The Great Money Shift
It’s coming. A shift in the monetary system so dramatic that it is going to leave the world changed forever. In the aftermath of the Great Recession, trillions of dollars in new money (and debt) that has been created is indeed inflating new stock and housing bubbles. Yet, it has done so at the expense of adding to an already dangerously large sovereign debt bubble. This bubble is orders of magnitude greater than any before experienced by man.
You and I (the taxpayer and the saver) are responsible for repaying sovereign debt, which is simply debt taken on by the government. We either pay with our taxes, or through the devaluation of our savings because of excess money printing. The graph below demonstrates the magnitude of the problem. It shows the expansion of the Federal Reserve’s balance sheet since 1983. The shaded areas represent recessions. These holdings were created in part to cover losses resulting from the financial crisis of 2008. As you can see, the losses are staggering!
Unfortunately, the losses in the financial system are still there. They are still real. A governmental rule change, and the transfer of private losses (banks) to the public (government) have successfully hidden the insolvency of the system – for now. The Federal Reserve is working feverishly behind the scenes to try to scrub the balance sheets of the big banks by purchasing their toxic mortgage assets. Simultaneously, those losses are being converted into sovereign debt, which you and I are responsible for. This is occurring around the world, and will eventually lead to a new crisis.
The End Game
Governments and central banks can, and will, do everything in their power to delay the day of reckoning. Today, global central banks have taken extraordinary and unprecedented steps to avoid it. Yet we are now reaching the end of the line.
Sovereign debt levels around the world are rapidly rising. Natural market forces should have already resulted in higher interest rates in order to compensate for the risk of default. Instead, global central banks, led by the Federal Reserve, have turned to quantitative easing to “monetize” their sovereign debt.
When our sovereign debt reaches the tipping point, global central banks will realize the Federal Reserve cannot escape the trap they are in. The Fed’s artificial suppression of interest rates will no longer work. When rates rise, it will set in motion an unstoppable death spiral for the U.S. dollar, and quite possibly all debt-based fiat currencies worldwide.
Eventually, interest rates will rise. If there is one statistic to watch in order to know when we are entering into the teeth of the sovereign debt crisis, it is the 30-year mortgage. When it rises above 5%, and is moving toward 6% despite the Fed’s efforts to halt it, the death spiral will begin. When it does, tough talk about budget cuts and austerity measures will fill the news. It will only be rhetoric. Our current monetary system will have to be replaced.
That is when the great shift will occur. We are here to help you understand how we got here and how to navigate through the coming maze of information and disinformation. Money Shift will launch late this summer. To follow our progress and to be one of the first to receive new content as it is developed, visit www.knowaboutmoney.org. I am confident that you will find the information provided is both timely and relevant.