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<\/a>Any system based on paper, like the current one will blow up anyway. No paper-money system has ever survived a full credit cycle, because paper money – a form of primitive, credit-backed money – is without any discipline unlimited. That \u2013 and not a lack of international monetary reform \u2013 is why there are so many bubbles now.<\/p>\n<\/p>\n
When interest rates are falling \u2013 often pushed by central banks to artificially low levels and held there for an extremely long time \u2013 credit expands and the burden of debt grows. That has been happening for the last three decades. And now, the entire economy depends on something that can\u2019t possibly continue. Debt can\u2019t grow forever.<\/p>\n
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As long as rates stay low, the system holds together. But as the quantity of debt increases, the quality of it decreases. Debtors\u2019 balance sheets get weaker and weaker. Eventually, the credit markets change direction. Interest rates start going up. Then the weight of all that debt comes crashing down like an avalanche. And when it gets started, there is no stopping it. All you can do is make sure you\u2019re not in the way!<\/p>\n
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If all Central Banks start to taper their bond buying, they risk resurrecting the calamity they\u2019re trying to avoid \u2013 a deflationary depression. So, the Central Bankers have got to keep going. The markets and the economy depend on it. Gold will glitter again!<\/p>\n
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\u201cEarnings grow for only two reasons\u2014revenue growth and\/or margin expansion. Unfortunately, the outlook on both fronts is problematic. Margins are already at cyclical peak levels\u2014the best that can be expected on that front is for margins to remain stable. That leaves revenue gains as the only driver for earnings growth. But you can’t have significant revenue gains in the current environment of constrained economic growth. Revenue growth is a direct function of nominal GDP growth, and nominal GDP growth has been lukewarm at best.\u201d<\/p>\n
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The number one threat right now are rising interest rates. \u201cAnd by interest rates, isn\u2019t meant the absolute level, but the velocity of the increase, taking place at a speed the markets are currently unprepared for and businesses may not have planned for. The effect of higher rates on the housing market is\u00a0already<\/em>\u00a0being felt in the New Home Sales number. Resulting in a 20% drop-off in new home sales in June and July, and this does not bode well for existing home sales in the coming months or in Case-Shiller home prices next quarter.\u201d Writes the reformed broker blog.<\/p>\n <\/p>\n The world’s so-called richest nations need $7 of debt to produce 50 cents of GDP. The world is bankrupt, and all of the economic figures that are being published are just a mirage of a castle built on a foundation of worthless paper money. The world can, of course, never pay back the debt with real money, and the world can’t even pay the interest with real money.<\/p>\n <\/p>\n Every 1% increase in the interest rate means an additional cost for the G-7 of a staggering $1.4 trillion. That is absolutely massive. $1.4 trillion is only slightly less than the entire GDP of Canada. If interest rates increase by 10%, then we are looking at an increase in interest expense for the G-7 nations, which equals the entire GDP of the United States.<\/p>\n <\/p>\n Anyone with a sane mind would realize that this whole situation is untenable, and sadly, this will end very, very badly for the world. We don’t just have an economic bankruptcy, but we also have a moral and ethical bankruptcy-taking place on top of the threat of war, and the fact that most governments are taking away freedoms and personal initiatives by making people dependent on state handouts<\/p>\n