Investing in the Age of Sovereign Defaults: How to Preserve your Wealth in the Coming Crisis

Chapter 6

An Overall Assessment of the Current Investing Scene

If all the economists were laid end to end—that’s where they belong.

—Unknown

I’ve painted a pretty glum picture for investors in advanced Western countries. There are so many unknowns. This is the first time in history that all the major central banks have printed high-powered money without restraint. The downside from this is unknown. At the same time, major advanced democratic countries of the world are in fiscal crisis and are undergoing a massive debt deflation. The international monetary system is malfunctioning and has been a major source of global bubbles. The euro is a major source of instability. Unlike in 2008, we have no history to rely on. The outlook is so scary because several quite different scenarios are possible.

The most likely near-term scenario is for further debt deflation in the advanced Western countries, which doesn’t end until the unfunded entitlements and sovereign debts are defaulted on. Global oversupply of manufactured goods and commodities is a second near-term deflationary force. Despite all the money printing, accelerating inflation is not a near-term threat.

But there is one event that could have changed everything. That was the 2012 US presidential and congressional elections. If the fiscal conservatives had swept and along with them supply-side remedies and government spending cuts, then the long-term outlook would have brightened. Well folks, that didn’t happen. Unfortunately, the ...