How Long Before Global Financial System Fails?

IMG Auteur
Published : April 22nd, 2016
994 words - Reading time : 2 - 3 minutes
( 1 vote, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
Our Newsletter...
Category : Editorials

24hGold - How Long Before Glob...

The global economy turned down in earnest already in 2006 but with a massive worldwide printing and lending programme, the world has had a temporary stay of execution. But the effect of this fabricated money has now come to an end. And what else would you expect. To print money that has no value or to lend money that doesn’t exist can never create wealth or save anybody. The downturn will soon start to accelerate and eventually lead to a total failure of the financial system and sovereign defaults. But no one must believe that there will be a sudden implosion or a “reset” that solves or changes everything. Instead, what we will experience is a process with things deteriorating at a fast pace but without one single event that overnight changes everything.

24hGold - How Long Before Glob...

It is actually happening all around us right now. Let’s just look at some examples of the stresses within the system. The ECB is facing bank failures in almost every member country. An Austrian bank just had to be bailed-in and the whole Italian banking system is on the verge of collapse. The Greek banks are already bankrupt although no one dares to declare it officially. The ECB knows that they only have one tool left to temporarily postpone a breakdown of the European banking system and that is to further increase its money printing programme. Only in the last 15 months, the balance sheet of the ECB has exploded by 45% to Euro 3 trillion. The Bundesbank, the German central bank, is totally aware of the predicament of the European banks. But they also know that they will be on the hook for the majority of the money printed by the ECB and therefore they have indicated that they will sue the ECB if it accelerates money printing.

The Fed is not printing money currently but in my view it is only a matter of time before we see a major QE programme in the US due to a deteriorating economy and a financial system under pressure. US outstanding derivatives are at least $500 trillion and most of that will just implode as counter-party fails. The Fed and the FDIC are concerned about this and that is why they just issued a warning to US banks. They told JP Morgan for example that the bank is unprepared for a crisis and that they have no plans for winding down their derivatives. JP Morgan’s derivatives exposure, properly valued, is probably in excess of $100 trillion.

24hGold - How Long Before Glob...

Another major US problem is the Treasury market. There is a total of $19 trillion debt owed by the US government. Of this amount $6.2 trillion is owned by foreigners. China and Japan hold around $4.5 trillion in total. The third largest holder is Saudi Arabia with $750 billion. And Saudi Arabia has now threatened to liquidate their holdings if the US probes Saudi Arabia’s role in the September 11 attacks. But Saudi Arabia is not the only country that could cause chaos in the US treasury market. Japan will soon need to sell its US treasuries to survive temporarily. And China is also under pressure to reduce the over $30 trillion in outstanding debt, a debt which was only $2 trillion in 2000. Many observers will say that these countries will shoot themselves in the foot if they dump US treasuries since that will start a massive collapse of the treasury market. It is perfectly true that US treasuries is one of the biggest bubbles in markets today especially since the US will never repay this debt. The big foreign holders are of course aware that they will never be repaid with real money. They also know that the dollar is massively overvalued and likely to decline substantially. So whether they sell their holdings today, thus depressing the price, or wait until both treasuries and the dollar are worthless is one of these choices that will always be LOSE – LOSE. There could be a first mover advantage, especially since the only buyer is the US government and they would clearly try to accommodate the first selling country by just printing more money. But thereafter all hell will break loose and it will be too late to run for cover.

Japan is in a total mess too. The Bank of Japan will in 2017 own a staggering 50% of all Japanese government bonds and that will increase to 60% in 2018. How can this country ever believe that their economy will survive? They are printing unlimited amounts of worthless paper and it is having no beneficial effect on the economy. I have said it before and I will say it again, that the Japanese economy will sink into the Pacific in the most gigantic bankruptcy.

24hGold - How Long Before Glob...

So most central banks and sovereign governments are virtually bankrupt but so are commercial banks. Their share prices are definitively telling us that. Most major banks’ shares are down between 75% and 90% since 2007. Deutsche is down 87% and Citi 92% whilst Credit Suisse and Barclays are “only” down 78%! The massive falls in all major banks’ share prices are clearly telling us that these banks are unlikely to survive.

If we look at global company profits, they are down 20% in mature markets and 25% in emerging markets since 2014. And so far we have seen global corporate defaults of $50 billion in 2016 which is the biggest since 2009.

It is all happening in front of our eyes right now. No one should wait for a major event because it will be a series of events as I have described and it has already started. It is time to take protective measures right now.

The need for insurance against these risks is greater than any time in history. Physical gold can still be bought at a bargain price but not for much longer.

Egon von Greyerz

Founder and Managing Partner
Matterhorn Asset Management AG


Data and Statistics for these countries : China | Japan | Saudi Arabia | All
Gold and Silver Prices for these countries : China | Japan | Saudi Arabia | All
<< Previous article
Rate : Average note :5 (1 vote)
>> Next article
Egon von Greyerz is the managing director of Matterhorn Asset Management AG based in Zurich Switzerland. He specialises in wealth preservation with the special emphasis on physical gold stored in Zurich outside the banking system.
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Top Ten Trends Lead to Gold
14 JanAriana33
This is a good article, and I can agree with many points. I've been investing in gold, particularly the American Gold Eagles for quite some years n...
The Black Swan So Ugly No One Will Talk About It
14 JanS W.
A black swan is a highly improbable event. Obviously the author of the article does not understand that.
Fed’s Balance Sheet Reduction Reaches $402 Billion
07 JanRocco
Every time the FED speaks, gold skyrockets. Just buying some gold every time before the FED makes an announcement and then selling for a quick prof...
Gold Price 2019: 5 Analyst Outlooks
09 JanS W.
In reality there is no such thing as a price of gold. That is because those that are swapping their gold for worthless pieces of paper ( transa...
Will Coins and Bars Save Gold?
30 Decstevewonders
The only thing that will save gold in 2019 is the dollar/yen. I am out of all speculative positions going into the long holiday weekend. I will loo...
“Collapse Of Civilisation Is On The Horizon” – Attenborough Warns W...
28 Deckevthorne-1
I was impressed by this article. In further support of Attenborough, who many will dismiss as a naturalist, and therefore unequipped to commen...
Merry Christmas to All
28 DecDoom
Gee, if it wasn't constant robocalls all day long, maybe it'd be worthwhile to answer the phone...
“Collapse Of Civilisation Is On The Horizon” – Attenborough Warns W...
19 DecS W.0
People are more complicated than the climate. Humans adapt to the climate. Except doom and gloomers who like to scare everyone to death about sea l...
Most commented articlesFavoritesMore...
World PM Newsflow