In 1780, President John Adams wrote to his wife Abigail,
“I must study politics and war that my sons have the liberty to study mathematics and philosophy. . . “
There may be no other quote from a founding father that surmises the rise and fall of our empire.
In the early days of our nation, people had no illusions about the hard work and dedication required to create a city state out of nothing.
Yet as a country approaches the zenith of its wealth, the mentality begins to shift.
Citizens become less focused on production of value and more on consumption…
Is there anyone left who can even remember the days that the nation had to work hard to produce? All anyone has ever known now is consumption and consumer spending… being the ‘richest country in the world’, and enjoying all the benefits without the work.
Isn’t that why there’s so deep in debt?
In its semi-annual Global Financial Stability Report released recently, the International Monetary Fund tells us that overall global debt is at an all-time high, now at over 225% of total world GDP.
Right now if you have, say, a $100,000 bank deposit, you have an asset.
But the bank has a debt– they owe you $100,000! It’s your asset, but the bank’s liability. Here’s the problem: The laws of the financial universe can be bent… but they cannot be broken. So whenever debt levels grow too large, especially when debt is being squandered on consumption and growing at a far faster rate than the economy itself, then there must be a default.
What happens when the collateral is worthless?
Or, when there’s no collateral at all other than some delusion about how great the borrower is?
That’s when the entire system runs into major problems.
“This is a global problem,” said billionaire hedge fund manager Ray Dalio the other day to a packed audience of central bankers.
Mr. Dalio, founder of a $160 billion investment firm was invited to speak at the Federal Reserve Bank of New York’s 40th Annual Central Banking Seminar.
Rather than go on eloquently about how great the Fed’s near zero interest rate policies have been for the DOW Index, Mr. Dalio gave them a fire hose of somber reality.
“The biggest issue,” he said, “is that there is only so much one can squeeze out of a debt cycle, and most countries are approaching those limits.”
Mr. Dalio summed it up by telling the Federal Reserve, “There are too many promises that can’t be kept, not only in the form of debt, but also in the form of health care and pension costs. . .”
The Federal Reserve has been desperately trying to hold the system together by keeping interest rates at record lows and printing trillions of dollars.
Billionaire Ray Dalio pointed out to his audience of central bankers, their strategy is “approaching its limits.”
Take steps to protect your wealth now is the clear message from the billionaire Mr. Dalio.
When the noted economist and investor Marc Faber was asked what sort of odds he put on a global recession happening, the economist famous for his predictions quickly answered . . . “100 percent.”
Economist Faber voiced his concerns for the U.S. economy numerous times during recent media appearances, stating, “I think somewhere down the line we will have a massive wealth destruction. I would say that well-to-do people may lose up to 50 percent of their total wealth.”