secular “worldwide” turning point has been playing out across the world,
having begun sometime in the 1980 to 1990 period, then progressing and
cumulating to the breaking point in 2008-2009. There were numerous actors
and influences that played a role; however, it is important to remain
clear-eyed about these developments, to view them as a whole, and to
understand their potential impact. They are momentous. You must understand
that we are living in truly unprecedented times, with the scale and scope of
developments so large, few can grasp their import.
present, we continue to remain within the Global Financial Crisis (GFC) and
it is not yet 100% certain how the ultimate scenarios will unfold from here.
There are, however, really only two main ultimate scenarios: 1. High
indebtedness becoming inflated away versus income levels; or 2. rolling debt
defaults, deflation and slumping economies.
that cannot be denied is that for the advanced nations as a whole, the
tipping point of unsustainably high indebtedness arrived in 2008-2009. It
signalled the end of the post-WWII period of economic and financial
prosperity. A completely new phase has emerged which is far from having run
its full course. Analysts will be misled should they continue to process
data through the blinkers of post-WWII averages trends and developments. We
have pointed out numerous times in our reports that virtually all of the
underlying causal factors of the halcyon post-WWII economic boom period have
halted or reversed.
the general depressants of over-indebtedness, uncompetitiveness, aging
populations, and still-sinking residential real estate prices in many
countries around the world, the best outcomes one can hope for are periodic
rallies of economic growth and flashes of consumer confidence. That indeed
qualifies as a mark of this era. The financial and economic outlook, both
domestic and global, remains tentative and dependent upon the
confidence-boosting measures of governments, monetary authorities and
transnational agencies. It is a sad state of affairs when manipulations of
“confidence” … in other words, confidence games … are the main hope.
Policymakers have been striving to reverse the natural deleveraging
pressures that follow such pivotal debt-induced turning points. Effectively,
large parts of the global banking system have been quasi-nationalized.
current monetary policy of expanding central bank balance sheets as a means
of rescuing the banking system is virtually without precedent. It is crucial
to realize how large, reckless and desperate the actions of the world’s
central banks have been of late.
Consider that about half of the bonds issued by the US, UK and the
eurozone since 2008 have been acquired by the Federal Reserve, the Bank of
England or the European Central Bank.
eight largest central banks have inflated their balance sheets to greater
than $15 trillion (as of October 2011), roughly representing a tripling in
size since 2006. Just how big is this? It is equivalent to 23% of the
world’s entire economic output (GDP). It continues to rise rapidly. Do
observers not realize that this can never be reversed?
central banks may state that they intend to extricate themselves from these
policies at their earliest convenience, it will not happen. Ultimately,
their actions will serve to undermine monetary integrity. If such
supposedly-august institutions are allowed to be so deceptive and dishonest,
it should be no surprise that all of society has been heading down this same
relativistic slope. As the Bible says, “Truth is nowhere to be found, and
whoever shuns evil becomes prey” (Isaiah 59:15).
consequence of these and other actions, the time value of money has
virtually collapsed. History likely will indict today’s policymakers
as either corrupt or inept. Real interest rates (adjusted for inflation) are
negative, with this burden falling heavily upon the income-dependent
elderly. Moreover, various central banks have announced their expectation
that interest rates will remain low into 2014.
be sure that massive malformation and malinvestment will be and is occurring
over this period. In the meantime, the accumulation of sovereign
indebtedness continues. In the case of the US, it will likely report its
largest budget deficit in history
for this past fiscal year.
Yes, societies are in the good hands of policymakers, central bankers and
Carolo Padoan, a former official from the International Monetary Fund and
current Chief Economist of the OECED, recently stated that “the global
outlook is still largely dependent upon policy action.” These may not offer
long-term solutions or repairs, but at least offer the assurance that
short-term liquidity crises might be delayed, particularly in Europe’s
financial sector, much of which is insolvent.
it not similar policy actions that led the world to this desperate point to
first time in 60 years, an advanced nation — a member of the rich-country
club of the OECD — has defaulted on its debt. This was Greece and it is a
bellwether that there will be more … perhaps many more country defaults. As
the chart shows on the opposite page, past debt turning points usually
played out in as many as three successive crises. We may soon be entering
the second phase of the current GFC. Of course, policymakers are loathe to
admit this and moreover must deny such possibilities.
“spin” machine is already in frenetic motion in Europe. According to
Wolfgang Schäuble, there is “not the tiniest hope hat other nations would
restructure their debt” (FT, March 9, 2012). Elsewhere, according to
statements of the Bank of Japan, one must “clearly recognize and explain to
the public that central bank bond purchases are not for the purpose of
monetization.” Past history clearly shows that all central banks that have
pursued this course, always intended at the outset to return the stolen
cookies to the jar. Moreover there has been an unnerving inverse correlation
between future outcomes and the statements of policymakers.
globally, credit creation (based on private sector activities) is now
turning over. This is occurring from China to America to Europe and is a
negative influence upon both economic growth and financial market
valuations. It must be noted that despite the huge interventions of the US
Fed, the US Shadow Banking System continues to shrink (15 consecutive
quarters running from $20.9 trillion to $15.1 trillion.) This is a
deflationary influence on both economic growth and financial asset
and corruption are widespread and complicity extends to the highest levels.
Rapacious capitalism is widely admired as “cunningness” and “business
acumen.” To top it all off we have this development: After all the monetary
sorcery that has been witnessed over recent years (none of it ensuring
recovery, but rather an ultimate financial apocalypse of either a massive
debt depreciation or deflationary default scenario), central bank leaders
are now being lauded as world saviors. Their dubious alchemy (contributing
to an ultimate systemic, pandemic financial breakdown) is being celebrated
for its temporary buoying effects. The Atlantic Magazine recently profiled a
highly-flattering account of Ben Bernanke. Mario Draghi, the head of the
European Central Bank, has been similarly feted.
We have reached the point where the largest macro risks ever known in
advance by the policymaking and financial community are being complacently
ignored. It could be said that we know the known problems as perhaps never
sentient person knows that one cannot print wealth and create money out of
thin air to cover past debts and malformations. Yet, we see a collective
will to endorse bogus solutions. In
this there is an implied collusion; there is an agreed-upon
unrest can only escalate. Short-term gamesmanship rules. We must be wise to
the epic scale of the story our times. It is a globally-intertwined saga of
humanistic beliefs, religion and desperation as never before. We must see
this relative to history … both past and unfolding. There is no question
that the “historicity” of current global developments is indeed epic. We
would even say it is of Biblical significance. [We invite readers to
order our most recent book which provides the basis for that statement.
Please see page 4 for more details.]
about the US? Changes in sentiment and worldwide consensus have been extreme
over the past three to four years. It is worth remembering that the US was
considered to be the global pariah — and an apologetic one at that —
throughout 2009 and 2010. It was widely accused of financial alchemy and as
the “ground zero” of the Global Financial Crisis (GFC). Japan, at the time,
despite its massive debts, was considered a safe haven. Less than two years
later, the tables have turned. Europe (specifically the eurozone) is the
global pariah. Japan is no longer considered a safe haven as it may have hit
its “turning point.” Moreover, it is expected that more chaos will ensue in
Europe. What next? Anything is possible. It should not be surprising that in
due time, the US will again take a turn in the spotlight of crisis.
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is a global economist/strategist. Formerly a top-ranked global analyst,
research director for a major Wall Street investment bank, and head of
Canada’s largest global investment operation, his writings focus on the
endtime roles of money, economics and globalization. He has been quoted
around the world and his writings reproduced in numerous other publications
and languages. His 2002 book The Endtime Money Snare: How to live free
accurately anticipated and prepared its readers for the Global Financial
Crisis. His newest book, Global Financial Apocalypse Prophesied:
Preserving true riches in an age of deception and trouble, looks further
into the future.