First Crash. Then Chaos. Or Worse.

By Thorsten Polleit

The military strike by the United States of America and Israel against Iran has drastically driven up energy prices and called into question — or even destroyed — energy supply security in many parts of the world. Economically speaking, this constitutes a “negative supply shock”: previous levels of production can, if at all, now only be provided at significantly higher costs. It literally makes people poorer: in order to consume the same amount of energy, they are forced to cut back on their demand for other goods. Consequently, if the energy price shock persists or intensifies, it exerts a recessionary effect.

In public discourse, however, the rise in energy prices is mostly interpreted as an “inflationary impulse.” And without doubt, the higher prices for oil, gas, and coal will show up in the official price indices that are commonly used to measure inflation. Yet, rising energy prices are not inflation in the genuine economic sense. One should speak of goods price inflation when the central bank and/or a commercial bank expands the money supply, and the increased supply of money pushes up goods prices.

At present, however, money supply growth is relatively restrained both in Europe and across the Atlantic. For this reason, the rising energy prices produce a “negative real cash balance effect”: the purchasing power of people’s incomes declines. As already mentioned, this is in fact an impoverishment effect.

Central banks have nevertheless announced that, in view of the drastic increase in energy costs, they intend to raise key interest rates. The central bankers argue that they must prevent “second-round effects” — that is, rising energy prices leading to higher wages and, in turn, to broadly rising prices. However, interest rate hikes in response to a negative supply shock would predictably turn a “major crisis” into a “mega-crisis”: rising interest rates and the resulting tightening of credit supply would cause highly indebted economies, financial markets, and asset markets to crash, trigger waves of bankruptcies, and lead to mass unemployment.

But is it really likely that central bankers will crash the economy “by mistake”? Or are these declarations about raising rates merely hot air, intended only to dispel inflation expectations among market participants — words that will not be followed by actual deeds? Or is there perhaps more to it?

The ideologues of “globalism” have certainly suffered a painful setback with the election of Donald J. Trump as U.S. President. Yet they have not given up — and they have not entirely lost their influence, as the war with Iran makes unmistakably clear. Indeed, the “Great Reset” agenda of the globalists, which has so far been pursued through “climate,” “corona,” and “war”, can now also be expanded by “crash”.

For the Iran war offers globalist-minded governments a first-class opportunity to restrict peoples’ freedoms and liberties, their consumption further — by, for example, imposing price caps on energy, introducing energy rationing, limiting the freedom of travel, forcing the closure of businesses, imposing “lockdowns,” and so on — in other words: to crash the economies. A central banks’ policy of raising interest rates would powerfully assist and accelerate the economic destruction, drive companies into bankruptcy, destroy jobs, and push hundreds of millions of people into dependence on the state.

It is foreseeable that in such a severe financial and economic crisis, hardly anything will stand in the way of the state’s advance: for many people, the state will then appear, in their hour of need, as the only remaining “savior.” And the state — along with those who currently hold its power — will rise to unprecedented heights, much as it did, say, during the “New Deal” in the United States from 1933 onward or in National Socialist Germany in the 1930s. The state takes control of the economy through price and production directives, through the regimentation of labor, and through comprehensive control and surveillance of the population. Seen in this light, one can say: straight from the politically masterminded “crash” into tyranny.

Is all of this merely a “robber’s tale,” an overblown, exaggerated fantasy? As much as one might wish it were so, the points made above cannot be so easily dismissed. For it is undeniable that ideas and ideologies have taken hold of the minds of many people which, put into practice, will end the free economy and the free society (or what little is left of it).

It is also beyond question that the path toward unfreedom has so far been advanced gradually and step by step by its protagonists in politics, bureaucracy, academia, and especially the central banks — with or without the active support of many useful idiots. Yet at the latest, the corona virus episode should have made it clear to the adherents of globalism that the brutal approach works better.

The destruction of energy supply in the West in the course of the Iran war, the shutdown of nuclear power, the halt to oil and gas exploration, the sanctions on Russia’s energy supply, the sabotage of power plants, and so forth, are clear evidence that the globalists have long since removed their kid gloves. One may therefore assume that the probability has increased that they will at some point deliberately bring about an economic emergency through monetary policy — strongly suggesting that interest rate hikes in the face of a negative supply shock would not be a “mistake,” but rather an attempt to deliberately engineer a large-scale crash.

However, attempting to trigger the “Great Reset” by means of a crash carries considerable — indeed, existential — risks for the globalists. A crash of the global economic and financial system can all too easily lead to explosive developments and loss of control, ending in chaos rather than in the omnipotence of the state and tyranny. Especially since many people have already begun to wake up and recognize what is really being played out. There are therefore genuine incentives for the globalists to continue as before — that is, to proceed step by step and to avoid overly large shocks, such as a deliberately orchestrated monetary “great crash.”

What one can discern from all these considerations is the following: preserving the economic well-being of the people is not the goal of the globalists; at best, it is only a means to an end. Therefore, a “great crash” of the economic and financial system would not merely be an “unfortunate accident,” but could also become a direct political objective — namely, when the globalists believe that this is a more effective way to reach tyranny.

As a final note: Whoever shares this analysis must also reach the conclusion that the risk situation for savers and investors has now changed dramatically. One consequence is to abandon any presumption of innocence (if this has not already happened) toward the state and central banks, and to keep one’s eyes and ears wider open than ever, and expect the unexpected. That said, let us conclude with the words of Friedrich von Schiller (1759–1805): “Many dangers still surround you — I have kept silent about them, But we shall yet remember them all — only too well!”