The acceleration in debt levels and money printing across the world is shocking to those who are studying it.
Who believes that printing money to pay your own debts, does not have serious consequences? We need to keep an eye on indicators in order to not get burned.
We need to watch inflation indicators. Watch as energy/oil, food and precious metals prices (Silver/gold for example has increased in price 6/9 fold in the past 10-12 years, So with current levels of money printing 100$'s for silver in the next few years is not unthinkable) start to move to new highs. The rich and powerful will lose faith first and they’ll be tucking away real assets (this in my opinion has started already with people such as George Soros investing huge fractions of his wealth in gold), The central bank of China and Russia have been adding substantially to their gold reserves. If you see Silver moving towards $50 and gold move swiftly over $2,500, or Brent crude oil heading towards $150, then start to look out for the next signs.
Venezuela, Germany, Ecuador and Azerbaijan have all announced gold repatriation, other countries following suit will show a distinct lack of trust in the financial world. Switzerland have just annouced a review of where their gold is.
The second thing to keep an eye on is volatility in the markets. This will be met head on by the central planners and the way they deal with markets going the wrong way is to print more money and prop them up. So we’re looking out for volatility followed by an escalation in quantitative easing (QE) to pay for it all. In the West, most investors are unfamiliar with lost faith currency inflation. Some may have read about it, but there’s precious little first-hand experience. What we need is a reminder. (This has happened in 2008 after the collapse of the housing bubble in the US they starting printing money to re-inflate the markets, the only reason mass inflation did not ensue is because the dollar is the world reserve currency, therefore they could get away with it) but this get out of jail card might be available to them forever.
So the third thing to look out for is a rupture in a Western currency. Iceland and Hungary have come pretty close over the last few years, local residents will tell you all about the benefits of holding gold or other precious metals (I personally favor silver) So far, these breakdowns haven’t been big enough for most investors to notice. What we need is a big one, which could be Japan.
The next thing to look out for is what the economists call the velocity of money. It’s a rather arcane measure that attempts to quantify how quickly money races round the economy. The idea is that as inflation hots up, people spend money as soon as they get it. Why sit on cash if you believe it’ll buy you fewer goods in the future?
If countries start trading goods and services such as oil in other currency's/assets other than the dollar, (due to a lack of faith in it) it will then lose its world reserve currency status, this is the final nail in the coffin. Their is the distinct possibility that the next war won’t be a currency or trade war. The first country which does this may well feel the wrath of the US.
This would cause hyperinflation as the US government would have to print an even more dollars to buy an ever increasing amount of its own debt, compounding its debt interest to pay by borrowing to pay it off and other junk such as mortgage backed securities. It’s quite possible at this stage that the US would default on its bonds, in order to try to stem inflation.
Watch out for countries implementing capital controls, for example India has introduced a tax on gold in order to reduce a record current-account deficit and to moderate demand. (The indians are smart, they recognise real money). If countries outside the US stop using the dollar, those dollars will return to where they will be used. The US will not allow this and will implement capital controls, to stop the influx of dollars.
War is another indicator, currency wars, trade wars, world wars, we already know that currency wars are on-going across the world and governments regularly comment on it, obviously blaming each other. The reason not many are noticing these currency wars is because every central bank is manipulating its currency to "keep it competitive" or so they think or using their currency to pay debts or just using it to debasing their currency's to inflate away debts, but in this war there will be no winner. Their is the distinct possibility that the next war won’t be a currency or trade war. The first country which does this may well feel the wrath of the US. Many countries are owed money/through treasury by the US eg: China so have a vested interest in the dollar not collapsing.
So its difficult to see exactly how this will play out. It may be just a case of high inflation in many western countries for the foreseeable future.
Finally when you see central banks printing money to buy precious metals, then that is game over and would lead to a default and/or hyper inflation.
Keep an eye on bond yeilds, it is possible that the US will have to increase purchasing of its own bonds to cover deficits as people recognise the risk, also look for issues within unfunded liabilites within the 100 trillion derivative market. There are new credit risks as banks know the governments view them as too big to fail. Watch for an inevitable rise in interest rates, this could cause debt to become unsustainable and causes a possible stock market collapse.
Also keep an eye on China's economy, an overheating could cause a collapse.
It is also possible to have a deflationary depression, this should also be looked at.
Dick Russell "the winners in a depression are those that lose the least"
After the 2008 crisis, I searched for all the people who predicited the crash and have followed them ever since, they all are in agreement that the outlook is bleak. Globally We are mortgaging our children even before they are born.
Read: Jim Rickards - currency wars