The shadow government, unelected by the voters, is the authentic government.
Darren Winters points out, G7 public debts post-2020 global lockdown have skyrocketed, making the government more reliant on the bond market for funding its daily operations.
Liz Truss, former UK Prime Minister, was the shortest serving PM in office with just 49 days.
Truss claimed she was defeated by the bond market in her book, “Out Of The Blue.”
It was no coincidence that the BOE imposed tightening days before the mini-budget was released, deliberately increasing the burden on government finances.
Days before the mini-budget, the BOE had a monetary policy meeting and concluded to tighten liquidity.
The BOE began to sell 80 billion pounds of bonds and raise the base rate by 0.5% to 2.5%, its highest level since November 2008, despite declining GDP.
It was not Truss who crashed the bond market, but BOE tightening, the final straw that broke the camel’s back, sabotaging the Truss government.
The BOE deliberately tightened and crashed the UK bond market in 2022. Moreover, the BOE remained inactivity for five days, despite 300 billion pounds wiped off the value of gilt, taking the GDP with it to a record-low $1.035 on Sept. 26. So the shadow government, central bank, and BOE watched and waited and then decided to intervene until its wrecking ball had completed its mission, the demolition of the Truss government.
The BOE did not like Truss’s mini-budget, which proposed cutting taxes and increasing spending, so they succeeded in making Truss the shortest-serving PM.
“Give me control of a nation’s money supply, and I care not who makes its laws,” Amschel Rothschild,
Countless examples where shadow government, the central banks, make democracy a fraud
Darren Winters explains, central banks influence the bond market through their open market operations, buying and selling bonds, which impact bond prices and yields.
The bond market is a significant facilitator enabling the government to finance expansionary fiscal policy. However, central bank monetary policy provides liquidity to the bond market, which controls the market
through interest rate policy and directly, through quantitative easing the buying and selling of bonds.
The shadow government has the government of the day in its pocket, and the latte power strengthens with the proliferation of debt
The higher the public deficit and household and business debts, the simpler central banks can manufacture a crisis.
The 2020 global lockdowns provide a perfect backdrop for increasing public deficits. Furlough schemes, forcing people to stay home and receive benefits, and the forced closure of businesses propelled the public deficit of G7 economies to all-time highs.
The lockdowns would not have been possible without central banks endorsing it with zero and Negative Interest Rate Policies and QE bond buying.
In the post-lockdown world, governments have become addicted to the central bank M2 money drug.
An addiction means you are no longer in control. The supplier of what you are addicted to controls and owns you.
Through its monetary policy, the shadow government decides the timing and extent of the pain
Over the last few years, household mortgages in the EU, the US, and the UK have increased in some cases by 50%.
Higher mortgage rates also increase the cost of renting, so to keep a shelter over their head, many households are cutting back on discretionary spending, buying a new car, holidays and dining out.
Similarly, the government cost of financing the public deficit has increased, making it more difficult for politicians to honour their political promises made to the citizens.
The QE program of buying and selling bonds directly impacts government spending.
So, if central banks want to support a particular type of spending, they buy bonds and suppress the yields, making government borrowing more affordable.
If it wants to undermine the government of the day, as we have seen BOE during Truss’s tenure, central banks sell bonds and raise rates, making life impossible for the government.
Post-lockdown world deficits are so high that central banks can sabotage the government of the day by tightening monetary policy.
Currently, the French minister is warning of a Truss-like debt crisis if Le Pen wins, according to Bloomberg, June 2024.
Should the new administration decide to spend too much or tax too little, the ECB could manufacture a French bond market.
The ECB is already saying it will allow the bond market to crash. French stocks have underperformed, down nearly 6% in three months.
In the UK, the two parties’ spending and taxing policies are virtually identical; both parties want to avoid upsetting their master, the BOE and end up with a similar fate as Truss.
The same story where the shadow government has exerted control over the government of the day has played out countless times
The 2015 euro sovereign debt crisis, Greece 2015 held a referendum on whether or not to accept the austerity that the ECB was demanding at the time. Greek citizens said no, but the government imposed austerity measures anyway.
In Italy in 2018, the right and left-wing coalition governments wanted to spend vast amounts of money and cut taxes.
However, the ECB did not approve the coalition expansionary fiscal policy and allowed the Italian bond market to crash, forcing up the cost of government borrowing. In conclusion, the Italian government changed its policy acceptable to the ECB.
Even POTUS bowed down to the shadow government
In 1994, Bill Clinton was spending like there was no tomorrow, and the Fed disapproved of it, so they let the bond market crash, wiping out 1.5 trillion US dollars. Bill Clinton did a 180 U-turn on fiscal policy, becoming known as a fiscal conservative.
So, given a shadow government, if voting mattered the overlords wouldn’t let the plebs do it.
But what does a shadow government mean for investors?
Darren Winters points out, party politics are irrelevant, investors need to figure out what the central bankers want.
IMF Working Paper 2015 lays it all out, suggesting that the government will pay down the debts with double-digit inflation, which will come in waves, and lower interest rates.
Government debts are too high for austerity.
That is why Ray Dalio wrote a piece recently, entitled, “Do you have non-debt assets”?
