Even those with
an extended holiday break go back to work on Monday. As the world thus gets back to the regular
grind, the words of the pundits, and the soothsayers, and the secular prophets
will be forgotten. Their predictions and
comments on what the new year might bring will not be brought up again unless
they actually come true. Such being the
case, I have no wish to join them and so will not inflict any of my readers
with my own forecasts. Instead, I will
present some facts to you and you can make your own!
1)
The
US government has a debt and unfunded liabilities totaling 248 thousand dollars
for every man, woman and child. Just a
few days into the new year they will have to increase the borrowing limit
they’ve self imposed. This will be the
75th time it is increased since 1962. You can make your own call as to how
sustainable you think that is.
2)
In 1929 the US
stock market crashed as a result of unbridled greed and unrealistic valuations
of stocks. Those valuations were allowed
to climb as high as they did because people were allowed to apply leverage (by
borrowing 10$ they could control 100$ in stock). The crash would have been strictly a North
American affair except for President Hoover’s demand that Germany repatriate US
funds lent to them for rebuilding after the 1st world war. The resulting lack of liquidity resulted in a
European financial crisis that radicalized the German people. Bad things happened downstream (that’s my
entry to understatement of the year).
Your call if you think any US financial crisis today can jump across the
Atlantic and cause a worldwide problem.
3)
The US has
spent trillions of dollars on shoring up the equity markets and made much of
new laws regarding banking as a result of the 2008 crisis. According to Wikipedia, “The U.S. Senate's Levin–Coburn
Report asserted that the crisis was the result of "high risk, complex
financial products; undisclosed conflicts of interest; the failure of
regulators, the credit rating agencies, and the market itself to rein in the
excesses”. Meanwhile, they have
completely ignored the derivative market.
The derivative market is entirely based on leverage – for instance, for
less than 1000$ you can control over a million dollars in T-bills. The derivative market is now valued at 1.5
quadrillion dollars. Yes, that’s not a
spelling mistake or a typo. That’s about
20 times more money then it would take to buy every single stock of every
company on every stock market in the world.
In other words, the derivative market is now worth >20x more money
then exists in the whole world. Your
call if you think that such a bubble can continue without bursting. Also your call if you think the US has learned
anything at all from the ’08 crisis.
I
don’t know about you. I look at the
facts and I get an eerie deja-vu. I’m
not saying that things will spiral into the toilet this year. I’m saying that they will spiral into the
toilet sooner or later when you allow mankind’s greed to be your guide.
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