We are in a crypto winter and I have been thinking alot about the economy and our times in general.
I am convinced that the issue with our economic system at this time is debt. I believe the fiat system in place at this time is sort of a pyramid and ponzi scheme that is unsustainable long term. I am not 100% sure that it has to collapse, but it certainly needs to contract.
Wall Street is aware of the debt problem
Shocking to me is that more and more regular Wall Street people are talking about this and identifying this very clearly.
Ray Dalio is a great example of this. He recently published a book called The Big Debt Crisis you can download it for free on his website.
But there are many other examples.
This week I watched a truly wonderful video of Druckenmiller
This Video was fantastic. Druckenmiller has a very clear view that many companies and maybe banks are over leveraged, which must lead to some sort of debt bubble.
Debt must collapse somehow
So to me it seems obvious that we are in a situation where this debt growth has to be addressed.
There are many charts on the internet showing that we have more and more debt every year. One way to deal with it is of course low interest rates. As it is easier to service debt when interest rates are low.
The issue of low interest rates produces is that more and more debt is created, and companies and people are over-leveraged and owe lots of debt, which in essence is a risk to every entity and the economy as a whole.
How this may resolve itself
I think Mark Yusko says is very well in this interview on CNBC
Too many companies are over leveraged, in fact he claims 14% of S&P companies cannot service their debt over the next 3 years according to their earnings estimate.
This is what Druckenmiller calls Zombie companies. When the economy slows down a bit, this means a lot of companies will go broke and default on their debt.
The slowing of the economy will happen, among others because of the tariffs by the US as well as tightening of monetary policy.
Here are some Cause and Effect relationships as I see them:
Central Banks Globally are tightening monetary policy
Trump is starting a trade war, which increases Tariffs and artificially slows down productivity and reduces corporate profits everywhere. It simply will be more costly to make stuff everywhere due to the very connected global economies and supply chains.
The Result of 1 and 2 is less investments due to less free money and less profits for companies and slowing down of the economy overall
This will lead to the weak companies going out of business and defaulting on lots of their debt.
These defaults will create a similar debt crisis as we had in the 2008, but this time every company that has or needs debt is affected. Private people will also be affected as they are also over-leveraged with student debt, housing debt and consumer debt.
This will create a cycle that slows down the economy which in turn will create more debt defaults etc.
What will be the result?
I have no idea how this is going to resolve itself. But there are a few things I am doing:
I am not just going to go long on stocks. Instead I will use a sort of trend strategy that forces me in and out of the market. I think it is imperative that when the market is crashing I have a mechanic that keeps me out. As a result I have moved my 401k into an IRA where I follow such strategy.
Having Cash is probably a great idea when things go down, however that too comes with risk as the debt crisis can cause a collapse of the Dollar
Crypto is imho the most likely winner of a potential Debt collapse, but it too will get sold when people are getting killed in the markets. I thus expect crashes to also be bad for crypto markets. So holding crypto is key for me
Because crypto will be very volatile and get hammered when people get squeezed, it is important to also short the crypto markets during bear cycles or hedge them. This can mean holding cash or even shorting and making more crypto as their prices go down in the short term.
Holding Gold and recession proof assets may be a good idea.
Fun times ahead!
What are your thoughts?
I would like some feedback on my model of how this is going down. Explain to me where I am wrong and what I need to adjust in my thinking.
Or if it is a good model, exlain to me why you support it.
I am giving out a Bounty for your efforts, which I will distribute to the answers that teach me the most.
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I mostly agree, here is what I have been considering
To sum up, I am holding a mix of enough fiat to survive some time. An equal amount of gold and some more stocks. Then the majority in crypto. Lets see how it works out.
Interesting! Thank you!
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Dear @knircky, it is very interesting what you are writing and it seems that the next crypto bubble can happen if traditional financial system will get a broken like in 2008.
That crisis generate Bitcoin, but now there are a lot of cryptos which can get benefit of another financial crisis.
I think institutional investors are keeping crypto market in the bottom thanks to their money power, but when they will no more able to keep this situation we will see another bubble but with more strong power than last year, this is my tought and your post is somehow give me a credit...
Thank you!
I agree with your strategy.
One thing I read recently here on Steem is that the dollar has a lot of life left in it.
As more and more currencies begin failing, people will shift their funds to the dollar.
Essentially ... the ships are sinking. As the weakest ones go, their value will shift to the strongest ... the dollar. This will prop the dollar up for an extended period of time ... and maybe even give it an upward price pressure (literally or relatively) ...
Additionally... I don't know how much longer Bitcoin can be held under water until more and miners are forced out of business.
We will see.
The economic crash will come - no doubt. Everyone know that it comes more or less regular.
In Sweden a lot of economicmagazin is telling us "The crash will come soon" and of course - the psycholigical of that is that the crash comes earlier. People are more afraid to hold.
Personaly I think a economic crash will also strike hard at crypto . It is a high risk and Investors will try to find low risk.
Some people think that a economic crise will be a benefit för crypto. But I do not agree. Thoose idealist that like the freedom idea with crypto are to few. If we do not get big Investors- the value will not go up.
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I agree, the thing that a downturn will create is liquidity issues. Everyone will need money so no-one will invest into a risky asset.
The system was designed to collapse, ever since 1913 (the fed reserve).
Central bank fiat has no other end destination.
It's mathematically impossible for any other result.
The trick is in how much of real assets (anything tangible) can be transferred from people, to the wealthy few - before the crash happens...
But it will happen , it has to.
There is no other option.
This has nothing to do with free market capitalism..
I am not entirely sure about that. While the system works like a ponzi scheme the difference is that there is a lender of last resort, which translate to a machine that can print money at will that can feed the ponzi scheme. This is different to you and me if we were to start a ponzi, we would need dollars or bitcoin or some form of currency we don't control or cannot just create.
For instance the FED can rescue any loan it wants, simply by buying it up, using freshly printed money. As a result the system can be develeveraged without collapsing if the FED wants to. This would lead to extreme unfair wealth distribution, which may cause political issues but technically this is the only ponzi i know of that does not need to collapse.
Money is issued ( with interest) by the fed.
That then needs to be repaid .
There is never enough money to repay the debt because the interest part of the money has never been printed.
The fed can buy debt, thus it can always feed the pyramid. Thats the difference. So i think because of this texhnically it does not need to collapse.
What am i missing?
It has to collapse.
With further increased printing of money it becomes worth less and less each year..
...eventually the money will become worthless - people will not buy government bonds. Countries will stop buying it or using it (see the current transition away from the petro dollar over the last few years - and the US invasion of iraq and libya? - both governments stated they were coming of the petro dollar and using other currency).
When those dollars come back to the US - bang!.
You can keep printing until it has no value - as it what must happen when you charge interest on money that doesn't exist..
Interest on money loaned, doesn't exist.
How can you ever pay it back - if it doesn't actually exist?
Hence the fed res ponzi scheme set up in 1913 (jekyll island).
I t was designed to collapse - coming off the gold standard in the early 70's put off the inevitable, as the bail out of the banks on 2007/8
It has been put off for so long as possible - to try and transfer more real assets to the rich - but the end will happen - as sure as the sun coming up tomorrow.
The near identical thing happened in Rome all that time ago - they started putting less and less silver (printing more money) in their coins as social welfare systems - and the military - had to be paid for...
Eventually people walked away from Roman currency,...and the rest is history, as they say...
Yes i agree mostly, but the fed can also reduce money by increasing interest rates. That would lead to many defaults which would collapse the whole system. But the fed can then buy up bad debt from institutions it wants to survive and thus allow parts of the system to collapse while keeping it alive. As such i think it does have to collapse technically.
This would of course lead to other issues.
This market is a value play and traders market for next 1 year. i called Q3 selling way back in Jan 2018. I am was calling recession Q3 2019 and well into 2020 (unless fed stop rate increase and a new Washington stimulus ).. This was my call last week. the only thing changed is Fed kind of stopped the rate increase surprisingly. I still stand by the fact end of next year we see a recession
Smart people are always richer, it's good to get ready for all situations. What I'm focusing on are crypto world and healthy food. Healthy food is a trend in the world, everything is contaminated and I invested in production precisely because of market volatility. It is best to invest as internal investors, to raise the company and to make a profit or to sell it on shares. It depends on us, everything else depends on others.
Yea i think healthy food is always something the world will need!
This is it.
With all the problems, things have been quite for very long that’s not normal. A storm is brewing l
I agree with your solutions and consider that one aspect that will lead to the collapse is the fact that the government and its agencies are doing all they can to provide a facade of a strong economy as we continue to see low unemployment and GDP growth. The longer term consequence will be inflation that they are currently manipulation as well given the buying of assets to suppress interest rate and the manipulation of commodity prices. However, once other common input costs and wages demand start to increase, they will be little to stop inflation which will lead to higher rates and unsustainable fiscal debt levels that will force a global devaluation of fiat to be worth the paper it is printed on.
Very interesting and weird to see on the chart how the debt value stopped the exponential growth with the crisis of 2008. Even worst, it got right back on track as soon as the countries "forgot" what caused it.
I´m not an expert on global debt, but we can see that it went slightly down during the crisis period, which to me means it can be reduced, but we need hard measures to take place in a long term.
Saying that, I do think it is too late to save this system, and the collapse will happen and it is important to be out of the markets when it happens.
I do agree with your Cause and Effect relationships. And especially with your fifth "result", gold will be the way to go for everybody who is more sceptic relating to cryptocurrencies and is afraid of Dollar collapsing.
As a crypto investor and believer, I do think the crypto world will benefit a lot with the collapse of the old system, but as usual those who will suffer the most will be the smaller countries (and the poor). That is for me the biggest dilemma and I would love to hear a genius solving this problem.
Although, the main point for me is the global ponzi scheme that we live in and we are so deep into it, that no one will be responsible for it when it collapses.
Wait I don't us can default on debt because it can always print USD notes. I think trump is doing a bit of problem but his policies as I have found are mostly good when read in depth. He only want to make America great and increase production of goods in America and therefore is increasing tariffs. I find no fault there.
I think this debt bubble cannot be sorted as it is already huge enough. As you said crypto will be a really good choice for all the people in the world to invest to save their money. That was a really innovative thinking angle👍.
I hope US does not default on debt as by doing so not only will America suffer but all the countries will have to suffer.
Our economic system and the fiat money system are based on endless growth.
Nothing on earth is endless! But nevertheless, everybody believes in the system. Why? Because we are forced to.
The moment we will not believe in it anymore it will collapse.
So, for sure there will come a reset/collapse. The only thing that is uncertain is when it will happen. But it will/must happen. It happened already many times before. But instead of changing to another/better system mankind just restarted the system. Over and over again.
Why? Because the people who restart it make lots of profit from it and it is easy to control mankind with this system.
As long as there is debt there is control.
Don't forget: if there was a bank run not even 10% of the people would get their money because it simply does not exist.
Henry Ford, 1922
Interesting. And thank you for your remarks.
I don't think that growth is the issue as much. This world constantly evolves, technology will always get better and not worse over time, as a result growth is constant I believe, but we can of course run out of resources etc which can create structural issues.
I.e. right now we are destroying the planet and that will lead to issues. That said I think the debt situation is an artificial problem.
Debt is a problem, but it's hugely overrated. Everybody is talking about the debt problem, so I'd like to take more contrarian position. Here are 180 years of economic growth (log scale):
I believe that investing in a good index fund is still the best solution.
Growth in my mind does not have to do much with debt as the growth of debt and the economy are not correlated, as my chart outlines.
So i agree there will always be growth and betting on that is a great idea and i think that is something that is somewhat of a law of this world.
However I think debt is an artificial problem created by our monetary system that needs to be resolved somehow.
it was all hype that we saw in the bullish sentiments people were thinking just put money and make profit but didn't realise how the market works
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Now is crypto winter, you're right.
Economic system Weights： jobs > income > expenditure > debt. (among of weights, debt is lightest )
You must have good jobs, is not good jobs, must have many much jobs.
If your income to low, must reduce expenditure.
If you meet the above three conditions, then you can ignore your debt. ( Because other people does not meet the above conditions, they will collapse first )
When the market is crashing, I think only global + limited + no government can Avoid strategy.
What is global?
It must be able to spend on shopping around the world, have a huge consumption record, consumer content includes upper, middle and lower reaches.
BTC and Gold both are imho the most likely winner of a potential Debt collapse,
Because both already global + limited + no government.
Gold is truly no government, because it is the mineral of nature.
Is BTC no government? yes or no?
Many people say BTC no government, but BTC is Electronic Money, and the internet is artificial, it is not natural, so many people still don't trust BTC.
I was inspired by reading your article. I just want to ask you a question. Is it the best time to buy Bitcoin? If not, what time do you think it will be?
The concept of Bitcoin, like Prometheus, has sown in the minds of fires that can never be extinguished. Bitcoin, like the phoenix in Chinese mythology, never dies, and will bring an unprecedented revolution to future human beings. I believe this, now it is just a matter of time and recall.
all krypto coins in a big collapse. we must stop it urgently