The next crisis is coming as sure as I write this. Why? Because nothing has been fixed and in fact kicking the can down the road only made the problems worse. A smallish problem of Greek debt a few years ago is now sizable. I believe that when the world rolls over it will occur very rapidly as in "contagion". The marginal players will get hurt the first and the worst. Europe is marginal to the US in the great debt Ponzi and Greece is the most marginal player in Europe. So let's have a look at the chart of Greek debt for clues.
I see a clear 5 waves up to the point where interest rates were 30% on their 10 year notes. Of course, that was unsustainable and so they either had to default (thus making a mockery of the EU and of the Euro) or the other players had to bail them out. The debt at the time was small and so it was possible. But the debt has grown according to Mish while structural unemployment there is higher than it was in the US during the Great Depression. In other words, default is now assured and the damage will be far worse today than if they had let it default 5 years ago instead of trying to save face/save the debt Ponzi.
In any case, with the assurances of the whole EU, the rates have been coming down rapidly. But they have been coming down as an Elliott wave a-b-c, not a 1-2-3-4-5. So I do not think that they will turn into a mania chart that ends lower than where it started. Instead I think it will bottom soon and then turn back up. The normal level of a-b-c retracement is back down to the prior 4th wave. We are already there in the chart below. You can see the chart putting on the brakes, slowing the rate of descent. The first time we see a higher low and a higher high, you know the worm has turned.
When that happens, the wave count will be clear: wave 1 was the 30% peak, wave 2 will be happening this year and the next wave up will be a 3rd wave. That is going to rise fast and furious and there will be panic in the economic world. The interest rates will go well past 30, perhaps to 45%, etc. Greece will likely just default on it at that point. Why try to pay back debt that you are rolling over at 45?
When this happens Germany is going to get crushed because they are responsible for backing 211 billion Euros worth (~286bn USD). For the US that would be a serious chunk. For Germany, it would be devastating, an 8.4 percent of their GDP! It would certainly hurt their credit rating, and that of France who is on the hook for 158.487 billion Euros (215 billion USD). When their debt gets downgraded, their borrowing costs go up. Worse yet, the people finally begin to riot about it and the government can no longer engineer any more bailouts for Portugal, Spain or any other kind of PIIGS.
All of this will cause a domino effect on the rest of the world, probably leading to a global collapse of the current economic system as everyone begins to default on everyone else left and right and with little hope of getting any of it back. The courts will be swamped for a decade.
By now most of you are probably rolling you eye and saying "All of that from some squiggles on a chart?" to which I can only respond that the chart only helps to guess the timing. The die for default of this global debt Ponzi was cast the minute Nixon de-linked the dollar from gold. Any year that transpired past that under the current system was, pardon my pun but quite literally, borrowed time.
If you do not own any physical gold or silver, now might be a good time to get some. You do not have forever like you think you do. We are in the eye of the storm and the other wall is approaching us quickly. It appears calm right now to people who do not understand the nature of storms but while we were in here the storm doubled in strength. The next economic crash is going to be worse than in 2008.
By the way, one of my long standing signs of impending collapse has been to watch Procter and Gamble's company performance. They cut their outlook today. Just sayin'.
The bizarre and absurd detail is that I and S are, combined, in the hook backing the debt of G more than Germany is.
ReplyDeleteAnd, as these are the G, I and S in PIIGS, "contagion" was built in the ECB rescue fund, guaranteed to drag everyone down the whirlpool if any piglet goes belly up. What were they thinking?