After the Second World War, many economists racked their brains to answer the question of how Hitler managed to finance his armament, boost the economy and reduce unemployment. Today his trick is well known. The economic miracle of Führer’s time became possible thanks to the so-called Mefo promissory notes. The notes were the idea of the then President of the Reichsbank, Hjalmar Schacht, and served not only to finance the armament of the Wehrmacht for the Second World War, but also to create state jobs, which would otherwise not have been possible through the normal use of the money and capital markets, i.e. the annual increase in savings in Germany.

The Reich thus financed the armaments industry by accepting notes issued by the dummy company Metallurgische Forschungsgesellschaft GmbH (hence the name Mefo) rather than paying them in cash. The creation of money was in full swing from 1934 to 1938 – the total amount of notes issued at that time was 12 billion marks. The Reichsbank declared to the German banks that it was prepared to rediscount the Mefo notes, thus enabling the banks to discount them.

Because of their five-year term, the redemption of notes had to begin in 1939 at the latest. This threatened with enormous inflation. Since Schacht saw this as a threat to the Reichsmark, he expressed his doubts about the Reich Minister of Finance. But it did not help, and Schacht was quickly replaced by Economics Minister Walther Funk, who declared that the Reich would not redeem the Mefo notes, but would give Reich bonds to the Reichsbank in exchange. At the time of Funk, the autonomous Reichsbank statute was abolished, the Reichsbank was nationalized, and inflation exploded in such a way that Mefo notes with a circulation of 60 billion Reichsmark burdened the budget in post-war Germany. Continue reading →

The Western world is heading for the next big social and economic crisis. America’s hegemony is waning and its establishment is fighting among themselves. To uphold American supremacy, President Trump and his administration are trying to reshape the nation into a neo-feudal society with a new relationship between the President (sovereign), the financial elite (fief holders, the privileged vassals) and the people (subjects performing socage). If the country is doing well, the population lives in relative stability and the leader is loved. The US is facing a demographic decline and a rapid replacement with migrants from Central America and Africa. This internal development will have profound effects on social stability and economic prosperity. The US can only be a superpower if the country is stable and the nation supports the establishment.

Jerome Powell, the head of the FED, is derailing Trump’s stimulus programme by increasing the interest rate and reducing the federal reserve balance sheet. The actions of the FED result in a drop in stock prices and the increase in the cost of debt servicing for the highly indebted US corporations. The US is now the world’s largest oil consumer and producer thanks to its shale oil industry. However even with the oil price around $70 the industry has lost more than it earned. A high interest rate and a low oil price make the industry vulnerable.

The president has said clearly that he does not like what the FED is doing. The FED has to revise its decisions, otherwise Jerome Powell will be dismissed as envisioned by Section 10 of the Federal Act. The FED will have to reconsider its policies so as to enable the stock market to make another push up next year. However, investors should be careful. The emperor has no clothes, and while the S&P is still at an all-time high, it may happen that soon distinguished brands like General Electric, once America’s most valuable company, will be on the brink of bankruptcy.

President Trump will not be able to reverse the social decline, the gradual impoverishment of the middle class and the exodus of factories. The tensions within the US establishment are spreading to Europe. On both sides of the Atlantic, there is huge discontent between the native peoples and immigrants, so ethnic clashes are more and more likely. Trust in national governments is eroding and the Western societies will slowly fall apart. While the US remains the world’s sole superpower, it has nonetheless lost the war against the Taliban in Afghanistan. Still, the Washington cabal is clinging to power by imposing more and more sanctions on companies and countries. The Western world and its financial system are breaking down and for that reason gold will again be a safe haven for investors.

Energy is pivotal. The conflict with Russia is about energy. As long as Russia is Europe’s main energy supplier, Moscow will wield power over the Old Continent. Operation Trident, NATO’s large military exercises held in Norway, is about energy resources. In Gefira 28 we discuss the future of the United States and give the reader an extensive analysis of the US shale oil industry, explaining why the FED will be compelled to change its policies.

Although Beijing is Moscow’s largest trading partner, while Russia only ranks in the second ten among China’s importers, the Kremlin is strategically the most important contractor because it supplies the most desirable product – oil – and Chinese demand for this raw material is growing. It appears that an increase in Russian oil exports to China will be at the expense of European consumers.

Chinese oil production has been falling since 2015, and yet enormous infrastructure investments and huge strategic petroleum reserves (SPR) boost the demand for it. No wonder then that in 2017, Beijing became the largest importer of crude oil, overtaking the United States. Currently, China’s consumption of product is approaching 13 million barrels per day. In the March Gefira we predicted that the PRC will have become the largest consumer of this raw material by 2025, accounting for 18-20% of the global consumption.And Russia has an important role to play because already in 2016 it became China’s most important oil supplier, replacing Saudi Arabia.

China has been buying more and more Russian oil in the last decade, even though the Kremlin does not increase its export volume, which is around 5 million barrels per day. In 2009, countries such as Poland and the Netherlands imported more Russian crude oil than Beijing, but in 2015 they were overtaken by China, which in 2017 had an over 20% share in the Russian exports of this raw material. Continue reading →