Egon von Greyerz of Matterhorn Asset Management has published an excellent article entitled “The Dark Years are Here”
We paraphrase his main points below, adding some observations of our own in red.
(1) EMPIRES ARE BUILT ON THEFT, PILLAGE, SLAVE LABOUR AND FINALLY MONEY PRINTING.
If we look at the British Empire, we see that it began in the 17th century, reached its peak in the 19th century, and has declined markedly in the 20th and now the 21st centuries. Like all empires, the British Empire eventually overstretched its resources both financially and militarily.
The US empire in the 20th century has been based on economic and military power. Blessed with huge amounts of natural resources and a strong entrepreneurial culture, the US empire, rather than colonizing other countries, instead established a massive network of military bases worldwide. By the end of the Vietnam war, the US economy began to weaken; Richard Nixon abandoned the gold standard and the money printing presses started rolling in earnest. The Ponzi scheme giant that props up the US dollar was stretching its limbs.
(2) THE US GOVERNMENT IS IN DENIAL
The US government has spent or committed almost 13 Trillion dollars (that’s $13,000,000,000,000) over the last 18 months, not, as propagandized, to “stimulate the economy”, but simply to prop up the financial system. In terms of the real economy , ALMOST EVERY SECTOR IS HAEMORRHAGING – production, unemployment, corporate profits, (particularly commercial) real estate, credit defaults, construction, federal deficits, local government and state deficits. The government response? PRINT MORE MONEY.
What governments are doing with people’s money is to totally destroy its value. Purchasing power in the US and many other countries has declined more than 95% in the last 100 years. (As we showed in this article, in the case of the New Zealand dollar it has actually taken less than 40 years).
When you take account of dependents in families of unemployed adults, this figure is appropriate. The rise in unemployment combined with the reduction in consumption will lead to the next and much more severe banking crisis.
The European situation is equally dire. Spanish unemployment is officially running at 19%, the true figure is likely much worse.
The UK authorities are looking at a combination of government deficits, a banking system which is extremely fragile and too big for the country, very high personal credit that will not be repaid and a housing bubble which still has a long way to fall. This makes the UK very vulnerable to a major financial shock.
Wall Street is the largest contributor to politicians re-election campaigns. Together with the very powerful banking lobby, Wall Street firms are Washington’s PAYMASTERS. That’s why they have received the bulk of the bailout money. NONE of the problems in the banking sector has been resolved. The banks are still leveraged 25-50 times.
As for Europe, just consider the idea that the liabilities of Credit Suisse and UBS are alleged to amount to 4 times the Swiss GDP!
(5) ACCELERATION OF THE DOWNTURN IS ABOUT TO START
The next chapter in this “Greater Depression” saga, as Doug Casey likes to call it, is about to begin.
Firstly, unemployment will increase government deficits.
Secondly, the next phase of problems in the banking sector will hit, probably as soon as autumn of this year, due to looming problems in commercial real estate loans and credit card defaults, both of which are rising rapidly.
Thirdly, Government paper will come under severe pressure, due to the escalation in money printing.
(6) EFFECTS ON FINANCIAL MARKETS
(a) The Dow and the S&P are likely to fall big-time.
(b) Interest Rates are likely to rise substantially worldwide over the next decade. Here in New Zealand, we are particularly vulnerable, because we have to compete in international markets for our borrowing requirements.
(c) The US dollar and the pound are likely to weaken substantially in the autumn.
(d) The currency that will benefit from the ongoing crisis is gold. Gold has trebled in value since 2002. More precisely, the US dollar has decreased in value 3-fold against gold. The next major move upwards is coming.
Here’s how you can learn more about the problems in the financial system and how you can profit from what’s still to come