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Dear Readers,

In last week’s newsletter, I said that what we are witnessing are the first steps towards a multi-polar world. One in which the decades-long alliances and international trade agreements no longer apply.

And how such a seismic shift was a wake-up call to us all to prepare.

There is even a term for this new world order: neo-mercantilism.

Mercantilism, from which this latter policy takes its name, can trace its roots back to the 16th century. It was a policy that emphasised economic power through positive trade surpluses and doing what it took (such as tariffs and other measures) to discourage imports. Exactly what China does today and what Trump would dearly love to achieve for America in the future

We are also witnessing a repeat of the Monroe doctrine, a statement of international policy issued by then U.S. President James Monroe in 1823. This was aimed at achieving American security in the western hemisphere.

Today, we shall cover both.

What they are, what it means for the world in general should the US persist in repeating these doctrines, and the unescapable truth that the entire globe is sleepwalking into whilst preoccupied by this new world order.

With luck, you’ll see the clues as I have that spell out there is no way back.

But forewarned is forearmed.

And by the end of this newsletter, you can be more prepared than any learned commentator.
The Yin and Yang of global trade.

First off, lets dispel the notion that Trump is simply making all this up as he wakes up each morning. There are deep seated reasons why he has chosen to take the path he has.

I feel it’s a combination of history repeating and his adherence to his Make America Great Again (MAGA) base to always place American interests first which go a long way to explaining it.

Now, you may or may not be familiar with the post WW2 Bretton Woods agreements which set up the framework of the present rules-based international order. A brief overview will help explain how we got here.

In 1944, at the Mount Washington Hotel at Bretton Woods, New Hampshire in the United States, 44 nations met and laid out the groundwork for the post-war international monetary and trading system. It created the International Monetary Fund (IMF) to stabilise exchange rates, prevent competitive currency devaluations, and promote economic growth, based on the US dollar which would be convertible into gold.

Ever since, this international rules-based order emphasised free trade, managed exchange rates, cooperation among nations and international investment, and development aid to poorer countries. The idea is that, in the world of open borders, open capital accounts and no tariffs, investment flows to the cheapest producers and the whole world benefits from job creation and access to less expensive goods.

Today, it would appear we have some history repeating here, and with it, the ending of a decades-old paradigm that underpinned global trade and prosperity. It’s now that a brief overview of mercantilism and the Monroe Doctrine would benefit the debate.

Mercantilism emphasises protection of domestic industry, high tariffs as needed, running large surpluses, and building up hard currency reserves, often including gold and silver. This seems to resonate with what we see now with both the US and China.

Mercantilism dominated European thinking on international economic policy in the 17th and 18th centuries. Mercantilists’ underlying belief was that international economic policy was primarily a tool of state power. Since power, unlike prosperity, is relative, mercantilists thought of international economic engagement as “zero sum”: you win, I lose.

Mercantilists also treasured domestic production and aimed for trade surpluses and protection against imports.
Source – Financial Times

Neo-mercantilism is thriving in China, which you can see in the chart above, which illustrates China’s huge trade surpluses with the rest of the world. Trump’s US is no less neo-mercantilist in its approach: the president is obsessed with the “evils” of trade deficits that don’t favour (in his eyes) the US and its domestic producers.

Arvind Subramanian, former chief economic adviser to India’s prime minister Narendra Modi, recently argued that “Trump’s long-standing tariff obsession derives from his fury-fueled conviction that trade surpluses abroad have damaged the US economy, especially its manufacturing sector. In that worldview, China, with its consistently large trade surpluses, was the provocateur-in-chief.”

Here is an interesting chart showing the effective tariff rate across the world from 1900 to today.
Source – Financial Times

This is where the intricate lunacy of what’s transpiring now comes into sharp focus. The US tariffs against China drive its exports to other emerging and developed markets. But these low-value exports also harm each country’s own domestic industries while driving China’s trade surplus even higher.

The ‘beggar-our-neighbours’ attitude of China’s mercantilism and US protectionism is spreading damage across the world. Here is another thing that mercantile powers tend to do: wage war.

Mercantilism’s zero-sum and state-oriented perspective saw mercantilist powers fight one another constantly: England and France, two of Europe’s great mercantile powers, were at war, on and off, from 1689 to 1815. Is that on the horizon for the world now?

Then there’s the Monroe doctrine. President Monroe, in his State of the Union address in 1823, declared that any intervention in the political affairs of the Americas by foreign powers would be regarded a potentially hostile act against the United States. It became the US grand strategy for the 19th century and the foundation of its global imperium in the 20th century.

Monroe wanted the US, as leader of the ‘new world’ to have a separate sphere of influence to the ‘old world.’ In other words, it wanted Europe’s colonial powers to not interfere with American interests, and in return it would not intervene in European sphere of influence.

By the start of the 20th century the Americans had the economic and military power to enforce this. Thus, this doctrine split the world into two camps and allowed the US to intervene in Latin America whenever it saw fit.

Isn’t the exact same thing happening today?
Here is what the world will not see coming.

So, that for me is what I see. Feel free to disagree but I strongly believe we are witnessing a historical repeat when it comes to geopolitics and world affairs.

It also just seems such a natural fit for the MAGA-leaning White House administration. In fact, I can kind of see how that justifies Trump’s view that Greenland isn’t part of Europe at all. It ‘should’ be in the American sphere of influence.

But here is another historical repeat. It is one that, this time in particular, the world is simply not ready to face right now.

The current US real estate cycle is about to peak. Which means, the only way forward from there is – it busts.

And you can stare at a map of the world all you like if you’re a US president and break it up and cut and slice it however you see fit, it doesn’t disguise this one fact.

The entire world exists today because of global lines of credit. It is beyond any single world leader to untangle or replace. And without that artery of monetary credit flowing easily, then none of what these world leaders want to do can happen.

And the world is literally soaked in debt this time. Much of it, arguably the most dangerous of all, is hidden away in the shadow banking and private credit sectors. Deliberately hidden from the prying eyes of national regulators.

And what is the single most important link in the great credit chain that simply cannot and must not be allowed to happen?

The value of the collateral pledged for those loans begins to fall in value. Slowly at first, and then very quick.

And the very best collateral of all is land. And when that same land begins to fall in value…?

If my instincts are right here, and we have entered the beginning of a new world order, one that has multi polar economic and military ties, then this change that is underway will be volatile. Changes like this are difficult, it is indeed the very nature of the change itself.

But a collapsing US real estate market that begins to break the global credit chains will just make the violence and disruption this change is causing to be ten times worse.

And that is what is about to begin.

There is no avoiding the peak then bust of the US, and the world’s, land markets.

Please note that not one of the countries involved has decided that it would be better to not privatise the economic rent that naturally arises from a productive society and then allow banks to lend against it for the private use of individuals instead of everyone.

This is why we must have a boom-and-bust real estate cycle.

That change, sadly, is not on the cards. Instead, we have nation states simply taking another countries economic rent from them, be it by fair or foul means.

And so, the ending of this current cycle is one that no-one will see coming. Right at the worst possible time as world leaders are pre-occupied with the unravelling of what the world once was and is no longer.

My contention is you don’t have to be one of them.

You can see what’s coming in advance and prepare you and your family to both profit and protect as the final months of the land market peak plays out.

That starts here, with a membership to the Boom Bust Bulletin (BBB). Learn the secrets of the hidden order of the economy by researching the land market, why we have a real estate cycle, and how you can time it.

Use this knowledge to take control of your own financial future. We live in a world that, thanks to AI and social media, finds it easier to increase the volume. The noise this creates is deafening. Take advantage of monthly editions and weekly video content to cut straight through it all.

So, you can see what AI simply cannot teach you.

The news cycle is in overdrive now. Almost every day you can expect headlines like the ones below to hit your inbox.
Source – Bloomberg

Either buy into the fear and dread or begin to prepare.

Something big is coming and no one is seeing it. It’s time to get ready.

Sign up now.
Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team

P.P.S – Find us on Twitter here and go to our Facebook page here. This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.