The World Is Addicted to Debt

The World Is Addicted to Debt

Was the 2007 to 2008 financial crisis the equivalent of a foreshock — an earthquake that, at the time, seemed like the Big One until, that is, the real and substantially larger earthquake brings massively more destruction days or weeks later?

Based on what has transpired in recent years, it would certainly seem that the Global Financial Crisis was just a taste of what’s to come.

The world is more deeply indebted today than it was back then. Too-big-to-fail banks are even bigger today. And central bankers for the world’s key countries have little firepower left to confront a new financial crisis.

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We are now officially on our own. Buy gold!

Earlier this year, global consulting firm McKinsey & Co. issued a report on the 20 most-indebted nations. The numbers are shocking.

Just below those top 20 nations we have Canada at #21 with debt-to-GDP at 221% … Australia at #23 with 213% … and Germany at #24 with 188%. The most prudent Western nation is tiny Slovakia at #27 with 151% debt to GDP.

Overall, global debt now sits right at $200 trillion — nearly three times larger than the world’s entire economic output in a given year.

That is not a sustainable number.

A Future of Defaults?

Just about the entirety of the West is in a bad way with debt, given that most economic research concludes that debt ratios above 60% are debilitating and, ultimately, disastrous to an economy. Worse, there is no discernable effort anywhere in the developed world to reduce those debts.

Our biggest problem is that Western politicians have reached the point where they know the only way to maintain clout is to rely on the power of the printing press to pay for programs that keep the populace relatively happy and compliant. They’re egregiously — and immorally — accumulating masses of debt in our names without regard to the true impacts.

But, as I always say, nothing in economics and finance ever happens in a vacuum. There are pipers to pay. And governments around the world face a painful comeuppance.

Because of them, we face a financial crisis that will show the Global Financial Crisis to have been just a foreshock.

I’m not saying such a crisis is imminent. I’m just saying that one is all but assured.

Debt goes away in only one of three ways: It’s paid off, written off or the debtor defaults. Given the size of the world’s debts, there’s no plausible way to pay it off without usurping assets from private citizens (not out of the realm of possibility). The world — especially the West — simply has not the capacity to grow fast enough to generate the tax activity needed to pay down the debt to a sustainable level.

More likely, then, are write-offs and defaults.

And in a fiat-currency world, those solutions come packaged with a crisis-of-confidence among the citizenry who suddenly see that they have every reason to fear politicians with a printing press.

Here’s the real problem for you and me: We have no way of knowing when a financial crisis will erupt. We have no way of knowing what event will precipitate the unraveling.

Will the reckoning happen tomorrow? Next week? Next year? 2018?

No one has that answer.

All we can do is prepare.

One Solution

And the only way to prepare is to own gold.

In every financial crisis, gold has served as the ultimate store of value. As archaic as it is — it has been a currency for thousands of years — it will prove once again that it is the only true currency on the planet (that is, until the Chinese release a hard-asset-backed yuan in the new future … but that’s a story for another day.)

This isn’t just another “buy gold” story.

It’s me imploring you to protect your future from what’s coming.

Until next time, stay Sovereign…

Image for global financial crisis

Jeff D. Opdyke

Editor, Profit Seeker

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