Tuesday , 18 June 2024

Some Nasty Dark Clouds Are Forming On the Financial Horizon (+2K Views)

Some nasty dark clouds are forming on the financial horizon asglobal debt red ink total world debt is increasing nearly three times as fast as total global wealth. [To most, that seems to be]…okay because no one cares about the debt, only the assets matter nowadays. You see, as long as debts are someone else’s problem, we can add as much debt as we like… or so the market believes…

The original article has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.

The World Is Going Broke By Adding Debt

According to a recent article on Zerohedge, Global Debt Hits Record $233 Trillion, Up $16Tn In 9 Months, the world added more debt in 2017 than total U.S. GDP:

As we can see, total global debt increased from $217 trillion at the beginning of 2017 to $233 trillion in the third quarter of 2017. That is a $16 trillion increase in global debt in just nine months. While U.S. GDP hit $19 trillion in Q3 2017, if we add another quarter for the increase in global debt, it could surpass $20 trillion for the entire year so, even if global wealth surged in 2017, so did world debt. According to the data, global wealth increased by $16.7 trillion in 2017 while global debt expanded $16 trillion… nearly one to one.  However, this is only part of the story.

If we look at the increase in total world debt and total global wealth over the past 20 years, we can see a troubling sign, indeed:

Since 1997, total global debt increased from $50 trillion to $233 trillion compared to the rise in global wealth from $120 trillion to $280 trillion. 

There are two disturbing trends shown in the chart above:

  1.  Global Debt has increased 366% vs. 133% for Global Wealth since 1997
  2.  Net Wealth was $70 trillion in 1997 versus $47 trillion in 2017

If we compared the percentage increase in global debt versus global wealth, global debt is rising at nearly three times the rate of global wealthFurthermore, doing simple arithmetic by subtracting DEBTS from ASSETS, global net worth fell from $70 trillion in 1997 to $47 trillion in 2017.

By putting the numbers together, right in front of our eyes, we can clearly see that the world is going broke by adding debt. Basically, we erased $23 trillion in Global Net Wealth in the past 20 years. However, I believe the situation is much worse than the figures shown above.

  • For example, I came across an article several months ago on Zerohedge that also reported the increase in global debt, stated it did not include FX Swaps, etc. According to their data, Foreign Exchange Swaps likely exceeded $13 trillion. FX Swaps are more short-term debt instruments, but they are still debt instruments. If we were just to include the FX swaps worth $13 trillion, the estimated net worth of Global Wealth would only be $34 trillion ($280 – [$233 +$13] = $34).
  • In addition, we have no idea what other nasty debts or obligations are hidden out of sight of the public.

The Percentage Of World Gold Investment To Global World Assets Is Much Higher Than We Realize

Now, here’s the financial situation gets really interesting. If we go by NET WEALTH, then the value of the global gold investment as a percentage of world assets, IS MUCH HIGHER. According to the typical financial asset allocations, precious metals comprise approximately 1% of total global assets. The following chart shows that total global gold investment is valued at $3 trillion and silver at $51 billion (based on $20 silver, last year):

Thus, $3 trillion in the value of world gold and silver investment equals a little bit more than 1% of the $280 trillion in global wealth. However, if we are clever and remove the debts, the real NET WEALTH is closer to $34 trillion. Thus, total world gold and silver investment comprises nearly 10% of GLOBAL NET WEALTH, or ten times higher than it is currently valued. Furthermore, we must remember, physical gold and silver, purchased and held in one’s hand has no debt attached to it…

Unfortunately, the situation is much worse than what the figures in the charts above reveal. Why? Because, the only way that debts can be paid down is if we have another $233 trillion worth of profits from economic activity, correct? Now, I am not talking about $233 trillion in costs; I am talking about PROFITS. Big difference.

To pay back $233 trillion in debts, we have to burn one hell of a lot of energy… don’t we? That’s correct; we have to burn energy to create economic activity and not just plain ole economic activity, but PROFITABLE economic activity.

[The above indicates that] we are in BIG TROUBLE because we have been burning one hell of a lot of oil (95+ million barrels per day), but global debts are increasing faster than global wealth so, it’s just a matter of time before [the] GRAND FACADE comes crashing down.

Here’s how I see the future unfolding:

  1. The Falling EROI- Energy Returned On Invested will continue to gut the oil industry, and in time the world will experience CLIFF LIKE declines in global oil production.
  2. As oil production suffers massive declines, the global debt will become unmanageable.
  3. As debt becomes unmanageable, it starts to collapse.
  4. As debts collapse, so will assets. Why? Because debts are the other side of the assets.
  5. As assets collapse, so with the value of STOCKS, BONDS, & REAL ESTATE.
  6. As investors watch their investments implode, some who still can think for themselves will buy gold and silver.
  7. As investors flock into gold and silver, patience will finally pay off for precious metals holders.

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