Adam Smith was the first brilliant economist to espouse the “invisible hand” of free-market capitalism — how the natural self-interests of individuals create a system of innovation and growth that improves our standard of living in a network of growth and evolution…
If only we’d allow it to happen without the excessive intervention by governments, organizations and special interests to counter it…
Throughout the history of the world special interests have consistently countered its natural development. Governments want to control the economy and make it work for their interests.
Crony capitalists and businesses want to lobby these governments and create monopolies that consistently counter competition.
Workers want unions and welfare protections guaranteeing higher wages for less work and protection against job loss…
And they want a guaranteed retirement.
It’s important to understand that the very essence of the free-market capitalist system is that it makes everyone… governments, businesses and workers more accountable. That concept works against our natural inclinations to have things get better and better and then, we get to go to heaven (retirement).
The truth is that we want life to grow incrementally and then, never have setbacks. We want the good without the bad, the booms without the busts, the inflation without the deflation, and so on…
Life and the free-market system, reflecting that very concept in all its glory, thrive on the dynamics generated by such polar opposites.
Ask yourself: did you learn more from your successes or your failures? You learn from both but the real truth is that you learn more from your failures. Those changes are codified into new and more successful behaviors… until you fail again and, of course, learn again.
In the economy, the greatest innovations largely come from the challenges of down periods and the extremes of inflation and deflation (summer and winter seasons) and not from the great booms. The innovations of such challenging periods then move into society and increase our standard of living in the booms that follow when success reigns… but truth be told, success only makes you more complacent and arrogant and that leads to failure yet again.
You don’t get success without failure and because of that, failure is critical to the free-market system and progress, just as George Gilder espouses… and David Stockman, Lacy Hunt, Adam Smith, Milton Friedman and yours truly.
That’s why we espouse free-market capitalism despite the fact that we secretly hate it and fight it every single step of the way.
That’s why we have people like George Gilder, David Stockman and Lacy Hunt as keynote speakers at our Irrational Economic Summits every year. It’s only wishful thinking to be able to have phenomenal individuals like Adam Smith and Milton Friedman to speak at our Summit because they’re no longer with us.
George Gilder’s theme in our 2013 conference from his book Knowledge and Power was at its core one key concept: Failure is critical to the free-market system and is prevented by standing government policies and the manipulation of the economy which stifles innovation despite its best efforts. Thank God that innovation happens despite our best efforts against it.
David Stockman’s book The Great Deformation is subtitled “The Corruption of Capitalism in America.” I really couldn’t say it better than that. In his talk at our 2014 conference, he got a standing ovation and the questions from the audience never ended and during his presentation he referred to my term “the Great Reset.” And he noted why my term resonated with him.
He stated clearly that we would have to see a great deflation to rebalance our economy. That’s what the natural life cycle, and the free-market capitalist system does. It innovates… it grows… and it rebalances. It’s creative destruction.
Lacy Hunt will be speaking at our next conference in September 2015, but at a previous conference he explained how money velocity goes through clear stages and why we are not getting inflation despite the most massive money printing in history. His analysis shows we are clearly headed into a deflationary period to reset the debt and financial asset bubble.
No one. Not governments or businesses or individuals want the resets or rebalances that come naturally because they’re painful. We simply don’t like pain and that is a non-acceptance of life as it is! That is delusion or illusion.
Let me pose a question. What will you choose? Truth or consequences? The truth about life is you get both.
You don’t get truth without consequences. We don’t want the consequences so we ignore the truth. But the truth and the inevitable consequences always win in the end…
And that’s why we get great resets to bring that reality right up against our unrealistic assumptions about life and its nature that is both exponential and cyclical.
Not since the 1920s and 1930s have we found ourselves in such a great delusion. It’s a one that constantly fights against the truth and free markets. Governments are printing money to offset the inevitable consequences of the greatest debt and financial bubble in modern history.
Debt, like any drug addiction, is a financial drug and it’s used beyond the natural means to finance homes for our kids and cars. When it goes to extremes and creates financial bubbles and extreme income inequality, it has to fail and rebalance… and it will do so painfully, now even more painfully given that governments have refueled an even larger bubble.
It’ll be like a drug addict coming off of heroin. But that’s really the only option in the end: debt detox!
This is what I see happening between early 2015 and early 2020, when the most comprehensive cycles I’ve tracked throughout history are pointing down at the same time for the first time since the early 1930s and the mid-1970s.
When that comes together, despite all government efforts trying to prevent it and just like the unprecedented global monetary and fiscal stimulus… the natural forces take back over and reinstate the very free-market system of innovation and progress that we love… and hate.
Watch the free-market system come back with a vengeance from 2015 to 2020 and protect your assets against “the Great Reset” ahead that will bring financial assets back to reality and will restructure the unprecedented debt bubble of 2000 to 2008 and every other financial bubble that stemmed from it… from stocks to real estate to commodities to high-yield bonds.
Asset allocation will not protect you when almost all asset classes go down as they did in 2008.
Be safe and not sorry… but do it sooner than later!