Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Countdown to Global Financial Collapse

Politics / Credit Crisis 2015 May 20, 2015 - 09:13 PM GMT

By: Submissions

Politics

Raymond Matison writes: It is a well established practice of market and economic observers to either predict the direction of a company, financial market or the economy, or the expected timing of an event –but not both.  The reason for this is that past experience has made such prognosticators humble in attempting to predict both.  However, since many experienced observers have already predicted a continued decline in our economy, the likely collapse of our currency and banking system, and a consequent global depression, what remains is only to answer the question of timing. No longer are we required to forecast both events; we can now concentrate on predicting just the timing of this event.  Famous economists and market commentators have valuable reputations to shield, and so they are not likely to forecast the window in time when the likely rapid collapse is to begin. This can only be risked by others.


In their book “THIS TIME IS DIFFERENT” authors Carmen M. Reinhart and Kenneth S. Rogoff note that “In effect, for the advanced economies during 1800-2008, the picture that emerges is one of serial banking crisis”.  They also note that the “problems of external default, domestic default, and inflation are all integrally related”.  Such crisis devolved into “250 sovereign external default episodes during 1880-2009 and at least 68 cases of default on domestic public debt”, suggesting that such episodes occur on a regular basis, but just infrequently enough to be forgotten or ignored by the next generation.   

It would be foolhardy to just pick a global reset date for these events, but a window in time for their occurrence can be reasonably estimated.  This reset itself will take place over a period of years, and observers may argue as to which event and what date, month or year started the entire avalanche of events. In addition, it will likely take several decades for the economy and markets to recover to current levels.  However, that does not mean that it is impossible to narrow substantially the window of time in which these events start to occur. 

Corporations are recognized to have a lifecycle starting with a slow growing beginning period, followed by a rapid growth period of many years, followed by a long period of slow growth during its corporate maturity.  Similarly, governments, monetary systems and economies have life cycles which grow, evolve, mature and decline or die in fairly predictable patterns.  Historically, such patterns have shown themselves to be repeated across differing political systems of government, basis for its economy, system of banking and currency creation, time in history, and geographic location of the country.  By gauging current events in the life cycle of such a system we can predict where we are within it, and what events likely remain yet to occur before the final collapse, and therefore, roughly to gauge how much time it may take before the onset of this end period will occur.

Intricacy of our global economic interconnectedness makes it also imperative that we include and gauge some events of major foreign economic powers as their actions also impinge on our own system.  With military conflicts in several key areas of the world, sanctions, currency wars, geopolitical maneuvering for energy supplies, emerging new political powers created by elections which are challenging existing power structures in Europe and elsewhere, the effects of a Greek bond default on the banking system of Europe and the European Union as a whole, emergence of a China/Russia relationship there is a plethora of predictable foreign events capable of triggering the big global reset.

In providing a general framework for the events that occur in this systemic GEB (government, economy, banking system) lifecycle, it is noteworthy that different circumstances in time, location, nature of government, immediate nature of the crisis, individuality of responses and their intensity all have an effect on a specific historic event.  While a government may implement policies which are counter business growth for many years, it could take decades before cumulatively it reaches levels of a crisis.  Poor economic performance may persist for many years reflecting abusive tax policies of politicians and bureaucrats for wealth redistribution – but not precipitate a collapse.  The currently expected currency crash which will precipitate a banking and economic crisis, requires a fairly short period of just a couple of years, during which the faith and acceptance of a currency becomes increasingly rejected, and ultimately its value collapses.  A broad representative outline of possible steps of this complex cycle, which could easily be varied somewhat in its order, or with the addition of other historically observed events in prior crisis, is presented below. 

The main mileposts for the lifecycle in a GEB system are:

  1. A new government assumes or comes to power.
  2. It may form a new system of money and its creation.
  3. It issues a new currency.
  4. A central bank eventually comes to control the issuance of debt based money.
  5. Its economy grows from a population increase, and technologic advancement.
  6. The central bank starts stimulating the growth of its money supply to increase and manage economic growth.
  7. The government becomes involved in a war whose cost exceeds that which is collected from its citizens in taxes.
  8. The government borrows expenditure of war by issuing sovereign bonds.
  9. Politicians desiring to increase reelection prospects promise social security, medical care, and numerous welfare benefits over time to a growing segment of the population.
  10. Sovereign debt is increased to pay for some of these growing benefits.
  11. The portion of the budget attributable to interest on debt becomes large enough to become a concern to politicians and citizens alike.
  12. The central bank accommodates government borrowing depressing the level of interest rates to facilitate the servicing of growing debt.
  13. Advances in technology reduce the required number of employees in the production of food and manufactured products, shifting such workers either to become unproductive government employees, or become unemployed.
  14. Unproductive government employment grows and becomes a larger part of total employment, as overall government expenditures increase dramatically.
  15. Generally increasing unemployment reduces citizen income, increases personal borrowing, and tends to decrease government tax revenues.
  16. Lower income of citizens translates into less consumption, and a cycle of decreasing economic growth.
  17. Our debt based money creation mandates a requirement of economic growth.
  18. When such growth is in danger of stalling, the central bank increases the currency or credit in circulation in order to stimulate growth and inflation.
  19. The banking system and its loan portfolio experience a level of default which with realistic accounting bankrupts most banks.
  20. The central bank creates more money, and uses the funds to purchase at full value the defaulted loan securities saving the banks.
  21. The banks are saved, but this does nothing to help citizens, as banks fear to lend out their newly received funds.
  22. Citizens try to deleverage, and do not seek additional credit.
  23. Banks speculate with FED provided funds increasing the bubble in bonds and stocks benefiting exclusively the wealthiest 1%, thereby increasing income inequality.
  24. The increasingly indebted and unemployed middle class becomes slowly impoverished adding to economic contraction and a deflationary bias.
  25. The central bank prints more money (as in its “Quantitative Easing” series) as a hope to offset deflationary pressure.
  26. Financial repression is practiced whereby interest on savings is less that inflation, benefiting government and the banks further impoverishing citizens.
  27. The central bank changes its policy from maintaining stable prices to generating a given level of inflation as its means to stimulate economic growth and reduce the real value of national debt. 
  28. Inflation ultimately accelerates wiping out the value of incomes, and financial assets.
  29. The illiquid bond and stock markets crash despite central bank support.
  30. Destruction of currency value grinds trade to a near halt increasing cost of all products, raising concern about an adequate and affordable food supply.
  31. Citizen strife reduces trust in government and promotes increasing civilian unrest.
  32. Confrontation between citizens and government agencies, including municipal police, escalates.
  33. Retribution to perceived guilty politicians and bankers for the malaise is initiated.
  34. People increasingly avoid paying taxes, decreasing government revenue and accelerating its need for more money and borrowing.
  35. The downward spiral continues until a new currency replaces the old, and there is a large restructuring and some forgiveness of debt.
  36. There is a massive transfer of wealth as former owners of monetary assets are financially destroyed.
  37. Stability of the nation may need to be restored by military dictatorship destroying what was left of a constitutional republic.

The GEB cycle is reset and a new cycle is initiated. 
 
We start with a country government which has a banking system and a currency.  Its natural and human resources and geography determine many of its economic decisions. Governments have been proven to be incapable of operating on a balanced budget over time, and this is the principal reason for such lifecycles.  To cover its initial budget deficits government goes first through an attempt to increase taxes, including the less visible tax by inflation, on the populace.  As politicians learn reelection advantages of promising free benefits without increased taxes, governments will borrow money by issuing bonds.  The existing system of central banks facilitates this borrowing falsely making the public believe that they are getting a free benefit.  Credit and borrowing will grow over decades as the cost of this debt increases. At one point the cost of debt becomes noticeable even to an uninformed public, and it becomes necessary for the central bank to reduce interest rates such that the interest on debt seems contained.  This process of financial repression affects the public’s savings and investment as it reduces the income that the public has available for spending, and creates a negative effect on economic growth.  To avoid the economy’s slide into deflation, the government with the full support of its central bank and banking system will increase government spending expanding budget deficits, in turn increasing the need for more government borrowing, for whose repayment the taxpaying public remains responsible. 
 
If indicators show that the economy is still slowing or declining, the need for extraordinary efforts start.  First, one easy way to convince the public that things are really better than they seem intuitively is to simply fudge that statistics.  In our current cycle this is borne out by the downward revision of previous economic statistics.  Another way is to manipulate the markets in a way to increase stock or bond prices which make the public feel wealthier, and more inclined to spend. Yet another method is to create capital controls such as limiting or eliminating offshore bank accounts from which more taxes may be squeezed. Talk will arise reducing the repatriation tax rate of corporate foreign profits.  When things get truly serious, central bank will purchase the low rated bonds held by banks in order to issue Treasury bonds which are counted towards a bank’s reserves, and its solvency.  Foreign military interventions may be precipitated in order to focus the public’s attention away from the real crisis towards a manufactured one. All of these efforts are made to increase economic growth, which can be taxed.  Note that we have already experienced each of these progressive steps in the U.S. towards eventual collapse and reset.

Over the last several years, many sovereign leaders have announced economic growth as an objective. Most have in mind increasing the money supply as a means to reduce the value of their currency thereby facilitating foreign trade.  But creating growth is not the panacea of such a system.  The real reason growth is mandatory is because of our false currency and banking system, whereby money is created by first issuing debt, and congenital weakness of governments not living within their intended limited means.  It is for this reason that such systems grow to bulbous dimensions, blow up, collapse and are reset to start its next cycle. 

If the currency used had not been created by issuance of debt, growth would not be a necessity.  It is obvious that the natural tendency of an economy is to reflect the size of its populace, and advancement of its society as measured by its capacity to produce.  Thus, if a country’s population is growing, it is likely producing and trading more products, and there is a legitimate need for a concomitant, but not inflationary, increase in the money supply.  History shows us that absent monetary inflation scientific innovation has always decreased the use of human labor and the price of consumer products.  This has been true in agriculture for food supply, in manufacturing, and very demonstrably for electronic gadgets and computers over the last decades.   All of these trends would promote a deflationary bias in an economy.  Since deflation reduces gross national product, it also reduces the amount that government can collect in taxes, and therefore its ability to maintain its size, or to service debt.  Because our currency system is created through debt, government and a central bank always promote growth and inflation.  If a government did not spend beyond its collected tax, within a system of debt based money, the requirement for growth would be more limited, and the cycles between collapse would be longer.   

So it is noteworthy to observe that in the U.S. we have already advanced in this GED life-cycle process to the point that increased taxation schemes have been implemented by government, the use of corrupted financial data is presented to show a false vigor in our economy, financial repression of the public in all its variants including depressed interest rates,  purchase of tainted bank-owned assets at full value by the FED, the QE money printing, suppression of foreign bank accounts for citizens, limitation of the use of cash in transactions by limiting the size of our paper fiat currency in circulation with the $100 bill  – all indicating the we are well past the midpoint and closer to the end of this enumerated cycle.  Recent clarification that saver bank deposits are considered as an extension of credit and could be seized by the bank for its next bailout shows the increasingly drastic steps the system is taking to preserve itself.  Indeed, the prospects of banks to charge savers via negative interest rates (as they already do in Europe), and to eliminate paper currency completely, clearly shows the desperate considerations of a panicked system.

This overall state of our economy, banking and currency system is corroborated by the observed financial frailty of many of our large cities and states by downgrades in state and municipal investment agency ratings.  It is similarly corroborated by the severe turmoil in the European Union mirroring problems in countries around the world made worse by its financial global interconnectedness. And lastly that corroboration comes from the estimated $1000 trillion of counter party risk of derivatives, all out of reasonable proportion to global economic activity.  In other words, so much money and credit has been created over the last decades that it can find no place to be traditionally invested and it sloshes around the world in a speculative frenzy. It is a veritable bull in the china shops of small and developing nations around the world, leaving destruction in its wake.

The policy of many countries to devalue their currency seems similar to the childish game of “follow the leader” or “monkey see monkey do” where everyone is learning from the “big gorilla”.  Rather than blaming other countries for manipulating their currencies we could more correctly see this as other countries copying the actions of U.S. policies. Some countries surely followed the U.S. example respectfully tying their currency to the U.S. dollar; some were forced to do so because of trade balances, while some are blindly copying our own destructive actions of money and credit creation.  In this competition for export advantage there will be no winner, as everyone races to reduce the value of their own currency.  It is a mania following the global leader to more rapidly bring about global currency collapse.

The militarization of our police, and random training exercises by the military in our domestic cities, heralds the very late stage of this cycle, and the government’s likely response to increasing citizen dissatisfaction and manifest anger. Conversely, the growth in the popularity of “preppers” programs in the media suggests that there is an acknowledged and increasing lack of faith in our government and financial institutions by a growing portion of our citizens, also a late lifecycle event.

What remains to happen is for the faith of the common citizen in government to decline further and eventually to shrivel to a point where there is no confidence in our politicians and the government bureaucracy to improve people’s economic conditions.  Foreign countries would no longer finance our debt at low interest rates due to the loss of confidence, and force them to rise dramatically, as our bubble bond and stock markets will melt rapidly and dramatically, and our housing market will decline once more. With that additional loss of faith, the confidence in the currency evaporates completely, collapsing businesses and banks, precipitates the default of individual, corporate, state, and sovereign debt, and brings forth very high rates of inflation. Such events ravage all those on previously fixed incomes or pensions bringing them to famine and poverty.  The supposed large debt that “we owe to ourselves”, which government officials claim is not important, will suddenly have relevance as government pensions can no longer be paid, or their value has dwindled to nothingness. This stage itself can take several years through which the populace barely survives, with widespread social disorder.  Eventually, even infinitely patient citizens revolt, which will require bringing those past secret military training exercises in our cities as preparation for real life events.

We have seen that predicted events usually take much longer to take place in managed or more appropriately stated centrally manipulated economies. For example, there have been highly regarded economists who predicted a collapse of the Japanese yen more than ten years ago, but to date it has not happened. The yen printing continues at a financially suicidal rate, yet the economy continues to hobble along without the expected and unavoidable collapse.  With the single mindedness of a powerful government bureaucracy to avert a crash and stay in power, it will take longer than any estimate for the beginning of a currency, banking, and economic collapse to initiate and develop. It will also take longer for it to evolve to its ultimate nadir, and for its subsequent resolution.  The decline and collapse from overspending and excessive money creation can be postponed by proactive power of government bureaucracies, but it cannot be corrected by additional money or credit creation, or seizing of public savings, nor can it be eliminated.

Our definitive signal of economic crisis came with the market crash in 2000, followed by the housing and stock market meltdown in 2008.  Since that time no credible fundamental actions have been taken to correct the systemic distortions – only the creation of more debt, money, and credit, and miniscule interest rates for savers.  It appears ill considered that an economy that can no longer service its debt without issuing additional debt is stimulated by taking on even more debt.  This can only be understood as a proper response to a system of money creation that is based on debt and must be continued in order to avoid contraction at any cost.  Seven years have passed since this last near collapse, yet our elites, politicians, and FED policies have not corrected a single fundamental problem – ironically, excluding arming our police with military style weapons. 

In the meantime, countries opposing the single polar world are forming their own communications and money clearing systems and their own infrastructure investment banks to become immune to our economic sanctions and financial warfare in the future.  The West will yield to include the renminbi in the IMF’s SDR this year, acknowledging the ascent of China’s currency and the relative retreat of the US dollar in world calculus, or the descent of the petrodollar will simply take place by the rest of the world trading more without the use or demand of the dollar.  The new world order will become multi-polar, as the dollar’s time to rule singularly has come and passed.  Sadly, this will have been brought about by the collusive forces of government’s lack of fiscal discipline embracing socialism, central bank self interest, and singular corporate focus on profit regardless of public benefit. These powerful events make possible that the global financial reset could start anytime, and certainly between now and the end of the current year.

The coming U.S. presidential elections in 2016 will raise debate about our economy, as  it will be abundantly clear to all, that employment, wages and family incomes and consumer spending are not growing; debt of families, states and federal government are too high to be paid down or even serviced for interest, the FED is accommodating government having reduced interest rates to a minimum eviscerating income on public savings and further impoverishing the middle class, and printing money;  our ill-conceived government spending in military misadventures have caused trillion dollar increases in our national debt solidifying unity of our potential adversaries and even raising the resistance of our allies to reject our desperate actions to remain the singular leader of the world.  These debates during 2016 will clarify that the emperor has lost some of this clothes, and this public realization is likely to precipitate a more rapid decline in our currency, markets, and economy.  It hardly matters which political party candidate wins, for in one case the socialist policies will become recognized as unaffordable, and in the other voters will recognize that the huge government we have allowed to emerge over decades, regardless of its priorities is just too intrusive and oppressive for the nation, business and people to thrive.  Under this scenario the reset could take place before or shortly after the national elections in 2016.

With liberation of information on the internet, even common folks will soon recognize the ruse of government supported, FED promoted inflation as a means to reduce the purchasing power of people’s incomes, savings, and assets.  It will become recognized for what it is –theft.  Their reaction will be to reject such corrupted leadership, either by demanding changes, or failing to achieve such changes by peaceful means seek alternatives.  The currency crises then loops back to cause an increasingly dire economic crisis, and a catastrophic economic crisis creates impetus to change government and governance.  A historic reading of such events past in other countries is not inspiring nor comforting.

Given the events that have occurred over the last decades in terms of bubbles and market crashes, financial meltdown of 2008, recent explosion in our national debt, persistently destructive FED policies, upcoming elections, organized resistance by other countries to global U.S. policies, their preparations to offset future dollar hegemony, failures in the European Union, concerns about China’s fit and engagement into global eminence, and taxpayer increasing rejection and inability to subsidizing and socializing a major part of our populace, it appears that given the confluence of these events, a high probability of the  global reset, likely starts sometime between June 2015 to July 2017. By mid 2017 more of the points enumerated in the lifecycle in the GED will have taken place, and there will be no doubt that the reset (global collapse) has started.

For humanistic considerations, it would be comforting to be proven wrong!  However, the downside of being proven wrong is that a further delayed reset would be harsher.

Raymond Matison

Mr. Matison is a U.S. patriot who immigrated to this country in 1949. With a B.S. in engineering physics, an M.S. in Actuarial Science, work in the actuarial field, and as a financial analyst at Legg, Mason Inc., Lehman Brothers, and investment banking at Kidder Peabody, and Merrill Lynch provides a diverse background for experience.  First-hand exposure to fascism, socialism, and communism as well as the completion of a U.S. Army military intelligence course in the 1960’s have inspired a continuing interest in selected topics in science, military, and economics.  He can be e-mailed at rmatison@msn.com
Copyright © 2015 Raymond Matison - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules