Loading ...Serious Global Pain as Economic Model Dies
Daniel Estulin says the problems in the world revolve around the rapidly dying financial system and a “coming global bankruptcy.” Estulin contends, “We are looking at $3 quadrillion or $4 quadrillion of global debt, and you are looking at the end of the Bretton Woods economic model. We are at a critical stage for humanity that will determine the direction of the world. There is much at stake for us but especially for the liberals because their model, which is based on infinite growth, is coming to an end.”
Could someone please explain to me why the Debt “matters ” ?
It’s a real question …maybe I’m an idiot for asking but
So collectively the world owes 4 quadrillion dollars ( short)
Which means the world also owns this debt ( Long)
So it’s a zero sum game unless some extra-terrestrials own the debt…right
So I own an asset…I default..Now the creditor owns it…The asset doesn’t disappear…it doesn’t become worthless
If it’s real estate it becomes more valuable all the time.
I really don’t get it do I
Every since currency is created out of thin air, it was loaned into existence. Thus, the cost of the interest paid needs to be loaned into existence. Keeping rates at record lows or even negative as in Europe, we had a bit of a reprieve.
The Central banks do not control rates much past the overnight rate. The bond market does. We are coming to the end of the Bretton Woods model as he states. The currency is in a constant need of creation. Thus we are experiencing the financial chaos that we can not escape without a reset. That is essentially what the Great Reset is. A different financial model likely with UBI or something.
It is more complex than my explanation of course.
Physical assets don’t disappear in a bankruptcy, no.
But paper assets most certainly CAN become worthless.
There are now plenty of companies whose earnings are insufficient to cover their debt service.
Those bonds may still be priced ‘near’ par. Someone still claims those bonds on the asset side of their ledger at par. They still THINK they are solvent. Now toss in a recession.
The company’s top line dives, bottom line goes negative, and the equity is wiped out. Their bonds are downgraded to junk. Whoever owned those bonds faces a markdown. They may now be insolvent also. And it spirals in a doom loop.
Bond prices worldwide are a fiction, being maintained by central bank purchases of bonds, funded by the creation of new currency units that wind up as Reserves held by Commercial Banks at the respective Central Bank. (Not direct CB Printing but effectively the same if Bank Lending parallels the ebb and flow of those Bank Reserves)
Many loans have little or no collateral backing them. Many others, the collateral’s value declines well below the amount of the debt. It matters to the holders of the debt if there was never any collateral and the debtor defaults and even in cases where there is collateral, say real estate, as the bubble bursts that collateral isn’t worth the same amount and is now less than the face amount of the debt, again the crditor is left with less than what he parted with originally. It matters.
I might add to the above explanations, by going into the derivatives world. The amount of derivatives that currently exist dwarf all assets including the stock and bond markets. In 2008, when Lehman defaulted, it blew up the derivatives market, which means the derivatives cannot be unwound any more, since no one truly knows who is counterparty risk, since there are so many over the counter, meaning non-regulated derivatives contracts floating around out there. These derivatives are part of a banks balance sheet, and with all the opaqueness in that market, no one really knows who is solvent and who is not. In 2008, the banks got the bail-out with the Fed, but the derivatives chain was broke, so now all the derivatives cannot be unwound. So if someone goes bankrupt, that may affect many others who had over the counter derivatives on their books, that now causes them to go bankrupt, and the chain reaction continues on, causing another party with who they have over-the-counter derivatives with to also go bust. So even if you own the debt, and the debtor defaults, he cannot perform on that contract so the debt is worthless, and the owner of the contract therefore owns nothing. That is my understanding of it so I hope that helps.