Posted by on October 10, 2016 12:00 am
Tags: , , , , , ,
Categories: Central Banks Corruption Economy Florida germany Iraq Mexico Volatility

By Chris at www.CapitalistExploits.at

My friend’s neighbor came home early one day to find his house being burgled. The burglar, caught by surprise, pulled a gun, fired at him, luckily missing him, and then ran from the house.

In turn, he chased the guy and shot at him. He got two shots away, one hitting the guy in the leg and the other shot killing him. He immediately called the police and here is what happened next.

Upon arriving on the scene the police officer inspected the crime scene. He turned to my friend’s neighbor and told him to drag the body back from the footpath where he was currently lying and place him on the property. Preferably in the house. The conversation went something like this:

Cop: “You don’t want this guy dead on the footpath. Get him onto the property quickly, now!”

Neighbor: “Why?”

Cop: “You can’t kill the guy if he was running away. You’ll go to jail.”

Neighbor: “But he was shooting at me and robbing my house.”

Cop: “Yeah, I know, we both want the guy dead but the police report can’t say he was killed this way. He needs to be on the property where you can justify you were acting in self defence. Understand?”

This took place in the early 90’s in Johannesburg which, while not in as bad a shape as its sister city Cape Town with respect to the crime, still has one of the highest homicide rates in the world.

Murder Statistics

I chose the chart above because it shows the timeframe up until when I left the country so you can see the dramatic rise in crime around the time that the above story took place. It’s since gotten much worse.

This story, and I (as well as any South African) could tell you dozens more just like it, is important because of why this takes place and how a society gets to the point where vigilante violence is considered acceptable. I assure you it’s not a place you want to be, though I believe it is where certain countries are headed.

So today we’re going to pull out the shovels and dig into the process by which a society can move towards condoned violence.

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Kyle Bass Gold

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I’ve witnessed this process firsthand growing up in South Africa, just as everyday crime and violence exploded. And last week I mentioned Rodrigo Duterte, the leader of the Philippines, and his rise to power as well as his incredible popularity. I believe that, though Mr. Duterte may mean well, he risks a process where he can quickly lose control.

For those of you living elsewhere in the world my hope is that by understanding the process I’m about to describe, you’ll at the very least be able to identify the warning signs, should they arise wherever you live and understand what is taking place and why.

How It Begins

When violence is pervasive we’ll accommodate in ways which we wouldn’t otherwise accommodate.

The Philippines for example, like South Africa, is riddled with crime and corruption. The crime is sickening, continuous, pervasive, and changes the very character of normal law abiding people.

When Duterte came to power on June 30 of this year he promised to kill so many criminals that the “fish would grow fat in Manila bay from feasting on their corpses”. Note he said kill, not detain, imprison, or bring to justice. Kill!

Leaders before him had promised to bring criminals to justice, which would have been hard since corruption is endemic and quite literally half of the cabinet (I’m probably being generous) would have been indicted and locked up.

So Duterte offered his own domestic version of “shock and awe”.

He’s since been living up to his promises with over 2,000 dead and the body count doesn’t appear to be falling anytime soon. Many of these killings are extrajudicial, meaning they’re vigilante killings condoned by the government. If you’re a drug dealer or drug user you’re dead or at the very least you have a target on your back.

No trials, no courts. Just a bullet.

Extrajudicial murders are accepted and condoned by the government with “he was a drug user/dealer”. Now you don’t need me to point out to you that this is fertile ground for scores to be settled, drugs or no drugs.

While this is taking place Duterte’s popularity is soaring.

Now for those of us fortunate enough to live in relatively free, safe, and peaceful societies it’s easy to dismiss this with the following:

  • “This is cultural. It’s not in our culture to do that, they’re just animals.”
  • Or, “They have no rule of law. We can trust our police and government to provide law and order.”

The truth is more complex.

With the right set of circumstances human beings will do the most extraordinary things, so let’s take a look at what those circumstances are.

A Weak Political System

A weak political system causes a loss of faith in the abilities of those who are meant to “serve and protect”, and an acceptance of alternative methods gaining credence.

Citizens become frustrated with politicians whose self interest clearly overrides those of the citizens.

This is where the Philippines is at after decades of corrupt ineffective politicians who, despite promises, never delivered. In turn they voted in Duterte who promised radical and violent measures. A man of action. This rhetoric landed well with a citizenry exhausted and frustrated by a revolving door of the elite who promised much but simply ensured they got rich instead.

If any of this sounds familiar to you then you’ll understand why Donald Trump’s rhetoric resonates with the citizenry. In “Why A Politically Correct West Ensures A Trump Victory” I mentioned:

A populace, increasingly distrustful of the establishment and horrified by the consequences of the actions already taken by the ruling class, look around them in search of someone who will say out loud what they whisper to each other behind closed doors.

When citizens no longer trust the system, especially the judicial system, they see the ruling elite as part of the problem, not part of the solution. This is very dangerous as it legitimises extrajudicial vigilante violence.

Corruption

screen-shot-2016-09-29-at-8-42-06-am

When the citizens of the United States watched the Justice Department grant immunity to the guy hired by Hillary Clinton to delete the emails which she’d lied about, it’s hard not to see how one loses faith in the justice system. In a recent issue of “World Out Of Whack” we looked at another example in the US.

mf-global-jon-corzine-missing-funds

It’s not just the select few in the private sector who are protected by a corrupt establishment, but the establishment itself which is increasingly seen as untrustworthy.

The Iraq war did an enormous amount of damage to the US reputation as the then Secretary of State Colin Powell admitted to deceiving the world in order to garner support for the war.

Adding fuel to the fire that burns trust in a society are weekly, if not daily exhibits of a breach in fiduciary duties by those in power such as the recent revelation that the US Government manufactured “news” in order to gain public support for the war on terror.

Pentagon fabricated news

The next inevitable step for citizens is to search for a solution.

History as a Guide

Surveying data from across Latin America to see what leads people to support lynchings, vigilante killings, and other forms of extrajudicial violence, professor Gema Santamaria at the Mexico Autonomous Institute of Technology in Mexico City and José Miguel Cruz, the research director at Florida International University’s Latin American and Caribbean Center, came to a curious conclusion.

The data told a very similar story across all of the countries in their sample. People who didn’t have faith in their country’s institutions were more likely to say vigilante violence was justified. By contrast, in states with stronger institutions people were more likely to reject extrajudicial violence.

People turn to vigilante violence as a replacement for the formal justice system, Ms. Santamaria said. That can take multiple forms: lynch mobs in Mexico or paramilitary “self-defense” forces in Colombia. But the core impulse is the same.

“When you have a system that doesn’t deliver, you are creating, over a period of time, a certain culture of punishment,” she said. “Regardless of what the police are going to do, you want justice, and it will be rough justice.”

In addition to the above what the research indicated was the link between social inequality, a topic I covered recently in a “World Out Of Whack” issue:

“People who perceive that the economic situation at the individual and national level is very bad are more likely to support extralegal violence than people who view the economy as positive. But more interestingly, the findings show that social groups that are usually in situation of hardship and exclusion (youngsters, people with low educational levels, and low income) tend to approve the use of extralegal violence more than older, well-educated and high income, giving credit to explanations that underline social exclusion and marginality.”

screen-shot-2016-10-02-at-9-31-12-am

If you look at the above chart from the study you will find that the Gini inequality index correlates with the support of extra judicial violence.

Basically, money always matters, and when you follow the money (or lack of it) you’re better able to understand what is likely to take place in societies and position your portfolio accordingly.

There are multiple factors which cause a breakdown in societal trust. The combination of a weakening middle class due to financial repression by central banks with a weakening judicial system poses increasing risks in society. Not something the current clutch of central bankers seem to be even remotely aware of.

Political Support for Extrajudicial Violence

This is where things can get really hairy. Let’s think this through for a minute.

When it’s clear that extrajudicial killings are sanctioned by the state, anyone with a grudge and a gun can get away with murder, and the society – in order to protect itself from what is in essence a new threat – bands together to do so. Gangs are formed and private security forces crop up.

As these groups vie for control they turn into paramilitary groups and the government of the day is forced to begin dealing with large well armed and largely sanctioned groups. The entire power structure in society shifts.

The Philippines is currently trying to wipe out anyone associated with the drug trade. In Germany in the 1930’s it was Jews, and in Rwanda 1994 it was Tutsis where an estimated 70% of the Tutsi population and 20% of the Rwandan population was slaughtered in just 100 days. Now I’m not suggesting that drug dealers should be compared with Jews or Tutsis but rather that there is a political and societal will to eradicate a particular class. Furthermore I find it hard to believe that all of the 2000 odd killed to date in the Philippines are drug dealers.

The thing with unchecked and justified violence is not just the violence but how society alters the rules of conduct and what is considered acceptable, often simply in order to do what is necessary to survive.

Regaining Control

It becomes increasingly difficult for a state to regain control in a society where multiple factions carry out killings.

The State has lost legitimacy and a society often has to go through a period of reorganisation before it will find the extrajudicial violence to be worse than the state’s version of law and order. And that period can last a long time. It’s not a set of circumstances favourable to economic growth, capital investment and rising living standards.

Colombia has been through that process and is now coming out the other side which is one reason I’m long term bullish on it.

The Philippines has been one of the biggest Asian growth stories for the last decade. It was in fact THE fastest growing Asian economy in Q2 of this year. Time will tell if Duterte’s policies derail the country’s economic growth and prospects and it bears watching closely.

The most concerning lesson from the research I mentioned is that a society can destroy itself from within. That natural human desire for security and safety, when coupled with a corrupt and increasingly weak legal and political institutions, can lead to a country escalating into very dark territory indeed.

What to Do About It?

Let me just say that there are always going to be bright spots and dark spots.

Look for the bright ones while being aware of the dark ones. Nobody should live as a grumpy pessimist. On the other hand, being wilfully blind is a terribly bad idea.

Here are some takeaways which I expect will be useful because as capital moves, money can be made by positioning accordingly:

  • In countries exhibiting the traits listed above expect greater volatility as investment capital moves from long dated (risk) to short dated, from illiquid to liquid, and investment time horizons narrow.
  • Expect the velocity of money to fall as collateral in the system is no longer manufactured or indeed withdrawn altogether.
  • Expect consumer consumption in those countries exhibiting any of the traits I’ve just mentioned to change as new realities are factored in.
  • For a more detailed thought process on that consumption behaviour please read my post on security as a profitable trend.

Have a good weekend!

– Chris

 “An eye for an eye will only make the whole world blind.” — Mahatma Gandhi

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The article, "Society Will Accept And Condone The Coming Violence", was syndicated from and first appeared at: http://feedproxy.google.com/~r/zerohedge/feed/~3/56SiaO7rhF4/society-will-accept-and-condone-coming-violence.

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