The First Domino Just Fell

Tremors in the Global Economy….

In last month’s blog, I predicted that an economic catastrophe is coming to the world that will be worse than in 2008. It was intended to be merely an illustration of how (and why!) experts are so consistently wrong about almost everything, whether in economics, foreign policy, climate science, or psychology. But the timing of it couldn’t be much more fortuitous. This is what I wrote in June, 2019:

Interestingly, Janet Yellen – until recently the chairman of the Federal Reserve – announced that there should never again be a collapse of the financial system, because the Fed had finally mastered the art of managing monetary policy. Don’t bet on it. She’s an expert, and she’s definitely wrong. There will be a massive meltdown in the global financial system and the world economy in the next few years (maybe months), and it will almost certainly be worse than the crash of 2008. This is the unavoidable result of record indebtedness by governments, corporations, and individuals all over the world. Somewhere, somehow, the chain of loan defaults will cause first one, then another financial institution to fail and the dominoes will inevitably come cascading down. When you hear faint murmurs of rising foreclosures, bankruptcies, falling home prices, or a small bank failure in a galaxy far, far away, move your money that very day to a safe haven. Don’t wait until the bank failures make the front pages of the newspapers. Protect your downside. You can trust me on this, because I’m definitely no expert.

(You can read that entire blog here.)

We’re not anywhere near the collapse yet (I hope), but the first domino fell last week (or, more accurately, began to teeter). Germany’s famed powerhouse, Deutsche Bank, announced it would lay off 18,000 employees, (representing 20% of its global workforce) and reorganize the company. Operations in London and New York were particularly hard-hit. The announced restructuring resembles the desperate measures taken by financial institutions worldwide after the economic meltdown of 2008, but I think it’s noteworthy that this shake-up is occurring in times of comparative plenty, not crisis. Moreover, Europe doesn’t have robust bankruptcy laws such as those that protect investors in the USA. On the contrary, the system there is heavily slanted to protect corporations and politicians. This does not bode well for the global economy. If thousands of ordinary citizens (who carry record personal debt, mind you) lose their retirement accounts in even a single large bank failure, they will quite naturally find themselves unable to pay their own mortgages, causing more bank failures, and the meltdown will begin.

For now, the vigorous US economy appears to be propping up our counterparts in Europe, but this cannot last forever, I fear.  I am NOT a financial adviser, mind you, and anything I write here should be evaluated in the light of your own common sense and studies. I’m still bullish on America for the time being, but I’m going to hedge my bets and become more conservative in the coming months. I’m keeping my ear to the ground in hopes of sensing the tremors before they rock the U.S. market.

On May 30, 2002, nine people were making their way up Oregon’s Mount Hood. Each one of them was tethered to the same single rope. When the first climber fell, he dropped 35 feet before the slack was fully absorbed and jerked the second climber to his death, then the third, and so on until all had fallen and died or sustained grave injuries. The analogy, I suspect, is clear. America is irreversibly tethered to all of the other major economies of the world. No matter how strong we are, when one of them falls, we all must. But then, I’m just a funny motivational speaker and magician; what do I know?