One Of The Largest Wealth Transfers In History?
In my last article, I discussed how the Fed is determined to keep the financial system primed with sufficient credit to prevent it from imploding. However, in this article, I’ll explain why their plan is doomed, because our GDP growth will not be able to match the credit expansion they so desperately need. I’ll also show how this will result in one of the largest wealth transfers in all of history. If you have not read part one of this article you can do so here. Global Debt Crisis – Part One
So, if you’re interested in knowing how to increase your odds of being on the right side when it occurs, then please keep reading.
Let’s start with a question. Do you think it would be possible for someone with a $75,000 salary to successfully carry $860,000 in debt on their credit cards? No, of course not. That’s completely ridiculous and not workable in any stretch of the imagination. But that’s exactly where the U.S. is headed.
Let me explain . . .
As mentioned in my last article, the U.S. debt-to-GDP ratio is at unprecedented levels. At one point, it was well over 370%, but as of this writing, it stands at about 350%. The Feds hope that by means of robust economic growth, that ratio can be reduced. But is that reasonable? I’ve analyzed the average yearly growth in U.S. GDP going back to the late 1700s and noted its lowest point was about 1.5%, and its highest point was about 6%. But on average, the U.S. GDP has been 3.8% over the last 220 years.
Unfortunately, that’s nowhere near enough to cover the 8% rate that our debt is growing. In fact, with these numbers, our debt-to-GDP ratio will grow to 1,130% in the next 30 years! As mentioned, that’s the equivalent of someone with a $75,000 salary trying to carry $860,000 in debt on their credit cards. The bottom line is this: our GDP growth has NEVER been high enough to cover our current 8% debt growth.
But that creates a HUGE problem, because our debt-based fiat money system was designed with the need to grow. And if for any reason, it stops growing or even reverses, the whole system can literally implode.
In my opinion, that’s why we’re seeing various central banks dropping any language about the need for future interest rate increases and they are continuing with loose monetary policies. What I see are central banks everywhere pumping liquidity and promising to keep interest rates down. Why? Certainly not because they think it’s a good idea, but because it’s what they MUST do to keep the financial system from imploding!
The underlying problem is that real growth is not coming back. The only increases we’re seeing are in paper-wealth, meaning stocks, bonds, and currencies. And this can only go on for so long before there is a huge re-balancing, bringing excesses back in line with reality. When that happens, the vast majority of people will lose as the most of the real wealth gets transferred to relatively few.
Those holding paper assets will suddenly find themselves holding nothing of real value, while those holding real assets will find themselves with all the wealth. But even worse is that with all of this easy money sloshing around, prices are being driven up on everyday necessities. You see, the Fed is working tirelessly to debase the dollar and boost borrowing, because that’s what our financial system requires to survive.
But time is almost up.
Living beyond our means is very pleasurable, but it can’t go on forever. It’s just not a workable long-term plan. So, what do I recommend? As your making your money trading, make sure you continuously transfer a significant portion of your profits into real, tangible assets like gold and silver.
The jig is almost up. The world just cannot provide the level of growth required to support the debt we are accruing.
The time of reckoning is near. Don’t delay. Take action right now.
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