[ Stansberry has been predicting a market crash and currency collapse for a long time. But this hasn’t happened yet, so Stansberry re-evaluates his ideas. He notes that the top 20 industrialized nations have pension and retiree obligations that aren’t on the balance sheets, with over $80 trillion coming due in 10 to 20 years. The unprecedented explosion of debt the past 20 years is now more guaranteed by governments than the Market.
He says “Over the next decade, the biggest threat to your wealth won’t be the risk of losing your savings to a market crash. The biggest threat, by far, is the risk of losing your wealth to our government via confiscation or devaluation… or both….By guaranteeing so many of these debts and obligations, governments are setting up an unprecedented collapse of not only the banking system, but of the political system itself. The U.S. government has already pledged a large amount of your wealth to other people …My fear is that the stock market disappears. My fear is that the government defaults. My fear is that no bank will survive.”
“Negative interest rates have become pervasive in two out of the three major developed currency blocs. And we could certainly be next.” Stansberry asks how that could possibly work out in the long-run: “Do you think the public is going to volunteer to buy bonds that not only don’t pay interest, but charge a monthly fee to own? How will life-insurance companies meet death-benefit claims if bonds no longer pay any interest? How much capital would you put into the banking system if the banks begin charging you 2% or 3% a year just to keep your savings with them?”
He doesn’t offer any solutions, and never mentions declining energy or natural resources, which is the true source of our problems.
Alice Friedemann www.energyskeptic.com author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]
Porter Stansberry. April 22, 2016. The End of America. The Stansberry Digest.
“Remember the ‘End of America’?… How the global economy got ‘Enronized’… How negative interest rates work… What happens when doctors won’t take Medicare?… Longtime readers might remember a documentary we produced back in 2010 called the “End of America.”
The thesis was pretty straightforward: America, having racked up debts (both private and public) so large they could never be repaid in sound money, would inevitably be forced to print its way out of perdition. As a result, our dollar would inevitably lose its position as the world’s leading reserve currency. For Americans, the days of cheap and easy credit would be over. Going forward, we wouldn’t be allowed to merely print up paper to pay for our foreign loans. Such a development would be catastrophic to a lot of Americans, similar in many ways to the economic and social challenges Great Britain faced after World War II.
In our “End of America” presentation, we predicted several important developments that have since come to pass, such as a general increase in social unrest. See the recent riots in Baltimore and the “Occupy Wall Street” movement. We were right about America’s credit rating, which was downgraded from “AAA” in 2011 by ratings agency Standard & Poor’s. We were right about the rise of new “alternative currencies” like Bitcoin.
We’ve also seen more and more political challenges to the status quo, and even a sharp rise in political violence. You’d have to be completely ignorant of history if “strongmen” like Donald Trump don’t remind you of Mussolini or other similar figures from history. Leaders like this arise as countries go bankrupt because the public doesn’t want to accept the consequences of its profligacy. Wars break out, too… like the kind Trump seems determined to start against Mexico… or the kind that Hillary will probably continue to wage in the Middle East.
But in one important way, our predictions haven’t come to pass (at least, not yet). Incredibly… the currency collapse hasn’t happened – either in America or in any other major developed nation. Sure, the yen and the euro have weakened a lot against the dollar. They’re down 15% and 28% since 2012. But we haven’t seen the kind of panic I know we’ll see sooner or later in the world’s leading paper-money brand – the U.S. dollar.
I (Porter) have been thinking about why that’s so… and how the system could endure for far longer than I believe is possible. Let’s look at the numbers.
Here’s an incredible statistic: Since 2009, total global debt has increased by $57 trillion, according to consulting firm McKinsey. That’s about the same amount of debt as America owed, in total, back in 2009. Said another way, in a little more than six years, the world has added a new pile of debt as big as the one that blew up the American economy.
Meanwhile, total debt (public and private) in the U.S. has increased, too. We’re up to $65 trillion, from around $55 trillion in 2009. Our total debt is up 150% since 2000. Just think about that for a minute. Imagine what our economy would have looked like over the past 15 years without that incredible level of stimulus. Think about what our unemployment figures would look like without all of that debt.
What’s the big deal? Who cares about some “hot money” lending? The problem, as McKinsey points out, is that all around the world, debt growth is far outpacing economic growth. As a result, we haven’t had the ability to finance these new obligations. This raises the question: If economic growth can’t finance these new loans (or the old ones), who is foolhardy enough to lend all of this money?
The answer won’t surprise you. It’s the government, of course!
A new report published by the Richmond, Virginia branch of the Federal Reserve says 61% of all liabilities in the U.S. financial system are now implicitly or explicitly guaranteed by the government. That’s way up from 1999, when only 45% of the liabilities of the financial system were guaranteed (mostly Fannie and Freddie). In other words, more and more of our financial institutions rely on the government (aka taxpayers) for access to credit.
These guarantees, however, can’t be found on any U.S. government balance sheet.
Imagine if a publicly traded company did the same. It would be called “Enron” and its leaders would be put in jail. That’s the status of our entire banking system: It has been “Enronized.” It runs on the same financial engineering as Enron. And not just in America. You can find the same problem in every major economy in the world.
Does that sound like a good idea?
Well, it has been fun so far. Over the last 20 years or so, the world has seen an explosion of debt unlike any other period in history. Most of these obligations wouldn’t have been financed by the free market. Individuals investing their own savings would have never agreed to those risks or the tiny interest rates now being offered to lenders in every major economy.
But rather than live within the means of the free market, governments from almost every major nation have engaged in massive currency and interest-rate manipulation. And that’s not all. They haven’t merely guaranteed the availability of capital in more and more ways… They’ve also guaranteed the principal of the loans.
Does that sound sensible?
I know, you’ve heard all of this before… But none of these problems stopped the big bull market we’ve seen since 2012. So even if we’re right that this isn’t sustainable, how can anyone know when the boom will end or when the music will stop? We don’t know, of course. Nobody can know for certain if the next market correction or bear market will be the “big one.”
But here’s an indicator of where things might finally hit a real breaking point: Banking giant Citigroup (C) warned in a recent report that the top 20 industrialized nations have pension and retiree obligations (also held off the balance sheets) that exceed $80 trillion. All of these come due over the next decade or two. And of course, none of these obligations can be financed based on current GDPs or tax rates. The mountains of debt these economies continue to labor under ensure there is no growth.
How will it all end? I wish I knew exactly… but I have no doubt that it will be far worse and far more violent than anyone could possibly predict.
So I hope that while you’re thinking about what the stock market will do next week or next month, you also spend a little bit of time thinking about the bigger picture. Over the next decade, the biggest threat to your wealth won’t be the risk of losing your savings to a market crash. The biggest threat (by far) is the risk of losing your wealth to our government via confiscation or devaluation… or both.
Just think about it… If these loans were purely private, a run on the bank would result in the collapse of the banking system. Depositors would suffer massive losses. We would see the same kind of credit deflation we last saw in the 1930s. Most financial assets and a lot of “hard assets” would be lost to bankruptcy. Prices would decline massively. But the real wealth wouldn’t disappear. All that would happen is a massive transfer of wealth from creditors to lenders.
But that isn’t the only thing that will happen this time. By guaranteeing so many of these debts and obligations, governments are setting up an unprecedented collapse of not only the banking system, but of the political system itself. You might not know it, but the U.S. government has already pledged a large amount of your wealth to other people. And when that bill comes due, we’re going to have a huge problem. Think Detroit, on an international scale.
We’re already so late in the game that the expense of just maintaining the existing debts can’t be honestly financed. Negative interest rate policy (“NIRP”) is the new idea. Charging insurers and big banks negative interest rates might work for a while to keep the music playing because the public generally fears and hates these massive institutions.
But what will happen when the government must finally begin to tax the ultimate guarantor in our debt-backed, global banking system? What will happen when the taxpayers face negative interest rates, huge increases in taxes, enormous cuts in benefits, or crashing currency values?
When I look at the big picture, my fear isn’t that the market will crash… or that default rates will rise… or that interest rates will go up (or down). Those things are all going to happen in the normal course of events. My fear is that the stock market disappears. My fear is that the government defaults. My fear is that no bank will survive.
Sounds a little crazy, I’m sure. But it’s obvious to anyone who looks at the numbers that our current path is not sustainable. It is clearly beginning to completely break down.
Try to explain how negative interest rates will influence the housing market, for example. Will we soon see people applying for a “mortgage” at the Federal Housing Administration or Fannie Mae, and then being paid a monthly stipend in exchange for living in a house, for free, that someone else paid to build?
Does that make any sense?
Or consider the government-bond market itself. Do you think the public is going to volunteer to buy bonds that not only don’t pay interest, but charge a monthly fee to own? How will life-insurance companies meet death-benefit claims if bonds no longer pay any interest? How much capital would you put into the banking system if the banks begin charging you 2% or 3% a year just to keep your savings with them?
None of that stuff makes any sense. And yet, negative interest rates have become pervasive (along with their handmaiden, unsustainable levels of debt) in two out of the three major developed currency blocs. And we could certainly be next.
So were we right about the End of America? In some ways, yes, and in some ways, no. Like Yogi Berra famously said, “it’s tough to make predictions, especially about the future.” But in the most important way of all, our warnings simply weren’t big enough. We could never have imagined the debt bubble would continue to grow at an even faster pace… or that the government would have agreed to guarantee still more (and lower-quality) obligations, like student loans.
What should you do? The most important thing is to learn to avoid the “normalcy bias.” As these financial pressures build, keep your eye out for things that just don’t look right.
Here’s a good example… About 10,000 doctors each year “opt out” of serving Medicare patients. Thus, according to a new study from the nonprofit Kaiser Family Foundation, more than 20% of all U.S. primary care physicians will not accept Medicare patients. These numbers will continue to get worse as the government can’t afford to pay for the entire Baby Boomer generation’s health care costs. That means no matter what you’ve been promised about health care, actually getting an appointment (or care) keeps getting harder and harder.
Nobody will tell you doctors abandoning their profession by the tens of thousands every year is a sign that the value of the dollar is falling. The nightly news will keep telling people that the consumer price index is flat – no matter how much actual living expenses are rising. And most people will believe it. Don’t be one of them.
That’s just one example of how the system is breaking… and it’s a tiny harbinger of what’s to come. If you keep your eyes open, you’ll see dozens more signs like this… the way stuff just doesn’t seem to work like it used to… and there doesn’t seem to be any way to get anything done unless you can afford to spend a lot of money.
Why is this all happening? The system is falling apart because the most important input in capitalism is the cost of money – the cost of capital. The longer the government manipulates the cost of borrowing, the worse all of these problems are going to get… and the slower our economy will grow.
The other sure sign that something is fundamentally broken in our society is that wages haven’t risen in about 40 years – just debts. How is that going to end? I think you know. Again… just keep your eyes on these topics. Look at the numbers. Don’t trust the government. It’s not going to save you… It’s going to try to save itself.
I might not write about these big, “behind the scenes” macroeconomic themes often, but I’m definitely watching them for you. ”