Are We On The Verge Of A World Financial Collapse?
In late June, the annual report of the Swiss-based, Bank for International was released with a dire assessment of our current global financial situation.
The 2014 annual report begins: “The global economy has shown encouraging signs over the past year. But its malaise persists, as the legacy of the Great Financial Crisis and the forces that led up to it remain unresolved.”
In short, the report highlights the serious breakdown of the global financial system that began in 2008, and the inability of the world’s political and financial leadership to find an effective solution.
Most frightening is their assessment that the strategy of supplying virtually unlimited amounts of cheap money is setting up conditions for another complete worldwide financial collapse, potentially larger than the last one.
Since 2009, stock markets have continued to rise. We continually read of new high after new high. And this continues even though the global economy is currently experiencing the lowest recovery rate since WWII.
For example, here is the U.S., our economy contracted 2.9% in the first quarter. And the level of output is trending seriously downwards in countries like the U.K. and other European countries.
And sadly, the BIS report notes that “the prospects for restoring trend growth are not bright.”
But interestingly, while the world economy is stagnating, the markets continue up, up, up.
As the report says, “Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”
In fact, to illustrate the disconnect, I note that over the last year, the S&P500 index has gained about 24%, while expected future earnings grew by less than 8%.
And the P/E ratio is currently running about 15.7, which is above the 5-year average (13.3) and the 10-year average (13.8)
As you may know, all of this disconnect is ultimately, the result of “Quantitative Easing,” a program of unbridled money printing by the Fed, the Bank of England, and the Bank of Japan.
And, as a result of these easy-money policies, many of the financial practices that led to the 2008 world financial collapse are making a return.
For example, according to the Financial Times, US firms are now “adding record debt through mergers and acquisitions and share buybacks,” and that “to keep up with competition, conservative asset managers are throwing in the towel and buying riskier products.”
Also, this flood of easy money is re-creating many of the exact conditions that led to the 2008 collapse.
For example, lower interest rates in the first-world economies have caused more investors to pour their money into emerging economies in search of better yields. However, the problem is that the flow of money into these countries can reverse quickly.
And when this does occur, it will have even more serious consequences, because these emerging markets are now a much larger proportion of the world economy than they were in 2008.
The bottom line is that flooding the world financial markets with easy-money has been a short-term fix that has raised huge long-term dangers.
The BIS report is a frightening reminder of the magnitude of financial problems the world faces.
So, in a future article, I will provide some practical suggestions of what you should do now and how to protect yourself from the coming world financial collapse.
Logically, all stock markets should have crashed by now. – Which proves that QE and the central banks have totally distorted the markets.
Reminds me of the phrase that ” markets can stay irrational for longer than you can stay solvent”
(In other words, every instinct says to go massively short on all stock markets; BUT………!!!)
I find your article very interesting, and am looking forward to hearing from you, and your solution for this apparent second recession!
Many thanks.
its all FRAUD, and nothing but FRAUD.
Yes, I think is true what you tell us.
I enter from two weeks only short over the index and nor only USA index, but DAX too.
when you have greedy,dumb,and inexperience politicians..this is what we get…they were voted in…
As far as USA is concerned, you can thank dire predictions and horrendous debt to the Federal Reserve Act, renewal of their management contract every year with its compounding interest, and (yes, money-printing for elite 1% banksters/ friends-of-Fed), globalism, “free trade” agreements that allowed export of US factories and jobs, and of course relaxing trading-with-the-enemy laws and granting most-favored-nations trading status to communist Red China. The World Bank President frankly admitted/ apologized for their policies in a Youtube video, predicting the rise of a new far eastern middle-class, at the expense of US.
….so what do we do?
Move investments into cash…into gold …real estate…co.bination of these…????
No one will admit that the US Government is essentially ‘bankrupt’. The national debt along with continual deficit spending, by raising the debt limit, is all adding up to the US dollar being a worthless piece of paper. The appearance of a bull market has blinded even the best to ignore the facts and reality that we can’t continue this ponzi scheme.
First, darn it, there is NO recession!
It is merely a delayed (by 20 years) “beginning of the end” of the U.S. as we have known it (or think we have known it).
The days after WWII when we were the only team playing in the league and couldn’t lose are long over…the “have nots’ of ther world are coming after us “haves”, which is a natural thing. Our foregathers did it and formed America.
Now, as we become a twittering, texting, obese, hide behind voice mail, shiftless culture, living on way past laurels, “they” (the 2nd and 3rd “worlds”) are eating our lunch and soon will have our breakfast and dinner as well.
Read history, people! Every country has its time. We had ours. It’s over.
Yes, there will be some ups and the “great un-washed” will say, “Oh, the recession is over”.
They just don’t get it. The long view is down….every little up will be followed by a deeper down…
So, stop listening to Rush and the other conservative and liberal idiots hustling you out of your money….pay attention taking care of yourself and your family…not all the organizations…and figure out how to make a buck off of the slide down….
Enoguh said…
t .
I couldn’t have said it better!!
I await further info.
The US is in debt, yes, but the world will not end. The markets are distorted because the central bank knows that a SEVERE depression is much harder to comeback from than cooling a bought of inflation. All non-1% ‘ers better thank their lucky stars that the central banks are doing their jobs when the “hapless and bigoted” federal legislatures will not do theirs. Obama is not perfect but he is better than what Romney would have done…he would have turned the 1% loose on the rest of us and the 1% would end up owning evrything the non-1% have accumulated.
As a Quantity Surveyor, not an Economist, I draw the the following conclusions:
Finance is a measure of value.
Currencies reflect the regard of the particular currency holder to the value of an asset.
You cannot make an accurate measure of anything with an elastic ruler.
Currencies vary according to the regulators or manipulators of that currency to maybe further their own ends.
Is there a need to reconsider the Gold Standard????
How about we give Keynes a chance?
Enough said!
Hi, this may not get posted on the forum as what is said here may put some readers to disbelief. It is common knowledge that the Fed have quietly been buying shares in the US stock market/companies with the paper currency they are printing, this is because it is the only way to convince amercians or give a false sense of security that things are alright, and to see the stock market continually rising. To see Nasdeq and other markets continually on an up, initiates more independent investors to keep pumping more money into these markets. The stocks is the only remaining value the US has. China, India, France, Germany, ( outside the EU ) Japan, and some of the Arab countries have signed agreements to trade in there own currencies, and not relate back to the US dollar as a reference, so this actually isolates the US even more. Did you know that the average person in the US, 44 years and younger has less than $10,000 in savings. 1 in 5 US citizens are in poverty. 60% of US infrastructure is in dire need of upgrading of renovation. These are just a few statistics.Need I say more, the Fed have quietly pulled a veil over the average americans eyes to think all things are going along fine. Things are not all bad, as there is wealth in the US, but it is only about 10 -15% of the population. I hope I am not opening up a can of worms to what I said here.
There are three types of people in the World. Those who make it happen , those who watch it happen and those who will wonder what happened!
The tea leaves are clear!!