There Will Be No Double Dip... It Will Be A Lot Worse

[Laura]

I'm surprised no-one picked this up yesterday. Three snippets from Matterhorn Asset Management.

http://www.zerohedge.com/article/matterhorn-asset-management-there-will-be-no-double-dip-it-will-be-lot-worse

No, there will be no double dip. It will be a lot worse. The world economy will soon go into an accelerated and precipitous decline which will make the 2007 to early 2009 downturn seem like a walk in the park. The world financial system has temporarily been on life support by trillions of printed dollars that governments call money. But the effect of this massive money printing is ephemeral since it is not possible to save a world economy built on worthless paper by creating more of the same. Nevertheless, governments will continue to print since this is the only remedy they know. Therefore, we are soon likely to enter a phase of money printing of a magnitude that the world has never experienced. But his will not save the Western World which is likely to go in to a decline lasting at least 20 years but most probably a lot longer.

The End of an Era

The hyperinflationary depression that many western countries, including the US and the UK, will experience is likely to mark the end of an era that has lasted over 200 years since the industrial revolution. A major part of the growth in the last 100 years and especially in the last 40 years has been built on an unsustainable build-up of debt levels. These debt levels will continue to swell for another few years until the coming hyperinflation in the West leads to a destruction of real asset values and a debt implosion.

In the last 100 years the Western world has experienced a historically unprecedented growth in production, in inventions and technical developments leading to a major increase in the standard of living. During the same period government debt, as well as private debt have grown exponentially leading to a major increase in inflation compared to previous centuries.

The coming hyperinflationary depression and the credit and asset implosion that is likely to follow will most probably lead to the end of a 200 year era of growth for the Western world. If only the excesses from the 1970s were corrected we might have a circa 20 year decline. But more likely we will correct the era all the way back from the industrial revolution in the 18th century and this could take 100 years or more.

So after the tumultuous and very painful times that we are likely to experience in the next few years, the West will have a sustained period of decline. All the excesses in the economy and in society must be unwound. These abnormal and unreal excesses are not just corporate executives, bankers, hedge fund managers or sportsmen earning $10s to $100s of millions but also a total collapse of ethical and moral values as well as a breakdown of the family as the kernel of society.

Most people believe and hope that this major trend change could not happen today with all the measures that governments have at their disposal. But very few people comprehend that it is precisely the government interference, controls and regulations as well as money printing that have created the problems in the first place. Power corrupts, and the more pressure a government is under the more they intervene. Because they believe that their interference in the economy will save the country – read Obama, or the world – read Gordon Brown. Little do they understand that each interference, each regulation or each dollar or pound or Euro printed will exacerbate the problems of the economy manifold.

Governments now have two options; continue to spend and print money like the US or introduce austerity programmes like Europe. Whichever way they chose will not matter since they have reached the point of no return. The economy of the West cannot be saved by any means. But governments both in the US and in Europe will still apply the only method they know which is to print money.

Many “experts” make the analogy between the deflationary period in Japan since the 1990s and the US today. In our view the US is in a totally different situation for the following reasons:

In the early 1990s Japan could still export their production to the rest of the world.

In the current downturn all countries (even China and India) will suffer and there will be no one to export the problems to.

The ability to export made Japan a creditor nation with major payment surpluses. US are a major debtor and have been for 25 years.

Japan had a very high personal savings ratio at the time (which has now disappeared). US has had a declining savings rate for years (the US savings rate is now going up which it always does in a downturn).

The balance of payments and the personal savings surpluses made it possible for Japan to finance their budget deficit without resorting to QE. Very soon he US will only be able to finance their deficits with QE and so will most of the rest of the Western world.

Japanese unemployment in 1992 was 2% and went slowly up to 5% by 2000 where it is now. Real US unemployment is 22% and increasing.

Many major sovereign states are now virtually bankrupt and the financial system is on life support. This was not the case in the 1990s.

The above are some of the reasons why the current US situation is totally different to Japan. QE will accelerate in the US and worldwide.

What will make this process so much more complex than the world has ever experienced is that the same development is likely to take place in many countries around the world simultaneously. It will most probably happen in the UK, the rest of the EU and most other European nations. Due to the total interdependence of the world financial system, it will be difficult to forecast which countries can withstand the coming worldwide tsunami of money printing but many Asian countries probably stand a good chance.

Can we be wrong in our forecast of a hyperinflationary depression? Yes, of course we can. But the alternative can only be a deflationary collapse which would be unacceptable to (dropping money from) helicopter Bernanke and deficit demagogue Obama as well as most other governments.

Conventional wisdom and most experts say that we will not have inflation but deflation. The problem with most conventional wisdom is that it is only conventional without an ounce of wisdom. When have the world’s so called experts, politicians etc ever been right on the current crisis? They will be wrong this time again.

The “conventional wisdom experts” also say that it will be years before we can see inflation or hyperinflation. In our view it can happen a lot faster. The world economy is resting on a foundation of matchsticks. All that is needed is a change in confidence or psychology for this fragile foundation to crumble. Falling currencies, rising bond yields and falling stock markets could very quickly result in a vicious and fast spinning hyperinflationary circle. The frailty of the financial system could make this happen like a flash fire.

Edit to add:- 'Protect Yourselves'

Edited August 17, 2010 by Laura

[yellerkat]

100 years of misery! Why, I'll be almost elderly before it's party time again.

[rxe]

Looks like it is written by a teenager grasping a packet of crayolas, while chewing on its tongue.

Yes, stripping 10% of GDP out in terms of debt reduction is going to hurt.

Yes, we will have inflation, we already have inflation.

Hyperinflationary depression, the end of the world....no, barring other unrelated catastrophes, the economy will trundle on. People will still need to buy stuff, they still bought stuff when it all got wobbly 2 years ago. People in the UK are paying off debts at stupendous rates, which is why it is a bit crap at the moment, but eventually it will get better.

This bit was the best:

Conventional wisdom and most experts say that we will not have inflation but deflation. The problem with most conventional wisdom is that it is only conventional without an ounce of wisdom. When have the world’s so called experts, politicians etc ever been right on the current crisis? They will be wrong this time again.

Ah, so that's settled then.

[LittleSteroid]

damn, so what should I do with my savings in £? Buy gold or what?

[Tricksy]

damn, so what should I do with my savings in £? Buy gold or what?

You're not suggesting that "Matterhorn Asset Management" (Who?) are goldbugs are you......?

[Pent Up]

damn, so what should I do with my savings in £? Buy gold or what?

Buy a bunker, guns and suicide pills.

[Minos]

damn, so what should I do with my savings in £? Buy gold or what?

I'd enjoy yourself for a couple of weeks before the 100 years of misery starts.

[Laura]

Read Egon Von Greyerz's previous commentaries from last year:

Matterhorn Asset Management - Commentary

The former Dixons director has been calling an imminent "accelerated and precipitous decline" and gold-to-the-moon for years. Now i'm all for gold and silver going to the moon but it gets a bit tiresome reading the same ramping over and over again, ala Jim Willie or Bob Chapman.

I know it's going to be bad, i know i'm going to lose my job, i know i'm going to die Tell me something i don't know Egon.

Killjoy

[Frank Hovis]

You're not suggesting that "Matterhorn Asset Management" (Who?) are goldbugs are you......?

Heaven forfend.

2.26

[LittleSteroid]

my mates from Eastern Europe heading home soon. Must be pretty good reason for that. Should I go with them?

[Crashman Begins]

But more likely we will correct the era all the way back from the industrial revolution in the 18th century and this could take 100 years or more.

Thank god I decided to live to the max whilst reducing debt on unnecessary's

I kinda miss the boom times

[Nationalist]

The wealth of the nation over 100 years or more is not down to economics; it's down to bigger factors such as demographics. Economics only applies over a few decades maximum. People die, their debt evaporates. Even currencies come and go.

The big picture is population movements, cultural drift, invasion, etc.

Over the next 100 years the UK will change from a white Christian nation to a brown/black Islamified nation. That will be a far more significant change than any economic trend.

[LittleSteroid]

The wealth of the nation over 100 years or more is not down to economics; it's down to bigger factors such as demographics. Economics only applies over a few decades maximum. People die, their debt evaporates. Even currencies come and go.

The big picture is population movements, cultural drift, invasion, etc.

Over the next 100 years the UK will change from a white Christian nation to a brown/black Islamified nation. That will be a far more significant change than any economic trend.

yes, huge number of Muslims with voting rights....and voting for Sharia Law. Viva La Islamic Republic of United Kingdom!

[campervanman]

If only the excesses from the 1970s were corrected

Ah that would be down to all those 20 something boomers with all the power and influence they had at the time

[t350chunder]

Laughable nonsense. it will never happen, mark my words...

Certainly it is going to get pretty bad, and hopefully a correction of at least 20% in property prices. 100 years of economic decline? Laughable...

[ken_ichikawa]

Hyperinflationary depression, the end of the world....no, barring other unrelated catastrophes, the economy will trundle on. People will still need to buy stuff, they still bought stuff when it all got wobbly 2 years ago.

The end of the world is qualified by The end of the world as you know it.

It's already happened easy credit and the MEW life styles have all but ended.

Michelle Peet was aparticularly insidious she'd buy shed loads of junk sell her house and use the HPI to pay off the bills, she'd constantly rub it into my face.

I personally used to be in full time employment, get up go to work everyday, I now get up and go to work 3.5 days a week on a much reduced income just micro jobs here and there.

People in the UK are paying off debts at stupendous rates, which is why it is a bit crap at the moment, but eventually it will get better.

Why? No seriously it is not a childish question but why? Anything which can be outsourced is being outsourced (re the Lawyers to India thread). Anything which can be automated will be automated. Back at the tail end of the 1990s I worked in a bread factory, huge line of people working there you either stacked the buns or worked at the end of the line putting them into boxes or yorkies, night work wasn't badly paid £6/h which wasn't too bad... By 2008 it had fallen to NMW, bu 2010 the factory was automated.

Carpet factory in Rochdale, used to use old style looms, required 3 or so people for the looms they could watch 3-4 looms each. One loaded the material yarns, one watched and oiled each loom as well as unjammed it with this hook thing, the last person was involved in QC.

They replaced the entire factory with a massive German machine which required 1 person to look after it, he could look after 4 of them, it made carpet faster wider and never misfed. Result? All the NMW staff were made redundant.

Government no longer has the money to create 1000s of jobs as it did in the past, taxes are going up which salts the earth of private enterprise. I'd add much private enterprise in the UK is simply rentier capitalism...

[azogar]

Laughable nonsense. it will never happen, mark my words...

Certainly it is going to get pretty bad, and hopefully a correction of at least 20% in property prices. 100 years of economic decline? Laughable...

Yep, anyone who thinks they can forecast the economics of the next 100 years is suffering from stupidity rarely seen in the world of finance.

Go back to 1910 and imagine trying to predict the wars, technological advancements, social and political changes etc.

[ken_ichikawa]

Yep, anyone who thinks they can forecast the economics of the next 100 years is suffering from stupidity rarely seen in the world of finance.

Go back to 1910 and imagine trying to predict the wars, technological advancements, social and political changes etc.

Some people did in novels, like Huxley, where there is an underclass controlled by drugs and fickle television and there is another tier of society which lives an uber consumerist lifestyle and is also drugged.

Or Orwell, at the time people call them nutters or say yeah right! It happens and people think well I never!

[t350chunder]

Yep, anyone who thinks they can forecast the economics of the next 100 years is suffering from stupidity rarely seen in the world of finance.

Go back to 1910 and imagine trying to predict the wars, technological advancements, social and political changes etc.

Quite...

Give it another 10-20 years (of decline) and the US will simply take what is not theirs so to speak. Resource wars will bring the situation to a head. If the situation gets anywhere near as bad as the article suggests, Global economics will not be determined by cheap electrical goods.

[scepticus]

what a pile of crap

[porca misèria]

If only the excesses from the 1970s were corrected

Ah that would be down to all those 20 something boomers with all the power and influence they had at the time

Hey, you know boomers are expanding ... it's all those schoolchildren boomers, and (by a couple of recent comments) yet-to-be-born boomers.

[azogar]

Some people did in novels, like Huxley, where there is an underclass controlled by drugs and fickle television and there is another tier of society which lives an uber consumerist lifestyle and is also drugged.

Or Orwell, at the time people call them nutters or say yeah right! It happens and people think well I never!

I have the deepest respect for Huxley and Orwell, but this is different; their visions of a dystopian future certainly held gravitas. However, that is not to say they were entirely correct either. Here we have a financial company selling a product and advising us of 100 years of economic decline. Neither Huxley nor Orwell were selling me financial products, they were renowned authors selling books that painted future possibilities of what was to come.

edit - had we been discussing a new novel about 2110 by Iain Banks, I would certainly be interested.

Edited August 17, 2010 by p.p.

[campervanman]

Hey, you know boomers are expanding ... it's all those schoolchildren boomers, and (by a couple of recent comments) yet-to-be-born boomers.

You need re-programming. HPC doggma dictates that only those born between 1945 and 1965 must be blamed.

[Meat Puppet]

what a pile of crap

I take it I shouldn't waste my time.

Here's another one from the comedy forecasting genre:

http://www.amazon.co.uk/Next-100-Years-George-Friedman/dp/0749007435/ref=sr_1_1?s=books&ie=UTF8&qid=1282033996&sr=1-1

The product description is all you need to read.

[DisQ]

cgnao predictions came to bite those who ignored!

Ofcourse it won't be end of the world, only end of Western world as we know it ie it will turn into extreme poverty whereas Asia will rise, as we're witnessing.

Likes of Jim Rogers, Marc Faber and many other been saying for years and where do they reside now leaving USA/ Europe/ UK.... Asia

where cgnao said to put your assets for safety/he's living....Asia

where is Dr Bubb now....Asia

watch it unfold before our very eyes.