The Great Financial Crisis of 2007-9 is now transcending into the Great Financial Catastrophe which could very well involve a total reset – or more likely a collapse – of the world economy, financial system and world political system. Here’s why.
The above comments, and those below, have been edited by Lorimer Wilson, editor of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here) for the sake of clarity ([ ]) and brevity (…) to provide a fast and easy read. The contents of this post have been excerpted from an article* by Egon von Greyerz (goldswitzerland.com) originally entitled The Great Financial Catastrophe and which can be read in its unabridged format HERE. (This paragraph must be included in any article re-posting to avoid copyright infringement.)
The total reset – collapse – won’t be orderly. It is likely to take a very long time and will involve bankruptcies of major parts of the financial system as well as many major nations. It will also lead to:
- social unrest,
- escalation of wars,
- major poverty,
- famine and
- the world population going down significantly.
I realise that this forecast sounds very alarmist and like an impossible doomsday scenario. I sincerely hope I will be totally wrong. Sadly, though, the risk that I will be right, or at least partly right, is major after 100 years of excesses in the world built on no solid foundation but an ocean of debt and printed money. Nobel Prize winners in economics, central bankers and ordinary people will learn the hard way that worthless pieces of paper that they call money cannot create real lasting wealth.
Most people are blissfully ignorant of the fact that 2007-8 was just a mild rehearsal of what we soon are going to experience. The additional $60 trillion in credit and printed money since then and the lowering of interest rates to zero have given the world the impression that all is now well again but let me be very clear, nothing is well.
In the 8 years since the start of the Great Financial Crisis the bubble economy has…spread to the world’s second largest economy – China. China has had exponential growth in debt from $2 trillion to $28T this century. A major part of this debt has financed white elephant projects and ghost cities. It would be surprising if the total Chinese bad debts were below $10 trillion before all of this is finished.
The bubble contagion has also totally infected most emerging markets. With massive growth in debts, a stronger dollar and collapsing commodity prices, almost every emerging economy is now starring into the abyss. As Michael Snyder of the Economic Collapse Blog recently pointed out, 23 stock markets around the world are now crashing. Of the 23, there are 22 emerging economies and the 23rd is Greece which definitively is not emerging but sinking into the Mediterranean.
The contagion will not just affect EMs. It is already spreading to the West and this autumn we will see stock market falls that will shock the world, spreading massive fear throughout the world economy.
I expect this autumn to be the beginning of the end of the 100 year old failed experiment of manipulation and repression of the financial system by bankers and central banks.
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This coming autumn we are likely to experience the beginning of the end to the biggest speculative bubble in world history. All bubble assets will implode and the financial system will come under massive pressure.
Many investors think that we could never have a crash like the melt-down in 2008 but they are wrong. The 2008 Crisis was a stock and investment bank crisis – but it was not THE Crisis. That will happen when the biggest bubble in financial history – the epic Bond bubble – bursts. Let me explain.
Should we be concerned when tepid economic growth and low inflation are accompanied by increasing public and private debt? Are we borrowing just to stay alive? [As I see it,] national governments will increase national debt loads in order to stay in power until one or more of them default. Then their will be financial panic which will most certainly be deflationary. Here’s why.
History strongly suggests that, rather than a return to a nice, placid world of “normal” interest rates, we are likely to see a continuation of the borrowing binge/asset bubble until real rates spike as a result of either soaring nominal rates soar or plummeting inflation. Here’s why that is the case.
History has shown us that all financial bubbles eventually burst. It is not a question of “if” they will burst. It is only a question of “when” and when the 7 current financial bubbles in America burst, the pain is going to be absolutely enormous. That being said, how much time do you believe that we have before these bubbles start to burst?
von Mises once said, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency involved” and just that is happening before our very eyes. Words: 2242
There is too much debt. Debt works the same way for a country as it works for an individual or a family, which is to say if you borrow too much, then your life basically craters. Everything gets harder to do, and you end up doing things in order to deal with your past mistakes that you would never do normally. You start trying absolutely crazy things, and that’s where the world’s governments are right now. We are doing all these things that are essentially con games and getting away with it so far, because a printing press is a great tool for fooling people. I don’t see how we can get away with it too much longer.
We’re doomed! Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt. As such, any sort of credit shock – either rising rates or a decline in the rate of debt expansion – will cause the system to implode. Let me explain why that is the case.