The Winter is Coming | The Next Global Economic Recession.
The Human being is a fascinating creature, only 10 years have passed since the collapse of the Lehman Brothers and with it, a significant portion of “wealth” of the western economies.
The Central Bank policies of printing money through quantitative easing halted the sinking of the ship, but the damage was still there, it was only a short relief with serious consequences.
The super affluence and cheap money did not solve the problem of stagnant growth among the Eurozone Countries.
Eurozone GDP Growth 2008-2018 | Eurostat.
The money reduced the pressure on national debt, saved some banks from collapsing, boosted the real estate business, the stock exchange markets, and all kind of activities that do not contribute to a country real wealth.
Companies did not invest the cheap money in upgrading their infrastructures or created new ones, instead they bought back stock actions in order to regain more control over this asset in case of bad poor performances and used the money in financial engineering in order to obtain profits from thin air.
Deutsche Bank Stock from 150USD to 8USD.
The FED is raising the Interest rates since 2016 in order to limit the flow of printed money, but, by the time they have done that, all the evil was already done.
They didn’t gave time to the market to readjust itself, they compromised future generations saving the perpetrators of the 2008 Financial crisis at the account of sovereignty debt.
When the FED started increasing the interest rate in 2016 and never stopped in order to contain the super affluence of money supply investors started halting their investment and the stock market fell drastically.
Stocks started to fall, real estate prices started to fall, everything is starting to return to their natural values, Investors now turn to the safe haven of investment, Gold.
So, what’s the problem with this?
The Problem is that Western Economies and Governments didn’t take structural measures that could relief the problems that will soon in follow, they just “saved” banks, they haven’t done any reforms in labor, or public finances. They let the financial institutions loose in order to keep the money flowing to save the economy like an oxygen balloon.
See this Article: Mises: ECB Quantitative Easing was a Failure
The Basel III Agreement did not produce any effect because the Banks already know they are “To big to fail” they will be backed by national governments at the expense of the taxpayer. Also the negative MRO settled by the ECB induced banks to predatory practices, taking higher risks on conceiving credit to maintain their profitability. This, gave higher risk firms access to new credit possibilities changing the paradigm and the Modus Operandi of the Financial System.
See this Article: ECB: Bank Lending Under Negative Policy Rates
The Credit conceded was mostly directed to consumption, and to maintain a high number of zombie companies from collapsing, maintaining employment levels.
The ordinary man only added liabilities instead of allocating the cheap capital into profitable activities (entrepreneurship).
The Problem is, the amount of money already allocated on Consumption Credit was already very Big, and now, it’s even bigger, and the goods purchased where bought at higher values that they natural value due to the large demand that pushed the prices up.
Euro Area Consumer Credit
The Ordinary man that bought (on credit) a property that was overpriced and now must repay it with increasing interests may not be capable of complying with its bills and with that, the banks follow with toxic actives that will not materialize in the necessary liquidity that they need to operate, with a banking system so overwhelmed with debt, and starving for liquidity what will save the banks and with that, the national economies?
More Cheap Money? No, that’s not the answer. As we have seen already.
More Public Debt? Castrating Future Generations? The Eurozone Debt is already near 87% GDP and countries like Italy, Spain, Portugal, Greece, public debt is already above GDP.
Neglecting the cause of the problem, giving pain reliefs instead of treating the illness conducted us to the stage we are now.
How to get out of this situation with ease?
Sincerely, I don’t know.
But I Sure know that there will be social unrest and the standards of living will downgrade.
All of this combined with the social unrest that already lives among many European Nations, will it be a catalyst of Fascism and Even more Collectivism forms of Government?
Will the West reform itself to the former glory of Freedom in the 18th and 19th century? Taking a Step Back in order to take 2 steps forward?
Are we living the 2nd great fall of western civilization as we know it? (Being the 1st the Roman Empire)
I don’t have the answers to this dilemma.
I only know that the Winter is Coming, and that this Winter will be very harsh.
2018, December the 28th Joao R Freitas