Even the IMF now recognises we’re past the point of no return

In a stunning admission, IMF came out yesterday suggesting countries should forget their debt loads and focus instead on growth. This was a remarkable pivot from their decade-long narrative of fiscal prudency.

Even the IMF now recognises we’re past the point of no return.

No point telling countries to cut budget deficits anymore, to spend less, to raise taxes. They realize you have to be very careful what you wish for. If countries, companies, consumers were to be fiscally prudent and start spending only what they earn .. we would face a massive depression. Quoting Richard Duncan, “from 1952 to 2008, every time credit (adjusted for inflation) grew by less than 2% the United States went into recession and did not recover until there was a new surge of credit expansion”. Between 2008-2014 US credit grew less than this 2%, hence the FED had no alternative but to print money to counteract the weak credit expansion. Same story goes for Japan, Europe and the entire developed world.

We are past the point of no return and criticizing central banks is not understanding how grave the situation would become had they not printed $ trillions. I like to hear Marc Faber, Mike Maloney, Chris Martenson, Peter Schiff, etc. They are correct that central bankers are driving the world to the abyss, but one has to ask themselves: Did they really have an alternative to money printing? Should we really be discussing this in 2015? Perhaps this discussion would have made sense in 2000 or so, but now is too late, and central banks know it. They also know money printing won’t solve anything fundamentally – and that this will eventually end very badly, but no one wants to go down in history as the one causing Great Depression II. So they keep pressing the accelerator pedal.

FED raising rates? Hum .. QE4 more likely

Central banks are cornered, they have no alternative but to keep printing money. Forget about raising rates, the world is too indebted to afford higher rates. I think in the next few months US economic data will disappoint, stock markets will drop 10-20% .. at which point the FED will launch QE4 – which will spur the markets up for another 1-2 years. At some point people will lose confidence and the game will be over! But until then, don’t miss out on the party. No one knows when the day of reckoning will come, it can be tomorrow as it can take another 10 years! So my advice is to buy stocks when this 10-20% correction occurs, diversify with some core European bonds (now that yields went up), buy selectively real estate or land. I know it’s hard to invest in this environment, I’m also extremely uncomfortable with where the world is heading – but it’s important to understand what drives markets. The Governments have no alternative to this path, this is the only path possible at this point. There’s no plan B, at least not anymore. But at some point the markets will lose confidence .. so if you want to sleep well, you should also invest part of your savings in gold and silver. Never mind what the price is now, it won’t really matter when shit hits the fan. I can see gold hitting $10,000 or $20,000 an ounce, easily. But you shouldn’t be buying as an investment, because what will $10k or $20k mean in that scenario anyway? Perhaps we’re in a war or hyperinflation environment, in which case you won’t buy much with $10,000. All you want is to hedge yourself, to have an insurance against the current monetary system. Perhaps $10k won’t buy you food, but a silver or gold coin will!!

Follow me on Twitter @ricardo_afonso_


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