Are you ready for the next financial crisis? Another global monetary reset is coming because of the unsustainable debt accumulation over the last ten years. The Fed unleashed over two trillion dollars of quantitative easing to create what Ben Bernanke called a "wealth effect" after 2008. The results have not been pretty.
Economist Robert Shiller described the process more honestly, "...news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person... These bring in a larger and larger class of investors who despite doubts about the real value of the investment are drawn to it partly through envy and partly through a gambler’s excitement.” How far are we in this global monetary cycle? The S&P 500 P/E 10 ratio championed by Shiller is now above 32, which only happened before during the Dotcom Bubble and in September of 1929.
All of this paper prosperity has been funded by unsustainable budget and trade deficits. Our national debt soared from 64% of GDP in 2008 to 106% of GDP in 2018. Then, there is our trade deficit. When we had real money under the Gold Standard, America usually had a small trade surplus. In 2017, our president was widely denounced as a protectionist as we ran up a 552 billion dollar trade deficit.
The damage has gone further in Europe. The euro was supposed to create prosperity in the EU, but Italy's GDP has actually fallen about 20% in US dollar terms as the Italian national debt jumped to over 130% of GDP. To try and cover up disasters like this, the European Central Bank bought up over two trillion euros worth of debt. Gold may be the only refuge if the euro fails and pulls down the global monetary system.
Japan was once the envy of the world, but the Bank of Japan has been unable to restore the stock market to its 1989 highs. Decades of money printing and budget deficits produced near zero growth and legions of zombie companies. The Japanese national debt is now over 250% of GDP. Default and hyperinflation are the only options left. This is where we are headed.
The real wealth of the world simply does not grow quickly enough to meet all of the paper promises of politicians or the inflated expectations of investors. From time to time, a monetary reset is necessary to cover up the broken promises of the political class. Paper assets are marked down on a gold basis to produce the spectacular paper performance that the speculators demand.
We are overdue for a major reset comparable to the Nixon Shock that took America off the Gold Standard in 1971. The best way to prepare for the coming global monetary reset is by having some of your assets outside of the system in gold or silver. You probably won't have a second chance because the new global monetary system is unlikely to be based on the US dollar.