@RaoulGMI identified the following factors contributing to a crisis, before Coronavirus:
- Stocks: Largest Equity Bubble of All Time: (Pension Crisis & Buyback Bubble)
- Largest Retiree Wave, all wanting to sell stocks and bonds at the same time
- Millennials are too poor and indebted (make 20% less than parents)
- Corporate Credit: Largest Credit Bubble of All Time
- ($10 Trillion + Off balance Sheet = 75% of GDP)
- Student Loan Bubble:
- $1.6 Trillion
- Auto Loan Bubble
- ($1.2 Trillion)
- Indexation Bubble
- ETF/Market Structure Bubble
- Foreign Borrowings (Dollar Standard Bubble)
- Monetary Policy Bubble (The Central Bank Bubble)
- EU Banking Crisis
- why they hired Christine Lagarde, for her political negotiating skills to deal with the nationalization of the European banks (which are facing insolvency) not for her economic or financial skills
- A Trade War:
- The Trade Wars “shattered” supply chains
- Largest Supply & Demand Shocks of all Time
Central Banks have been fighting for the last 20 years:
- Full Scale Debt Deflation and a Solvency Crisis
- A loss of confidence in the Dollar Standard and the Entire Financial Architecture
In this video from VRIC 2020 Peter Schiff and Brent Johnson debate about the future of the fiat money specifically US Dollar and the gold standard.
Peter Schiff believes the US market has never been as overvalued and over priced. And one of the major warning signs is we blew up the private equity market. This decades dot.com bubble is the private equity market destruction. This destruction will lead to the decline of the US dollar and eventually a remonetization of gold as the dollar loses its place as the Worlds Reserve Currency.
Peter Schiff’s theory is that Central Bankers around the world are under the false impression that a cheap currency is a good thing because it allows them to export more to the United States. However, the US is broke and can never pay for what it’s buying.
And since America is the largest debtor nation in the world and have more debt than other major countries combined and manufacturing is such a small portion of the US economy, there is a complete dependency on foreign goods.
And Relative to Wealth producing components of GDP no other country on earth has as much debt as the United States.
Add in contingency guarantees such as bank accounts, pensions, brokerage accounts that the US government is committed to funding despite the lack of money to pay for these things.
Combine all of this together and there is the potential for a currency crisis the likes the world has never seen. Schiff thinks this because there is an unrealistic level of belief for the US Dollar.
Schiff thinks the dollar will perform worse than other fiat currencies around the world and that we’re going to remonetize gold as the central asset.
Brent Johnson ultimately believes the same ending but with a different theory on how it will all go down.
Brent’s theory is that MMT is that the government will spend more money into existence and the central banks will want to control of the monetary policy. And that the dollar will go up and people will continue borrowing and buying which will ultimately lead to a massive currency crisis.
Every country in the world has over leveraged their economy and Brent Johnson believes that Central Bankers in every country are making the same bad bets across the world.
Brent Johnson makes note of The Plaza accord and that it was put in place in 1986 to artificially weaken the dollar against the other worlds Fiats because it was too strong. He argues that the dollar will be the the worlds central currency until fiat fails.
Schiff’s theory is “Money Is Nothing” and the value is the production and real goods that a country has. Money just lets you divvy up whats been produced. The wealth of the nation is the productive capacity of that nation.
Schiff also believes that in order to have a strong country you need:
Which are things that the US severely lacks and will pay a massive price for the over dependence on countries that do have these things.
The Canadian economy will benefit from a resource and precious metals boom that will help the Canadian dollar.
Schiff on inflation: Inflation initially pushes up asset prices before consumer prices.
Brent believes that digital currencies could be the future of money and likely will be implemented by most countries in the near future.
Brent and Peter agree that The Gold Standard will happen after a general loss of confidence in fiat currency.
Schiff explains MMT Modern Monetary Theory as the practice of taking Quantitative easing to the extreme. Printing Money without creating prosperity. Democrats will rely on the central bank to fund their spending agenda.
Repo rates have spiked to 9% – the market wants rates higher but Americans have so much debt and American can’t afford to service the debt. And international banks have been accessing the FED repo market to a greater extent than the US domestic markets. Repo rates spiking shows a demand for funding from the US dollars.
Americans have so much debt that the US government has to keep rates low other
Marin Katusa postulates that the highest risk lies in the credit market with debt in triple BBB
But that argument can’t be applied to other countries targeted by Mr. Trump. Aaron Tornell, a Mexican-born economist at the University of California, Los Angeles, noted that since the 1980s, Mexico has turned away from left-wing isolationism toward liberalized markets and closer cooperation with the U.S. on trade and security issues such as narcotics. Advocates in Mexico of this integration argued American presidents and big business would prevent the U.S. from using its enhanced leverage to punish Mexico.
Mr. Trump’s policies could “destroy the political foundations of a country that has been following liberal economic policies for the last 30 years and give more power to those who want to be like Venezuela,” Mr. Tornell said.
But there is a real underlying risk that by deploying and using its economic weaponry so frequently the U.S. will, in the long run, drive others, friend and foe alike, away from its economic orbit. “These are not zero-cost options,” says Robert Hormats, former under secretary of state for economic affairs and an adviser on international economics for presidents going back to Richard Nixon.
Imposing tariffs on China and other nations trying to send their goods to the U.S. not only raises the prices of those products for Americans, it also gives targeted nations an incentive to develop markets, and long-term trade ties, in other countries.
At the same time, those foreign nations can retaliate by cutting purchases of American goods, or by slapping retaliatory tariffs of their own on American products, making them less competitive, as China has just announced it will do. The Chinese may find other countries to provide, say, wheat and soybeans, and in doing so develop lasting, non-American trade ties.
“If the U.S. develops a reputation as an unreliable supplier, countries will turn to our competitors, and, when sanctions end, earlier supply chains will be difficult to restore,” says Mr. Hormats.
.. Similarly, there is a danger the U.S. is providing both allies and adversaries an incentive to find ways around using the American financial system as the wiring for international commerce.
For now, there are few alternatives to using American banks for clearing international transactions. As a result, enemies find they can be shut out of much international commerce by crossing the U.S. and being slapped with American sanctions.
But it isn’t just enemies. Friends also know their companies can be isolated if they don’t heed American wishes to shut down commerce in countries on the American black list. The risk of losing access to the financial system is a powerful motivator.
Yet overuse of this threat could compel other counties—including the very allies whose cooperation the U.S. seeks in applying financial pressure to the bad guys—to find alternatives to using dollars and American banks. Mr. Hormats notes that this “is not easy to do now, given the dollar’s pre-eminent role, but over time such overuse could eat away at the dollar’s role and hence U.S. leverage.”
Indeed, there are signs that others are seeking alternatives to the dollar and the American-led financial network. The European Union is trying to set up its own payment system to allow oil companies and businesses to continue trading with Iran despite American sanctions. China has made clear it would be happy to lead a different international finance system and use its currency as an alternative to the dollar.
Similarly, 11 Pacific Rim allies have moved ahead with their own new trade bloc after the U.S. pulled out of the Trans Pacific Partnership trade deal.
America remains the big kid on the economic block, but it isn’t the only one. The danger is that it could come to be seen as the bully who tries to intimidate the other kids once too often, persuading them to join together to find ways around him.