Egon von Greyerz of Swiss based Matterhorn Asset Management says Alea Iacta Est, the die has been cast. Regardless of what governments do going forward, a number of different events will play out as the economic, social and political systems around the world come under intense pressure.
It’s not a question of if the world order is about to be reorganized, but rather, a question of how severe the transition will be:
Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still donâ€™t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest.
Because the world economyâ€™s expansion in the last 100 years and particularly in the last 40 years has been primarily based on credit and not real growth, governments live under the false impression that money printing will work this time too. But we have reached the point when investors will no longer buy worthless government debt that will never be repaid with real money. We will first go through a period when governments issue and buy their own debt thus monetising the debt or print money. Â This will be the hyperinflationary phase. Thereafter the world will realise that none of the government debt and very little of the bank debt will ever be repaid. Credit will then implode and so will also the assets financed by credit. Eventually there will be a new monetary and financial system and the world will start afresh. The adjustment period will be very long and will involve economic and human misery, leading to social unrest and major political change. It will be a horrible experience for the world during this extended period of adjustment. But it will be like a forest fire that clears out the deadwood and creates the conditions forÂ strong new growth. Once the new era starts it will therefore be from a very much lower level and individuals will be rewarded for hard work withÂ little or no social security safety net. Credit will only be granted for sound capital investment projects, not for consumption or speculation. Ethical and moral values will return and the golden calf will not be worshipped. But before that, the period of readjustment will be very long and extremely difficult for the whole world.
Unless you have a multi-year supply of freeze dried food, dry goods and are completely isolated in the boonies, you’d better start thinking about how to survive in the new paradigm. Long-term, sustainable living that includes not just emergency supplies, but developing useful skills, and maintaining a stream of income/revenue (be it monetary or tangible goods) that will be there if the crunch happens. Think about food production, energy production, goods manufacturing (carpentry, welding, etc.) and direct trade, or bartering, as your “job” if the end of life as we currently know it actually happens.
We are in uncharted waters here. Never before has there been as big a debt bubble and global economic calamity as we have today. Past models can only guess at what is in store, so start thinking outside the box about the many possibilities that may await.
Hat tip Willie Wonka