Winter Warning

Posted by The Longwave Group

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It’s the Debt, Stupid
“When President Clinton was fighting his first presidential campaign against George H.W. Bush, he kept  a piece of paper in his pocket on which he had written,’ it’s the economy, stupid.’

This was to remind him that that he was fighting the election during a time of a mild recession in the US. In like manner, all my readers need to know is that, ‘it’s the DEBT, stupid,’ which is the principal cause of the impending depression.” The Long Wave Analyst, January 2003. P. 4

Never in the history of mankind has there been a global debt bubble of the current magnitude.  This has all been enabled by a fiat monetary system, which has been grossly mismanaged through the exorbitant use of the printing press. Nowhere has this been better demonstrated than in the United States, which had a moral responsibility to temper her fondness for debt, because of the extraordinary privilege accorded to the U.S. dollar as the world’s reserve currency.

This monstrous debt bubble has now exploded and effectively, many countries, their corporations and their citizens are now bankrupt. There is a masquerade of solvency which is currently being showcased, but how long this charade can be maintained is anyone’s guess. My guess is not for long and by that I mean months, rather than years.

We must remind ourselves that while massive debt bubbles have occurred several times throughout history, this time it is much bigger and more international in scope, than any of its predecessors. The miserable outcome, when the debt bubble bursts, has always been a deflationary depression. With the bursting of the current debt bubble, there is no chance that a deflationary depression can be avoided. “It is a delusion to think that a depression caused by credit can be resisted. All the panaceas, nostrums, and quacks invented by all the politicians in the world, can but hold off the eventual day of reckoning, prolonging the agony.” Smitley, Robert. Popular FinancialDelusions, Fraser Publishing Company, Vermont, 1984; first published in 1933. P. 9

Austria’s recent bank nationalization of Hypo Group Alpe Adria, reportedly fearing its collapse, might spark a “Lehman Bros. effect” in emerging Eastern Europe.  This is a reminder of the collapse of Austria’s leading bank Credit Anstalt of Vienna in May, 1931, which ultimately caused Austria to abandon the gold standard.  Then, Great Britain followed suit in September of that same year, leading to the eventual collapse of the world’s monetary system.  In a similar vein 79 years later, financially strong euro zone countries, such as Germany, are being forced to come to the aid of ‘weak sister’ euro zone economies, where the public debt far exceeds the 60% limit set by the Maastricht Treaty, not only, raising concerns regarding the effectiveness of the European Union legislation, but also, the very survival of the EU itself.  In a worst case scenario, countries that default on their debt will endure a prolonged period of high interest rates, capital constraints and significant contractions of their gross domestic product (GDP).  Indeed, we believe that current projections for GDP growth of the world’s most developed economies over the next several years, will prove wildly optimistic.

….read page 2-6 HERE.