Weekly Market Update by Retirement Lifestyle Advocates
Last week, here in “Portfolio Watch”, I discussed that stagflation was the most likely immediate economic outcome in my view.
Just in case you missed last week’s “Portfolio Watch”, stagflation is defined as price inflation combined with a shrinking economy.
Ultimately though, I believe we will see a very painful deflationary environment that may rival the 1930’s. This past week, Mr. Egon von Greyerz, whose work I follow and admire, analyzed the current situation. Excerpts from his piece follow: (Source: https://www.silverdoctors.com/headlines/world-news/viscous-cycle-of-self-destruction-gold-outperforming-all-asset-classes/)
The current fake monetary system will collapse under its own worthless weight…
“The first panacea of a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permeant ruin. But both are the refuge of political and economic opportunists.”
As the West is standing on the edge of the precipice, there are only unpalatable outcomes.
At best, the world is facing a hyperinflationary depression later followed by a deflationary depression.
But sadly, there is today much more at stake as the West is frenetically escalating the sound of war drums against Russia’s invasion in Ukraine.
As the global economy reaches the point of collapse, countries get the leaders they deserve. There is today no leader or statesman in the West who can stand up to Putin in order to negotiate peace. Biden sadly neither has the vigor, nor the ability to play any significant role in solving the conflict. Also, he has the neocons pressurising him to attack and defeat Russia. And Biden’s rhetoric against Putin is certainly not conducive to peace, with words like war criminal and genocide. Biden mustn’t forget that just in the Vietnam war, the North Vietnamese and Viet Cong are estimated to have lost one million soldiers and two million civilians. Unprovoked wars are, of course, always senseless, whoever starts them.
President Zelensky is doing all he can to involve the rest of the world militarily by demanding more money and more weapons from the West, rather than putting his efforts into peace negotiations. Ukraine can, of course, never win the war against Russia alone. And dragging in the US and NATO can only lead to a war of incalculable consequences and potentially a WWIII which could be nuclear.
And in the West, not a single leader is making a serious peace attempt. From Biden to Johnson, Macron, and Scholz, we only hear talk of more weapons and more money for Ukraine. This is terribly tragic and a sign of totally incompetent leadership in the West.
So the US and the West have no ability or desire to achieve peace. And Boris Johnson has welcomed the war as a diversion from his domestic “Partygate” political pressures and therefore has taken an aggressive position against Russia rather than finding a peaceful solution.
Macron is an opportunist who stands with one foot in each camp by being chummy with Putin and at the same time condemning him.
And Scholz, the German chancellor, is in an impossible position caused by Merkel’s poor management of Germany’s energy position. The three remaining German nuclear power stations will be closed down, and fossil fuels are politically unacceptable. Nearly 60% of German gas imports come from Russia. German industry would not survive without Russian gas. So Scholz wants to have his cake and eat it, sanctioning Russia on the one hand and simultaneously spending billions of Euros buying their energy and other natural resources, including food.
Quite a precarious position for Germany to be totally dependent economically on its war enemy. At the same time, this is good for the world as Germany has a vested interest to achieve peace.
But we must remember that only a minority of countries are backing the actions of the US and Europe. Africa, South America, and most of Asia are not taking sides and continuing to trade with Russia, and these regions represent around 85% of the world population.
So the vast majority of the world has no desire for war with Russia, but their voice is seldom heard in the Western-dominated media.
Politics and money cannot be separated, and the geopolitical situation that has now arisen will act as a perfect catalyst to the end of the monetary era since the creation of the Fed in 1913.
But what we must remember is that it is primarily the Western-controlled monetary system (including Japan) which will come to an end.
America’s and the EU’s final desperate attempt to save their broken system by sanctions on world trade will eventually fail as the Western economies gradually decay in an economic and social breakdown brought about by a quagmire of currency collapse, deficits, debts, and history’s most epic of asset bubbles.
The Phoenix emerging will clearly be the East, led by China, with Russia as an important partner. China is, population-wise, the biggest country in the world and will soon be the biggest country in GDP terms. With total US assistance in the form of know-how and technology, China has built up a strategic and advanced manufacturing base with dominance in many sectors.
For example, 18% of all US imports come from China, including 35% of all computers and electronics. Chinese sellers represent 40% of all top brands on Amazon and 75% of all new sellers.
The US and the rest of the world criticize Germany for being dependent on Russian energy, but the US folly of shifting much of its manufacturing to China certainly qualifies for joint first prize in commercial and strategic idiocy.
Since gold is the ultimate money and the only money that has survived in history, it will have a very important role in the coming years as the fiat currency system collapses.
Empires normally suffer a drawn-out and painful death. The fall of the US and the West has certainly been long, starting over half a century ago. But the fake prosperity has benefitted a small elite and lumbered the masses with colossal debts.
In 1971, US debt was $1.7 trillion, and 50 years later, it is $90 trillion, a mere 53x increase.
As the finale of the debt and currency collapse approaches, the desperation rises exponentially. Consequently, increasing amounts of money need to be created and wars initiated to justify the debt explosion, all in a vicious cycle of self-destruction.
For over half a century, the US has destroyed its currency and initiated unprovoked military actions in numerous countries – virtually all of them unsuccessful.
Yes, the US has certainly experienced a temporary false prosperity. But that could only be achieved with deficits, debt, and printing fake money.
The massive cost of the failed Vietnam war led to Nixon closing the gold window in 1971.
As Nixon said at the time, “the strength of the currency is based on the strength of the economy”!
Hmmm, half a century later, that currency has lost 98% in real terms (GOLD), and the Federal Debt has grown 75 fold from $400 billion to $30 trillion. It took 22 years, from 1971 to 1993, for the debt to expand by $15 trillion. Just in the last 2 years, the debt is up by the same amount of $15 trillion.
This debt will ultimately have to be dealt with. Simple math has one concluding that this level of debt can never be paid.
It is the massive defaults on debt that will have to come that will ultimately lead to a painful deflationary environment.
Stocks will fall, real estate prices will collapse, and unemployment will soar.
It’s ironic that the currency creation that has taken place on such a reckless scale since the financial crisis has allowed the debt to build.
Worldwide, at the time of the financial crisis, total debt was $120 trillion. Today, worldwide debt stands at $300 trillion. That’s an eye-popping increase of 250%!
This can’t possibly end well.
This week’s radio program and podcast features an interview with best-selling author and economist Mr. Harry Dent. Click on the "Podcast" tab at the top of this page to listen. You won’t want to miss Harry’s forecast for stocks, real estate, and the US Dollar.
“Never, never, never believe any war will be smooth and easy, or that anyone who embarks on the strange voyage can measure the tides and hurricanes he will encounter. The statesman who yields to war fever must realize that once the signal is given, he is no longer the master of policy but the slave of unforeseeable and uncontrollable events.”