Developed economies have a sovereign debt crisis to look forward to, including defaults, says Peter Treadway, principal at Historical Analytics and co-author of the new book, “Investing in the Age of Sovereign Defaults: How to Preserve Your Wealth in the Coming Crisis.”
So how bad will this debt crisis be?
“We’ll have to see, but we’re already seeing the early stages in Europe,” Treadway tells Newsmax TV in an exclusive interview. “The major countries all have high levels of debt now, and they’re facing a real tsunami of entitlement obligations that have yet to hit.”
The “make fast cash flipping houses” ads are back in force, construction is resurgent, consumers are walking around with shopping bags again, “mom & pop investors” are raising their 401k contributions, and US equities have healed their financial crisis wounds, rising to all-time highs. Animal spirits are also on the rise. You can see it. You can feel it in your bones. People are starting to feel confident, rappers are rapping about the “down economy,” and the mainstream media has finally caught onto the fact that the stock market isn’t going to zero. Instead, it looks like it’s going to infinity.
This system distorts the market and turns appropriate risk-taking into recklessness. The result is a more concentrated and powerful financial sector — and a more fragile economy. The way to return the financial services industry to the free market is by separating trading from commercial banks and by reforming the so-called shadow banking sector. Government guarantees should be limited primarily to those commercial banking activities that need it to function: the payments system and the intermediation process between short-term lenders and long-term borrowers…. It is time to return our financial system to one in which success is no longer achieved through government protections but, rather, through innovation and competition. While trading and investment activities are vital parts of the financial services industry, there is no economic or social rationale for protecting and subsidizing them. Financial services firms are in the business of taking risks. Our country shouldn’t attempt to take the risk out of the system. But we should absolutely stop subsidizing it.
The impressive stock market rally is “artificial,” being driven by central banks’ super-low interest rates, says Mohamed El-Erian, CEO and co-CIO of Pimco.
Going forward, the market will need more “genuine growth” in the form of strong corporate balance sheets and robust economic activity and less “assisted growth” from central banks, El-Erian writes in a blog for CNBC. That transition will probably occur in the United States, but not in Europe any time soon.
While the Dow Jones Industrial Average had its best first-quarter performance since 1987 and the Standard & Poor’s 500 surged 10 percent, “Investors,” he says, “need only look at where some other benchmarks ended the quarter to get a feel for the unprecedented and artificial nature of today’s capital markets.”
Everything the Fed does ultimately leads to less economic activity, less savings and more debt resulting in poverty for Americans, not prosperity. Debt is not prosperity. Debt is poverty and economic slavery.
Why are you working harder but getting poorer?
Let us analyze the effectiveness of the Fed’s only policy tool of printing money since the onset of the great financial crisis in 2008 by looking at:
- Economic activity as measured by human action – the real source of all wealth
- Government dependency
How can Americans ever be expected to reverse the slide into debt-slavery if real wages are stagnating? Even when using the official government inflation numbers which understate the real level of price inflation (CPI-W until 2009 and CPI-U from 2010) real wages in America have been flat at best since 2008.
Did you notice the mysterious vertical jump in the data series between December 2009 and January 2010? It was here when the government changed the inflation index it uses to calculate real wages from the CPI-W to the CPI-U. This change from one bogus number to a different bogus number resulted in an instant jump in real wages – further distancing the illusion from reality. Why are no mainstream economists telling us about this?
This arbitrary change in the inflation formula used to compute real wages is a great example of how government numbers do not reflect real economic activity. In reality, these numbers are completely meaningless in the real world. These numbers only have value in the illusionary matrix created by the Intellectual Idiots and the central planners for us to live in. It is smoke and mirrors to hide the ongoing failures of the central planners and the Intellectual Idiots advising them.