August 24, 2022 | The Collapse of Bullying Authoritarians: Leaders and Regimes

It seems that a severe financial contraction could materially reduce China and Russia’s totalitarian ambition. And as the urge for political reform is being threatened, loss of funding for deliberate mayhem could be in the “nick of time”.

As they occurred in the senior economy, there has been three great experiments in authoritarian government that I’ve described as “Tyrannical Centuries”. The first in turning totalitarian is well-documented as it economically and politically destroyed the magnificence of Rome. The Third Century has been described as a “Crisis Century”, as well as “Military Anarchy”.

On the second “Tyrannical”, the control movement through the 1500s corrupted the Church into a venal and murderous police state. And the third example began in the early 1900s and under Communism in the East and Progressivism in the West control freaks became intrusive in every country.

Lately being recognized as tediously costly.

Similarities in all examples have been remarkable, with confiscatory taxation being supplemented by debilitating inflation as the state prosecutes war upon other countries as well as upon its own citizens. Whether declared or not, America has been at war since the early 1970s. And history shows that in any century that once started the control freaks recognize no limits to their ambition and with frenzied intrusion and inflation eventually dislocate the economy.

In more detail, the ultimate thrust of war and intrusion has been funded by massive inflation. Which even in Rome set off equally massive financial speculation, including the equivalent of stocks, that in becoming unstable crashed. Bringing down not just the financial markets but also the economy such that that totalitarian experiment collapsed.

The next Tyrannical Century ran through the 1500s, completing in the early 1600s. Beyond constant warfare, there were specific atrocities against ordinary citizens.

In 1572, the Pope was displeased with the Huguenots. This was a protestant community that was successful in manufacturing, finance and trade. Word went to the French king and the slaughter amounted to around 30,000. Since condemned as the “St. Bartholomew’s Day Massacre”.

Many in the prosperous community fled to Holland and England, taking their skills and wealth with them.

In 1576 unpaid troops of the Spanish Netherlands massacred some 7,000 citizens of Antwerp and destroyed a thousand buildings. Known as the “Spanish Fury”, it was a brutal assault upon ordinary citizens, enjoying their freedom. Successful young men became involved in charities and took up golf.

Hitherto, the city was the peaceful financial and commercial center of the world. Wisely, the money market and prosperity moved to Amsterdam, which was essentially unassailable by land.

In any century, authoritarians never quit until the economy is trashed.

The start of the last great reformation was marked by the devastating financial and economic crash that began in 1618, Which in Holland was called the Kipper-und Wipperzeit, literally meaning “Tipper and See-saw time”. London’s veteran merchants described the Crown’s bullying intervention on a “make-work” scheme as “Tyrannical Duncery”.

In January, increasingly reckless financial speculation climaxed, followed by the worst selloff in generations accompanied by an immediate decline in the US economy. Which is effectively ending radical speculation in financial markets that will soon be followed by the collapse of radical political markets.

By way of emphasis, a wild financial bubble has been funding an equally wild bubble in politics, and as previous examples record, the failure of both will likely be profound.

And one irony remains outstanding. Each side of the intense political struggle thinks that the other side is “crazy”. Fortunately, history provides impartial adjudication. Prosperity goes with freedom and hardship is the consequence of too many control freaks.

Without funding by any means, state ambition will collapse. How fast? Well, financial disasters are often discovered in the Fall.

A massive financial hit could be acute for the fully totalitarian governments seated in Moscow and Beijing. Putin’s attempt to restore the extent of the former Soviet Union is a destructive miscalculation.  The country was already in a classic post bubble contraction, now made worse by sanctions and the destruction of wealth, otherwise known as war.

China has been in the post-bubble contraction for more than a year, and the global path is on the way to a severe contraction possibly after September.

A key question is about how rapidly both regimes lose their ability to fund war. Russia’s current one and the disquieting threat of China’s focus upon Taiwan.

Putin’s drive to restore the Soviet Union is not popular “at home”, but such dissent has been squelched. But it is still there and will likely become formidable with the hardships that will be discovered as the global recession worsens. Another financial crisis will quickly destroy his ability not just to fund his misadventure in Ukraine but will inhibit any ambition on other borders with Europe.

NATO can end up as a practical defensive body, with latent ambition constrained by diminishing funding in the West.

Regrettably conditions are such that China may move to control Taiwan, as a diversion from domestic hard times. But if the post-bubble collapse, which for China began in 2021, turns down quickly the financial disaster could prevent Beijing’s desperate attempt at a diversion. Real money and lots of it is needed to fund extra-territorial excursions, not to overlook keeping the locals under control.

Rampant inflation has inspired radical “bubbles” in financial and political markets. Both have become unsustainable and can fail – together.

Bob Hoye August 24th, 2022

Posted In: Charts and Markets - Bob Hoye

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