The financial system has already collapsed
“Tectonic changes ahead” in economies and markets, estimates the Swiss investment house Gold Switzerland…, as reported by bankingnews.gr.
The reason; The reasonable changes will be caused by severe debt crises in the US and Europe, while the “scenario” foresees a sharp fall in the dollar and the euro, with gold appearing as an investment haven but at a price many times higher to current.
The next phase of the fall of the West is taking place and will soon accelerate.
According to Gold Switzerland, the deterioration has to do with the unreasonable sanctions imposed on Russia.
These sanctions seriously affect Europe and the US, although it was obvious to many analysts.
“The Romans understood that free trade was necessary between the countries they conquered.
But the US administration blocs have both the money and the ability to trade countries they don’t favor.” reports the Swiss house.
However, the West, according to the Swiss house, is shooting itself and we are all suffering the consequences.
No foreign country will want to have debt or US dollars. This is a devastating problem for the US as its deficits will grow exponentially in the coming years.
Therefore, the next debt crisis will not just be a disaster, but a bomb that will go off at supersonic speed.
With the death of the petrodollar and the explosion of US debt, there is only one solution on the horizon for the US: for the Fed to print money to buy US bonds.
catastrophic death spiral
So the spiral of higher debt, higher deficits, more bonds, higher interest rates, and falling bond prices will soon turn into a DEATH spiral.
It sounds like bankruptcy… but that word will probably never be used officially.
It’s hard to admit defeat even when he’s staring you in the face!
Yeah, The US is likely to confuse the situation with CBDCs (Central Bank Digital Currencies), but since this is just another form of fiat money, they will buy themselves some time at best.
Either way, the end result will be the same.
The US Debt Ceiling Hoax Belongs on Broadway, Not Wall Street
The debt ceiling was enacted in 1917 as a means to curb reckless spending by the United States government.
So this parody has been going on for over 106 years.
During this period there was complete disregard for fiscal discipline by the government and Congress.
The problem is not only the debt but also the cost of financing it.
The annual cost of financing the federal debt is currently $1.1 trillion.
Assuming that the debt grows to $40 billion in 2 years, the interest cost (5%) would be $2 billion.
This figure would correspond to 43% of current tax revenues.
But as the economy deteriorates, interest will easily top 50% of tax revenue.
And that’s 5%, which will likely be too low as inflation rises and the Federal Reserve loses control of interest rates.
So there is a terrible scenario and this is certainly not the worst case scenario.
The Fed is between a rock and a hard place
The Federal Reserve and the US government will be between a rock and a hard place until the financial system and economy begin to take ever harder hits, collapsing like all monetary systems in history.
Presumably the rest of the West, including an extremely weak Europe, will follow the United States.
The emerging powers of the BRICS member countries
The entire world will suffer, but the commodity-rich nations as well as the least indebted will fare much better.
That is, South America, the Middle East, Russia, and Asia will probably do better.
The expanding power blocs of BRICS and SCO (Shanghai Cooperation Organization) will emerge as powerful forces capturing an increasing share of world trade.
Barring major political and geopolitical upheavals, China will be the dominant nation and the world’s leading factory.
Russia is also likely to become a great economic power.
With $85 trillion in natural resource reserves, there is clearly the potential for this to happen.
But Russia’s political system needs to be “modernized” or restructured.
“What I describe above are, of course, structural changes that will take time, possibly decades.
But like it or not, the first phase, which is the fall of the West, could happen faster than we would like,” says the Gold Switzerland analyst.
A monetary system always ends with an explosion of debt.
In 1913, the total US debt was negligible, whereas by 1950 it had risen to $406 billion.
When Nixon closed the “golden window” in 1971, the debt was $1.7 trillion.
Since then, the curve has become steeper, as the graph below shows.
Since September 2019, when the US banking system began to crack, the REPO crisis told us that there were real problems, although nobody wanted to admit it.
Conveniently for the US government, the REPO crisis became the Covid crisis, which was a much better excuse for the government to print unlimited amounts of money alongside the banks.
So, in this century alone, the total US debt has grown from $27 trillion to $94 trillion!
We will see a similar exponential pattern with respect to the coming debt boom.
If we assume that the last 5 minutes of the exhibition phase started in September 2019, then the stadium was only 7% full and in the next few years it will increase from 7% to 100% or 14 times from here.
This is obviously not proof, but it does show that US debt could explode.
So let’s take a quick look at some of the factors that will cause the debt to explode:
an exhibition of Hoover Institution estimates that more than 2,315 US banks currently have assets that are worth less than their liabilities.
The market value of their loan portfolios is $2 trillion below book value.
And remember this was an estimate before the REAL drop in asset values to come.
It is observed that the US real estate market is also reeling.
So the four US banks that suffered losses are just the beginning.
And no one should believe that this situation only affects small banks.
The largest banks will follow the same path.
During the subprime crisis of 2006-2009, bailouts were the norm.
But at the time, it was said that the next crisis would involve bailouts.
However, as we have seen so far in the US, there were no bailouts.
It is clear that the government and the Fed were concerned about a systemic crisis and could not afford to bail out even the banks’ insured customers.
“As the crisis spreads, I doubt bank depositors will be treated leniently.
Neither the FDIC nor the government can afford to bail everyone out.
Instead, depositors will receive an offer they cannot refuse, which is a mandatory purchase of US bonds equal to their credit balance.”
The European banking sector is in even worse shape than the American one.
European banks face big losses on bond portfolios bought when interest rates were negative.
No one knows at this stage the extent of the losses, which are likely to prove significant.
In both commercial and residential real estate, the situation is worse in Europe than in the US, as European banks directly finance most of these loans, including €4 trillion in mortgages.
Banks also see a mismatch between the low interest rates they charge for mortgages and the high interest rates they pay to finance them.
The former governor of the Bank of France and former head of the IMF, Jacques de Larosière, accuses the authorities of undermining the private banking system with disruptive amounts of QE, which had become toxic:
“Central banks teach lessons on how to provoke a financial crisis”
If we add the unfunded liabilities and all the outstanding derivatives to the overall debt, we arrive at about $3 trillion:
“This is it! The financial system has collapsed.
Unfortunately, the Western financial system is now too big to save and too big to fail.
However, all the king’s horses and all the king’s men cannot save him.
And if the system is too big to fail, the consequences will be dire,” concludes Gold Switzerland.