Financial Crisis Now Entering A Very Dangerous Phase

Written by Egon von Greyerz

We are now entering the very dangerous phase of the coming crisis. Confidence is quickly evaporating and fear replacing it. We know that the world economy is resting on a foundation of debt and false government promises. The world is now starting to realise that most of this debt is worthless and that governments’ empty promises add up to nothing… The process of assets imploding could happen very quickly and unexpectedly…[and when it does] the world will look very different.

Central Bank heads believe they are magicians who can wave their magic wands to create whatever economic conditions they desire but the problem is that they are consistently wrong in their assessment of the economy so they don’t know what to do with their wands. Also, their wands are not magic, but just bogus – and this is the dilemma of all central banks.

They are given unlimited powers to manipulate monetary policy and to print money, but when you give infinite powers to someone who can neither assess the situation properly nor understands the consequences of his actions, it is like giving weapons of mass destruction to a bunch of kids. Actually, it is worse than that because the bankers are using the weapons to create wealth for their banker friends… and unlimited debt and misery for the rest of the world. What central banks are doing is creating booms and busts of a magnitude that totally destroys the economy – and this is exactly what will happen in the next few years again.

The world economy would function considerably better without central banks. Instead of the massive booms and bust that we currently have, there would just be natural self-correcting economic cycles of much smaller amplitude.

The turn of the cycle that is now beginning will change the world for a very long time. One hundred years of mismanagement will lead to economic and human misery that could last decades or even centuries like the end of the Roman Empire.

There are no honest politicians

Back in December after the Fed rate increase, we discussed that the Fed again made an incorrect decision which soon would have to be reversed. Well, this week in her statement to Congress, Yellen started to backtrack. Like all politicians, however, she neither sees, nor would admit, that most of the global economic problems stem from U.S. monetary policy. It is because the U.S. has lived above its means for over half a century and flooded the world with worthless printed dollars that we are now in this mess but, since she is a politician, she would ever admit to that. Instead this week she blamed global market turbulence and higher risks from China as the reasons for conditions being less supportive of U.S. growth. It is amazing how politicians can never be honest and see the log in their own eye rather than the splinter in their neighbour’s eye.