Wednesday, June 9, 2010

The End Is Near

Are you tired of the Watchman's doom and gloom?  So is he.  But the sky really is falling and without immediate fiscal adjustments, the sky is going to kill us.

It's absolutely imperative you understand that the world as you know it will soon cease to exist.  A global financial panic like none the world has ever seen is warming up in the bull pen.  When panic takes the mound, he will be an effective closer for he game we call prosperity.

His first strike was thrown in 1929 and it lead to the Great Depression.  As bad as that was, it was just strike one.  Worldwide debt levels were still relatively low so we were able to bounce back.

His second fast ball came in the fall of 2008.  The world came perilously close to a total financial collapse at that time.  The only things that saved us was 'Helicopter' Ben Bernanke.  True to his earlier promise to 'drop bundles of cash from a helicopter' if that's what it takes to avoid deflation, that's just what he did.  And it worked -- at least temporarily.

Strike three will come when the central banks of the world, having already blown their collective wads in 2008/2009, are unable to prevent the domino failure of one currency after another.  The same 'print money' approach to the 2008 crisis, will only make the next crisis worse.

When will this chain reaction start? Nobody knows for sure, but the US Treasury Department marked the trail Friday when we estimated that the total US debt would reach $19.6 Trillion by 2015.  At that point our national debt to GDP ratio will be at or above 100%.

Tthe US won't start the dominoes falling.  The chain reaction will likely start in Europe and spread around the world.  Banks (central and otherwise) hold debt from other banks.  When the debtor nations start defaulting on their debts, there will be nothing to stop the whole thing from spiraling out of control.   We'll probably be the last man standing, but who cares if you're the last one standing when everyone else is already dead.