With A Bang Or A Whimper (How the Financial World Resets)
The global financial world is increasingly unstable and approaching a reset. A few reasons why:
- Global debt is approximately $200 Trillion and rapidly increasing. Debts are either paid or defaulted. Default seems likely – either directly or via hyperinflation.
- Global derivatives are, depending on who is counting, around $1,000 Trillion. Derivatives were at the center of the 2008 crash and are even more dangerous now.
- Speculation, debt, and “printing currencies” have been excessive in many countries. Other similar periods of excessive speculation were 1929 and 2000. “Printing currency” has never solved problems.
So how does the financial world, as we know it, reset? Let’s speculate!
The Big Bang Scenario
- Nuclear war creates a Mad Max scenario. The US and Russia have the means and opportunity. I trust they do not have the motive.
- Extended conventional war that starts small and expands, ends an empire, and destroys several countries and currencies.
- Financial or economic collapse occurs. If credit collapses and businesses aren’t paid for products and services, the distribution system could temporarily shut down. Contemplate empty grocery shelves, empty gasoline stations, electricity and water outages, empty ATM’s, and EBT cards that don’t work.
I think we can all agree that the “Big Bang” reset is undesirable. Let’s trust that we reset under the “Whimper” scenario.
The Whimper Scenario: (possibilities)
- The US dollar, the global reserve currency, gradually loses value and importance. Other currencies, such as the Yuan or SDR from the IMF, rise to importance. Prices reset higher, especially in the US. Economic weakness “forces” the Fed to expand its QE program.
- The gradual demise of the EU, the euro, peace in the Ukraine and Middle-East results in a further shift of economic power and wealth to Asia. Prices rise in Europe, some banks are forced to acknowledge their bankrupt capital condition, and unemployment increases even further. The ECB reacts with either hyperinflationary “printing” or the EU descends into a long depression.
- The Japanese central bank, after buying all their government bonds, also purchases ETFs, individual stocks, real estate, and more. The Keynesian experiment of “printing money” is declared only a partial success because the central bank “did not do enough.” The yen drops well below 200 to the US dollar even after the dollar has weakened considerably.
- China and Russia increase their influence in the global economic system and eventually acknowledge that they own most of the world’s gold, outside of India. They thank western central banks for selling almost all their gold at bargain prices. Western central banks deny that their vaults are nearly empty but refuse all requests for an audit or examination.
- Gold prices, in spite of negative commentary in the media almost every day, increased well beyond $3,000 as the dollar weakened and inflation hysteria overwhelmed the western world.
- The US congress and the President in 2016 announce that, primarily due to bad weather, the SNAP (food stamps), unemployment programs, and aid to bankers will be doubled in the coming fiscal year. Detractors noted that food prices had more than doubled in the previous two years and that, as usual, congress and the President “did not do enough.”
- The Fed discussed a “helicopter drop” of freshly printed $100 bills as a temporary calming influence in major cities but many discounted the proposal as “not doing enough.”
- There are so many more possibilities…
- A reset in the financial system seems inevitable.
- We survived other resets, such as the depression of the 1930s, WWII, 1971 separation of the dollar from gold, 1970s inflation, year 2000 stock crashes, and the 2008 financial crash. The world will survive the next reset.
- Excess debt, fiat currencies, and “printing currency” are the center of global economic problems. Those problems will not be resolved with more debt and “printing currency.”
- As debt is marked down to a more realistic value, and excessive printing (QE etc.) devalues all fiat currencies, consumer prices for commodities will rise. Expect higher prices for food, energy, gasoline, and clothing – anything you NEED.
- As fiat currencies are devalued confidence in the value of paper assets evaporates and the prices for gold and silver increase substantially.
- If central banks and politicians choose hyperinflation, all bets are off regarding how high gold and silver will climb, and how crazy our Twilight Zone world will become.
I hope you are prepared with physical gold and silver in a secure depository outside the banking system. Read the 1st edition of my book, “Gold Value and Gold Prices From 1971 – 2021” available from Amazon and my site.
The Deviant Investor
Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.