Tuesday , 24 May 2022

von Greyerz: Chaos is Coming: Get Out Of Stocks; Buy Some Gold!

…The financial, economic and moral devastation which is about to hit the world will come out of the blue like a flash from a clear sky for more than 99.5% of the people and will be like the definition of the word “CHAOS: A state of total confusion and disorder”.

This post by Lorimer Wilson, Managing Editor of munKNEE.com, is an edited ([ ]) and abridged (…) excerpt from an article by Egon von Greyerz, for the sake of clarity and brevity to provide you with a fast and easy read. Please note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

CHAOS NUMBER 1: COVID – See original article for comments

CHAOS NUMBER 2: GLOBAL DEBT

…The current financial system is now entering a phase of inflation, most probably leading to hyperinflation…but before this financial system ends, the totally worthless debt must be destroyed through a deflationary implosion not only of the debt, but also the bubble assets financed by printed money created out of thin air…

An implosion of the financial system and consequently the global economy will clearly have major repercussions for life on earth…[because] never before in history has there been a global debt crisis of this magnitude…Just look at the magnitude of debt which has been created since 1971.

It took a few thousand years to get to a global debt of $1.5 trillion in 1971 and 29 years later debt had grown 66x to $100 trillion and since then it is up another 3x to $300T so when the shackles were thrown off by closing the gold window in 1971, there was a free-for-all between bankers and governments to create unlimited amounts of money and, by golly they have succeeded! Global debt is up 200x since Nixon took away the gold backing of the dollar and all other currencies…

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The very final stage of this monetary era started in 2006 with the Great Financial Crisis. Tens of trillions of dollars printed, lent and guaranteed managed to patch up Humpty Dumpty temporarily but…in September 2019 the financial system came under severe pressure [again] and central banks panicked in an attempt to save the bankrupt banking system with massive liquidity. Normally governments need to start a war to have an excuse to print serious money. but, conveniently for the banks, they had an excuse for this money printing since Covid started a few weeks later.

The world is now in totally unchartered and very precarious waters. A ship in such danger does not require more than a minor storm to be hit by irreparable damage. Nobody can forecast what will happen since we have nothing to compare with but what is very likely is that…[what] has been created by bankers and governments will reach a terrible fate – a fate that only future historians can tell the world about.

CHAOS NUMBER 3: DERIVATIVES

Global derivatives outstanding were reported by the BIS in Basel (Bank of International Settlement) at $1.4 quadrillion in the mid 2000s. That figure was conveniently reduced by the BIS to around $600 trillion at the end of the 2000s by netting positions…[but] the problem with netting is that when counterparties fail, gross risk remains gross.

Derivatives have been a most incredible money spinner for banks and other financial entities (remember that virtually every financial instrument created today consists of derivatives, whether it is ETF stock or bond funds, interest rate swaps, forex swaps, mortgage loans etc, etc, the list is endless). There are today so many opaque ways of creating and hiding derivatives from the official reporting that no one has a clue of the real amount outstanding but it could easily be in the quadrillions of dollars. Derivatives function very well in an orderly system when there is constant demand but, when the music stops and liquidity dries up, only then will we know the real amounts outstanding.

…[Below is an inverse pyramid with the current financial system at the bottom resting on a small amount of gold with massive debt on top. Above that we see the known derivatives reported by the BIS of $600 trillion and on top of that the opaque financial system which is likely to be in the quadrillions of dollars…

One will need to overcome the opaque financial system to achieve the triumph of survival

CHAOS NUMBER 4: TIMEBOMB

If we look into the next 5-10 years and paint a picture of what could happen to the financial system, the risk the world is facing is horrifying. Global debt will certainly grow from $300t to at least $500t. That figure is really a gross underestimate: if we add to that global unfunded liabilities (pensions, medicare etc) which are easily $500 trillion….[and then] we add the derivatives of $2 quadrillion – also probably too conservative – global debt will have grown from $300 trillion to $3 quadrillion in the next 5-10 years. [That being said,] I will probably be wrong on many accounts, like it won’t take as long as 10 years (we know from history that hyperinflation goes very fast) and most of the estimates of debt and derivatives are probably much too low [but,] still, let’s assume that the world is now facing a timebomb of $3 quadrillion….Warren Buffett… called derivatives financial instruments of MASS DESTRUCTION back in 2002 and, sadly, we will soon see the evidence. A very frightening prospect indeed.

Understand the global debt bomb and protect yourself to achieve the triumph of survival

Since all monetary systems in history have come to an end, we have to assume that the biggest global bubble ever also will and, since this morbid system touches all corners of our lives and has led to a decadent world where moral and ethical values have virtually disappeared, the world needs a cleansing in the form of a forest fire for new green shoots to start again.

PREPARE AND ACHIEVE THE TRIUMPH OF SURVIVAL

…Nobody knows exactly how things will play out but what we do know is that risk is probably greater than any time in history so prudence tells us to:

  • get out of bubble assets like stocks, bonds and speculative property. Once the fall starts, these assets are likely to lose 90% or more in real terms which means against gold…
  • get out of debt except for a normal mortgage on your residential property and
  • own physical gold and some silver (albeit much more volatile).

That will be your insurance against a rotten financial system.

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