Listening to popular
opinion, the mainstream media, some politicians and most certainly the
shills for the false optimism of Wall Street, you would never know that a
massive financial and economic crisis has been welling up over recent years.
Like the rolling, dark storm clouds that warn of a coming deluge, the
continuing financial tremors we see around the globe today point to a
greater bout of difficult consequences ahead. Unprecedented developments are
unfolding in every direction but very, very few people that have a solid
understanding of these things are willing to speak out.
The fact that this
is the case is indeed a tragedy. It is also not unusual. We apologize for
once again quoting this comment from John Kenneth Galbraith’s book entitled
The Great Crash: 1929. It is so apropos that we must use it again.
“Even in such a time
of madness as the late '20s, a great many men in Wall Street remained quite
sane. But they also remained very quiet. The sense of responsibility in the
financial community for the community as a whole is not small. It is nearly
nil. Perhaps this is inherent. In a community where the primary concern is
making money, one of the necessary rules is to live and let live. To speak
out against madness may be to ruin those who have succumbed to it. So the
wise in Wall Street are nearly always silent. The foolish thus have the
field to themselves. None rebukes them.”
Were the late Dr.
Galbraith still alive today, no doubt he would venture the same observation
about current conditions in the broader financial community. The difference
today, as compared to the 1920s, is that this “collusion of silence” is of a
greater global scope; the possibility of disaster and suffering is much
But surely things
could not be that dire. Things just do not seem that bad, a reader may say.
Indeed, many people may not identify with the difficulties that are
unfolding. But that does not obviate what is happening to other people,
families and societies…indeed, entire countries. In North America’s case,
society has moved towards a two-tier level while the middle class becomes
progressively squeezed. Well-off households face no concerns. The prices of
luxury goods, art and collectibles, along with the revenues of luxury goods
companies, are all firm and rising.
On the other end of
the spectrum, many households are now forgoing things that they consumed in
the past as income levels stagnate and even decline in real terms. Youth
unemployment is soaring around the developed world to unprecedented levels
(see the chart on the front page), including in the United States. Food
stamp usage also continues to climb, showing no signs of decline (see Chart
#2 on this page.) These are hardly harbingers of coming peace, prosperity
and contentment in the future. We therefore observe that one part of the
population is almost completely insensitive to unfolding financial stresses.
But back to the
reality…or rather, the “soon-coming” reality for the majority of the
population. Even here, people seem oblivious to the scope of disaster, theft
and wealth destruction. In North America, for example, few seem to realize
how much of their future retirement lifestyle has vanished. When investment
returns and interest rate levels collapse, it annihilates the future value
of pensions and retirement savings. As we write, interest rate levels around
the world are falling to unprecedented, never-before-seen levels (long-term
rates in the U.S. now at 220-year lows!). If one were to fund one’s
retirement by investing in a 10-year treasury bond, one would need three
times the savings today than was required five years ago to afford the same
given retirement lifestyle. In other words, the cost of retirement went up
three times and more in terms of required savings. That’s a form of
hyperinflation though few economists would recognize this as such.
For the average
middle class family, a comfortable retirement is the largest single purchase
they will make in their lifetime — even greater than the cost of the average
home (supposing people wish to retire as early as age 65). The impact of
this massive decline in prosperity still lies ahead.
to note is that the unfolding crises today are global in scope. These
involve many countries, each with different characteristic imbalances or
causalities. The sufferings manifest in different ways. Consider that the
unemployment rate for the entire work force in Spain today is over 22%! This
is a major European country! Its unemployment rate is as high as and greater
than that during America’s Great Depression of the 1930s. Is this not
significant? “We’re in a situation of total emergency, the worst crisis we
have ever lived through” said the former premier of Spain, Felipe Gonzalez,
Japan has different
manifestations again, especially as it has a rapidly-aging demographic.
Italy’s economy in real terms has not grown in over ten years; it is
stagnating, burdened by excessive debts and deficits. Greece, China…we could
list many more and provide a more detailed analysis. The bottom line is that
the world’s economies, financial systems, and imbalances are extreme and
shaky. As such, money has begun to panic and take flight from Greece…even
from China. Ominously, increasing numbers of protests by citizens have
erupted and major political shifts have begun to take place. Consider the
political tides of Greece and France, of late.
Around the world,
the hunt is on for safe haven…namely, financial safe haven. In fact, people
are so worried about losing their money that they are paying for storage
costs. How so? In a number of countries, interest rates have become negative
for short-term deposits and bonds. For example, Swiss 2-year interest rates
recently dropped to minus 0.26%. Similarly, interest rates have fallen to
negative levels in Germany. These are all record lows. In effect, investors
are paying Germany, Switzerland and others to borrow their money. Sound
crazy? All of this is evidence of how distorted and precarious financial
systems have become.
What we see is that
policymakers are fighting the financial deteriorations with straw
structures, playing the ruse of building potential pools of rescue funds –
i.e. those of the International Monetary Fund, the European Stability
Mechanism and others – hoping that this capital can be used to rescue and
rebuild confidence in banks and financial systems. But there are problems.
There are ever-less financially-sound countries from which such capital can
be raised. In the end, it is still money that must be borrowed.
and liability imbalances were the major causes of the still-unfolding Global
Financial Crisis, then more debt is not the solution. Reflecting this
conviction, Bundesbank president Jens Weidmann recently stated, “Just like
the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven. If we
continue to make it higher and higher, we will, in fact, run into more
worldly constraints, which might include setting incentives that lead to new
problems in the future.”
The ultimate outcome
is clear: More monetary malfeasance on a massive scale…more lying and
stealing like never before.
Admittedly, it is
much easier to be optimistic and try to ignore the facts as long as
possible. To “tell it like it is” in the financial world does not win
congeniality contests. However, we do not think that our opinions are the
product of hysteria and imagined risks. Long-time readers can attest to our
record of consistent analysis, one that has been confirmed by subsequent
events and developments. That is not to say that we are infallible or
require little more than common sense. If that were not the case, then why
are so many learned economic and financial strategists shockingly and
consistently wrong? All their training and sophisticated knowledge was of
little use. On the other hand, plain and common sense thinkers have realized
for many decades that the world was on a path headed for ill consequences.
That path now indeed is meeting with truth and consequences.
While money is
looking for safe havens, where is yours? A cleft in the rock…a strong tower?
These are some of the terms that the Bible uses for a spiritual haven of
rest and peace. We may not be able to find such an oasis in the financial
world anytime soon. Financial markets are treacherous and are likely to
become more so as conditions become even more desperate. Nothing is sure and
nothing is completely safe, including gold. If we have our destiny and fate
sealed by the promises of God, at least we can be without fear, although
living frugally and humbly.
WILFRED’S FREE NEWSLETTER
on “endtime economics” and to subscribe to the free newsletter, Eternal
Value Review, visit Wilfred’s website
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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 country’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.