ANOTHER GLOBAL DEPRESSION AWAITS US
With the previous depression generation fast disappearing, it may be that another major depression awaits us. Even a global economic depression, that does not seem to end. What hasn’t happened in history, does not mean, that it could not happen in the future. Many investors ‘survived’ the depression of more than 80 years ago and prospered, once it ended. It is impossible to predict, how serious the next depression would be, but the growth of the global leveraged community of today has surely been unprecedented.
Non-productive global debt, which is not invested in assets with a healthy cashflow and therefore, not self-liquidating, has become the deadliest of eyesores. The current exponential credit expansion has supported grossly inflated asset prices through speculative leverage and financial engineering. A runaway financial boom, often obscured by the explosion in ‘invisible’ derivative positions, with its absurd mispricing of all types of assets, is inherently unstable. Record margin debt and speculative leveraged ‘Carry Trades’ will prove catastrophic during the next financial meltdown. ‘How could they have not seen this coming?’ will become the big question of the next generation, which will have to suffer from the consequences of one of the most outrageous episodes of Ponzi Finance, the world has ever seen.
A protracted period of government-backed liquidity abundance and ‘cheap’ money, have made nearly everyone unconcerned about the current house of cards. Most of global debt does not create capital and does not increase the productivity of labor. The current speculative cycle, aided and abetted by those, who have learnt nothing from history, adds nothing of value to the economy. The subsequent costs will wipe out all imagined wealth during the next economic devastation with all kinds of unanticipated outcomes, both economically and politically.
Of course, technology, biotechnology and international trade might lead to faster economic growth in the future. The promising developments of aviation, automobiles and telecommunications during the 1920’s,however, could not prevent the depression of the 1930’s from occurring. The inevitable day of reckoning for the most alarming speculative debt bubble ever, could not be avoided. One thing is for sure: market perceptions can change suddenly, without any warning, and then the exit, like in any famous casino, cannot be found. You will be trapped, like a bird in a cage!
RICK SCHMULL
July 28th, 2014
WESTCLIFF-On-SEA, Essex, U.K.
