by Egon Von Greyerz, Gold Switzerland:
Will the world experience a catastrophic debt implosion?
Just like the Titan Submersible that recently imploded, the global debt bubble can implode “within just a fraction of a millisecond”. More later in the article.
Are we now in the third circle in Dante’s Inferno?
Dante describes the 9 circles of hell. The 3rd circle is Gluttony which is fitting for a self indulgent Western world with excessive consumption of both material and financial resources.
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Each circle represents a gradual increase in evil, culminating at the centre of the earth where Satan is held in bondage. The sinners of each circle are punished for eternity in a fashion fitting their crimes.
Financial markets have also been dominated by gluttony for an extended period. This has led to the biggest asset bubble in history.
But in spite of unprecedented risks in investment markets, for the few investors making the right choice, now is a period of great opportunity not just to preserve wealth but also to enhance it. More later.
END OF THE CURRENT WESTERN EMPIRE
But here we are in the 21st century with the current Western Empire in the final stages of a secular decline which looks very similar to the fall of the Western Roman Empire in the 5th century. Wars, debts, deficits, collapsing currencies, decadence, corruption and socialism – Plus ça change (the more things change, the more they stay the same).
Whether this cycle is the end of a 100, 300 or 2000 year era, only future historians will know the answer to.
WAR DRUMS AND NATO
To diffuse the real reasons for the collapse of the Western economy and the Financial System, there is nothing like starting a war. Leaders love to play real war games although most of them have never been near the front line. A war creates fear in the people and permits the leaders to govern the country irresponsibly, both in relation to the economy and by controlling the people.
So all the Western leaders got together for the NATO meeting in Vilnius, Lithuania last week to listen to Zelensky’s rantings about more money and more weapons in a war that Ukraine is unlikely to ever win. But since this is a proxy war for the real battle between the US and Russia, the West is grudgingly giving in to many of Zelensky’s demands, thus escalating the war to levels which could have catastrophic consequences for the world.
This war could at best lead to 100s of thousands of additional deaths. The Ukrainian people don’t want war, probably more than 10 million of them have left the country and won’t return. Neither the Russian, American or European people want war, only their leaders. When it comes to wars, leaders have ultimate power and also access to money. Although no country has funds available for this war, they all borrow and print to the detriment of the countries and their people.
At best this war will be limited but go on for years at a massive cost of lives and resources. At worst we could have a global and nuclear war with disastrous repercussions.
Western leaders would serve their people much better if they instead sent peace makers and focused on their economies which are on the verge of a major implosion.
Coming back to debt, this is what will finally destroy the West and likely lead to decades of misery.
US DEBT UP BY SAME AMOUNT IN LAST 5 YEARS AS THE FIRST 221 YEARS
The latest financial crisis started in September 2019 when the US banking system came under serious pressure and the Fed injected major liquidity into the near bankrupt system. Since that time, total US debt has increased by $21 trillion.
Let’s put this into perspective. It took the US 221 years to go from Zero debt in 1776 to $21 trillion in 1997 and just in the last 4 years, debt has gone up by that same $21 trillion.
Now some will argue that it is not the same money today as 200 years ago.
No of course it is not the same money. Because every government destroys the value of their currency by creating unlimited amounts out of thin air to the detriment of savers and pensioners.
The graph below shows the debt explosion during my working life so far. Up from $1.5 trillion in 1969 to $95T today – a totally mind boggling 63x increase.
To gain power the incumbent government must promise the earth. Once in power they realise that there is no chance of maintaining prosperity without buying votes through chronic deficits and money printing. That’s why there have only been a handful of years since 1930 when US federal debt didn’t go up. Even in the Clinton years debt went up so the surpluses declared were due to false accounting.
But total US debt of $ 95 trillion is only part of the total liabilities. Add to that unfunded liabilities of Social Security and Medicare of say $150 trillion. Then there are gross derivatives within the banking system and in the shadow banking system of probably $2-2.5 quadrillion. This is a form of credit that can easily blow up when counterparties fail.
A COMING INFERNO
Coming back to Dante’s Inferno, the 9 circles of hell are: 1. Limbo – where there is no god, 2. Lust, 3. Gluttony, 4. Greed, 5. Wrath, 6. Heresy, 7. Violence, 8. Fraud, and 9.Treachery.
Many of the 9 sins in Dante’s Inferno apply to today’s world but maybe Gluttony is one of the more fitting to a self indulgent Western world.
Cerberus, the three-headed beast of hell, guards the gluttons mauling and flaying them for eternity. (Sounds pretty horrible. A more modern version might be the song “Hotel California” by the Eagles – “You can check out any time but you can never leave”.) Also Homer wrote about Cerberus.
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