Looming Economic ‘Reset’ Should Terrify Investors
Although treated almost as gospel in the West, Keynesian theory is a relatively new development in the long history of economics. However, its backwards ideas are pushing the world to a global economic ‘reset’.
As opposed to traditional economic practice (sometimes referred to as the “hard money” or “Austrian theory” school of thought), followers of Keynesian theory eschew such common sense notions as working hard, saving hard, spending frugally, and avoiding debt wherever possible. Instead, they adhere to the paradoxical notion that borrowing from strangers to buy whatever you do not already have is the key to happiness and joy.
One cynic described Keynes’ theory as “building a new skyscraper by borrowing bits and pieces from existing skyscrapers. You end up with an entire city of dysfunctional and lop-sided buildings, not one of which is straight or true.”
Pundits have also noted that the only real problem with traditional or hard money economics is that it is boring. Basically, over time, it simply works, it does its job.
Throughout history, nations and cultures have thrived under this theory. If a recession or retraction occurs naturally, the savings the society already has will get everyone over the hump. Boring, boring, boring.
A country run by Keynesians, on the other hand, has more action than an “Xbox” game. At the first sign of any economic problem, the government and its banking pals intervene with the enthusiasm of an NCAA linebacker just back from Spring Break. And they just love their euphemisms.
Printing money (creating more debt) becomes quantitative easing, or “QE.” Printing less money today than they did yesterday (less new debt at the time, but still more debt) becomes “tapering.” Offering no interest whatsoever on bank deposits you leave with them morphs into the lofty-sounding “monetary policy” of “offering an interest rate equal to zero,” or “ZIRP.” And so on…
Also, in the magical land of Keynesianism, banking itself changes. No longer the dull, prosaic trade seen in hard money economies—in which it’s a profession comprising mere agents and facilitators—bankers in a Keynesian system actually get right onto the playing field and become part of the team.
No, I stand corrected, they actually are the team. Imagine a football squad where every single player is a quarterback and you will have a better understanding of how we, in the West, treat our bankers and how we, as a society, arrived at the bizarre point in history we are at now—a situation that can only end in a global economic ‘reset’.
Willem Middelkoop Is World’s #1 Expert on “The Big Reset”
The problem is that not many people understand this. Having just finished reading The Big Reset: War on Gold and the Financial Endgame by Dutch writer, journalist, and fund manager Willem Middelkoop, I can definitively say that the author is one of the few who absolutely “gets it.”
It is for this reason that I believe Middelkoop remains one of the most in-demand speakers worldwide and his book is a bona-fide hit, not merely in the English language edition, but also in the German and Chinese editions.
One of the core tenets in Middelkoop’s ongoing work is that the current worldwide financial system has reached the end of its utility and there is a serious need for a new system with new rules and new metrics. Such a change would presumably require a conclave, or series of conclaves, similar to “Bretton Woods”—a three-week conclave that took place in July 1944 at the close of WWII, hosted by the U.S. and attended by 44 nations.
I was recently successful in tracking down Middelkoop. Below is a transcript of our conversation. It has been lightly edited for clarity.
Robert Appel: You recently had an experience which I understand was comparable to a cryptozoologist studying the Loch Ness monster actually having lunch with the Loch Ness monster. Is that correct?
Willem Middelkoop: Not entirely.
You are referring to the events of 2014. For many years, I had been researching and writing about my conviction that a new “Economic Reset,” similar perhaps to Bretton Woods in 1944, must happen again.
Not may happen, but must happen.
I used only mainstream sources and formed my own hypotheses. Then, in early 2014, I got wind of a top-level, invitation-only conference to be held in China by their International Monetary Institute. You essentially had to be a central banker or equivalent to get in.
By coincidence, my revised and updated book was to be launched in China that same week, so I asked my publisher to try to wrangle a backdoor invitation. My expectations were low but the gambit actually worked! The Chinese already knew my work, respected it, and were happy to bend the rules.
I ended up being a welcome guest at—what I now understand to be—one of the rotating series of invitation-only meetings that are regularly taking place worldwide among the banking elite with the specific purpose of discussing a coming worldwide Economic Reset! So, to that extent, your comparison is accurate.
Before 2014, my work was almost entirely theoretical. Now, it turns out, I am not merely an opinion writer or theorist; I am actually a historian and a chronicler.
Appel: How were you treated?
Middelkoop: By the Chinese? Wonderfully. They had read my book and loved it. Privately, they asked my advice on a wide range of issues, especially as regards understanding the Western psyche. I made contacts that I have kept in touch with to the present.
Appel: Many in the West do not understand the Chinese viewpoint on these matters. With the benefit of the insights gained from this experience, can you explain their position?
Middelkoop: The common wisdom tells us that the Chinese play the long game and the West thinks only of tomorrow.
This is substantially correct. Most Westerners have forgotten, for example, that when President Nixon took the U.S. off the gold standard in 1971, suddenly and without warning, he promised that there would shortly follow a meeting of all the major nations to look at making changes, adjustments, to the system. Changes that were needed to follow through on the game-changing and unilateral U.S. action.
My Chinese friends have not forgotten this. To them, 1971 is barely yesterday. They tell me they have been patiently waiting 45 years for their invitation to arrive in the mail!
Appel: OK. So the Chinese are working with central bankers from the West to complete the Reset promised by Nixon in the 70s. What is this Reset and when will it be?
Middelkoop: Those are two questions everyone asks. And I have to say to you that, while the Reset itself is virtually a certainty, the nature and timing are not. Which is why I recently did a major revision to my book with entirely new material, explaining how events that seem at first glance to be completely unrelated to this topic are, in fact, part of the core “Reset” process taking place behind the scenes.
Appel: For example?
Middelkoop: The media will tell you that the recent weakness in gold since 2011 is part of a natural downturn in the commodity cycle. Nonsense! Weakness during a period of strengthening demand is totally artificial, man-made. The West has been at war with gold for decades and this skirmish is simply the latest.
The media will tell you that the current strife between Russia and the U.S. is because Russia is aggressive, or evil, or imperialistic, or some similar nonsense. The truth is that the really big wars being waged by the U.S. today are economic wars and the problems with Russia were deliberately created to force an endgame; that endgame will determine who holds the economic power for the rest of the century, if not longer.
Appel: And the Reset? What will it look like?
Middelkoop: It could be a series of seemingly unrelated events that no one notices or it could be a formal conclave like Bretton Woods. I personally think it will be both. I think effectively the events leading to the Reset have already started, but very few analysts are connecting the dots. I think ultimately there will be a formal sit-down.
Appel: The timing for this global economic ‘reset?’
Middelkoop: Again, the formative events have already started. The culmination event, the official sit-down, could be anywhere from 2020 to 2050. Probably sooner than later, but I dislike guessing. This is a work in progress.
Appel: Speaking of China, what do the Chinese want? And since you have the word “gold” in the title of your book, how does that factor into the equation?
Middelkoop: The first interest of China is looking after their people and preserving their system of government.
All China’s other goals are subservient to that one paramount goal. China is fully aware of how unpredictable and dangerous the world has become with the U.S. as the reserve currency—something many other nations have also noticed—and they are moving toward a model where they have control of their own financial destiny. It is just that simple.
They are also outrageously flexible, that is their nature. They will work with the U.S. model for a while longer if they have to. But they do have a “Plan B” as well, where they are painstakingly duplicating all the key systems and fiscal/monetary tools that the U.S. has so that when the time is right, they can go it alone on a 100% yuan-based platform that will be, they hope, recognized as currency anywhere in the world.
Middelkoop: The Chinese have studied what happens to world economies when a gold standard is abandoned and they do not like what they see. They also consider gold as the Achilles heel of the West, with the U.S. essentially trying to foment distrust in something it no longer actually has.
Gold will be a large part of the new model the Chinese are developing. I don’t have the final details. I don’t think anyone does.
I can say that my information is that China has a much greater store of gold than they are letting on. And I also believe that China has so far allowed the U.S. and the U.K. to monkey with the gold price in plain sight because it allows them, the Chinese, to accumulate even more gold at $1,000 an ounce than they possibly could have at $1,900 an ounce.
But that game too is coming to an end.
Appel: How does Russia factor into this?
Middelkoop: Some say that a miscalculation by the U.S. drove Russia into China’s arms.
Not quite. The West doesn’t understand this dynamic but China certainly does. The West’s greatest battles in this decade are not being fought on land with soldiers; they are being fought economically.
The U.S. Treasury has its own War Room. My understanding is that China looked carefully at what the U.S. tried to do to Russia in Western Europe and figured that they, the Chinese, could just as easily be next on the hit list. So it was in their interest to join with Russia and attempt to show the U.S. that some lines simply must not be crossed.
It also helps that Putin is willing to act as a very visible, and very loud, spokesperson for Eurasian interests. That way China can see its views put across forcefully, yet without taking the risk of offending the West directly.
This process has already started in plain sight and it, too, is part of the Reset.
The recent endorsement of the AIIB by such a large number of countries—including the surprise participation of the UK!—has started a chain reaction, which I believe cannot be stopped. Ditto for inclusion of the yuan in the SDR basket last November.
The issue of a coming Reset, you must understand, is not “if” but “when.”