Weekly Article 07-12-2018
There are not many things that get my attention these days but a report out of the Institute of International Finance caught my eye. According to their July 2018 report global debt rose $8 trillion in the FIRST QUARTER of 2018 to an amount of $247 Trillion. That is an amount that I’ll bet not one person can fathom in their minds. $247 trillion is 318% of global GDP and does NOT include the many promises made for unfunded liabilities (many estimates are that possibly $200 trillion in unfunded liabilities exist just in the USA) or off balance-sheet expenses. (Think the $21 trillion missing from HUD and the Defense Department or the $24 trillion given to the banks).
I have always said that with each and every intervention into the markets- whether it be stocks, bonds, real estate, metals or whatever, the numbers have to be larger each time to get the same result. There is no greater example than the fact that $8 trillion in new debt was issued globally in the first 3 months of 2018 and the economy around the world remains lackluster at best.
At this rate of credit creation we would see an additional $32 trillion in new debt just in 2018. This is exponentially higher than anything we could have imagined back in 2008. My opinion here is that it is taking more and more debt to fill in for the lack of economic activity and growth to give the illusion of prosperity. Of course, in addition to this, tremendous amounts of sovereign debt is being bought so that sovereign nations can enjoy low rates and continue to pay their bills- even if it is in some cases with “money” being “printed” or keystroked into existence to- again- give the illusion of solvency.
It appears that with this money “printing” a very few benefit and we are all left holding the bag for all of the debt- created out of nowhere by the way- and it is not just the young but ALL who are paying for this economic experiment that appears to have no good exit strategy.
Personally, it appears to me that this current system is on increasingly shaky ground and I believe that some assets should be outside of traditional asset classes (stocks, bonds, real estate) and in other assets that have a low correlation to those assets like gold, silver and other hard assets.
Keep in mind that each dollar printed or keystroked into existence creates less value for each dollar in existence- that is called dilution- and creates NOTHING. No food, no energy, no services- just an illusion that everything is a-ok! Of course, it is fine for all of those who “print” the money and get real stuff with a keystroke from a computer. For the rest of us however, we are going deeper into debt daily while prices for everything continue to rise.
It appears that there is a divide between us based upon economic status and age. This shouldn’t be allowed to fester as we are all in this together. If we work together we can all do better. It appears to me that those at the top who are profiting from this system want to keep us fighting each other so we fail to realize the real culprit- those “printing” money out of nowhere and purchasing real assets that the regular people then pay for in increased prices, taxes and debt.
If you think I am wrong take out any denomination of US currency that you would like. $50.00, $20.00, etc. Each piece of paper says “Federal Reserve Note”. A note is a unit of debt. It is an asset of the issuer and a liability to others. Think about that!
Ask yourself this question. Is a dollar wealth or are real assets wealth?
Of course, there could be many answers because as long as someone is willing to exchange that dollar for real goods it may REPRESENT an asset but in my opinion is that the dollar’s value resides in the confidence people place in it. That is may main concern for all of this “printing” that they may have already gone too far and the confidence in all fiat currencies could soon evaporate.
I also believe this is why all of the massaging of employment, inflation, and most other numbers takes place- to delay the collapse of confidence that appears to be on its way.
The life we are all living is a FAR cry from the numbers being bandied about on the financial game shows.
The “printing”, purchasing of assets, etc. that has taken place in the past 10 years is off the charts. The debt problem that almost took the whole system down in 2008 has been doubled since then. It appears that the numbers are going exponential in the past couple of years. Look at the chart of any bubble- it goes parabolic- sometimes far higher than anyone can imagine and then comes the day of reckoning.
I believe that day could have come anytime since June of 2013 and will arrive at some point. Many ask “When”. Instead of my usual answer- I thought a few years ago- I have a new one. What does it matter?
If you are planning for a future event- like retirement or major purchases- it makes no difference when.
Unless you are still throwing caution to the wind and are just buying, holding and hoping for the best.
Be cautious and be ready to pick up bargains when they become available. I believe you will only be able to do that if you are positioned with assets everywhere and have purchasing power when many others don’t. Many adept investors say “Buy when there is blood in the streets”
Mike Savage, ChFC, Financial Advisor
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