We Were Already at the Edge of the Economic Cliff

Do you have your parachute ready? I sure hope so, because everyone is going over the cliff this time.

Recently, the 2-year and 10-year yield curves inverted for US Bonds, meaning that the interest rates on short term 2-year bonds are higher than the interest rates on longer-term 10-year bonds, which means that investors are worried about the short term enough to start piling money into the long term as a hedge.

It seems odd at first, but the interest rates on a particular bond actually decreases as more of that bond is bought up, and if a lot of investors are selling a particular bond, the interest rate will go up to incentivize investors to buy them. This inversion of the yield curves is the gold standard indicator of a recession, either that we are already in one, or that we are sliding into one. I believe the former is the case, but it's a debatable topic.

It's often said that once the general public knows a recession is real, then that's when the recession becomes real. On Facebook today I saw real news and parody news like the Onion talking about economy, recession, bailouts, easing, interest rates, etc., so I'd say it's a safe bet that the general public are now aware that the recession is real. It's just a matter of time before the dominoes start to fall, and any one event could trigger the fall.

Hong Kong protests against China (with apparent evidence that the US is spurring on the protests covertly) could take a turn for the worst and spark global panic. China and US trade tensions could be the catalyst. The coming food shortage might become mainstream news and cause panic. Deutsche Bank could implode. Brexit could implode or explode. Trump could phat finger a tweet to Saudis and cause another 9/11 event. There are so many dominoes sitting in precarious positions right now, and there are countless other catalysts out there that are not accounted for that could be a trigger. It's not if, but when.

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But, why is it that the millionaires and billionaires seem to have an advantage in the markets and in the economy, what do they know that we don't? Is it just strength in numbers?

For starters, the biggest players in the markets also happen to be the biggest issuers of credit. This means that when they open up one valve and let the credit flow, the money owed to them grows, but a lot of that money finds it's way back into the stock market, and these big players sell stock and get the money back that they themselves lent out in the first place.

Wait, what?

This means that the people and businesses borrowing from the banks spend that money in various ways, and that money eventually ends up in the hands of investors who buy stocks from the big players that own banks as well as large corporations that are traded on the stock market. These big players now have the money back that they lent out (out of thin air), yet the original borrower still owes the money with interest to the big players, which means these big players at the top don't really care about debt being paid off, as they are making money on the interest of the debt that probably won't be paid back to them because it already found it's way back to them through the markets.

This is the messed up economic machine that runs all around us, and the bubble is starting to show signs of wear and tear.

Is there room for one more expansion before the world is forced to hard reset? I personally think there is, because the world is still not producing and innovating at the rate we could be, and so there is still more to invest and profit from, and so this recession we are sliding into may not be the last before a possible WW3/hard reset scenario occurs.

But if this is true and we end up with another roaring 20's before the grand reset, it should come as a warning to anyone with enough brains - to get themselves and their loved ones in a safe spot. A lot of billionaires are buying property and building mansions in New Zealand, believing that this part of the world will avoid combat or disaster, and there may be a lot of truth to that... or not. A warming climate may increase tectonic activity, putting New Zealand at the mercy of earth quakes and tsunamis.

Personally I would think northern Canada or south America might be the safest place to be, but along the coastlines of any of the continents would be a death sentence. I suppose that is looking towards the worst case scenarios, and the discussion of finding shelter touches on topics that are larger than the present economic situation.

For now, just make sure that you have a parachute ready, because as far as I can tell, the whole world is already falling, and the cliff is above us now. The only survivors at the bottom will be those who fall gracefully.

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Thanks for reading. Shares and Comments are always welcome.