Monday, April 22, 2019
By Paul Martin

by Egon von Greyerz
April 18, 2019

Will the average stock portfolio gain 1,900% to make up for the coming 95% fall? This is the unenviable task that investors will be facing in years to come.
Six weeks ago I wrote about Alfred, a 74 year old man who during his life made a $14 million fortune in stocks by always being invested in the Dow. Alfred never analysed the US or the world economy. Nor did he analyse a single stock. Always being in the market was his secret.

Alfred is not a deep thinker, so he hasn’t thought about how fortunate he has been. During his 74 year life, there has been no major war. Nor have there been any depressions and economic downturns have been minor. He has had a job all his life and has thus never been exposed to unemployment. Alfred, like most investors, has been totally unaware that he has had major assistance from the government which throughout most of his life has expanded credit and printed money.

Alfred has been lucky to be shielded from any major calamities. So have his children and grandchildren. His children are in their forties and have a good education and good jobs. His grandchildren are between 10 and 17 years and have also had a very good life.

Thus, three generations have so far had economic prosperity and no wars. This is a unique period in history. To have 3/4 of a century without a major war or economic misery is remarkable.

Just basing the prospects in the next few decades on probabilities, Alfred’s children and grandchildren are unlikely to be facing the same sunny prospects that Alfred has had the privilege to enjoy. Economically, the world has been digging its own grave. Decades of deficit spending, and credit expansion has given Alfred a standard of living and quality of life that his offspring are very unlikely to see.

How could that debt ever be repaid? We are only in the 19th year of this century and global debt has already more than trebled from $80 trillion to $250 trillion. Part of this debt has contributed to Alfred’s wealth of $14 million. This incredible debt creation has bolstered asset markets for the benefit of the top 1% in the world with the remaining 99% lumbered with the debt. But they are of course never going to repay it.

When the debt crisis starts, which probably will happen within the next 12 months, there will be more deficits more debts and more money printing. Central banks are going to attempt to inflate the debt away, but they can of course never solve a debt problem with more debt. This time the biggest QE operation in history will have no effect. In 2007-9 the total QE, credit expansion and guarantees were at least $25 trillion. Next time around, it is likely to be in excess of $100 trillion as the $1.5 quadrillion derivatives blow up when counterparties fail. When the world discovers that central banks are failing with their hyperinflationary money printing bonanza, there will be panic.

So can the coming economic collapse be stopped by MMT (More Money Printing)? Hardly! In 2007-9 the Fed, ECB and other central banks managed to kick the can down the road for a decade which is remarkable bearing in mind how near the system then was to total collapse. But this time the can is just too big and no kicking will dislodge it.

The Rest…HERE

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