Dear Friends,
It seems to me, the higher the counter party risk, the more expensive, difficult and scary it is to do business. If counter party risk gets too high, business can’t be done, and economic activity ceases. Put personally, upon discovering you can’t trust the person your dealing with, will you still do business with them? If you do, the likelihood is that they won’t meet their obligations, once you’ve met yours. Lawyers are an expedient to get past counter party risk, to some extent, but they’re a poor solution. Being corrupt themselves. If the counter party is sufficiently corrupt, they’ll use a lawyer to swindle you. So if counter party risk becomes too great, so much so that attorneys are no protection, they’re a threat, economic activity must cease. Until counter party risk has been solved again.
Wealth follows morality. Because, when people trust each other, they’re more willing to do business. The more business that takes place the more wealth that’s generated. It’s as simple as that. If you can’t trust the carton of milk your buying has milk, or sewage in it… your not likely to buy it. Why would you? If the car you bought doesn’t have a title, so you can’t drive it, what good is it? Once you’ve done your part, and the other refuses to pay, why continue working for them? Commerce comes to a halt. That’s why so many nations with a culture of corruption will always be impoverished. Moreover, the citizens of those nations will resent foreigners who become wealthy, because they have ethics, and thus can do business. Eventually ostracizing the only people capable of lifting that country from poverty.
The elite in the US and Europe are so stupid they don’t understand that they’re ruining the reputation of the US and Europe. Thus creating a counter party risk that’s rapidly becoming an insurmountable economic hurdle. No where is this more obvious or deadly to the economy than in NY. By their actions, the court system in NY state has magnified counter party risk, by orders of magnitude. Who in their right mind would start a business or move a firm to NY? Where the courts will punish you if you’re deemed politically toxic. Today that’s as easy as hiring competent people. Which means, those firms staying in NY are probably zombie companies, supported by political favor. By increasing counter party risk with lawfare, the NY court system has gutted it’s economy.
As banks, especially too big to fail banks talk about bail ins, where they openly tell us they’ll steal our deposits to pay their debts, like Jon Corzine did, they increase their perceived counter party risk. Banks have a dismal reputation today and they’re striving hard to make it worse. Effectively zero interest on our deposits, fees up the wazoo, and now they tell us our money isn’t even safe in their sticky hands? No wonder there’s a giant sucking sound of deposits draining out of banks. Moreover, the banks have abandoned small businesses for investing in “safe” government debt. So, as they lose deposits they have to cash in Treasuries at a loss to free up the cash. Because they have made themselves too great a counter party risk to do business with today.
The only way destroying one’s reputation makes sense, is if they think the economy is switching from the free market to socialism, and they’ll be rewarded political favor for it. Socialism is a system where counter party risk is irrelevant. Because, under socialism trade is based on political favor, not prices, quality or trust. The economy runs on bureaucracy not freedom, and who trusts bureaucrats, other than to create problems? As the US and the entire Western elites obliterate our trust, we can expect things to get progressively worse. Slowly at first then speeding up to a mighty crash. Using law as a weapon, giving legal passes to politically favored people, and using contracts as toilet paper, will result in general poverty. Unless we stop it by being outraged and speaking up.
Sincerely,
John Pepin
