Monday, May 22, 2017

Catalyst Of Our Economic Demise Yet To Be Determined / By: Bruce Wilds

Catalyst Yet To Be Determined!
Time has a way of revealing certain realities but does so at its own choosing. It is important that we remember the power of time, it controls us rather than the other way around. During certain periods of our lives the clocks often seem to be moving at their own pace. As a child the special days like Christmas approached slower than a turtle in peanut-butter, however, vacations had a way of slipping by far too soon. The fact that events seem to advance unevenly reinforces the concept of lag time where the effect is not rapidly apparent and the idea that at times we see life passing before our eyes. Time is a powerful force and will at its leisure remind us we are not in control, all things come to an end and so will this market and the economy it has wrought.

The book that I authored several years ago focused on how mankind has by way of its advancements constructed a world in which we are rapidly moving ever faster into a future that we only partially control. This brings me to the crux of this article and that is the catalyst of our economic demise remains in question. Over the years many articles have been written speculating on what will be our downfall and when we will stumble yet we have bumbled our way forward. A patch here and a patch there has allowed the flawed economic system the world has cobbled together to continue with the help of an emergency action every now and then. But has it been luck, cunning or skill that has brought us to this point?

When it comes to the economy we are not talking about a well-oiled and designed machine and in the end, we may find that it is not really completely under the control of those who have been placed in the driver's seat. At any rate, many scenarios exist as to how one or more missteps may lead to the collapse of this rather fragile contraption. As for taking a hands-off approach and allowing markets to find their own way, that time is long gone and that ship has already sailed. Over the years central banks across the world have become so deeply involved in manipulating and distorting markets they are at a point where true price discovery no longer exist. On occasion, I dust off an article that I feel hit some important cords and do so now.

Let the chips fall where they may is a figure of speech which means, "What happens happens" or "Let the imminent events unfold." This metaphoric term dates back to the 1800s and alludes to chopping wood,  "chips" refers to chips of wood. This phrase uses the image of a person chopping wood and letting the chips fly everywhere instead of trying to be neat and chop on one side so they'll fall in a pile. It implies the woodcutter should pay attention to the main task of cutting logs and not worry about small chips. It is often joined to a statement that one should do what is right, such as, "No matter what the consequences, I'm going, to tell the truth about what happened and let things and events unfold as they may.

A Huge Number Of Chips
It has become abundantly clear that when it comes to the "economic chips" the powers that be have no intention of letting them fall where they may. However, several factors determine just how much influence can be applied to the how current economic policies unfold. Continuing with the metaphor of "falling chips." Things like the size of the chips, the rate or speed at which they fall, and the number of chips in the air may make them uncontrollable. My point is we could find ourselves up to our neck in chips in a blink of an eye and in the middle of an economic tsunami, all bets are off as to how successful efforts to stem a catastrophe might be. We should expect that during the final stage of a global shakedown events will be uncontrolled and become very wild.

Many people have come to accept the fact the world might soon witness a major shift in the value of one investment over another as investors seek firmer ground. Derivatives, currencies, plunging stock prices, air rushing out of a bond market bubble, how debts are structured, and the timing or direction from which problems arise are all factors that must be considered. Investors are constantly reminded that investing involves risk, investing in foreign markets is subject to additional risk including currency fluctuations. This means we face the loss of principal or capital, however, year after year of climbing markets tends to make people complacent. What many people don't realize is no matter what they invest in or how safely they think they have salted away their wealth or savings risk is always lurking.

The question remains how best to prepare for a economic meltdown. Values constantly change and the unfortunate situation of having your wealth in the wrong place at the wrong time can be devastating, the inability to access your funds can make the situation even more dire. It could be said that in some ways all of us are involved and playing this game whether we are aware of it or even want to be included. Another concern is the economic overlords have the power to change the rules and when this happens it generally is not to benefit you or me. During times of economic chaos, you can only hope you will not be one of those thrown under the bus. With much of the world facing down a road paved in promises that are economically unsustainable, it is likely many will be broken. Pensions and other payments granted to us in our later years are the kinds of promises that are at risk of not materializing or being cut.

How Will The Dominoes Fall?
Much of how things play out revolves around the issue of debt a subject of great importance to both lenders and borrowers, and again timing can mean everything when determining whether a creditor will totally default or force a lender to suffer a major write-down of their expectations. Debt is generally set to be paid over time and a balloon payment coming due at a time when money is difficult to borrow can be the kiss of doom. Inflation or deflation, as well as a big shift in interest rates, may determine the true winners or losers in this brutal game.

I contend the amount of money and free currency (able to move around and be deployed) actually standing or remaining after the next major economic meltdown begins will be the determining factor of whether inflation or deflation is indeed the flavor of the day. A person may think they are wealthy or have real wealth, but will they be able to tap into it and move it about? Often "paper wealth" is merely a promise of future value. Many people would be shocked at just how little in the way of tangible assets many very wealthy people own and to find much of the wealth people own is on paper, and this is full of risk. What is often missing or overlooked is tangible fully paid for items and things that are likely to hold their value and in the direct possession of the owner. People tend to avoid tangible assets in their control because they are often inconvenient or need to be insured.

Going forward we find the size of the chips, and the order in which they fall is both unpredictable and does matter in determining how an individual's wealth is affected. The story of the gold miner who labored for years then gave up and walked away set things up for the next young lad who started in to hit gold in days and strike it rich highlights that being right is not always enough, the value of tenacity should not be underestimated, and timing is crucial. A bit of luck is also helpful in a world that has become a giant casino and our economic future often a game of chance, at stake, is just how much of our wealth we as individuals can protect. When we talk about contagion it is easy to imagine the dominoes falling, but have no doubt the direction they fall often determines which if any will remain standing. Expect both luck and caution to play a big role on our individual fortunes as we move through the financially violent period before us.

1 comment:

  1. I believe that crypto-currencies will play an increasingly important role as the future unfolds, both as a store of wealth that isn't subject to the purview of central bankers \planners and as a medium of exchange that will be accepted nearly worldwide we one preferred over FRNs.