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The Great Delusion
Most people have only experienced prosperity in their lifetime. They assume that the future will be the same and are happy to accept the official storyline. Many are not willing to consider conflicting facts and accuse people who question them of being pessimists and scaremongers. If you are one of them please note that you will be completely unprepared for a very bad surprise in the not too distant future.
- The economy is robust
- There is hardly any inflation
- Social security and pensions are safe
- Banks and big corporations are trustworthy
- The government protects personal and economic freedoms
Delusion 1: The economy is robust
Our economies have never really recovered from the Great Financial Crisis (GFC) of 2007-09 as its main causes, excessive debt and a corrupt financial system, were never really addressed. Instead the leading central banks enacted desperate monetary policies such as Quantitative Easing (QE), that created trillions of dollars of new money, as well as zero or even negative interest rate policies (ZIRP and NIRP). Through this they were able to monetize government debt and prop up insolvent companies but at the same time they also disrupted the price mechanism and caused other huge distortions to the economy.
Today global debt has reached USD 245 trillion or 320 % of global GDP and bonds worth USD 17 trillion carry a negative yield which means that you have to pay someone to borrow money from you. There is an asset bubble in stocks, bonds and real estate and a growing number of insolvent companies are artificially kept alive by increasing credit lines. The effectiveness of Central bank measures is rapidly declining as every additional dollar created out of thin air increases GDP only by cents. It is obvious to everyone with a working brain that the “everything bubble” eventually has to pop. And the longer the inevitable is delayed, 5 the more devastating the eventual crash will be. The GFC was just a rehearsal, the real event will be much more spectacular. Now is the time to prepare and buckle up, expect a very rough ride.
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Delusion 2: There is hardly any inflation
Governments and Central Banks are officially targeting 2% inflation. Unofficially they aim for even higher rate as this is the only way they know to grow out of our massive debt problem. As there are many methods to manipulate inflation numbers, we can safely assume that actual inflation is much higher than reported. This has not only a very adverse effect on normal employees, savers and retirees but will eventually result in the collapse of our fiat currencies. Contrary to the past the USD, EUR, CAD, AUD, etc. are not backed by real assets but rather backed by the government or its Central Bank. Once people lose trust in them the value of fiat money will collapse. Our current monetary system is already on the edge. Expect it to be replaced by a new system once a new economic crisis hits. Changes of monetary systems have happened before, the last time when President Nixon ended the Bretton Woods agreement in the early 1970s. Expect it to happen again.
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Delusion 3: Social security and pensions are safe
Governments in the Western World continue to extend social welfare programs despite the fact that they already consume a large part of their budgets and most programs are not sustainable. Already today unfunded public pension liabilities in the U.S. reach almost USD 6 trillion or USD 18,000 for each resident. By 2035 U.S. Social Security will not have enough money to pay promised benefits. The situation in Europe is not any better due to a declining workforce and growing expenses for refugees. Once the next economic crisis strikes governments will have to drastically reduce benefits and/or substantially raise taxes.
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Delusion 4: Banks and big corporations are trustworthy
There is increased pressure on executives of large companies to reach and surpass short- term targets in the form of stock price and Earnings per Share (EPS). On the other hand, they are offered increasingly high rewards in the form of bonuses and stock options if the meet their targets. In addition, many governments do not only take a “Too Big to Fail” but also a “Too Big to Jail” approach. As unethical or illegal behavior has low risks but offers high rewards it has become increasingly common not only in big business but also in medium and small companies. Firms with a decent management find it increasingly difficult to compete and are little by little forced out of the market. Consumers have to suffer the consequences.
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Delusion 5: The government protects personal and economic freedoms
Personal freedom is progressively under threat. Due to rapid advances in artificial intelligence and the proliferation of CCTVs mass surveillance is already a fact of life. The search results of search engines are more based on political guidelines and advertisement revenues than conformity with the search terms. Information that is not in line with the interests of the establishment are suppressed as “fake news”. The implementation of the Social Credit System in China ensures that in the future everyone has to toe the party line. Economic freedoms are also under serious threat. There is a strong movement to ban cash to better control the income and payments of individuals and to set the stage for negative interest rates on normal savings accounts. Civil asset forfeiture in the USA, that allows the confiscation of private assets without due legal process, shows that personal property is not save from theft perpetrated by government agents. We are only at the beginning and it will get progressively worse.
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