Fed is fighting the last war and incapable of dealing with coming collapse that could be six times greater than 2008
According to economist Jim Rickards, the global financial system could very easily see a meltdown six times greater than what took place in 2008, and where central banks today would be incapable of handling such a collapse.¬† And One of the primary reasons for this according to Rickards is that the Fed, along with other central banks, are ‘fighting the last war’.
In a famous documentary about World War I, historians acknowledged that in the Spring of 2018 the Germans were ‘winning’ the war on paper.¬† However within a very short period of time following their loss at Amiens, the Allies quickly turned the tide and defeated the Axis powers over the course of the next six months.¬† And one of the main reasons for this defeat according to an expert was that the German High Command was trying to engage in a total war, but with the administrative and military structures of a small 19th century state.
Over the coming months, I believe we could see an economic meltdown at least six times the size of the 2007 subprime mortgage meltdown. That‚Äôs right: I believe we could see an economic meltdown at least six times the size of the 2007 subprime mortgage meltdown
Circumstances lead me to believe it could play out like the meltdown I experienced in 1998 after Long Term Capital Management (LTCM) failed.
This time, however, there will be several crucial differences that will leave investors and regulators unprepared.
In the national defense community, military commanders are known for fighting the last war. They study their prior failures in preparation for the next conflict. The problem is that each war inevitably involves new tactics for which they‚Äôre completely unprepared.
The most famous case was the backward-looking Maginot Line in the 1930s.
In response to Germany‚Äôs rapid advances in WWI, France built a line of concrete and steel fortifications and obstacles on their border to buy time to mobilize if Germany tried to invade again.
Hitler made the Maginot Line irrelevant by outflanking it and invading France through neutral Belgium. The French were unprepared. A few weeks later, German forces occupied Paris.
The same mistake is made in financial circles. Financial regulators are no different than military commanders. They fight the last war. The last two global meltdowns, in 1998 and 2008, are cases in point. ‚Äď¬†Daily Reckoning
Experts in a given field, especially those who become enamored by their titles, tend to believe that their own policies and actions are never the cause for a crisis, and as such will stick to them almost like religious fervor despite the evidence.¬† And it is within the realm of central banking that there are few better examples of this type of ignorance.
Ever since the Fed was established in 1913, the United States has gone through more severe economic downturns than previously in their history, and unfortunately the period between crises is getting shorter, and the effects are becoming greater.¬† The stock market crash of 1987 led the central bank to commence on policies of lower interest rates and cheap money which fueled one bursting bubble after another, leading to where we stand today in uncharted territory.¬† And listening to central bank Chiefs like Janet Yellen and Mario Draghi, their only advice is to engage in more of the same, but with greater strength and frequency, if the threat of a crisis should once again rear its head.
Not to mention the fact that outgoing Fed Chairperson Yellen stated earlier this year that she expects never to see a financial crisis again in her lifetime.
How anyone with more than a 3rd grade education could believe that a world that is saturated with debt levels five times greater than global GDP, and asset valuations larger than ever before would be able to sustain this for very long is either an idiot, or is purposefully pushing this bubble for a much grander agenda that they hope emerges out of the eventual chaos.¬† But no matter which answer becomes reality, the majority of the world will suffer immensely for it just as they did in the aftermath of World War I and World War II, and where the only question that remains is whether their nation’s political structures end up with the same totalitarian regimes that emerged when their economies finally capitulated.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.