The waters are mostly calm and the moon is radiantly bright. The lookouts are keeping watch. Reports of icebergs have been passing on the wireless, but the captain feels secure in the unsinkable miracle ship. Full speed ahead! The first class passengers are secure in their staterooms having fed on a sumptuous repast of rare delicacies. In steerage, the sounds of Gaelic songs are fading and the crowded bunk beds are rapidly filling. But wait, what was that sound? The ship seemed to shiver. No matter. The morning will come and all be well.
Not since the approaches of the first millennium and Y2K has there ever been a greater golden age of doomsayers than today. Y2K brought out loonies like Gary North who predicated the end of civilization as all the computer programs written in the (relative) dark ages of the 50’s – 80’s rolled over and died at 12:00:01 AM on 1/1/2000. Of course, the planning for this had been going on for many years and almost all the critical programs had already been fixed. So at 12:00.02 AM when the world was still very much with us, the Y2K’ers closed up their bunkers and shelters, shut down their websites and returned, techno-tail between their legs to the real world.
Today, however, the arsenic-laced juices are flowing as never before. YouTube is the repository of many gigabytes of gloom and doom videos. Spend a day watching these and you will feel that your days are definitely numbered. A zombie apocalypse is inevitable as is civil war, racial war, martial law, economic collapse, currency collapse, stock market collapse, bond market collapse, global depression, sovereign debt default, total financial Armageddon, peak oil, peak debt, World War III, Ebola, bird flu, the New World Order, Fukushima, the End of Days, terrorism, EMP-disabled power grid and last, and certainly not least, global warming, global cooling, and bee-mageddon. William Miller, founder of the Seventh-day Adventists was a piker compared to the army of doomists that now run free in the jungles of the Internet. The terrifying thought is that some of these gloomy predictions may come true. In fact, the odds almost certainly favor it.
Our desire for stability and order and our normalcy bias do not allow us to easily entertain the idea that we may be headed for a profound discontinuity. The more intelligent prognosticators do not set specific dates for the unfolding of their scenarios. However, the consensus is that something truly terrifying is in store for us, with the probable starting date in the later part of 2015 and running through 2025.
Historical and financial cyclicality are favorite memes. Jim Quinn of The Burning Platform’s hobby horse is The Fourth Turning – an 80-year generation-based theory of rise and collapse. Martin Armstrong’s cycles key off of the tendency towards governmental corruption of the dominant world power. There are debt expansion and collapse cycles (David Stockman, Gregory Mannarino, Jim Rickards).
Without a doubt, the principal villain in almost all of these collapse models is the rapid expansion of non-collateral based debt by central bankers (the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of China). This has led to massive asset bubbles (stock and bond markets, housing, collectables), the debasement of fiat currencies, and will ultimately lead to the collapse of confidence in the central bankers to manage the financial and economic situation. This in turn will lead to rapidly rising interest rates, collapsing asset prices (deflation) and economic chaos and breakdown. This scenario has been termed “The Great Reset” caused by “financial repression” – the inability to have honest asset price discovery due to massive money / debt creation.
Different scenarios branch off the main one. Some involve the collapse of the 500+ trillion dollar derivative market, perhaps spurred by the collapse of oil prices. A favorite is the replacement of the dollar as the world’s reserve currency – scheduled to begin in 2015. If this happens, the dollars that have been kept in reserve will flow back into the United States and potentially lead to hyperinflation.
The logic of these scenarios seem quite sound. There has to be a debt limit. Interest rates cannot be maintained at zero indefinitely. The stand-down scenarios for a slow unwinding face the problem that the markets are tuned to the current direction of the central bankers. Once there is a clear indication that this has changed, asset prices could rapidly collapse to their historic norms.
The wilder reaches of The Great Reset all involve bringing about a war by TPTB (The Powers That Be) in order to create an excuse for the economic collapse. In this model favored by (among others) Gerald Celente, Alex Jones and Dave of the X22 Report, the stage is being set by the “globalists” to achieve their dream – elimination of the world’s “excess” population and the creation of a New World Order.
The ultimate doom scenario is an EMP (Electro-Magnetic Pulse) attack by a rogue state like North Korea or Iran or even a massive solar storm. This could bring down the nation’s electric grid for years and result in the death of 90% of Americans as all supply chains break down and most people starve to death in a few weeks to months.
What is a reasonable person to make of all this? Should a prudent person “prep” by moving to a rural location and loading up on non-perishable food, gold, silver, guns and ammo? Or is the world actually a semi-stable system that will always find a new equilibrium even after a series of serious shocks? Here are some thought questions that should be helpful.
- Does the current situation fall within normal historical bounds or is it unique? What is the best historical analogy?
- How resilient is the system to breakdowns?
- What responses could be expected from government at all levels to different crises?
- What vulnerabilities cannot be fixed, either because of lack of resources or political will?
The current debt situation falls outside the observed historic range. With the exception of low debt Russia, the normalized total debt-to-GDP ratio is unprecedented and rising. No significant deleveraging has taken place in the United States or in Western Europe. By these measures, the debt is unsustainable. The collateral (asset) basis for this high level of debt is significantly below historic norms with a global leverage ratio approaching twenty. The mountain of derivatives and bonds rests on an increasingly small sliver of collateral. Little of the debt generated in the last ten years has gone into productivity or real wealth (as opposed to paper wealth) generating activities. Corporations are using cheap money to repurchase their stock thus increasing its price. Corporate stock activists lobby against productive investment as the payoff period for this is measured in years instead of months.
The system has not been designed with significant resilience. There is a lack of redundancy, negative feedback (to dampen out-of-bounds events), and rapid response to threats. Even though public stock markets have so-called circuit breakers, much asset trading is done by hedge funds in so-called dark pools. These have no controls on them. The first ones out will be safe, all others will be ruined. There is no control environment or regulation for derivatives. Counter-party risk could create a potential domino effect in a crisis. Very little was learned from the near collapse of the financial industry in 2008. The primary response was to pump massive amounts of low-cost liquidity into the banking system though the purchase by the Federal Reserve of underwater mortgage-backed securities and other bonds.
Governments have proven singularly incapable of doing anything helpful to reduce the current risk environment. In fact, risk is increasing at every level of government while they are simultaneously raising taxes and draining resources from productive enterprises and individuals. In a crisis, the government can be expected to protect the powerful and ignore the powerless. There is a de facto oligarchy that decides policy regardless of the platitudes that are mouthed by various officials and their media janissaries. In addition, the government is now positioned to overreact to almost any perceived threat or challenge to its authority, while simultaneously ignoring other threats.
The current vulnerabilities to our critical infrastructure (electric grid, dams, water supply) are not being sufficiently addressed because the political will to fix these problems is not present. The most scandalous of these is the electric grid. Even though it is estimated that only $20 billion is all that is needed to build sufficient protection in to prevent a multi-year nationwide grid failure, nothing is being done.
While no one knows if, how and when The Great Reset will manifest, it is certain that the conditions for such an event are propitious and that little is being done to forestall or meliorate it.