By Hubert Moolman
6 May 2010
The worst part of the world’s current financial crisis is still on its way. The enormous debt levels present in our financial system is central to this crisis. This huge debt levels could cause the world’s monetary system to collapse, starting with the weaker currencies and quickly making its way to the major ones. Day by day the premier signal (gold price) of this collapse is getting clearer and should encourage more people to run for cover.
The world economy cannot recover and make progress until the gigantic debt burden is lifted. This can still take more than 10 years. If we have a deep and extreme collapse (in debt) much like the stock market crash in 1929, then it could be 10 years, and of course longer should the crash be less extreme but more distributed. I think 10 years is more likely, since major crashes tend to end in an extreme collapse. A peak in the gold price could be a good signal that we are at or close to a bottom of this debt crisis, and we are still far from a peak in gold.
There are various signs that indicate that we have reached the end of the prosperity part of the debt bubble. Some of these signs I have mentioned before, like the top in the Dow/gold ratio. The gold’s price is also another, it has increased 4.72 fold since beginning of this decade. You can also just look at headlines around the world of countries like Greece having a debt crisis. You can also go and find the following charts (which could be considered a good proxy for debt levels) and you will notice how these levels have consistently increased at least the last 50 years:
- Cumulative rate of growth of M3 and Monetary Base
- Household Debt as a percentage of GDP
You could probably look at your own finances as well as your neighbour’s for evidence of extreme debt levels compared to just a few decades ago.
Debts levels have become a huge burden and it will strangle the world economy for at least the next 10 years. The debt will have to be settled eventually, voluntarily (unlikely) or by force (death of all fiat denominated debt). All future production will be severely reduced by the debt obligation and the effects will be a world economy in chaos and possibly with life threatening phenomena like starvation being the order of the day.
That is just how it works when you have huge debt – you will have less of your future income/production available due to the debt obligation that has to be met every month.
This crisis cannot be stopped, but you do not have to be caught up in its worst effects. You have to educate yourself by seeking the right knowledge that will help you prepare for its worst effects.
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