MOTHER NATURE IS A DEBT DESTROYER
In the last decade, debt has entered into its parabolic phase. Since the financial crisis in 2008, global debt exploded 40% to $ 100 trillion and to a quadrillion dollars worth of derivatives, excluding another $ 100 trillion of unfunded liabilities. Total debt as a percentage of the global economy is now at historical peaks. This would have been thought impossible, just a decade ago. This process will continue, until the system breaks. Mankind has always gone through boom/bust cycles, just like civilizations, planets, animals and enterprises. Typically, these last as long as the average lifespan. The ultimate bust or debt destruction phase is imminent, between now and another few years. Now is the time to prepare and take action, because the inevitable fallout will seriously impoverish the entire world.
The final phase of the current cycle is characterized by ‘one for the road’, one final drink, before the party ends, made possible by ultra-low interest rates of your friendly Central Banker. As soon as markets bring this party to an end, when confidence in the system evaporates, what will follow next, is anybody’s guess. The world eventually will be forced into another monetary arrangement and start again. As debt is considered an ‘asset’ (!), debt destruction will lead to a large-scale wipe-out of global assets. Cash will be King. Banks will again be compelled to call in their loans and outstanding overdrafts. Anything, that is financed, will become ‘toast’. The world experienced a taste of things to come in the Great Financial Crisis of 2008.
Can Central Banks avert this disaster? NO. During their 100-year existence, severe economic contractions have occurred periodically. The last worst financial catastrophe, the Great Depression, when banks closed in 1933, happened anyway. Despite the clear signs of a parabolic debt buildup as a percentage of GDP in the 1920’s, just like today, the sharpest minds in the financial sector did not see it coming. They believed in a ‘new era’, a permanent ‘high plateau’, while it should have been obvious, that the House of Cards was bound to crumble. That’s why each generation tends to make the same mistake and something really ‘bad’ takes place every 80 years or so.
You should know, that you are NOW in the BLOW-OFF TOP. Don’t expect it to look like any previous one, like the dot.com one in 1999, because it won’t. There are scores of long-term indicators flashing ‘red’ already. Merger mania and corporate buybacks have been responsible for most of the expansion in Price/Earnings ratios. Economic growth projections have been slashed sharply across the board and many experts, like the IMF and the Bank of International Settlements (BIS), are up in arms. Revenue increases for the average business, have been hard to come by for years. What if recession and deflation are taking over? THE TRUTH HURTS.
RICK SCHMULL
August 11th, 2014
