World of zombie believers

World of the zombie-believers

Money and debt bubble unrelated to the real economy: where do we go from here??

In 2020, the global economy collapsed more than at any time since 1945. World GDP declined by about 4.4 percent to about 84 trillion (84.000 billion) US dollars. At the same time, debt will have increased by around 20 trillion dollars to approximately 277 trillion dollars at the end of 2020. The leading Western central banks have printed an enormous amount of fresh money in 2020. Rising debt, steep increase in money supply with declining economic power: How will the debt ever be repaid?? How is the value of money to remain stable?? How will all this work out? What is in store for us?

The development of the money and debt supply

Since the beginning of the last financial crisis in 2007, the money supply in the industrialized countries has increased at a rate that would have seemed insane to all economists until recently. Virtually all leading central banks in the Western world have fired up the money press and printed fresh money on a historically unprecedented scale, he said. The U.S. Federal Reserve Bank has increased the money supply about ninefold since 2007, the European Central Bank (ECB) has increased it sevenfold, the Bank of England has increased it ninefold, the Bank of Japan has increased it fourfold, the Bank of Canada has increased it sixfold, the Reserve Bank of Australia has increased it sixfold. Even the conservative Swiss central bank has increased the money supply eightfold.

The money printing process occurred in two rough waves. The first wave in the wake effects of the financial crisis in 2007. Ohne das massive Aufblahen der Geldmenge, das uberfluten der Banken, Regierungen und groben Unternehmen mit Liquiditat ware die Wirtschaft sowohl nach 2007 wie 2020/21 sicherlich sehr viel schlimmer abgesturzt, als sie es tatsachlich tat.

From this point of view, printing money was a great success. There was no self-reinforcing economic depression after 2007 nor in 2020. Central banks have learned the lesson of 1929-1932. At that time, no fresh money was printed, interest rates were not lowered to zero, which plunged the world into many years of deflation, depression, mass unemployment and, eventually, war.

But it is not only the money supply that has increased dramatically in the last 14 years. Debt, especially government debt, has also increased at an almost unprecedented rate in the wake of the 2020 lockdowns. From the third quarter of 2019 to the third quarter of 2020, global debt increased by $20 trillion (20.000 billion), equivalent to nearly a quarter of world GDP. By the end of 2020, global debt is estimated at $277 trillion With world GDP at about $84 trillion, this is roughly 330 percent of world economic output. If all debts were to be repaid, all working people in the world would have to work without wages and salaries for almost three and a half years and give up all value added to the creditors.

Since about half of the world’s financial assets are held by the top one percent of the world’s population, this would mean that the bottom 90 percent of the world would have to work for over a year and a half without income to repay the top one percent of the world’s population. With a little common sense, this is impossible. For me, as a former investment banker, this means that there will be quite a lot of debt defaults. In short, there is no way the debt can be repaid at anywhere near the full amount, we are living in a pretty gross debt bubble.

Money and debt mountain is no longer covered by economic power

Money, be it in the form of a bank bill or on the current account, is a claim on a future real economic performance. In concrete terms: If I have a ten-euro bill in my hand (or in my checking account), I believe that in the future I will be able to exchange the equivalent value of these ten euros for a real economic service, be it a pizza or a haircut.

The same applies to a promissory note. If I have a debt instrument, be it a savings book, a government bond or a corporate bond, I believe that I will get my loaned money back from the debtor later and that I can buy a pizza or a haircut for it in return. All money and all debts are therefore based on faith (the word credit comes from the Latin credere, to believe), on trust.

In the last 14 years, however, the mountain of money has grown roughly seven to eight times as fast as real economic output; and debt has also risen much faster than economic output. In other words, banknotes are no longer backed by nearly as much real economic power as they used to be – and debt securities are also backed by far fewer real assets than before. The holders of money and debt securities still believe that one day they will be able to get their money back in real terms and exchange it for real economic goods. But this has long been an illusion, a delusion.

The unrestrained spending of money by the federal government (and many other governments) via new debts, which are then again financed to a large extent by the central bank through fresh money printing, is based on the fact that people who previously had monetary assets or IOUs, for example savings, are partially expropriated. This is because every new money or debt certificate that is added without the real economic power increasing devalues the existing money and debt certificate holdings a little bit. This is due to the fact that with each new money or promissory bill, the entitlement rights to the real economic goods increase. But people do not notice this immediately, because it is a gradual process.

The freshly printed money and the rising mountain of debt, however, are not matched by rising economic output. On the contrary, real economic output has fallen dramatically by about 4.4 percent in 2020 This is the sharpest global economic decline since the end of WWII. For comparison: after the financial crisis, the global economy declined by only 1.7 percent in 2009.

In short, an enormous amount of new paperwork has been introduced into the world in 2020, representing a claim to an economic output that does not exist at all. So many money and asset holders are living in an illusion, the mistaken belief that their money and bond deposits are still fully valuable. But they have not been for a long time. We live in a world of zombie believers.

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