Unchartered waters would be how we define this current era. Traveling back in time to identify challenging periods in history is unsettling.
We are in uncharted waters, as 2022 is unlike any other financial, geopolitical, and economic period in history
No, this is not the late 1920s Wall Street Stock market crash, or even the 1930s Great Depression, the WWII era, or the relatively more benign 70s high inflation.
Global finance, the economy, and geopolitics are adrift in uncharted waters
Those seasoned in finance are well aware that nearly all financial and economic crises have its origins in the debt market.
The financial crisis of 2008 led to the Great Recession, from which the economy never recovered and had its origins in the risky real estate mortgage market, known as the 2008 subprime mortgage crisis.
The peripheral sovereign debt crisis in Europe, which threatened to blow up the euro, the single bloc currency, is yet another example of a debt crisis spilling into financial markets and the economy.
“Global finance, the economy, and geopolitics are adrift in uncharted waters”
Extend and pretend has led to uncharted waters
Since nearly every financial and economic crisis has origins in a debt default, the solution to the problem has been more of the problem, more debt.
The greatest financial monetary easing experiment, in the history of finance, led to unprecedented currency creation, which aided and abetted a debt bomb. Previously, economic expansion was based on productivity, today, it is fiscal expansion, and government debt is the main economic driver.
So for decades, the debt has expanded to create an illusion of economic growth.
Here is the takeaway; it took two hundred years for the US hegemony to accumulate 2T USD in debt and just 22 years for that debt to exceed 31T USD. G7 advanced democracies have all experienced exponential debt growth.
“nearly every financial and economic crisis has origins in a debt default”
These are uncharted waters because the trajectory of debt is unsustainable
The great global lockdowns of 2020 led to a vertical climb in the US public deficit, more than 8T USD in two years, four times that in two centuries.
Frankly, if this feels to you like first-class passengers selling everything of value at the top as they make their way to liferafts leaving second-class passengers in a sea of debt desperate to keep their heads up as their wealth and savings get wiped out from crashing asset prices and a currency meltdown, you could be right.
Emperor Neo burned Rome in ancient times, but doing the same in modern times implies a crisis of uncharted waters
An urbanized industrial society dependent on public spending will be decimated by a debt, and currency crisis.
In the UK, 32.2% of workers 2022 worked in the public administration, education, and health sector in 2021, making it the sector with the highest percentage of workers.
“To talk about free market economics is now a fallacy”
– Win Investing
More than half the GDP of the EU, the largests trading bloc in the world, is based on public spending.
Government spending in the European Union was last recorded at 51.6 percent of GDP in 2021.
In the US, government spending is expected to be approximately 31 percent of GDP in 2023.
In Japan, government spending to GDP is 47.25% in 2020.
In other words, US western aligned economies are now nearly half reliant on public spending, which provides a growing number of households with a living.
To talk about free market economics is now a fallacy.
We are in unchartered waters, so to cut the debt is equivalant to creating another Holodomor, worse man-made terror famine.
Millions of households rely on a government pay cheque to do unproductive jobs or even for benefits.
The writing is on the wall; governments can not cut the debt and sustain the current population size. So unsustainable finance has led to unsustainable population growth. There is a correlation between the central bank money supply and population growth.
“Warren Buffett is buying transport, energy, and semiconductors hand over fist” – Win Investing
These are unchartered waters because there could be no solution without the four horsemen of the apocalypse paying a visit
If central banks decide to continue keyboarding currency and there are no bidders of the sovereign debt because investors lose confidence in the public accounts then two scenarios play out; If central banks decide to not buy the debt, yields go sky-high borrowing costs spiral and a tsunami of debt defaults, including a government default, collapse the currency.
Mad max scenario follows, no public services, and people resort to barter crime to survive. Scenario two central banks pivot, the money supply doubles again, and the US deficit goes to 60T USD but with so many dollars in circulation, a Weimar Republic hyperinflation playouts where cash is trash with a Mad Max
Scenario three, the red war horse of the apocalypse pays a visit, and in the age of nuclear weapons, that gives meaning to being in unchartered waters.
Frankly, we have never felt a sense of being so deep in it, and that we are in uncharted waters
So for guidance in these precarious times, it is time to tune into some of the wise old hands, the grandmaster of the game with wisdom, experience, and knowledge of navigating treacherous waters, Warren Buffett. Where are the smart capital flows going?
How is Warren Buffett playing it?
When everyone is fearful, the oracle is greedy,
Warren Buffett is buying transport, energy, and semiconductors hand over fist. If we are in a period of high inflation, Buffett is choosing value dividend stocks as a safe haven in these tumultuous times.