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Investing.com – In March, it seemed for a brief moment that the world of finance was about to collapse. Many US banks were in serious trouble and the situation only calmed down after the US government came to ensure the safety of deposits.
For the average citizen, all this has had no effect and continues to live from day to day thinking that everything is fine.
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But it should be noted that what happened did not come as a surprise to everyone, as the financial journalist, John Rubino, highlighted in February before the crisis the fact that the world was in a “vortex of debt”. For many years, low interest rates have led to the creation of big money. This is why, according to him, the last hour for major currencies is imminent.
Roubini said at the time: “We are currently in a part of the cycle where everything is getting worse, and there is nothing we can do about it. Companies that have borrowed huge sums to buy back their shares will see their interest costs explode. World governments have the same problem, and central banks cannot. Do anything about it…financial markets are finally on their own, because they are so over-indebted that they can’t change anything…or global currency inflation, and that’s it.”
He continued, “2023 will be an exciting year… We are making a decision to see what kind of crisis we find ourselves in. We will have deflationary stagnation as we did in the 1930s, which will happen if we keep raising interest rates. Or hyperinflation as under the Weimar Republic, Which will happen if we try to inflate our way out of our current debt problems.”
“There are so many different financial bubbles, so intertwined that it only takes one burst for a delicate air castle built on debt to collapse. The failure of a major European bank would be a clear harbinger that multi-billion dollar derivatives are about to collapse.”
So wrote Rubino in February, even before the UBS takeover of Credit Suisse without shareholder approval to save Europe from a massive banking crisis.
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The housing market…a coming bubble
In his latest article, Rubino sheds light on the housing market bubble. According to his analysis, countless new office buildings were built during the low interest rate period. The economy was booming and borrowing costs, between 2 and 3 percent, were a profitable business.
But the rising vacancy rate is already eating away at revenue. In addition, more and more buildings need follow-up financing, which can only be obtained at interest rates of between 5 and 7 percent. So what was built from scratch years ago as a profitable return model becomes a money-wrecking machine.
According to Rubino, more and more of this office space is being brought to the market, but buyers are only bidding on steep price cuts of up to 80 percent. This poses a huge problem for the well-established regional banks. Because if it turns out that the property is not worth the money for which it is recorded as collateral in the balance sheet, then this sector risks being the cause of a new crisis that is inevitably on the horizon. Rubino explains:
“The real estate sector must be the catalyst for the crisis in many other sectors, the government will have to abandon it and lead to a depression as it happened in the thirties, or bail out whoever plays its part, at the cost of rising inflation and a collapse.”
“There is no way to revive these buildings. There is no way to refinance them without going bankrupt. Later in the year we will go back to negative growth, which will end in bloodshed. The next bailout will bring in a lot of new dollars, which will cause the dollar to drop, and then we will be stuck in A downward spiral from which it is impossible to escape.
This is exactly what will happen, a bailout of this magnitude that will scare holders of currency and government bonds.
This is a much bigger story than what happens to the dollar as a reserve currency. We are facing the failure of a global monetary experiment that will end very bitterly. It wouldn’t be a picnic to watch.”
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