This Time Is Different, It’s Global!
By Greg Hunter’s USAWatchdog.com
The recently published book called “This Time Is Different” makes the case that this financial crisis has the same basic elements as every other financial crisis since the 1300’s. Economists Kenneth Rogoff and Carmen Reinhart do a great job of researching various financial meltdowns in places like South America, Asia, Europe and the U.S. In every crisis, no matter where it took place in the last 8 centuries, people thought a big debt buildup could not end badly. The authors say “arrogance and ignorance” always pave the way to financial hell, no matter what country or what century.
But I wonder if this time really is “different?” Could this be the biggest financial crisis ever? Former Federal Reserve Chief Paul Volker called this financial meltdown the “mother of all crises.” How could he say that? Well for one, the pool of unregulated over-the-counter derivatives is enormous. There are $600 trillion worth of derivative contracts worldwide according to the Bank of International Settlements. In simple terms, derivatives are debt bets between two parties that are very hard to collect on. Most derivatives have no standards, no regulation and no guarantee; and there is no public market for them. They are popular because bankers make insane profits selling them. I wrote about this phenomenon in a post called “Can The Financial System Really Be Fixed? Some Say No.” Warren Buffet called derivatives “time bombs.” Buffet also said, “…derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” Today, the entire world is financially interconnected like never before because of derivatives.
One deficit record after another is being set on a regular basis in the U.S. The debt load now stands at about $12 trillion. With the recently passed debt ceiling, it will be at least $14.3 trillion by the end of the year. (There are also more than $6.2 trillion in liabilities with failed mortgage giants Fannie and Freddie that are not accounted for in the U.S. budget) America’s total debt and unfunded liabilities are in the neighborhood of $63 trillion. Many experts say America will address this huge debt problem by printing money. This will continue to devalue the dollar which is the world’s reserve currency. This could cause inflation and calamity on a global scale.
The news gets worse because just about every other industrialized country in the world is facing record deficits and liabilities. Those countries will also print money to pay off debt.
According to Yale Economics Professor Robert Shiller, we had the biggest housing boom in history in the first part of the new century. It was a first time global phenomenon. Now, the U.S. and much of the rest of the industrialized world are working through the biggest housing meltdown in history, and it’s not yet at the bottom.
Commercial real estate is also in the process of a record setting meltdown.
Public pensions in the U.S. are a record $2 trillion in the red.
Nearly every state in the U.S. is facing record budget shortfalls.
Sovereign debt is being called into question with talk of national defaults on a scale unheard of before. Just this week, economist Dr. Mark Faber said, “…I am not interested in government or sovereign debt because all governments will eventually default, including the U.S.” Faber thinks governments will default, in part, by printing money to pay for their liabilities and debt. That prediction spells I-N-F-L-A-T-I-O-N on a global level. It is no surprise that Dr. Faber thinks gold will continue to outperform stocks.
So, the things that got us in this financial crisis are no different than the things that caused other financial meltdowns throughout history. I think what is different this time is the size of the debt buildup. It is on a scale never before seen in human history. Debt is overwhelming individuals, corporations and countries. This global debt will likely produce the biggest financial meltdown in history, deserving of the Volker expression “mother of all financial crises.”
I say no confidence in goverments, justice, or financial systems will be had until criminal prosecution is made. I’m a nobody and could see this gut wrenching disaster coming a mile away at the start of the easy money. It’s a combination no doubt of blind ego, stupidity, and corruption. Regulations existed. Enforcement did not. I say the prosecutions should start with Robert Rubin. After 26 years at Goldman Sachs he gets in the goverment 1993. By the time he’s done in 1999 as Secretary of the Treasury, he wipes out the Glass-Stegal Act, orders the SEC to back off derivates he claimed didn’t need regulation, and harvests the concept of lending money to people you know won’t pay it back in the name of fighting poverty. He leaves the goverment 1999 and goes to Citigroup where he uses these three tools of mass destruction until he is asked to leave in disgrace in 2009 for his compromised ethics. Not to mention his attempted meddling on behalf of ENRON and that Martin Armstrong gets locked up in Fort Dix in 1999 too. Too much coincidence for me. Robert Rubin has a lot to answer for, and I don’t see anyone asking him the questions. Sources = Wikipedia, armstrongeconomics.com. And thank you Greg Hunter for your courage in speaking the truth. I used to watch you on CNN some years ago speaking truth to deaf ears. But I was listening and I then knew, I wasn’t crazy.
always a very clesr message .. well done and thanks for the up to date insight on the derivitives and debt mess
There is no solution within the current system. You can read here how bad the economy really is:
We live in an economic system that is very inefficient. The economy does not adequately address the need of people. The fundamental cause of economic inefficiency is usury, which is the charging of interest on money. The following example demonstrates that interest on money is unsustainable and leads to crisis:
If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilograms of gold. This is 1.9 * 10^27 cubic metres of gold weighing 317 times the complete mass of the Earth.
An ever increasing amount of debt is needed to pay for the interest on the money. At some point this leads to crisis.
It is possible to achieve a much greater prosperity, with maximum capital growth without inflation, large debts, economic crises, unproductive government intervention and the unproductive part of the financial sector. Natural selection will ultimately determine the most efficient economic system, despite the political power structures that still exist at this moment. The investigation of alternatives and dissemination of knowledge will accelerate this process, but the ultimate outcome will not change.
Natural Money is the most efficient monetary system that will therefore become the dominant monetary system of the future. Natural Money will result in constant economic growth at maximum potential and will therefore make other monetary systems obsolete:
I went back and read some of your earlier work.
This particular book, I read too. Very chilling and very informative of where we will end up as this progresses.
Thank you for all of your wonderful work Greg.
Is maybe part of the solution, rather than regulate the size of banks as Mr. Volker advocates, to treat banks similar to how we regulate Big Pharma?
You can’t legally market a new drug without first getting it approved. Perhaps we should require that all financial service companies, banks included, obtain approval before new financial products are offered. A Financial Products Administration similar to the Federal Drug Administration.
That along with more conservative capital reserve requirements and as Ralph Nadar suggested, “More cops in the suites” just might solve the problem going forward.
At least until such time as we again choose to ignore eight centuries of history.
Thanks for your perspective.
You wrote: ” America’s total debt and unfunded liabilities are in the neighborhood of $63 trillion.” Unbelievable! We the people elected the fools who allowed this to happen–democrats and republicans.
We are no better than a banana republic or any European nation.
Hi Greg –
Think you’re spot on with your post. Heard you awhile back on Coast-to-Coast and enjoyed your views and analysis. Will continue checking in to see what you’re thinking. Best regards.