Essendon and the Economy — Unnatural Bedfellows

Concept of time is money, old watch on a pile of coins

Terror once again dominates the news headlines. Unfortunately, you get the sense this type of headline is going to become an all too familiar sight.

This is probably why the markets, after an initial negative reaction, recovered to finish modestly in the red.

The wider repercussions of these attacks will be felt in the broader community, and how it reacts to it.

The tragedy in Brussels will certainly intensify calls to tighten Europe’s borders.

Anti-immigration parties are likely to receive a wave of new support. Establishment parties will be forced to take a tougher stance. Compounds will replace compassion.

Tensions are set to increase.

The Aussie dollar surged against the UK pound…an indication markets are getting more concerned about the Brits voting to leave the Eurozone.

While Europe struggles with terror attacks, refugees, negative interest rates, a failing socialist system, the consequences of more QE, and the uprising of fringe political parties, here in Australia the footy season is set to get underway.

What I know about the AFL can be written on the back of one of our new $1 postage stamps — with room to spare.

With that confession out of the way, it was with interest I watched this week’s Four Corners program on the Essendon ‘supplements’ scandal.

In 2012, Essendon, in its determination to win the premiership were looking for a performance edge. That elusive edge led the club to engage the services of sports scientist Stephen Dank.

Dank’s now infamous supplements program was administered to the players during the pre-season.

The regular season started well enough. The Bombers were winning, and the ‘supplement’ program appeared to be achieving its performance-enhancing aim.

Then winning turned to losing. This was not an acceptable outcome to the powerbrokers at the club.

What was their solution? Inject the players with more voodoo medicine…

According to Four Corners, Chinese manufactured peptides — not meant for human consumption — were administered to players. The playing group was also injected with substances from vials that came in a box marked ‘for equine use only’.

It appears that anything and everything — no matter how bizarre or dangerous — was used in this blinkered quest for a flag.

The Four Corners story followed the trials and tribulations of Hal Hunter, a rookie determined to find out exactly what the club was putting into his body.

Did this chemical cocktail increase the likelihood of cancer? Was it nothing more than a harmful placebo?

Mucking around with the natural order of things almost always has ramifications. Hunter wants to find out — and rightly so — what they may be.

The unintended consequences of this pursuit for premiership glory may take years to be revealed.

Essendon’s public naming and shaming is becoming an all too common occurrence. The sporting world — athletics, cycling, swimming, tennis, rugby league, etc. — is rife with drug scandals.

The sports industry is always looking for an edge.

Big money brings big temptation.


To some degree, we, the spectators, have played our part in creating the need for performance enhancing drug use.

We (as a society) want to see bigger, stronger and faster athletes…we want to see records broken and teams winning. We love winners. We want to be stimulated by people and teams that continually push the boundaries.

Watching Lance Armstrong in his glory days inspired many people to wear Lycra. People were in awe of his story — overcoming cancer to win the Tour de France seven years in a row.

We wanted to believe the fairy tale. When Armstrong revealed his big lie, we felt cheated. Armstrong was vilified for his deception.

In a time long ago — think back to Roger Bannister breaking the four minute mile — sports people achieved results with training and talent. My wife’s aunt competed in the 1952 Helsinki Olympics. Talk with her about her training program and you’re immediately taken back to an age of innocence.

The work was done on the training paddock, not in a laboratory. The results were genuine sweat of the brow — efforts not manufactured in a test tube.

Therein lies the parallel between the sporting world and the global economy.

Over the same period, our economic performance has transformed from ‘genuine’, to ‘manufactured’.

Back in the 1950s, economic performance was determined by a natural order.

People saved. That, in turn, created a pool of available capital for investment. Loans from the capital base went into productive investments. Production created profitability, which, in turn, financed consumption.

Savings; investment; productivity; consumption. This was the natural order.

Economic progress (or lack thereof) was a reflection of the effort put in on the ‘training paddock’. Save first, consume later.

Artificial stimulants and/or supplements were not necessary. People accepted that effort and sacrifice would bring their own in rewards in due course.

The era of innocence is long gone. In the economy and sporting arena, honest toil has given way to dishonest advantage.

By my reckoning, the 1980s — East German athletes and banking deregulation — was when the loss of innocence became evident.

Consumption vaulted to first place, with savings relegated to a distant fourth position in this new, unnatural economic order.

Work hard, live within your means, pay down debt and save for the future was a training regime for economic losers.

The new winning high performance program, developed by the economic scientists, was: live beyond your means, go deeper into debt, don’t save and let the markets do the heavy lifting for your retirement.

The economic supplement program was successful for many years. Why?

We started with low debt and high interest rates. This combination provided plenty of scope for debt-funded consumption.

Each year, the economic scientists made the supplements cheaper and more abundant. The combination of fractional banking and downward trending interest rates delivered gold medal economic performances.

Growth, like winning, was addictive.

The Western world was hooked on these lifestyle-enhancing drugs.

There appeared to be no side effects; asset values increased, welfare handouts became more generous, and lifestyles expanded in line with credit card usage.

After watching the Western world’s record-breaking performances, the developing world wanted what we had. Growth was fast tracked in China, which in turn flowed to other emerging markets.

Everyone was on the juice.

The economic scientists were completely oblivious to the debt toxicity building in the system. They were getting high on the adulation.

The unintended consequences of this unnatural economic order became evident in 2008.

Rather than go back to the paddock, detox and do the hard yards, the scientists’ response was ‘we’ll manufacture even more stimulants and give them away for next to nothing’.

More debt was the solution to a debt problem.

When Essendon faltered, Stephen Dank adopted the ‘we need more stimulants’ approach. He’s been rightly condemned for this cavalier approach to player welfare.

Yet when our central bankers apply the same principle, world leaders and economic elites fete their actions.

Central banks are putting the welfare of the global economy at risk, and there is barely a peep from the mainstream. Talk about double standards. Perhaps they are too ignorant of the facts to see the correlation.

Or maybe they are playing the ‘go along to get along’ game? Whatever the motive — ignorance, stupidity or compliance — by not holding these mad scientists to account, they are not doing the public any favours.

Central banks taking interest rates into the negative is a symptom of an economy that’s completely and utterly dependent on debt for its performance. Without debt, the growth model collapses.

While the official data — unemployment, inflation, and GDP growth — all indicate the system is somewhat healthy, the truth is these are doctored results…the equivalent of swapping a urine sample.

We’re being given false readings. The data does not reflect the extent of the damage done to the ‘economic body’ by prolonged substance abuse.

Interest rates going into the negative are a clear indication of how toxic the debt has become.

The central bankers want us to believe in the fairy tale. The truth is that this is a nightmare.

Like the Essendon players, we (society) have been used as test subjects in an experiment to create economic results that could not be produced naturally.

The sustained use of, and the total dependency on, debt has weakened our economic body to the point that it no longer functions normally.

Nature and history both tells us this cannot, and will not, continue.

Negative interest rates are a sign we’re in the final stage of the economic body shutting down.

In desperation, central bankers are literally trying to force-feed debt down the throat of the economy.

In due course, central bankers will face the public shame and ridicule afforded to drug cheats.

There will be plenty of enquiries and inquisitions, but that’ll do the person in the street — with a truckload of debt and risk assets — a fat lot of good.

Start your own detox program. Go back to the natural order — save first, pay down debt, and consume later.

Vern Gowdie,

Editor, The Daily Reckoning

Vern Gowdie

Vern Gowdie

Vern Gowdie has been involved in financial planning in Australia since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top 5 financial planning firms in Australia. He is a feature contributing editor to The Daily Reckoning and is Founder and Chairman of the Gowdie Family Wealth advisory service and editor of the Gowdie Letter To follow Vern's financial world view more closely you can you can subscribe to The Daily Reckoning for free here.

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