Years of using debt to drive economic growth in the developed world has rapidly created the largest global debt bubble in history. And economic watchers say the resulting bust is going to make the 2008 financial crisis look like a walk in the park.
According to the latest figures from the International Monetary Fund, global debt is currently at $152 trillion. That’s more than double what it was just 17 years ago at the turn of the century.
The rapid debt buildup can be blamed mostly on central banks’ reaction to the 2008 financial crisis, when they initiated artificially low interest rates in a bid to spur economic growth. The easy credit for investors however, was just a different version of the same mistakes which led to the creation of the 2008 debt bubble.
Investment expert Bill Gross provides a pretty good explanation of where we are today in his March Investment Outlook report:
[I]n 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster. In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises. But the credit creation has limits and the cost of credit (interest rates) must be carefully monitored so that borrowers (think subprime) can pay back the monthly servicing costs. If rates are too high (and credit as a % of GDP too high as well), then potential Lehman black swans can occur. On the other hand, if rates are too low (and credit as a % of GDP declines), then the system breaks down, as savers, pension funds and insurance companies become unable to earn a rate of return high enough to match and service their liabilities.
In other words, the global economy is a powder keg of overleveraged financial bets.
All it’ll take to set off an explosive global financial disaster is one wayward spark.
Leading up to 2008, that spark was a faltering of the U.S. housing market which revealed a series of interlinked financial fragilities in the U.S. and then globally.
The 2008 crisis eventually died down, papered over by a taxpayer bailout of big banks in the U.S. and years of subsequent low interest rate papering over of the damage done, both here and in other developed economies.
We don’t know what could be the cause of the coming global financial panic — mostly because it could be sparked by any number of financial mishaps, anywhere in the world.
What we do know is that when the panic begins, investors are going to begin racing to divest toxic holdings as quickly as possible.
The only problem is that the banks they’ll be running to hold far fewer dollars than they doled out.
The whole thing would look a lot like what happened in 2008, except for one huge difference, everyone already knows that bailouts and easy money central bank policies don’t work. And even if central banks wanted to once again paper over the problem, they won’t be able to muster even the anemic confidence that led to slow growth out of the 2008 recession.
Where does this leave you as an investor or saver? Well, the answer is actually pretty depressing, especially if you’re relying on the very conventional investment vehicles that are going to be swallowed up by the chaos.
Right now, even as many people throughout the U.S. are viewing the economy through rose colored shades on the heels of President Donald Trump’s election, investment experts like Gross are warning that the global situation is far too dire for misplaced optimism.
“Be more concerned about the return of your money than the return on your money in 2017 and beyond,” Gross writes.
If you’re looking for a place to park your money as you weather the coming financial storm, your best bet is to look to investors who have far more to lose. Investors like George Soros, Warren Buffett and Bill Gates have a lot of skin in the game, and they have thousands of analysts watching numbers and trends around the clock. Because of the sheer size of their wealth and the amount of media coverage around it, these super investors tend to like to watch the market for threats that are coming years down the road and make very gradual changes to their portfolios to hedge.
Right now, Soros has money in a blind trust that’s betting heavily against the U.S. economy. Gates and have also taken on similar investment vehicles over the past several years. That’s because when the global debt bubble we’ve been talking about bursts, the U.S. dollar is going to be faced with the highest level of devastation compared to other international currencies.
They’re moving in the opposite direction of average investors. Why? Because, while you may take your investment advice from analysts on Fox or MSNBC — or a broker who has access to information that isn’t much better — these billionaire globalists are making moves based on the advice of teams of international specialists. Their judgement isn’t clouded by optimism or a certain president’s promise to “make America great again,” it’s based on harsh realities and information gleaned from financial boots on the ground all over the world.
But most of what these investors are doing isn’t published or talked about. When they’re interviewed about the secrets to their financial success, they tell viewers to get up early and provide vague advice about investing in what you know. Why don’t they reveal what they really know? Because panic is bad for their bottom lines…
Of course, you know that hard economic times are coming — so, maybe “invest in what you know” isn’t such bad advice. Bob Livingston and his team of financial researchers has been watching the economic writing on the wall for years, in addition to how super-investors like Buffett and Soros are responding. If you’re interested in what he’s learned, check out this handy guide.