“America is now a dangerous nation.” This
is the title of an article written by the journalist Gideon Rachman in the
Financial Times last week. He goes on to declare: “Under Donald Trump,
America looks like a dangerous nation.”
As
I stated in my KWN article last week, the risk of a major war is now very
high. The dilemma is that this is just one of many problems with potentially
catastrophic consequences that the world is currently facing. Looking at
total global risk, the current situation is probably graver than
anything the world has faced in history. The world is now standing
in front of a potential nuclear war between the US and North Korea, a war
that easily could lead to a world war involving initially China and Russia
and many more nations. The economic, financial and political consequences
would obviously be catastrophic for the world.
Ignorance is bliss
Ordinary people are very fortunate that they are never exposed to the real
problems in the world. Between Facebook, Instagram, YouTube and some game
shows on television, they are blissfully ignorant of the very precarious
position the world is in. Luckily for most people, television news and
newspapers report very little that touches on anything but local news or the
latest divorce or affair by their favourite artist. Virtually no journalist
today is capable of doing any analysis or objective reporting. They just
report what they are being fed by government or a handful of media
organisations that dominate the world.
Nine steps to the abyss
The average person is totally ignorant of the insoluble risks facing the
world currently, namely:
- Record global debts of $225 trillion which can
never be repaid and will bankrupt most nations in the next few
years. This includes public as well as private debt.
- Their money, whether it is dollars, euros yen or
yuan will become worthless within 5 or maximum 10 years as
governments finish off the 100 year debasement of all currencies which
are already down 97-99% since the Fed was founded in 1913.
- Most assets will decline by 75% to 99%
in real terms. This includes the bubble markets financed by the credit
boom and money printing such as stocks, bonds and property.
- Central banks will become insolvent.
Most central banks are today hedge funds with massive leverage. The
assets they hold, government bonds, stocks and other bonds will all
become worthless. The demise of these banks will be a blessing for the
world since they are the primary cause of the coming financial collapse.
- The banking system will fail and most
assets held in a bank will disappear. This includes both money and
securities.
- As nations go bankrupt and money printing has no effect,
the state will become totally ineffective. This means
that there will be virtually no money left to maintain the socialist
system that the world has experienced for almost a century. A system
which in most Western countries absorbs and wastes more than 50% of what
the country produces. As the very wise Margaret Thatcher said: “The
problem with socialism is that you eventually run out of Other People’s
Money.” (abbreviated OPM).
And this is exactly what will happen next. As the world runs out of OPM,
there will be no money or taxes to fund social security, medical care,
pensions, defence etc. On the one hand, this will of course be
devastating for most people who are totally dependent on the state and
OPM. On the other hand, government tax departments will be decimated or
disappear, and all the unproductive bureaucrats and civil servants will
also be gone. This will be a very good thing. I do realise that the
transition will be devastating for most people initially but hopefully
the Phoenix that will come out of this will create a much stronger and sounder
system based on personal initiative and self-reliance rather than
destructive socialism.
- The core of democracy and values are being
totally torn down as a result of the socialist system. The
family is for many no longer the kernel of society. In the West, the
divorce rate is 50% or above in most countries. Many people are restless
and less grounded. This is also linked to the earth’s magnetic field
which is weakening significantly. Religion as well as moral and ethical
values are waning. Heritage, history and culture is denied by the powers
that be. Tearing down historical monuments is a sign of this. Everything
must now be politically correct. And political correctness is determined
by the minorities and not the majority.
- There will be political upheaval in
most countries in coming years. The party in power will be pushed out or
lose the next election since they can’t fulfil their socialist promises.
The opposition party will gain power since they will promise the earth.
But they will soon run out of OPM and also fail.
- We will see social unrest and also civil wars.
People without money or jobs will revolt. There will be major clashes or
civil wars between political phalanges.
Are Kim and Trump dangerous for the world?
So is the US now a dangerous nation based on the conflict with North
Korea? Yes, this is certainly a high-risk event. Both Kim and Trump are
impulsive characters. With over 28 resignations or firings in Trump’s
administration over the last seven months, there are clear signs of
instability and lack of harmony. As I said in an interview with
Grant Williams after Trump had been elected in late November, that with Trump
being a dominant individual and an entrepreneur, I expected him to change his
mind constantly. Most entrepreneurs have no strong principles but the ability
to change their mind frequently. It is this flexibility that makes them
successful in business. But this doesn’t work in politics. I also predicted
that Trump, being a very strong individual, would not be able to retain people
with strong personalities. Hiring a number of very top people, including
billionaires, was a high-risk strategy for Trump. The 28 people who have left
so far proves that point.
The risk with a leader who is under tremendous pressure on the domestic
front is that he turns outwards and starts a war. This is an extremely normal
pattern in history. And nobody in the US can stop the President to push the
nuclear button. In theory, the military could disobey orders from the
commander in chief but normally generals are very keen to start wars. With
three top generals in the White House as Trump advisors, the risk of war is
significantly heightened. But hopefully Trump will understand the
horrendous consequences of starting a nuclear war. Trump should avoid a
desire to join former war hungry leaders such as Bush, Obama, Blair, Cameron,
Sarkozy and others who through their ignorance and megalomania managed to
change global history for the worse, for a very, very long time.
As regards Kim of North Korea, he would probably be very keen to prove his
nuclear power. The biggest risk is that his missiles miss Guam, making him
into a laughing stock. As an alternative, South Korea would be an easier
target and therefore more likely. But let us hope and pray that we will not see
a nuclear war. That would be the end of the world most of us know today.
A less safe world
The fact that many, especially in Europe, see the US as a dangerous nation
is of course not new. Since WWII, the US has been involved in numerous wars,
many of which were started by the US, assisted by other nations. The
unprovoked attacks on Iraq and Libya are examples of US interference with
dire consequences for especially Europe but also for the rest of the world.
In Iraq, more than ½ million people died as a result of the war. But the
serious and long term effect of these wars is the migration which Europe is
now experiencing. Germany for example has had 1.5 million immigrants since
January 2015. There are no jobs, nor housing or schooling for most of these
migrants and the legal system cannot cope with all the asylum seekers. This
will have long term and permanent social and cultural consequences of major
proportions for most European countries. Europe will be a very different
place in 2050. Also, the terrorism that the world is now experiencing is only
the beginning. Even without a major war, the world as a whole will be
much less safe due to terrorism and increase in crime. I was born at
the end of WWII and have experienced a long period of peace and prosperity as
well as safety. Sadly, my children and grandchildren are unlikely to be so
lucky.
Time to act
I do realise that bearers of bad news are unpopular figures. If they are
right, nobody will thank them and many people will blame them. If they are
wrong they will be ridiculed. But as most readers know, I am not here to be a
prophet of doom and gloom. No, my purpose is just to tell things as I see
them and to warn people about the massive risks that the world is now facing.
Some people will argue that ignorance is bliss. Yes, it could be, especially
since we don’t know exactly when the end of an era is upon us. But it is very
clear to me that the time for change is now very near, as I outlined in last
week’s article.
So at least for the ones who are forewarned, they can take some preventive
actions. But even the knowledge of major changes in the world would probably
ease the shock.
For the privileged few who have assets to protect or the ability to move
to a safer place, now is the time to seriously consider this. Big cities will
not be the best places to live.
I think this autumn will be the autumn of market turmoil and shock. Over
extended stock markets seem ready for major falls. Same with the dollar, the
world’s reserve currency, only backed by gigantic debts. Property markets
worldwide will first freeze and then fall hard. Central banks will try to
hold interest rates down but will eventually fail, leading to major falls in
bond markets.
Gold and silver shortages coming
Physical precious metals will be major beneficiaries of the coming global
crisis. Gold should go to $1,360-70 quite quickly on its way to new
highs. Due to a temporarily strong dollar, gold in US dollars is 29%
below the 2011 high (monthly close). In most other currencies gold is down a
lot less. See gold in Canadian dollars above.
Silver, albeit very volatile, will rise faster than gold.
For anyone considering buying physical gold or silver, there will soon be a
time when there will be major shortages. There just won’t be
sufficient production or stocks to cover the coming demand. Also, we
recommend that gold and silver should be held outside the country of
residence. There will soon be exchange controls in many
countries including the USA. So the option to transfer assets or money out of
your country might not exist for much longer.
The risk that we will have major market turmoil this autumn is big. But
remember that even if things take a bit longer to materialise, insurance must
be acquired before the event.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
GoldSwitzerland.com
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