by Egon Von Greyerz, Gold Switzerland:
Between today and 2025, the world will be a very different place. We can learn nothing about the next 4 to 7 years from government, central bank or media propaganda as they neither understand what will happen nor tell the truth. But we can learn a lot from history. Most people rely on the internet for information or news but most of it is either indigestible, misleading, fake or just too overwhelming to comprehend.
For many years I have warned people about the coming risks and changes that the world will experience. Very few people are aware of these risks and even fewer understand them. In this piece, I will make an attempt to summarise what I see coming.
1. DEBTS AND DERIVATIVES
Total debts and derivatives in the world amount to $2.5 to $3.5 Quadrillion. This is 35-50x global GDP. The majority of this enormous amount is off-balance sheet derivatives. These derivatives are backed by nothing and when counterparty fails, they will implode and become worthless. And that is guaranteed to happen. Also, most of global debt of $250 trillion will default as asset prices implode and interest rates explode.
Global market capitalisation of stocks is around $80 Trillion, a 3x increase since 2009. As the debt bubble implodes, so will stocks. In real terms, against gold, stocks will decline by at least 95%. In 1929-32 the nominal decline was 90% and this time the circumstances are dramatically worse.
3. BONDS AND INTEREST RATES
The 35 year bull market in bonds and bear market in interest rates ended in 2015-6. Money printing and interest manipulation by central banks has created a false market in bonds. Bond issuers, both state and private, will default and interest rates will rise rapidly. Rates will at least reach the levels of the 1970s and early 80s of around 20%. Central banks will lose control of rates as long rates go up first. A systemic debt default will lead to rates much above the 20% level.
In the last 100 years, all major currencies are down 97-99% in purchasing power terms and against gold. They are now entering the final leg of their race to the bottom. With only 1-3% to go, it is guaranteed that the currencies will reach their intrinsic value of ZERO. But remember that the 1-3% is 100% from here. Thus in the next few years, we will see the most momentous decline in the value of paper money led by the US dollar.
5. FINANCIAL SYSTEM
With debt and asset markets imploding, it is unlikely that the banking and financial system will survive in its present form. There will be major defaults and depositors assets could all vanish or become worthless. The custodial risk is also very serious which means that any client asset such as stocks, bonds or precious metals could disappear.
6. MONEY PRINTING – HYPERINFLATION
As debt markets implode and the financial system comes under severe pressure, central banks will panic and print unlimited amounts of money. They will also try to lower rates but unsuccessfully. As bond markets collapse, central banks will lose control of the interest market and rates will shoot up. As opposed to 2007-9, the money printing will have no effect this time. That will not stop central banks flooding the market with worthless pieces of paper, leading to hyperinflation.
But it will not be the type of hyperinflation where all prices increase since bank and bubble assets will collapse. Virtually all commodities will go up, especially since they are denominated in US dollars, but some much more than others. There is likely to be great food shortages which will put major pressure on prices. Most raw materials will go up, at least initially. Some will fall later as industrial demand declines. Precious metals will increase dramatically in price, both in real and nominal terms.
7. DEFLATION – ASSET IMPLOSION
At the same time as hyperinflation is raging, most bubble assets will collapse in real terms. This includes stocks, bonds, property, art, collectors’ cars etc. As the final money printing bonanza fails for the last time for maybe decades to come, hyperinflation will turn to a deflationary implosion when all asset prices collapse and the world goes into a depression. At that time gold and silver are unlikely to go down substantially.