally kept the sea lanes open and the benefit
has been called the "Pax Britannia". The U.S. has the ability and, more
importantly, the accountability to work towards a "Pax Americana".
Authoritarian movements in every country and every political party will
continue to be enraged, but eventually will be assigned to the "great dust
heap called history". As developed by the Nazis, the onslaught of the
"blitzkrieg" against hopelessly reduced defences was, in effect,
preemptive warfare. The U.S. has every right to defend itself against
today's equivalent by preemptive moves with or without sanction by the
corrupt United Nations.
At the Yalta Conference in 1944, Winston Churchill summed up Britain's
position with: "Great Britain had no interest of any kind in Poland.
Honour was the sole reason why we had drawn the sword to help Poland
against Hitler's brutal onslaught, and we could never accept any
settlement which did not leave her free, independent and sovereign."
The Nineteenth Century enjoyed a true liberalism that celebrated the
sovereignty of the individual and insisted upon the limitation of
government predation.
In the 1980s and against the status quo, the Reagan administration greatly
assisted the shutdown of the dictatorships in Eastern Europe. The massive
political reforms that ended the previous authoritarian centuries offer
some instruction. Quite simply, such government lost the will to impose
arbitrary authority and the public lost the will to submit. This was
symbolized in 1989 when East Germans wanted to go cross-border shopping in
West Germany and the border guards laid down their rifles.
Honecker, the dictator, had to bring in a law to end his prerogative to
murder border offenders. While the reform of the 1980s was truly massive,
the late 1990s seemed to see a reaction to what is likely the main trend.
Symptomatically, this was assisted by the corrupt Bill Clinton, who
campaigned centre in order to govern left and, in foreign affairs,
appeased the remaining threats to global security and peace. France and
Germany are carrying that crock now.
The main question now is - will the Bush administration, which has had
material success in motivating a growing number of governments to fight
sponsored terrorism, prevail in its justified pre-emptive strike against
Iraq and its record of internal and external terrorism? Despite the still
defiant status quo, history instructs - yes.
ON WAR (cont.)
BOB HOYE
MARCH 10, 2003
Other than inducing some rapid
fluctuations, the Iraq invasion has been unlikely to materially change the
post-bubble contraction. Quick success in Iraq should in no way be
considered with the 1991 example. That was a classic start of a new
financial era that would have occurred without that war.
Our reasoning has been based upon the two
examples when even war within Europe did not alter the course of the 1720
and 1873 bubbles and their contractions.
The pages going around documenting the
assistance granted to Europeans by Americans have not placed current
German intransigence in a good light, which is appropriate. Unfortunately,
this will have little effect on the emotionally-driven anti-American
movement that is both within and external to the U.S.
Much the same holds for all the amusing
French jokes making the rounds and, while these will also be infuriating
to the appeasement movement, both the German and French pages are serving
well in uniting the common sense that is latent within most societies.
We are in the early stages of a great
political reformation following a hundred years of increasingly
authoritarian government in all countries. This has been marked by the
collapse of dictatorships in eastern Europe in the 1980s to the next one,
now, in Iraq.
Showing the pervasiveness of authoritarianism, the Western
establishment resisted the collapse of each dictatorship from Poland to
Yugoslavia. Moreover, it has also been marked by Bush's domestic political
victories since 2000. As modest as they've been, the gains have been
critical for the movement whereby government protects rather than exploits
their citizens.
As the United Nations has been hopelessly
corrupted by authoritarian influences, the reformation would be well
advanced if the Brits and Americans take out Saddam without sanction.
Then the deliberately irresolute
institution would be seen as irrelevant compared to the "Coalition Of The
Willing" which is motivated by the regard for freedom rather than its
chronic abuse.
Before 9/11, Osama bin Laden said, "When
people see a strong horse and a weak horse, by nature, they will like the
strong horse." This was in response to Clinton's weakness in not
appropriately responding to terrorist insult during the 1990s. Well, that
tide is changing and the collapse of the Saddam regime will confirm a
phenomenal change. Perhaps this is being discounted by the Iraq
stock exchange, which is up 31% so far in 2003. Hmmm, are there stock
exchanges in Iran, Palestine, and North Korea? |
