I have written several articles on the coming global, systemic collapse of fiat currencies and so this will probably be my last article before what I write about becomes reality. The world stands on the brink of a catastrophe – an event that will trigger distress, misery, deprivation and hardship unseen before in the annals of human history.
The collapse of a globalized high-tech economic system cannot be compared to any previous economic crisis. In the 1920’s and 30’s the vast majority of Europeans and Americans already lived in poverty with many not even having access to basic amenities such as electricity, gas and piped water so when the economic crises hit they didn’t have far to fall, as they were already at the bottom of the living standard ladder.
This time for the majority of people it will be a truly horrendous experience. They won’t have internet because they won’t have the money to pay for the service, and for the same reason they won’t have telephone access either fixed line or cellular and they won’t have money to buy fuel for their cars. Unless the government decrees a moratorium, people with mortgages will lose their houses and those in rented accommodation will find themselves homeless. The same applies to utilities, unless the government decrees that basic amenities be supplied free or at almost no charge the majority will live in cold, dark dwellings. There will be soup kitchens instead of unemployment money and almost no recognizable health care system. That is what the world looks like after the politicians and central bankers destroy the paper money.
Of course, a new financial system can be built, but it will take years to be up and working effectively. At the moment the global financial system is based on the US dollar, but any new system would have to be based on a gold standard which necessarily limits the amount of paper currency in circulation, depending on how much gold a central bank possesses.
Given that many central banks sold a large portion of their gold after 1971 a present return to a gold standard of 9:1, nine paper dollars for every one dollar of gold held in reserve, would reduce the amount of paper money so that the average amount per person would be around $5,000 p.a. for an American and $4,000 p.a. for a German. That is an average. Money isn’t distributed evenly among the population which means some would have much more than that and many much less.
Countries desperate for gold would simply confiscate all privately owned gold, as the US government did in the 1930’s when anyone found not complying with the executive order faced ten years imprisonment.
The reason for the coming collapse – unsustainable debt.
Instead of grasping the nettle in 2008 and allowing the collapse of banks which had gambled and lost in the debt markets by actively and irresponsibly encouraging individuals and governments to increase their borrowing and then using derivatives to multiply the return on the debt, the consequences of which would have been painful but relatively short, governments decided instead to try and take the easy way out by propping-up the whole system of debt by printing money (QE). Flooding the financial system with liquidity (money) in conjunction with a zero interest rate policy has resulted in huge systemic imbalances which are now threatening the entire global financial structure.
The Inmates Are Now In Charge Of The Lunatic Asylum And Madness Is The “New Normal”.
Not one developed economy (and only five emerging markets) has managed to reduce debt-to-GDP ratios which include both household and government debt. When taken together, this total debt mountain has grown by $57 trillion since 2007, far outpacing global growth.
This explosion in public debt levels has come about as countries have been unable to “inflate away” their liabilities. Instead, a global deflationary spiral has increased the amount countries owe and the interest they pay to service these debts. China’s total debt has quadrupled since 2007, rising from $7 trillion before the crisis to $28 trillion now. telegraph.co.uk It means that China is the new Greece, only with forty times more GDP and seventy times more debt.
Ambrose Evans-Pritchard Economics Editor of The Telegraph writes:
“China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank of China and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Home prices fell 4.3% in December and new floor space has slumped 30% on a three-month basis. Factory gate deflation has reached -3.3%. The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. The average one-year borrowing cost for Chinese companies has risen from 0% to 5% in real terms over the past three years as a result of falling inflation. UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Debt has risen from 100% to 250% of GDP in eight years. There are also warning signs in the job market. The employment component of the manufacturing survey contracted for the fifteenth month and the labour market is looking faintly ominous for the first time. Officially unemployment is 4.1%, a make-believe figure. A joint study by the International Monetary Fund and the International Labour Federation said it is really 6.3%, high enough to cause sleepless nights for a one-party regime that depends on ever-rising prosperity for its survival.” telegraph.co.uk
David Shambaugh writes in the Wall Street Journal, that the Chinese Communist Party is in imminent danger of losing control and it would only need a collapse of exports which are the main driver of the economy, (despite exaggerated reports of a shift to an domestic demand economy), to spark a popular uprising, which would be very bad news for countries dependent upon exporting to China. wsj.com
The China Ponzi scheme took on $4 of debt for every new dollar of GDP and when it finally implodes, its $28 trillion tower of debt will come crashing down, a deflationary tornado will blast violently through the global economy and financial system, and take a world supported on $200 trillion of debt with it.
However, as Japan has the third largest economy in the world and is the most highly indebted, it’s without a doubt the one to watch. When the powder keg that sets the global financial system ablaze goes off, it will most likely be in Japan where the match is lit. Like the ECB, The Bank of Japan is purchasing all new government debt. At one quadrillion yen, the debt level is so high that government now spends 43% of its national tax revenue just to pay the interest on it for one year.
The percentage of tax revenue to service the debt has been rising for years and is absurdly unsustainable. Yet large Japanese businesses have dutifully continued to hold Japanese government bonds as part of their obligation to make sure that the government doesn’t look bad – a financial nemawashi – saving the business counter-party from embarrassment. However this is starting to change. Through its policy of aggressively seeking to create inflation, the government is now guaranteeing that anyone who holds Japanese government bonds will lose money.
European nations also have out of control levels of debt and therefore the ECB is going to fix the problem with a QE money printing program. Mr. Draghi is unleashing the chief weapon of the John Law School of Economics – inflationary debasement of fiat currency, which has been failing with unwavering regularity since at least the times of the Roman Emperor Diocletian. The reason given for this vandalism of the currency: “to protect price stability”. In an interview with Die Zeit ecb.europa.eu
Draghi raises the specter of deflation to defend his policies, despite the fact that there is relatively little deflation in the euro area. Draghi claims that consumers stop buying things when prices are falling “because they think they can get the products even more cheaply at a later date” – a kind of mañana buying mentality in which tomorrow never comes. This is an utterly absurd contention.
People manifestly do not stop buying things because prices are falling. Have falling prices for computers and smart phones kept anyone from buying these items? How is it possible that these are booming growth industries, when the prices of their products are continually declining? His claim in the interview that prices will then fall even further because production will decline through lack of demand, makes even less sense. Prices fall when fewer goods are produced? On which planet? Not on this one, at least not ceteris paribus. If the supply of a good declines while the demand for it remains unchanged, its price will rise, not fall.
What Draghi seemingly doesn’t realize is that inflation of money supply can act on consumer prices with a very significant lag. It is true that consumer price inflation seems a very distant threat right now, but the more that production is undermined by credit bubbles and the bigger the pile of money becomes, the sooner a tipping-point is reached and confidence in the currency evaporates. Then it will be too late to do anything about it.
Draghi insists that he is not engaged in financial repression but his negative interest rate policy is certainly robbing savers.
The political spin-doctors of the EU hold up Ireland and Portugal as examples of where fiscal reforms are being successfully carried-out. Ireland has been “in recovery” since 2012 despite no notable decline in debt levels, no notable decrease in full-time unemployment, an acceleration in home foreclosures, and public services like health-care deteriorating in an unprecedented crisis.
Portugal is no less bankrupt than Greece. The country’s government debt, at 124% of GDP, might be lower than that of Greece. However, Portugal’s overall debt level at 358% of GDP is well above Greece’s total debt level of 317% of GDP. Given that the country’s debt is mainly foreign owed, Portugal cannot inflate the debt away and it is in no position to grow its way out of the problem. Assuming a current account surplus of 1%, and the unlikely scenario that it doesn’t borrow any more, it would take 128 years to pay back all its foreign debt.
Over the past five years, global central banks and have printed over $12,000,000,000,000 in credit-money since the collapse of the Lehman Brothers Bank which sparked the current crisis, the bulk of which has ended up in the stock market, and for the first time ever in 2015 they are going to monetize¹ all global sovereign (government) debt issuance. As the above chart shows at least nine countries have a debt to GDP ratio above 300%, and thirty-nine countries have debt to GDP ratio of over 100%. The world has never been in this situation before and one thing is certain: it will end very, very badly.
The US federal government has on-balance-sheet liabilities of over $17 trillion and off-balance-sheet liabilities estimated at about $80 trillion. These numbers do not include state and local government liabilities. The dollar is set for its strongest quarterly strengthening since 1992, according to Bank of America Merrill Lynch, a sign that an interest rate increase is not far off.
When markets expect that US interest rates will increase, it typically strengthens the dollar. That’s because people rush to change other currencies into dollars because they can make more money in dollar denominated investments. The higher demand for the US currency drives up its value. In the past, significant dollar gains against other currencies have nearly always happened during periods of extreme financial or geopolitical distress.
The last four large dollar shocks in the past forty-five years have been symptoms of huge financial events: the collapse of Lehman Brothers Bank, Britain’s panicky withdrawal from the European Exchange Rate Mechanism (ERM) in 1992, the first Gulf War, and Paul Volcker’s shock rate hikes in the early 1980s. Today’s surge in dollar strength is already considerably larger than the one that surrounded the Lehman collapse.
Bank of America Merrill Lynch researchers confirm that this is an ominous sign:
“In our view the move in the US dollar reflects a dislocation within the financial system. Capital flight to the US is a symptom of systemic risk in financial markets. Certainly, dollar shocks in the past have been associated with major market events. The conditions in global markets right now are a historical anomaly. Rates around the world have been cut 558 times since the collapse of Lehman, so even a small, steady series of interest rate increases by the Federal Reserve will be a colossal shock to the global financial system.” video.cnbc.com
Most major Western nations are completely bankrupt due to excessive social spending, and all of this spending has been fueled by bonds. For the last fifty or so years nations, particularly the Western democracies, spent more than they collected in taxes, so they issued debt (bonds) and borrowed money to fund their generous but unaffordable welfare systems. This is why central banks have done everything they can to stop any and all defaults from occurring in the $100,000,000,000,000 sovereign (government) bond markets. It’s also why central banks have kept interest rates at zero or even negative. They cannot afford to have rates rise. For the US, every 1% increase in interest rates means between $150,000,000,000 and $175,000,000,000 p.a. more in interest payments on the debt, on top of the current interest payment of $430,000,000,000 p.a. Leverage (using the bonds as security for multiplying the debt) has resulted in $100,000,000,000,000 in bonds with over $555,000,000,000,000 in derivatives based on the bonds.
The man responsible for monetary policy under four U.S. Presidents, former Federal Reserve chairman Alan Greenspan warns:
“There will be a significant market event… something big is going go happen, we really cannot exit this [QE] without some significant market event.”[in plain language a stock market collapse] He also warns of “explosive inflation” and calls the trillions of dollars which the Federal Reserve has printed over the last six years “a tinderbox looking for a spark” cnbc.com
Andy Redleaf, CEO and mutual fund manager at Whitebox Advisors, a $4.2 billion hedge fund, said in an internal memo Sunday night obtained by CNBC : “I think it is a truly scary time.” Redleaf, who correctly predicted the 2008 financial crisis sees parallels between then and today’s markets.
There is also a currency war in progress as the major economies rush to depreciate their currencies in an effort to make their exports more competitive, and soon import tariffs will be imposed to protect domestic markets from cheap imports. This is exactly what happened in the 1930’s which led to the great depression and World War II. It is commonly referred to as a “beggar-thy-neighbor economic policy” as one country attempts to remedy its economic problems by means which tend to worsen the economic problems of other countries.
Despite the expansionist policies of the EU in the Ukraine having almost provoked a war with Russia, Europe’s socialist politicians constantly maintain that only an expansion of the EU can prevent another war on European soil. The fact is however, that revolutions and wars happen almost always during times of economic crisis. It was the economic crises of the 1920’s and 30’s which brought Hitler to power, and economic crisis was the catalyst for both the French and Russian revolutions, (Marie Antoinette’s comment “let them eat cake” when told that the people had no bread). Despite this fact the world’s ruling elites together with their central bankers are doing everything in their power to ensure that they destroy their currencies and usher in the greatest financial collapse in the history of the human race.
I hope that the readers realize what this means for them. Your world is about to change and you won’t believe how radically it’s going to change. The welfare state is about to collapse under its own weight. There will be no more social security, in fact, with the exception of extreme poverty, there will be no more guaranteed anything. Read what the Bible says about the times in which we live – the end times.
2000 years ago Jesus speaking to his disciples about these times said:
As Jesus was sitting on the Mount of Olives, the disciples came to him privately.
“Tell us,” they said, “when will this happen, and what will be the sign of your coming and of the end of the age?”
“Watch out that no one deceives you. For many will come in my name, claiming, ‘I am the Messiah,’ and will deceive many. You will hear of wars and rumors of wars, but see to it that you are not alarmed. Such things must happen, but the end is still to come. Nation will rise against nation, and kingdom against kingdom. There will be famines and earthquakes in various places. All these are the beginning of birth pains”.
Then you will be handed over to be persecuted and put to death, and you will be hated by all nations because of me. At that time many will turn away from the faith and will betray and hate each other, and many false prophets will appear and deceive many people. Because of the increase of wickedness, the love of most will grow cold, but the one who stands firm to the end will be saved. And this gospel of the kingdom will be preached in the whole world as a testimony to all nations, and then the end will come.
So when you see standing in the holy place ‘the abomination that causes desolation,’ spoken of through the prophet Daniel—let the reader understand— then let those who are in Judea flee to the mountains. Let no one on the housetop go down to take anything out of the house. Let no one in the field go back to get their cloak. How dreadful it will be in those days for pregnant women and nursing mothers! Pray that your flight will not take place in winter or on the Sabbath. For then there will be great distress, unequaled from the beginning of the world until now—and never to be equaled again.
If those days had not been cut short, no one would survive, but for the sake of the elect those days will be shortened. At that time if anyone says to you, ‘Look, here is the Messiah!’ or, ‘There he is!’ do not believe it. For false messiahs and false prophets will appear and perform great signs and wonders to deceive, if possible, even the elect. See, I have told you ahead of time.” Matthew 24:1-25
How do we know that these are the end times? Because of this precondition: “And this gospel of the kingdom will be preached in the whole world as a testimony to all nations, and then the end will come.”
Only in the last five or so years and for the first time in human history has the Gospel of Christ been preached to all ethnic groups in every country of the world….. “and then the end will come.”
The apostle Paul in his second letter to Timothy describes the end times generation so:
“But mark this: There will be terrible times in the last days. People will be lovers of themselves, lovers of money, boastful, proud, abusive, disobedient to their parents, ungrateful, unholy, without love, unforgiving, slanderous, without self-control, brutal, not lovers of the good, treacherous, rash, conceited, lovers of pleasure rather than lovers of God— having a form of godliness but denying its power. Have nothing to do with such people. They are the kind who worm their way into homes and gain control over gullible women, who are loaded down with sins and are swayed by all kinds of evil desires, always learning but never able to come to a knowledge of the truth.” 2 Timothy 3:1-8
Karl Marx wrote in his book “Das Kapital” that: “Religion is the opiate of the masses.” My reply to his assertion is that it is pseudo-religious political ideologies, in particular the Communist and socialist ones, which are the real opiates of the masses, and along with the current “religion of democracy” they have been responsible for more death and destruction on the planet than any God based religion, however perhaps Islam will soon remedy this deficit.
March 2015 Nuremberg, Germany.
Although the authorship of the following passage is disputed it indisputably describes the state of modern democracies. Most sources attribute it to Alexander Fraser Tytler, (Lord Woodhouselee 15 October 1747 – 5 January 1813) from his work The Fall of the Athenian Republic, and refers to the then, newly founded US democracy:
A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
From bondage to spiritual faith;
From spiritual faith to great courage;
From courage to liberty;
From liberty to abundance;
From abundance to selfishness;
From selfishness to complacency;
From complacency to apathy;
From apathy to dependence;
From dependence back into bondage.
At which stage in the cycle do you think Western democracies are presently at? I would say without a doubt “dependence”.
¹ Debt monetization is the central bank’s purchase of government bonds (debt) with freshly printed money. When government bonds held by the central bank become due, money is paid by the treasury (the government treasury promises to re-purchase the bonds on a certain date) to the central bank which then returns the money back to the treasury. This allows the treasury to “borrow” money without in reality having to repay it, and eventually increases the amount of paper money in circulation. The paper generated by the debt monetization which is currently taking place in the US, Japan and Europe will at some point find its way into the real economy instead of the bond and stock markets, which is where it is going at the moment; when that happens the purchasing power of paper money is reduced by over-supply, which means you need more of it to buy goods and services but you can reduce your debt and rob your creditors by paying them with money which is worth less, depending on the amount of inflation, than when you borrowed it.
Sources for this article: McKinsey Global Institute, zerohedge.com, Tyler Durden,