The financial system has already collapsed
“Tectonic changes to come” in economies and markets, says the Swiss investment house Gold Switzerland…, as reported by bankingnews.gr.
The reason; Reasonable changes will be caused by serious debt crises in the United States and Europe, while the “scenario” foresees a sharp drop in the dollar and the euro, with gold appearing as an investment paradise but at a price several times higher than the current price.
The next phase of the downfall of the West is underway and will soon accelerate.
According to Gold Switzerland, the deterioration is linked to the unreasonable sanctions imposed on Russia.
These sanctions are hitting Europe and the United States hard, although it was obvious to many analysts.
“The Romans understood that free trade was necessary between the countries they conquered.
But the US administration blocs have both the money and the ability to trade countries they don’t favor.” reports the Swiss house.
However, the West, according to the Swiss house, is shooting itself in the head and we are all suffering the consequences.
No foreign country will want to hold debt or US dollars. This is a devastating problem for the United States, as its deficits will grow exponentially in the years to come.
Therefore, the next debt crisis will not just be a disaster, but a bomb that will explode at supersonic speed.
With the death of the petrodollar and the explosion of American debt, there is only one solution on the horizon for the United States: the FED will print money to buy American bonds.
Catastrophic Death Spiral
So the spiral of higher debt, higher deficits, more bonds, higher interest rates and falling bond prices will soon turn into a DEADLY spiral.
Sounds like bankruptcy… but that word will probably never be used officially.
It’s hard to admit defeat even when he’s staring you in the face!
Yes, the United States will probably confuse the situation with CBDCs (Central Bank Digital Currencies), but since this is just another form of Fiat currency, it will save time at best.
Either way, the end result will be the same.
The U.S. debt ceiling farce belongs on Broadway, not Wall Street
The debt ceiling was enacted in 1917 as a way to curb reckless spending by the US government.
So this parody has been going on for over 106 years.
During this period, the government in power and Congress totally ignored budgetary discipline.
The problem is not only the debt but also the cost of financing it.
The annual cost of federal debt financing is currently $1.1 trillion.
Assuming the debt grows to $40 trillion in 2 years, the interest cost (5%) would be $2 trillion.
This figure would correspond to 43% of current tax revenue.
But as the economy deteriorates, interest will easily exceed 50% of tax revenue.
And that’s at 5%, which will likely be too low as inflation rises and the Fed loses control of interest rates.
So there is a disastrous scenario and it is certainly not the worst scenario.
The Fed is between a rock and a hard place
The Fed and the US government will be between a rock and a hard place until the financial system and the economy start to take a bigger and bigger hit, collapsing like every monetary system in history.
Presumably, the rest of the West, including an extremely weak Europe, will follow the United States.
The emerging powers of the BRICS member countries
The whole world will suffer, but the countries rich in raw materials as well as the least indebted will come out of it much better.
In other words, South America, the Middle East, Russia and Asia will probably do better.
The expanding BRICS and SCO (Shanghai Cooperation Organization) power blocs will emerge as potent forces that will capture a growing share of global trade.
Barring major political and geopolitical upheavals, China will be the dominant nation and the main factory in the world.
Russia is also likely to become a major economic power.
With $85 trillion in natural resource reserves, there is clearly potential for this to happen.
But the Russian political system needs to be “modernized” or restructured.
“What I describe above are of course structural changes that will take time, possibly decades.
But whether we like it or not, the first phase, which is the fall of the West, could happen faster than we want, “said the Gold Switzerland analyst.
A monetary system always ends in an explosion of debt
In 1913, the total debt of the United States was negligible while in 1950 it had reached 406 billion dollars.
When Nixon closed the “gold window” in 1971, the debt was $1.7 trillion.
Since then, the curve has steepened as shown in the graph below.
Since September 2019, when the US banking system began to crack, the REPO crisis has shown us that there were real problems, even if no one wanted to admit it.
Ideally for the US government, the REPO crisis became the Covid crisis, which was a much better excuse for the government to print unlimited amounts of money with the banks.
Thus, during this century, the total debt of the United States has increased from 27 trillion dollars to 94 trillion dollars!
We will see a similar exponential pattern when it comes to the upcoming debt boom.
If we assume that the last 5 minutes of the exhibition phase started in September 2019, then the stadium was only 7% full and in the next few years it will increase from 7% to 100% or 14 times to leave this place.
This is obviously not proof, but it does show that US debt could explode.
So let’s take a quick look at some of the factors that will cause debt to explode:
An exhibition of Hoover Institution estimates that more than 2,315 US banks currently have assets worth less than their liabilities.
The market value of their loan portfolios is $2 trillion below book value.
And remember, this was an estimate before the TRUE drop in asset value is yet to come.
We note that the US real estate market is also wavering.
So the four US banks that suffered a loss are just the start.
And no one should believe that this situation concerns only small banks.
The big banks will follow the same path.
During the subprime crisis of 2006-2009, bailouts were the norm.
But at the time, it was said that the next crisis would be through bailouts.
However, as we have seen so far in the United States, there has been no bail-in.
It is clear that the government and the Fed were worried about a systemic crisis and could not afford to bail out even the banks’ insured customers.
“As the crisis spreads, I doubt that bank depositors will be treated with leniency.
Neither the FDIC nor the government can afford to bail out everyone.
Instead, depositors will receive an offer they cannot refuse, which is a mandatory purchase of U.S. bonds equal to their credit balance.”
The European banking sector is in even worse shape than the American sector.
European banks face big losses on bond portfolios acquired when interest rates were negative.
No one knows at this stage the extent of the losses, which could prove to be significant.
In both commercial and residential real estate, the situation is worse in Europe than in the United States, with European banks directly financing most of these loans themselves, including 4,000 billion euros in mortgage loans.
Banks are also seeing a mismatch between the low interest rates they charge for mortgages and the high interest rates they pay to fund them.
Former Banque de France governor and ex-IMF boss Jacques de Larosière accuses the authorities of undermining the private banking system with disruptive amounts of QE, which have become toxic:
“Central banks teach how to cause a financial crisis”
If we add unfunded liabilities and all outstanding derivatives to global debt, we arrive at around $3 trillion:
“It is! The financial system has collapsed.
Unfortunately, the Western financial system is now both too big to save and too big to fail.
However, not all of the king’s horses and all of the king’s men can save him.
And if the system is too big to fail, the consequences will be disastrous”, concludes Gold Switzerland.