munKNEE.com Your Key to Making Money
I want to start by telling you something truly “uncommon”, and that’s
that what is happening to the economies of the world is perfectly normal. Once you understand that you will not only be able to steer clear of the emotions of the times today but be objective instead and, most importantly, fully expect what’s about to happen tomorrow.
If you study the history of financial panics back to Roman times, you will find a clear pattern of 5 distinct phases of economic cycles as follows:
Phase 1: Price stability and economic expansion
[Phase 1 is] characterized by peace, zero to low inflation rates, rising industrial production, emerging technologies, income growth, government surpluses and growing personal savings. In short, the best of times.
Here are some examples:
- Rome, during its “Pax Romana” period, which lasted nearly 200 years and ended in 180 A.D. The longest peacetime expansion of any civilization ever, when the Roman Empire flourished under five different Emperors.
- The industrialization of Europe from 1760-1870, characterized by moderate inflation, huge strides in technology and manufacturing, rising trade and employment.
- The similar industrialization of the United States from roughly 1870-1914, with rapid developments in the chemical, electrical, petroleum, and steel industries, in mass transportation, in automobiles and the airplane, in the canning of goods, mechanical refrigeration, and the telephone. Productivity gains … large spurts in GDP growth … and tame inflation.
- The 1980s and ’90s, worldwide… the peace dividend as a result of the end of the Cold War … the computer and internet revolutions … declining interest rates … low inflation … rising employment … productivity gains.
Phase 2: Complacency
[Phase 2 is characterized by] rising inflation, asset bubbles, a build-up of massive debts and the acceleration of previous trends.
Still a peace-time environment, but the rise in industrial production and incomes leads to less savings and more consumer spending, which shows up in demand and rising inflation rates. Productivity gains from new technologies initially moderate the upward pressure on inflation. Complacency begins to take hold. Investors, businesses, and politicians begin to ignore common risks, thinking the good times will never end.
Later in this stage, primarily as new technologies mature, productivity gains plateau or even begin to decline, lifting the lid off inflation. Prices start rising dramatically, and bubbles begin to appear in a wide array of assets — from stocks to commodities. Simultaneously, debt levels begin to rise, largely amongst the private sector, as companies and individual investors continue to be lulled into thinking the good times will never end. A dramatic debt bubble begins to build.
Here are some examples:
- The heydays of Rome, starting around 167 A.D. … where a mushrooming trade deficit ensued … inflation started to rise as coins and currency lost their purchasing power … debt levels rose … asset prices surged higher.
- The “tulip mania” in Europe in 1634-1638, the Mississippi Land bubble of 1719-1720.
- The stock market bubble of 2000-2001 … real estate bubble of 2001–2008.
Phase 3: The wake up call
[Phase 3 is characterized by] bubbles starting to burst and disinflation. Prices in an asset bubble burst, followed by the implosion of bubbles in other markets.
The triggers are almost always excessive debt build-up from the prior phase. The shock that bursts the bubbles [is] usually an exogenous force, unsuspected, but not infrequent to the course of human events.
Here are some examples:
- Bursting asset bubbles in Rome from 180 A.D. on, including the collapse of its provinces.
- The bursting tulip bubble — tulip mania — in Holland, the Mississippi Land bubble.
- The Panic of 1797, which originated in England, but crossed the ocean to American soil, causing a 14-year recession in the United States.
- The Rich Man’s Panic of 1907 in the United States, that saw stock markets drop a sharp 50%.
Phase 4: Instability
Phase 4 is characterized by collapsing prices and deflation. Institutions teeter and a wave of bankruptcies hits. The mountains of debt collapse under the weight of falling prices. The deadly intersection of debt and deflation arrives in a downward spiral. Consumers and businesses retrench. Manufacturing and trade collapses. Confidence plunges. War often breaks out largely due to trade friction and countries turning inward to protect themselves. Capital controls are initiated. A wave of consumer and business bankruptcies hits. The blame game starts.
Here are some examples:
- The wipeout of the Roman Empire in 476 A.D.
- The collapse of banking after the Tulip and Mississippi bubbles of 1634-38 and 1719-20, respectively, which nearly bankrupted both Europe and the United States.
- The Panics of 1819 and 1837 in the United States, its first real experiences with major financial crises involving widespread foreclosures, failing banks, soaring unemployment rates, and a gigantic slump in manufacturing and agriculture that caused havoc among Americans and perhaps the worst, until now.
- The stock market crash of 1929 … the ensuing banking collapse … and the Great Depression of 1929-1932.
Phase 5: Monetary reform
[Phase 5 is characterized by a] wiping of the slate clean i.e. the revaluation of money to overcome deflation and debt. The deadly combination of debt and deflation overpowers the economy. Governments spend wildly to try and reverse it, but to no avail. Economic growth continues to plunge. Bankruptcies soar. Asset markets stage surprising rallies, only to give way to more sudden panic selling.
Drastic times require drastic measures. Governments begin to tinker with the value of money, debasing coin and currency. Wholesale monetary reform begins; new fiat money is issued to replace old money. Debts are inflated away by currency devaluation. Asset reflation begins, but economic growth remains lackluster at best.
Here are some examples:
- The debasement of coins and money by the Roman Empire in its final years, where the Roman denarius became worth 1/100th of its former glory, and ultimately by the mid-3rd century B.C., ceased to exist.
- The suspension of the gold standard in 1914 to inflate away debts from World War I.
- The confiscation of gold and the devaluation of the dollar in 1933 by President Roosevelt.
- The 1944 Bretton Woods Conference that established the dollar as the world’s reserve currency, linking it back to gold, but at levels which allowed countries to handle their World War II debts and reparations payments.
- The final abolishment of the gold standard in 1971 by President Nixon, which caused the dollar to plunge in international markets.
- The Plaza Accord of 1985, which again devalued the dollar in international markets to allegedly correct trade imbalances between the United States and other countries.
What Phase are we in Now?
Does all this sound eerily familiar? It should — it’s a pattern that has been repeated countless times in the history of mankind. What phase are we in today? That, too, should be obvious. We are in the middle to late stages of Phase IV and Phase V. Monetary reform to inflate away mountains of debt is right around the corner!…
How to Protect Your Money
With the world about to be turned inside out – with Phase V of another historic shift in the value of money right around the corner – you need to truly protect your money and get positioned to grow your wealth, like never before. [This] means…you need to
- stay alert,
- think like a true contrarian,
- use “uncommon wisdom”,
- question prevailing opinions,
- buck mass psychology,
- dig deep to find the truth,
- uncover commonly held fallacies,
- keep your money liquid and safe,
- and be ready to strike at an opportunity in a heartbeat.