debt – Dennis Tubbergen

“First Bank Failure of Many?”

As I discuss in my New Retirement Rules Class, ever since 1971, the US Dollar has been debt rather than an asset.

On August 15, 1971, President Richard Nixon eliminated the link between the US Dollar and gold, making the US Dollar a fiat currency.

Since that date, US Dollars have been loaned into existence. The lower a bank’s reserve requirement and the more borrowing that occurs, the more US Dollars are created. Of course, as longer-term readers of this weekly publication know, after the financial crisis, when interest rates were reduced to zero, lending did not accelerate. It was at that point that the Federal Reserve began a ‘temporary’ program of quantitative easing or currency creation.

Since that time, worldwide debt has increased from about $100 trillion to about $300 trillion.

Since banks have debt as assets, I have been talking about the strong likelihood of banks failing as excessive debt goes unpaid.

This pattern of bank failures as asset price bubbles caused by currency creation has existed for much of history.

It happened during the financial crisis.

Many of you probably remember Henry Paulsen, the Treasury Secretary at the time, getting on television and stating that unless he got $700 billion from congress immediately, the financial system as we knew it would fail.

Congress complied and the banks got their bail out.

From a historical perspective, a bailout is not normal or typical. For most of history, when banks fail, there is a ‘bail-in.’ Banks are bailed out by the bank’s depositors, who lose some or all of the money they have in the bank.

A bail-in was the solution for failed banks in 1933 when President Roosevelt declared a bank holiday, relieving banks of any responsibility to repay depositors.

While it is too early to tell, the most recent bank failure involving Silicon Valley Bank will likely see many depositors lose their deposits. Looks like at least a partial bail-in might be happening.

In case you haven’t yet heard, Silicon Valley Bank, the 18^th largest in the country, failed last week. This from “Zero Hedge”. (Source: https://www.zerohedge.com/markets/record-bank-run-drained-quarter-or-42-billion-svbs-deposits-hours-leaving-it-negative-1bn):

For those who slept through yesterday, here is what you missed and why the US banking system is suffering its worst crisis since 2020. Silicon Valley Bank, aka SIVB, the 18th largest bank in the US with $212 billion in assets of which $120 billion are securities (of which most or $57.7BN are Held to Maturity (HTM) Mortgage Backed Securities and another $10.5BN are CMO, while $26BN are Available for Sale, more on that later )…

… funded by over $173 billion in deposits (of which $151.5 billion are uninsured), has long been viewed as the bank at the heart of the US startup industry due to its singular focus on venture-capital firms. In many ways it echoes the issues we saw at Silvergate, which banked crypto firms almost exclusively.

The big question, of course, is what happened in the past 24 hours to not only snuff the bank’s proposed equity offering, but to push the bank into insolvency.

We got the answer just a few moments after that tweet, when the California Department of Financial Protection and Innovation reported that shortly after the Bank announced a loss of approximately $1.8 billion from a sale of investments and was conducting a capital raise (which we now know failed), and despite the bank being in sound financial condition prior to March 9, 2023, “investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank.“

As a result of this furious drain, as of the close of business on Thursday, March 9, “the bank had a negative cash balance of approximately $958 million.”

At this point, despite attempts from the Bank, with the assistance of regulators, “to transfer collateral from various sources, the Bank did not meet its cash letter with the Federal Reserve. The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due, and the bank is now insolvent.”

Some context: as a reminder, SIVB had $173 billion in deposits as of Dec 31., which means that in just a few hours a historic bank run drained a quarter of the bank’s funding!

But not everyone got out in time obviously, there is a long line of depositors who are over the $250,000 FDIC insured limit (in fact only somewhere between 3 and 7% of total deposits are insured).

The article goes on, listing MANY companies and organizations that had uninsured deposits in the bank.

Here’s the reality of the fractionalized banking system. Banks are required to maintain minimum reserves that are a percentage of deposits. That minimum reserve requirement currently stands at 10%.

As the article excerpt above points out, the run on Silicon Valley Bank had depositors demanding withdrawals of $42 billion on total approximate assets (as of December 31, 2022) of $173 billion.

That’s a little more than 24% of deposits.

This bank had a relatively high amount of liquidity given the minimum required level of reserves. Yet, despite that relatively high level of liquidity, the bank run consumed all the liquidity and then some, making the bank insolvent.

“Business Insider” tells of the predicament of a winery owner who is dealing with the bank failure. (Source: https://www.businessinsider.com/silicon-valley-bank-collapse-wine-industry-napa-valley-cade-surprise-2023-3?utm_campaign=tech-sf&utm_medium=social&utm_source=facebook):

Conover said CADE has a “large loan” and mortgage with SVB on four wineries and five vineyards. And as of Saturday, the company’s checking account “is locked up.”

“I’ve never been through this before,” Conover said. The only similar crisis he could recall was during the 2008 recession.

Here is a business owner with debt outstanding to the bank with a checking account that is locked up and not accessible.

While it will take some time to see how this is sorted out, for the time being, this business owner has a problem – outstanding loans requiring payments and a once liquid checking account that is now illiquid.

There are a few lessons here.

One, as noted at the beginning of this piece, if there is too much debt to be paid, it won’t be paid. Since banks have debt as assets, when debt goes unpaid, banks become insolvent.

Two, under the fractionalized banking system, because reserves are only a portion of deposits, nearly any bank that experiences a bank run of large enough magnitude can become insolvent.

Three, it’s probably prudent to know the safety ratings of your bank, keep deposits under the $250,000 insurance threshold (if possible), and diversify holdings among multiple banks.

If you or someone you know could benefit from our educational materials, please have them visit our website at www.RetirementLifestyleAdvocates.com. Our webinars, podcasts, and newsletters can be found there.

An Artificial Economy

The March “You May Not Know Report” discusses how the current economy (since the time of the Great Financial Crisis) is artificial- the result of easy money policies by the Federal Reserve and government stimulus.

History teaches us that when governments overspend and central banks over print, eventually, reality sets in. One of the founding fathers, Thomas Jefferson, told us that we could expect inflation followed by deflation and that is exactly the track on which we now find ourselves.

Inflation has not subsided; the most recent data shows that inflation is accelerating exactly as Jefferson suggested it would. And Americans are suffering as a result. There are now also signs of deflation setting in as well. This from Michael Maharrey writing for Schiff Gold (Source: https://schiffgold.com/commentaries/this-strong-economy-is-a-facade-built-out-of-debt/):

Retail sales surged in January, creating the impression that the economy is humming along nicely. After all, there can’t be a problem if consumers are out there consuming, right?

But a lot of people are ignoring a key question: how are people paying for this shopping spree?

As it turns out, they’re putting a lot of this spending on credit cards.

Even with a big 1.8% decline in retail sales in December, revolving credit, primarily reflecting credit card debt, grew by another $7.2 billion that month, a 7.3% increase.

To put the numbers into perspective, the annual increase in 2019, prior to the pandemic, was 3.6%. It’s pretty clear that Americans are still heavily relying on credit cards to make ends meet.

Meanwhile, household debt rose by $394 billion in the fourth quarter of 2022. It was the largest quarter-on-quarter increase in household debt in two decades.

Debt balances have risen $2.7 trillion higher than they were at the beginning of the pandemic.

Clearly, this isn’t a sign of a healthy economy. Americans are spending more on everything thanks to rampant price inflation that doesn’t appear to be waning, and they’re relying on credit cards to do it. Saving has plunged. This isn’t a sound economic foundation, and it isn’t even sustainable. Credit cards have a nasty thing called a limit. And with credit card interest rates at record-high levels, people will reach those limits pretty quickly.

I ran across something the other day that provides an even more striking example of just how reliant the US economy is on debt.

A company called the Wisconsin Cheeseman sells gift packs of cheese, candies and other treats. And you can buy the gifts on their in-house credit plan.

Let this sink in for a moment. A primary pitch from a gift company is that you can buy on credit.

The annual percentage rate will run you a modest 5.75% to a hefty 25.99% depending on the state. (Most states are currently above 20%. But don’t worry. Your payments can be as low as $10 a month.) Just don’t think about the fact that you’ll probably be paying for this cheese for years to come.

There are other companies facilitating borrowing this doesn’t even show up in the official debt figures.

The use of BNLP services such as Affirm, Afterpay and Klarna has exploded in the last couple of years. These services allow consumers to pay off purchases through installment payments, often interest-free. In a December 2021 report, Cardify CEO Derrick Fung said buy now, pay later has rapidly become more mainstream.

“The consumer over the last 12 months has become more compulsive and BNPL products are the result of us being locked up for too long and wanting more instant gratification,” he said.

Buy now, pay later is a convenient way to spread out spending, but there is a dark side. It encourages consumers to spend more. Nearly 46% of those polled said they would spend less if BNPL wasn’t an option.

The rise of buy now pay later (BNPL) is another sign of a deeply dysfunctional economy. Americans are piling up millions of dollars of additional debt using BNPL on top of their credit cards.

So, while the mainstream pundits tell you the economy is strong, they are looking at a facade. It’s a house of cards. And eventually, it will collapse.

American consumers continue to “support the economy” by spending money today despite rising prices. But they’re borrowing to do it. Tomorrow is fast approaching. And with it depleted savings, higher interest rates, and looming credit card limits. This is simply not a sustainable trajectory, no matter how the mainstream press tries to spin it.

Consumers are struggling. That means that the deflation part of the cycle that Jefferson warned us about may be about to emerge in earnest.

As I have stated in the past (and there are many analysts who would disagree with me), I expect that the Federal Reserve will reverse course and begin pursuing easy money policies once again.

Should I be right about this, we will have to wait and see if the Fed can be effective. I have my doubts. Consumers are accumulating too much debt.

The chart below breaks down debt accumulation by age. Alarmingly, those age 60 plus are accumulating more debt on a percentage basis than other age groups. That should serve as a huge red flag and warning sign.

This time will be no different.

Deflation will, at some point, become the prevalent economic force.

That will be more bad news for stocks and real estate.

Stocks are already feeling it, and real estate is now beginning to dramatically unwind in many parts of the country.

The best advice that I can offer is to have some of your assets that will be protected from a prolonged decline in stocks and real estate and other assets that will perform well in an inflationary environment.

Debt Truths

A seldom-discussed topic that has a significant economic impact is private sector debt levels.

Ever since 1971, when the US Dollar became a fiat currency, and new currency has been created by loaning it into existence.

If banks have a 10% reserve requirement, a $100,000 deposit into a bank can be transformed into $1,000,000 if the velocity of money is high enough.

For example, say you deposit $100,000 into your bank. Your banker reserves 10% or $10,000 and loans out the other $90,000. Say the borrower of the $90,000 buys an expensive car and borrows the $90,000 now available from your bank to do so. The car dealer deposits the $90,000 into her bank. That banker reserves 10% or $9,000 and loans out the other $81,000. That process continues up to a maximum of new currency created of $1,000,000.

Historically, when the Federal Reserve wanted to jump-start the economy by increasing the currency supply, the central bank would reduce interest rates to increase the velocity of money, thereby creating more currency.

That worked until the time of the financial crisis when interest rates were reduced to zero, but lending did not follow due to the fact that, collectively speaking, the American public was already deeply in debt.

It was at that point the Federal Reserve made the decision to ‘temporarily’ pursue a program of quantitative easing or currency creation. As we all now know, the program continued long past the time that a reasonable person would say it was temporary.

As I have often stated, it is my belief that this program will once again be revived in earnest, although it will likely be called something other than quantitative easing.

Since the time of the financial crisis, this policy of currency creation has caused debt levels to increase immensely. At the time of the financial crisis, worldwide debt was about $100 trillion. It now stands at $300 trillion – a truly remarkable number.

Presently, debt levels are continuing to increase. The data shows that consumers are increasingly taking on new debt to cope with rising living costs. This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/consumer-debt-soars-394bn-most-20-years-record-169-trillion-young-borrowers-struggle-repay):

While it won’t tell us anything we don’t know – since it is two months delayed and we already get monthly updates from the Fed via the G.19 statement – this morning, the NY Fed published its quarterly Household Debt and Credit report, which showed that total household debt in the fourth quarter of 2022 rose by 2.4% or $394 billion, the largest nominal quarterly increase in twenty years, to a record $16.90 trillion. Balances now stand $2.75 trillion higher than at the end of 2019, before the pandemic recession.

And the same chart broken down by age:

Every type of consumer credit increased in Q4, and here is a detailed breakdown:

Mortgage balances rose by $254 billion in the fourth quarter of 2022 and stood at $11.92 trillion at the end of December, marking a nearly $1 trillion increase in mortgage balances in 2022.
Home equity lines of credit rose by $14 billion to $340 billion.
Student loan balances now stand at $1.60 trillion, up by $21 billion from the previous quarter. In total, non-housing balances grew by $126 billion.
Auto loan balances increased by $28 billion in the fourth quarter, consistent with the upward trajectory seen since 2011.
Credit card balances increased $61 billion in the fourth quarter to $986 billion, surpassing the pre-pandemic high of $927 billion.

There is an eternal truth about excessive debt accumulation – if there is too much debt to be paid, it won’t be paid.

This is true regarding private sector debt and it is true as far as government debt and liabilities are concerned as well.

It is my view, based on simple math, that debt levels are now past the point of no return and are now too high to ever be paid.

The result, at some future point, will be a massive deflationary environment that will, in my view, resemble the 1930’s; or, possibly, worse.

Looking at the first chart above, one can see the combined debt total of mortgage debt, home equity loan debt, auto debt, student loan debt, and credit card debt is now about 1/3^rd higher than at the time of the financial crisis.

Alarmingly, debt levels have grown the most among those over age 60. That, at least in my view, indicates that consumers are increasingly relying on debt to make ends meet in what is a very difficult economy.

And, to add insult to injury, the most recent inflation numbers indicate that inflation is not under control. This was not at all surprising to me. As I have been stating, the Fed isn’t doing enough to get inflation under control.

Inflation will not be controlled until we have real, positive interest rates – something we are a long way away from.

In the meantime, the US economy (and the world economy) is heading for a time of painful stagflation.

Depression Parallels?

Depression parallels?

Not a comfortable topic to discuss, to be sure. But as my now oft-quoted history professor used to say, “those who don’t study history are doomed to repeat it.”

The older I get and the more experience I acquire, the smarter my history professor becomes.

Which brings me to this week’s “Portfolio Watch” topic – similarities between the period-of-time preceding the Great Depression and where we find ourselves today.

I address this topic very briefly this week, acknowledging the fact that an entire book could be written on the topic. In this brief narrative, I’ll discuss the wealth gap and consumerism excesses.

For context, it’s important to understand the role that central bank policy played in creating the prosperity illusion of the Roaring Twenties and the prosperity illusion that we’ve more recently experienced.

The central bank of the United States, the Federal Reserve, was founded in 1913. Shortly after its formation, the central bank reduced the backing of the US Dollar by gold. Prior to the establishment of the Federal Reserve, the US Dollar was essentially gold; the US Dollar was backed 100% by gold. An ounce of gold was twenty US Dollars.

Shortly after the Fed was set up, the backing of the US Dollar by gold was reduced from 100% backed by gold to 40% backed by gold. A little rudimentary math has us concluding that it increased the currency supply by 250%.

While I am not a trained economist (since the majority of trained economists today are of the Keynesian school of economics, I count my lack of formal training as an attribute rather than a detriment as my common sense has not been compromised), I have learned from my study of history that when currency is created, it always has to find a home.

While there are many eventual adverse outcomes as a result of currency creation, the two on which I will focus this week are income inequality (the wealth gap) and debt accumulation.

Let’s begin with debt accumulation. Here is an excerpt from an article published about consumerism and debt accumulation in the 1920’s (Source: http://athenaandkim.weebly.com/consumerism.html):

Consumerism in the 1920’s was the idea that Americans should continue to buy product and goods in outrageous numbers. These people neither needed or could afford these products, which generally caused them to live pay-check to pay-check. People bought many quantities of products like automobiles, washing machines, sewing machines, and radios. This massive purchasing period led to installment plans. These were plans for people in which they were able to purchase their products and pay for them at a later time in small monthly payments. This was the reason why “80% of Americans during the 1920’s had no savings at all – they were living pay-check to pay-check”. This consumerism later became a contributing factor to the start of the Great Depression because it greatly increased the amount of consumer debt in America.

The Great Depression was largely caused by debt excesses, debt levels in the private sector that were too large to be paid. As a result, many American citizens lived paycheck-to-paycheck.

We are now experiencing the same thing. Almost 2/3^rd’s of American households now live paycheck-to-paycheck.

This from MSNBC (Source: https://www.cnbc.com/2022/12/15/amid-high-inflation-63percent-of-americans-are-living-paycheck-to-paycheck.html):

As rising prices continue to weigh on households, more families are feeling stretched too thin.

As of November, 63% of Americans were living paycheck to paycheck, according to a monthly LendingClub report — up from 60% the previous month and near the 64% historic high hit in March.

Even high-income earners are under pressure, LendingClub found. Of those earning more than six figures, 47% reported living paycheck to paycheck, a jump from the previous month’s 43%.

“Americans are cash-strapped and their everyday spending continues to outpace their income, which is impacting their ability to save and plan,” said Anuj Nayar, LendingClub’s financial health officer.

While inflation, caused by excessive currency creation by the central bank, is a factor in the vast number of Americans currently living paycheck-to-paycheck, another factor is the level of debt that Americans have collectively racked up as a result of easy money policies and artificially low-interest rates. Here is just one example (Source: https://www.theatlantic.com/culture/archive/2023/01/buy-now-pay-later-affirm-afterpay-credit-card-debt/672686)

As familiar as Americans are with the concept of credit, many of us, upon encountering a sandwich that can be financed in four easy payments of $3.49, might think: Yikes, we’re in trouble.

Putting a banh mi on layaway—this is the world that “buy now, pay later” programs have wrought. In a few short years, financial-technology firms such as Affirm, Afterpay, and Klarna, which allow consumers to pay for purchases over several interest-free installments, have infiltrated nearly every corner of e-commerce. People are buying cardigans with this kind of financing. They’re buying groceries and OLED TVs. During the summer of 2020, at the height of the coronavirus pandemic, they bought enough Peloton products to account for 30 percent of Affirm’s revenue. And though Americans have used layaway programs since the Great Depression, today’s pay-later plans flip the order of operations: Rather than claiming an item and taking it home only after you’ve paid in full, consumers using these modern payment plans can acquire an item for just a small deposit and a cursory credit check.

From 2019 to 2021, the total value of buy-now, pay-later (or BNPL) loans originated in the United States grew more than 1,000 percent, from $2 billion to $24.2 billion. That’s still a small fraction of the amount charged to credit cards, but the fast adoption of BNPL points to its mainstream appeal. The widespread embrace of this kind of lending system says a lot about Americans’ relationship to debt—particularly among the younger borrowers who made BNPL popular (about half of BNPL users are 33 or under). “We found that most of the people that use buy now, pay later either don’t have or don’t use a credit card,” Marco Di Maggio, an economist at Harvard, told me. He said that Gen Z was skeptical of credit cards, possibly because many of them had seen their parents sink into debt.

Credit card debt is also reaching record highs. This from “Zero Hedge” (Source: https://www.zerohedge.com/markets/flashing-red-alert-near-record-surge-credit-card-debt-just-average-rate-hits-all-time-high):

Another month, another glaring reminder that most US consumer spending is funded by credit cards.

The latest consumer credit report was published by the Fed today at 3pm and it showed that in November, total credit increased by $27.962BN to $4.757 trillion, above the $25BN consensus estimate, and a number which would have been bigger than last month’s pre-revision increase of $27.1BN, had it not been revised modestly higher to $29.12BN.

As for the wealth gap, we are now once again seeing what was witnessed in the 1920’s. This from the same article quoted above:

The income gap of the 1920’s was the difference in income between the top 1% of wealthy Americans and the rest of the average earnings. Within this income gap, “60% of Americans earned below the poverty level. The top 1% of wealthy American’s saw their incomes increase by 75% during the 1920’s… the other 99% of Americans saw their income increase by only 9%… not enough to justify the huge expenditures on consumer products that most Americans were making”. This shows that there was a great split between those who earned an average income or less compared to the wealthy who earned a considerably larger amount of money.
Fast forward to today.

The wealth gap or income inequality gap is wider in the United States than in any other G7 country.

According to “World Population Review,” the top 1% of earners in the United States have an average earned income of $1,018,700 annually.

The bottom 50% have an average income of $14,500 annually.

If one peels out the top 10%, the average annual earnings are $246,800.

This is what currency creation and artificial markets do.

But artificial markets don’t last forever. History teaches us that this will end badly.

If you haven’t yet taken steps to protect yourself, now is the time.

Long-Term Stock Forecast

While the overall stock market trend remains down, stocks did begin to show some signs of life last week, technically speaking. As the chart below, a weekly chart of an exchange-traded fund that tracks the S&P 500, illustrates, the longer-term downtrend line in place since the beginning of calendar year 2022 may have been broken to the upside last week.

From a fundamental perspective, stocks remain weak in my view, and as I wrote in my December 2022 client newsletter, I am forecasting more downside for stocks in 2023.

Short-term, we will have to wait and see.

Long-term, though, the outcome will be quite predictable in my view. We will have inflation followed by deflation. While stocks could rally in the inflation part of the cycle, when the deflation part of the cycle strikes, stocks and other financial assets will get hit.

In a recent piece, Egon von Greyerz of Matterhorn Capital comments. (Source: https://goldswitzerland.com/in-the-end-the-goes-to-zero-and-the-us-defaults/)

Although US debt has increased virtually every year since 1930, the acceleration started in the late 1960s and 1970s. With gold backing the dollar and, therefore, most currencies UNTIL 1971, the ability to borrow more money was restricted without depleting the gold reserves.

Since the gold standard prevented Nixon to print money and buy votes to stay in power, he conveniently got rid of those shackles “temporarily,” as he declared on August 15, 1971. Politicians don’t change. Powell and Lagarde recently called the increase in inflation “transitory,” but in spite of their bogus prediction, inflation has continued to rise.

Since 1971 total US debt has gone up 53X, with GDP only up 22X, as the graph below shows:

As the widening Gap between Debt and GDP in the graph above shows, it now takes ever more debt to achieve increases in GDP. So without printing worthless money, REAL GDP would show a decline.

So this is what our politicians are doing, buying votes and creating fake growth through printed money. This gives the voter the illusion of increased income and wealth. Sadly he doesn’t grasp that the illusory increase in living standard is all based on debt and devalued money.

Let’s also look at US Federal Debt:

Since Reagan became president in 1981, US federal debt has, on average, doubled every 8 years. Thus when Trump inherited the $20 trillion debt from Obama in 2017, I forecast that the debt would double by 2025 to $40t. That still looks like a valid projection, but with the economic problems I expect, a $50t debt by 2025-6 cannot be excluded.

So presidents know they can buy the love of the people by running chronic deficits and printing money to make up for the difference.

But if we look at the graph above again, it shows that debt has gone up 35X since 1981, but that tax revenue has only increased 8X from $0.6t to $4.9t.

How can any sane person believe that with debt going up 4.5X faster than tax revenue that, the debt can ever be repaid?

When debt goes unpaid, it is deflationary; currency disappears from the financial system.

Financial assets like stocks and real estate don’t react well to deflation. Ultimately, I believe stocks will have to go much lower.

As I have been suggesting, I believe that the Dow to Gold ratio will reach 1 or 2 in the end. Presently, when taking the value of the Dow and dividing it by the price of gold per ounce, one finds the Dow to Gold ratio at 19.

That’s more downside for stock and more upside for gold in my view, no matter what may happen short-term with stock rallies.

If you are not yet using the Revenue Sourcing planning strategy to plan your retirement income and allocation, I’d suggest you check it out.

An Inevitable Outcome

Last week, I discussed that stagflation was the most likely immediate economic outcome in my view.

Just in case you missed last week’s post, stagflation is defined as price inflation combined with a shrinking economy.

Ultimately though, I believe we will see a very painful deflationary environment that may rival the 1930s. This past week, Mr. Egon von Greyerz, whose work I follow and admire, analyzed the current situation. Excerpts from his piece follow: (Source: https://www.silverdoctors.com/headlines/world-news/viscous-cycle-of-self-destruction-gold-outperforming-all-asset-classes/)

The current fake monetary system will collapse under its own worthless weight…

“The first panacea of a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permeant ruin. But both are the refuge of political and economic opportunists.”

-Ernest Hemingway

As the West is standing on the edge of the precipice, there are only unpalatable outcomes.

At best, the world is facing a hyperinflationary depression later followed by a deflationary depression.

But sadly, there is today much more at stake as the West is frenetically escalating the sound of war drums against Russia’s invasion in Ukraine.

As the global economy reaches the point of collapse, countries get the leaders they deserve. There is today no leader or statesman in the West who can stand up to Putin in order to negotiate peace. Biden sadly neither has the vigor nor the ability to play any significant role in solving the conflict. Also, he has the neocons pressuring him to attack and defeat Russia. And Biden’s rhetoric against Putin is certainly not conducive to peace, with words like war criminal and genocide. Biden mustn’t forget that just like in the Vietnam war, the North Vietnamese and Viet Cong are estimated to have lost one million soldiers and two million civilians. Unprovoked wars are, of course, always senseless, whoever starts them.

President Zelensky is doing all he can to involve the rest of the world militarily by demanding more money and more weapons from the West rather than putting his efforts into peace negotiations. Ukraine can, of course, never win the war against Russia alone. And dragging in the US and NATO can only lead to a war of incalculable consequences and potentially a WWIII which could be nuclear.

And in the West, not a single leader is making a serious peace attempt. From Biden to Johnson, Macron, and Scholz, we only hear talk of more weapons and more money for Ukraine. This is terribly tragic and a sign of totally incompetent leadership in the West.

So the US and the West have no ability or desire to achieve peace. And Boris Johnson has welcomed the war as a diversion from his domestic “Partygate” political pressures and therefore has taken an aggressive position against Russia rather than finding a peaceful solution.

Macron is an opportunist who stands with one foot in each camp by being chummy with Putin and at the same time condemning him.

And Scholz, the German chancellor, is in an impossible position caused by Merkel’s poor management of Germany’s energy position. The three remaining German nuclear power stations will be closed down, and fossil fuels are politically unacceptable. Nearly 60% of German gas imports come from Russia. German industry would not survive without Russian gas. So Scholz wants to have his cake and eat it, sanctioning Russia on the one hand and simultaneously spending billions of Euros buying their energy and other natural resources, including food.

Quite a precarious position for Germany to be totally dependent economically on its war enemy. At the same time, this is good for the world as Germany has a vested interest to achieve peace.

But we must remember that only a minority of countries are backing the actions of the US and Europe. Africa, South America, and most of Asia are not taking sides and continuing to trade with Russia, and these regions represent around 85% of the world population.

So the vast majority of the world has no desire for war with Russia, but their voice is seldom heard in the Western-dominated media.

Politics and money cannot be separated, and the geopolitical situation that has now arisen will act as a perfect catalyst to the end of the monetary era since the creation of the Fed in 1913.

But what we must remember is that it is primarily the Western-controlled monetary system (including Japan) which will come to an end.

America’s and the EU’s final desperate attempt to save their broken system by sanctions on world trade will eventually fail as the Western economies gradually decay in an economic and social breakdown brought about by a quagmire of currency collapse, deficits, debts, and history’s most epic of asset bubbles.

The Phoenix emerging will clearly be the East, led by China, with Russia as an important partner. China is, population-wise, the biggest country in the world and will soon be the biggest country in GDP terms. With total US assistance in the form of know-how and technology, China has built up a strategic and advanced manufacturing base with dominance in many sectors.

For example, 18% of all US imports come from China, including 35% of all computers and electronics. Chinese sellers represent 40% of all top brands on Amazon and 75% of all new sellers.

The US and the rest of the world criticize Germany for being dependent on Russian energy, but the US folly of shifting much of its manufacturing to China certainly qualifies for joint first prize in commercial and strategic idiocy.

Since gold is the ultimate money and the only money that has survived in history, it will have a very important role in the coming years as the fiat currency system collapses.

Empires normally suffer a drawn-out and painful death. The fall of the US and the West has certainly been long, starting over half a century ago. But the fake prosperity has benefitted a small elite and lumbered the masses with colossal debts.

In 1971, US debt was $1.7 trillion, and 50 years later, it is $90 trillion, a mere 53x increase.

As the finale of the debt and currency collapse approaches, the desperation rises exponentially. Consequently, increasing amounts of money need to be created and wars initiated to justify the debt explosion, all in a vicious cycle of self-destruction.

For over half a century, the US has destroyed its currency and initiated unprovoked military actions in numerous countries – virtually all of them unsuccessful.

Yes, the US has certainly experienced a temporary false prosperity. But that could only be achieved with deficits, debt, and printing fake money.

The massive cost of the failed Vietnam war led to Nixon closing the gold window in 1971.

As Nixon said at the time, “the strength of the currency is based on the strength of the economy”!

Hmmm, half a century later, that currency has lost 98% in real terms (GOLD), and the Federal Debt has grown 75-fold from $400 billion to $30 trillion. It took 22 years, from 1971 to 1993, for the debt to expand by $15 trillion. Just in the last 2 years, the debt is up by the same amount of $15 trillion.

This debt will ultimately have to be dealt with. Simple math has one concluding that this level of debt can never be paid.

It is the massive defaults on debt that will have to come that will ultimately lead to a painful deflationary environment.

Stocks will fall, real estate prices will collapse, and unemployment will soar.

It’s ironic that the currency creation that has taken place on such a reckless scale since the financial crisis has allowed the debt to build.

Worldwide, at the time of the financial crisis, total debt was $120 trillion. Today, worldwide debt stands at $300 trillion. That’s an eye-popping increase of 250%!

This can’t possibly end well.