Save your Savings

The world is kneeling under the weight of a mountain of debt. COVID-19 led to accelerated and unprecedented borrowing, and the Ukraine war pushed Western debt even higher—with no long-term positive outcome. By the end of 2022, the global debt was roughly 400% of GDP, and many advanced nations will never be able to pay it off.

We are coming out of 40 years of descending interest rates, a trend that likely ended when the inflation monster finally entered the financial stage in 2022 after the unprecedented expansion of the fiat currency supply. Now, our Western living standards are threatened by war, political corruption, incompetence, social unrest, and inflation.

There are ample signs that politicians, ordinary men, and women are in collective denial of the looming threats against Western nations. We have chosen to live on credit for at least two decades rather than work more to increase the production of goods and services. In no place is this more evident than in nations still expanding welfare programs despite shrinking labor pools and unrestricted immigration from incompatible cultures.

Our refusal to tighten our belts and adjust our spending to match income and savings has led to individual and institutional “irrational exuberance,” as Greenspan warned against before the dot-com crash in March 2000. Today, the debt levels are double or more compared to previous crises. A potential recovery is not likely to be quick and painless, like ripping off a bandaid. The era of everyone having access to ultra-cheap money is over. Whether we like it or not, a reckoning will impose severe pain on populations. This can occur tomorrow, next week, next year, or in the next decade. No one knows, but the inevitable bust seems closer than we’d like to think.

Last week we learned that three US banks failed. Among them, the super-woke[1] SVB collapsed due to a good old-fashioned bank run. SVB is all about “equity, diversity, and inclusion” and big bonuses to the top brass for subscribing to the doctrines of Klaus Schwab and the WEF. The bank did not have enough liquid assets to meet deposit withdrawal demands. So, the FDIC stepped in and took it over on March 10, 2023.

Political leaders show increasing signs of desperation. The FDIC’s decision to bail out all SVB depositors means the government is going against its rules. The bail-out is the end of QT and a clear sign that the predicted Fed pivot is here. Hence, most equity markets have gained over the last few days expecting reinitiation of QE. What markets seem not to understand is that QE is inflationary. The fiat currency system guarantees a perpetual loss of purchasing power – a significant threat to the well-being of the lower and middle classes.

A survey suggests that over 58% of Americans live hand to mouth with savings of less than USD 1000. That is a telltale sign that ordinary people are not only struggling but teetering on the brink of financial ruin due to debt. No democracy can survive, let alone flourish, without an economically independent and self-reliant middle class.

Western economic decline has many facets. Still, a growing number of welfare recipients is a sure path to cultural and social decline in any community. We need only look to the USA, which has completely lost its bearings due to social, political, and cultural decay. President Biden refuses to defend US borders but is willing to risk WW III to protect Europe’s most corrupt country Ukraine – and destroy the economic foundation for Europe’s industry in the making. It makes no sense at all.

It is imperative for personal financial survival that we, the dwindling numbers of taxpayers, prepare for the implosion of the world’s largest financial bubble. We need to protect our personal wealth. Investors should reduce exposure to stocks and increase cash allocations. Your portfolio should also have assets without counterparty risk, such as precious metals. Diversification is a no-brainer and means holding a combination of non-correlated asset classes of stocks, bonds, commodities, cash, and real estate. Additional diversity can be obtained by slicing up your portfolio into sectors. Some examples are healthcare, consumer discretionary and staples, technology, financials, energy, and industrials. The time will come when you can return to the stock market with confidence. That time is not yet.

I tell my adult children there is a real possibility they will probably become the first generation in centuries to face lower living standards than their parents. This is a prediction I hope to be wrong, but it seems the ruling elites are doing everything they can to prove me right.

Thor Williams Lihaug
Portfolio Manager, Veteran and Grandfather

The full version of this article: Save your Savings (franklythor.com)