The Death of the World Economy
By Dene McGriff
The world as we know it is changing in ways that few of us can comprehend. We have never really been down this road before so it is uncharted territory. Never in history have we seen debt (personal, public and business) soar to such astronomical levels. Never in history has so much money been printed. Never in history have there been such imbalances! Please see some of the many articles we have written over the past few years.
If we just used the common sense we were born with, we would probably see the wreck at the end of the road. Pilgrims, we are on a highway that allows us to go faster than we have ever gone before and our speedy, shiny new cars can go barreling ahead at a couple of hundred miles an hour! Oh how exhilarating! But watch out for the turn ahead!!!!
This trip started slowly. It has taken us 60 years to build up speed, to get the road just right, the vehicle just right, to get the proper conditions. The government keeps telling us that everything is going to be okay. We are on the road to recovery, the road to greater productivity and higher employment. Everything is going to be fine. We just need to give it a little more gas, a little more spending, a little more debt. The economic engine is strong and sound. We just need to stimulate it.
The crazy thing is that practically every nation on the earth has been doing the same thing. The people demand more. They vote for more. They want greater benefits, earlier retirement, more vacation, less work. Meanwhile, the population ages and people line up to cash in on their retirement and benefits, not to mention the health care for the bodies they didn’t take the best of care. The less fortunate of society have become used to the “safety net” – 99 weeks of unemployment, welfare, health care, food stamps and subsidies and loans for everything from housing to education. We have become an entitled nation. The country and the greedy jerks we made rich with our labor and purchases must now pay us our fair share!
The “occupy Wall Street” folks demand a bigger piece of the pie. The Greeks, Italians, Spaniards and Portuguese take to the streets to claim what has been promised – their six week vacations, early retirement with full pay and benefits galore! No one seems to understand how wealth is created or how all of these “benefits” are going to be paid for as the work force ages and there are fewer working people to support those on the dole or for that matter the senior citizen who worked hard all his life and was promised he would be taken care of.
The employers don’t have the heart to tell them that business hasn’t really been doing that well and the money in the pension fund hasn’t been earning much and the principle is disappearing. The government never really saved and invested in “Social Security”. Retirement depended on taxes, high economic growth, high employment and few people using the benefits. That’s all gone now.
Meanwhile banks the world over have been making money out of whole cloth, leveraging meager deposits nine to ninety times. Debt was packaged and sold and resold many times over as Derivatives and this often multiplied the original debt of a thousand dollars a thousand times so that it was in the millions. When the 2007/8 meltdown happened a few of these derivatives began to unravel and brought down old, established banks and investment houses like Lehman Brothers. Worldwide derivative exposure was only about 600 or 700 trillion dollars at the time. Instead of reigning in this debt and stopping the practice derivative exposure has now soared past a quadrillion dollars. Governments have borrowed more and more from the Central Banks who willingly loaned and printed more and more currency. The chart below shows the geometric increase in world reserve currency. You will see that there is no longer any relationship between what we produce and the amount of money in circulation. When I say this is a road we have never been on, that is an understatement to say the least.
As long as the people demand more and more for doing less and less, government will oblige by giving the people the illusion of wealth, the illusion of having more money. But as we have seen, government soon becomes an end in itself like the little plant into the monster of the “Little Shop of Horrors” that grows and grows and begins to devour everything around it (feed me Seymour!). It’s not so much the bureaucracy although no one wants to lose their job, but all of the programs the government supports, the entitlements, defense, and the growing interest it pays on debt.
The National Debt was just about $10 trillion when Obama took office. In three years it increased to $15 trillion. Does it really matter? We can sell Treasury Bonds for 1.5 to 2 percent interest right now so the interest on the debt is only about $225 million but if it increases to historic levels it could double or triple. The total debt of unfunded liability (mainly Social Security and Medicare) raises the amount to about $50 or 60 trillion. Blah, blah, blah… I know you have heard this a gazillion times, but seriously, are there no consequences? Ask Greece. Can this go on forever (and if Obama has his way, it looks like it will)?
The case in point here is that any time tax dollars are diverted to pay for interest on debt or any other governmental activity, it takes resources from the private sector which lowers tax revenue and decreases economic growth. So they increase taxes, pushing down economic productivity, decreasing tax revenue even more. As we will see in a moment, all the austerity in the world in Greece merely dampened the economy even more resulting in even more debt.
Debt, debt creation, loans, bailouts, money being printed represents a systemic cancer that is eating the world monetary system alive and will result in slow death. Rome wasn’t built overnight and it didn’t fall over night. Neither were the western economies, but they are slowly dying. Politicians benefit from making the problem worse, not solving it. And like the frog in the pot of water, the average person won’t become aware until it is too late. That is the thesis. Now, let’s look at the case.
Whether we like it or not, we are a global economy. If you take our basic situation and multiply it to most developed and developing countries around the world, you have a huge problem, especially in Europe among those nations with all encompassing safety net social programs, but it’s not limited as Asia and other regions suffer as well. When countries around the world implode, they will take their neighbors with them. The neighboring countries hold an incredible amount of “Sovereign Debt.” Remember, the EU countries can’t just print money so they issue “Sovereign Debt” which banks buy.
So who is bailed out? When we look at the Greek bailout for example, Greece didn’t receive a single penny in “bailout” money. Only the banks were “bailed out.”
I want to emphasize that there are some problems that are just too big so we ignore them. One is death. Who worries about it? We know it will happen but there is nothing we can do about it. Doctors tell us we eat bad food, drink too much, exercise too little but we figure we’ll die anyway so who cares? Even the health nut jogger only buys a few more years. We live as if there are no consequences as to how we live, as if there was no tomorrow and for sure no eternity.
Another thing we don’t worry about is “generational debt” that so conveniently becomes someone else’s problem. Sure some politicians bemoan the fact that we are piling up debt onto the shoulders of our children and grandchildren but they never do anything about it. Obviously debt and money creation works in the short term. It pays the bills and gets politicians reelected. Most humans are so self-absorbed they don’t really care about the distant consequences of today’s actions. That’s just the way it is (or we would do something about it other than complain).
Few people really think for themselves. They don’t follow through the chain of events and see where it will end. Instead we the people listen to the experts who reassure us in spite of the fact that their position makes absolutely no sense. If we really think about it, no person, business, state or country can keep printing money indefinitely. Even logic (as well as history) would tell us that it would eventually have no value. Nor can we borrow indefinitely. We either pay it back or “stiff” the lender (but we use the technical word “default” – sounds a little better).
So here is the thesis. The entire world is living beyond its means, printing too much money which will lead to massive currency inflation, hyperinflation, devaluation, a complete loss of all savings, and the eventual destruction of our currency.
We live in a world that is interrelated. Just think about it. The GDP of the U.S. is $15 trillion and the whole world is about $50 trillion. The amount of debt out there is beyond a quadrillion (a thousand trillion dollars). When that debt and the associated derivatives unravel, the global financial system crashes.
These numbers are so big we can’t comprehend them. Do you know how long a million seconds is? Eleven and a half days. How about a billion seconds? 31.7 years. How about a trillion? 31,709 years. And a Quadrillion seconds? Only 31.7 million years. Okay, back to earth. If global GDP is only $50 trillion, how on earth could you ever pay off debt that exceeds a Quadrillion dollars ???
Not only that, the amount of currency and debt continues to grow so that the debtors will either default or become impoverished (off to debtor prison) or the whole financial system will just collapse and currency will be worth nothing. Zimbabwe here we come! We listen to the assurance of our leaders but we know deep down, whether it’s Obama or Romney, the problems will grow just like they did with George Bush and every administration before. No one has the guts to find real solutions to real problems. Look at the Greeks and French? They voted the belt tightners out! Give me cake! Give me circuses (now replaced by junk food, entertainment and reality TV). I’m not going to put links through the article like I usually do. Consider it commentary and if you want to check it out, it will check out. Believe me!
A Look at Greece
There never was a bailout of “Greece” – just a bailout of the bankers who had purchased “sovereign debt” – another way of saying Greek Bonds. Greece doesn’t have a central bank and can’t print money so they borrow from banks. The banks took a haircut on their principle but received interest payments. The Greeks got nothing other than more austerity – cut budgets, cut programs, increase taxes which only made matters worse – more unemployment, declining GDP, declining tax revenues. They voted out the Prime Minister put in office by the IMF and put in a good socialist. If he can form a government, he will cancel all agreements, default on debt and leave the EEU.
European leaders agree. Greece will be the first to drop out. Greece is now the biggest sovereign debt default ever but it will be dwarfed by Portugal, Spain, Italy and possibly France! Talk about too big to fail! These countries are too big to even think about bailing out!!!
Greece first received $200 billion which was to be followed by another $700 billion in three installments. Yet the bankers have been rewarded in billions of low interest loans they will never be able to repay. Meanwhile, the Greek economy decreased in size by 10 percent. Unemployment is near 20 percent. People are sleeping in the streets. Those who still have houses can’t afford to have the utilities turned on. Only the rich have electricity. You don’t read about this in the news.
A Look at Portugal
Portugal is the next country to go broke. They (the bankers) already received $300 billion. GDP has dropped every quarter for over a year. Unemployment is 15 percent and rising. The housing bubble has collapsed and a fourth of all homes went into default in 2011. Personal bankruptcies are soaring into record territory as government, private and corporate debt exceeds 4 times the country GDP. The government response? Increase taxes making matters worse. The news is more wishful thinking – that a few hundred billion in banker bailouts will solve a few hundred trillion problem! They are just making the problem worse and leaving the people with nothing.
A Look at Spain
Spain is facing Depression Era unemployment – 25 percent for the country as a whole and over 50 percent for adults under 25. In a country of only 38 million people, over 5 million have lost their jobs and are no longer paying taxes and are burdening the “safety net”. Once the IMF imposes its “austerity” program, we will see unemployment go from bad to worse. Housing prices have plummeted by 40 percent and a third are “under water.” The practice of having a several people co-sign for the home loan puts a lot of people on the hook and lets the bank book the old value without ever writing it off. And so they push the same formula onto Spain as they did Greece and Portugal. Bail out the banks, raise taxes, cut services and the Spanish government runs greater deficits. Spain is the ninth largest economy in the world and a bailout will be twice the size of Greece, Portugal and Ireland combined. Who is going to put up the money?
A Look at Italy
The IMF will not allow (according to its rules) a country to have a debt to GDP ratio of greater than 60 percent but Italy’s is twice that at 120%! Once it gets this high, the risk premium goes way up so interest rates rise and the country follows Greece and the others into a debt/death spiral they can never recover from. As interest rates rise, the debt burden increases and the hole grows deeper. When Berlusconi was kicked out as Prime Minister, the EU put a central bank lackey named Mario Monti, he began to raise taxes and cut spending, imposing the Eurozone austerity programs. Italians do not like the medicine and are likely to reject it just like Greece and France.
A Look at Europe
Remember, this doesn’t happen over night. These economies unravel slowly. Now that momentum is increasing in Greece, Portugal is hot on their heels and Spain is crumbling as we speak. Once Spain goes, Italy will be sure to follow. By then, central bankers – mainly Germany will have no stomach for trying to save another country – particularly one that doesn’t want to be saved. Last week France voted out conservative President Nicolas Sarkozy in favor of a left wing socialist. This is a resounding slap in the EU face and its austerity programs. The French haven’t changed much in the past two hundred years. The people are still demanding “cake and circuses”. Here comes more big government, debt and spending. Say a final good bye to the EU.
Last man standing is Germany. Surely, Germany not only can’t bail out all these countries, but does it even want to? Why give away their nation’s considerable wealth to bailout undeserving, undisciplined, ungrateful PIIGS?
A Look at Asia
Japan has been in a slowdown for over 20 years, but still is the third largest economy in the world. Japan is currently in another contraction and export demand is falling. Even South Korea is in a massive slowdown. China is also in a slowdown, a housing bubble burst, and manufacturing is decreasing as world demand drops off the map. Chinese banks are sitting on trillions of dollars of losses they refuse to report or acknowledge.
Once this ball gets rolling, it will build up speed and pretty soon, it is too late. The crisis overtakes us. Now I haven’t said what happens here in the US – just to say that we are going down the same path and we are seeing the slowing economy, falling housing prices, unemployment, increasing taxes. We will be the last to be hit. In fact, America looks pretty darn good compared to the rest of the world.
The bad loans, sovereign and public debt is being laid off to local banks, pension funds and the like so when the default comes, it’s the little guy holding the bag – savings, pension funds and investments will disappear. Meanwhile banks the world over refuse to acknowledge their losses and book loans (whether sovereign debt or housing loans) at their original value. So when the fall comes, it will come hard and fast.
I’m going out on a limb here. This collapse will not come in years or weeks but in months. Will it affect the elections? Hard to say. We are the farthest removed and last to feel the impact. The government has an incredible ability to lie and spin the news. They are really good – so whether it is Obama or Romney we probably won’t feel it here until after the election. This is just my guess. But this time around we are not seeing hyperinflation. We will see deflation and be in a depression. Prices will fall. Gold, silver and most commodities will lose value. Assets will be destroyed. People will lose their savings, retirements and investments and government will not be able to help. FDIC won’t save you. Welfare won’t save you. There will be no safe havens. This is a global event!
Doug met with his good friend Bob who lives in a nice suburb up in the foothills of Sacramento. He retired from United Air Lines and had a $2,400 month pension he could count on – then came UA’s collapse. His pension went into some kind of government bailout. Well, guess what? Bob’s now getting a government check for $400 per month – so much for Bob’s hard work and savings…down the old proverbial bailout toilet!
This may well be God trying to get your attention. There is little in this life that you can really count on. This life is fleeting at best, but it is the testing ground for eternity. What we do here determines our eternal destiny. This is not my idea. This is what God says. We are in the final countdown and the world is unraveling at the seams. There are ethnic wars, division on a scale seldom ever seen – even in America where we traditionally had consensus and a national vision. Now, the gap is growing between those who believe all is relative. Be true to the “God” you imagine. Don’t go for narrow absolutes.
But the world will be shaken by earthquake, famine, disruptions in supply, economic upheaval…yeah, I know, none of us really want to hear this…we still have a notion that this “thing” isn’t going to sink. Go figure – we just commemorated the 100th anniversary of the sinking of the Titanic just before, would you believe, the Costa Concordia did the same thing off Italy…almost symbolic. Each time we were reassured: This ship won’t sink… “This is the captain speaking; everything’s under control…now, first things first…I just fell into a lifeboat…how’s about that?”
The only thing you can count on; the one thing that will protect you from the spin and misinformation, from deception, is a close personal relationship with God through Jesus Christ. Everything else will fail you. You need to learn to listen to that still small voice and don’t believe everything you hear or have been taught whether in school, family or church. You have to test and try information. The only filter you can count on is the filter of the Holy Spirit working in your life and God’s Word as your anchor.
You need a tune up. Be in tune with Him and develop a relationship with Him and others of a like mind. We are not here to judge people, to hold them up to a standard. God is the only one that can do that. We are here to have a relationship with Him because that is what will get us through life, including the last days. I am writing a novel on line called “Gideon’s Chronicles.” It is only fitting that it is about a group of friends who were clueless about prophecy; good little robots who believed what they were told and were shocked to the core when they began to discover that they had bought a bunch of hooey and built their lives around it.
This isn’t about survivalism, cheating the system or profiting from it. This is about standing in Christ and being a testimony even unto death.
Copyright 2012 Dene McGriff and the-tribulation-network.com
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