When This All Blows Up: The Next Economic Crash

Editor's Note: The following is a guest post by Chris Martenson with PeakProsperity.com.

This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)

The Ka-POOM Theory

In terms how this will all end, we favor the scenario put forth by Eric Janszen in 1998 called the Ka-POOM theory.

This theory rests on the belief that the Federal Reserve along with the other world central banks looked at Japan's several decades of economic stagnation and decided that deflationary recessions are to be avoided at all costs -- even if that means blowing asset bubbles and then cleaning up the destruction left behind in their aftermath.

Because the Fed, et al. have a limited playbook (which is: print, and then print some more), the Ka-POOM model calls for limited periods of disinflation, followed by massive money printing sprees that then produce high inflation.

Despite the trillions and trillions in thin-air money printed by the world's central banks over the past 8 years, a common rebuttal we hear is “But there’s been no inflation so far!” To which I reply, “Yes, that’s what we're being told. But that's not actually true.”

Remember: inflation is simply “too much money chasing too few goods.” We can detect today's excess of money in the rising prices in our cost of living -- but those higher prices are symptoms, not causes. Inflation is not "higher prices". Inflation is "too much money".

Next, inflation is not an evenly-distributed event. It’s not like the price of everything rises 10% at the same time. The inflation rate is an average, which contains some prices going up, while others stay flat or even go down going down. It’s always a lumpy experience. The reason why is that money is not evenly distributed across the economy, and it doesn't always chase (or desire) the same things.

So the Fed and other central banks have printed up trillions and trillions of dollars, euros and yen, which they then essentially handed over to the financial markets and the very few people who work within them (as well as their biggest clients). As a direct consequence, we’ve seen enormous inflation in the prices of things that relate to that tiny universe of people – stocks, bonds, trophy city apartments, Gulfstream 5 jets, fine art, and rare gems.

These items have all gotten massively more expensive over the past decade. Just as would have happened if the Fed had printed up a trillion dollars and given them everyone living in a trailer park in the American South, with the restriction that the money could only be used to buy other trailers in the region. Do you have any doubt that the price of trailers in the South wouldn't explode upwards?

Well, that’s exactly analogous to what has happened to financial and trophy assets. The amount of money created and poured into the financial markets by that central banks has been incredibly enormous. As a first-order event, it raised the prices of nearly all financial assets. And then, as a second-order derivative, it then flowed into the properties and cherished possessions of the financial industry insiders.

The summary is that we’ve already had lots of inflation – but it has (so far) been mostly contained to the areas where the freshly-printed money was first directed. No surprise there.

But it's certainly not only been limited to the rarified items the rich enjoy. Anyone who is currently looking to purchase a home, car or college education has a pretty good idea how prices have jumped substantially over the past decade.

Here’s the thing about the attempts by central banks to circumvent the workings of the actual economy by simply printing up money: It is doomed to fail. It always does; one cannot simply 'print up' prosperity. Printing up money merely creates the illusion of free wealth for those with first access to it. In reality, what happens is that it secretly transfers the wealth from everyone else to those lucky few.

The Fed and the rest of the central banking cartel are consciously and very pointedly picking winners and losers.

It’s not in their power to make everyone a winner. So they have decided to throwing granny (and savers and pensions) under the bus while financial elites and well-connected speculators (e.g. JP Morgan and other large banks) extremely wealthy in the process. Wealth is being transferred from Parties B-Z to Party A – from the many to the few.

What the Fed promised would happen along with all of this money printing has not materialized. There has been no return to rapid economic growth. And there won't be, because we have massive structural problems in our economy that can't be papered over forever.

This stark fact makes the Fed's entire money printing misadventure not just pointless, but dangerously destabilizing from a social and political perspective. The world's central banks, especially the Fed, have done an enormous amount of damage. These institutions, as well as the decision-makers within them, are going to have a heck of lot to answer for when the inevitable crack-up comes.

A Quick Re-Cap

And so here we find ourselves, at the final torturous, grinding part where the final bubble top is formed. The über-bubble. The Greatest Of Them All.

A bubble this spectacular requires a top worthy of its size. A long, massive top, full of increasing exuberance -- until the very last investor is sucked in.

Where I’ve noted humans’ remarkably silly behavior during bubble episodes in the past – tulip bulbs, railroads, swampland - I still struggle to understand or even explain this one.

It’s so obvious at this point. And yet, like its brethren bubbles of the past, a lot of otherwise thoughtful and careful people are getting sucked in by its siren song.

I guess the best economic description of it might be “a credit bubble” with sub-components like sovereign and household debt, and sub-sub-components like Toronto real estate and the IPO price for SNAP shares (that’s Snapchat, which soon after its launch, had a valuation of $40 billion. This mind you, is a company that has no identifiable revenue model).

A credit bubble occurs when the issuance of credit grows faster than income supporting it. Here’s what that looks like on a national scale for the US. The bottom red line is income (GDP) and the top blue line is Total Debt. We can see that debt has been growing at twice the rate of GDP since 1970:

You have to be quite delusional to think that debt can be compound at twice the rate of income forever. Unfortunately, there are more than a few of those ungrounded optimists working in central banks and governments the world over. Their thinking is simply, The sky’s the limit!

Those of us living in reality find this mindset puerile and insulting. And, of course, dangerously reckless. And it’s also maddening to hear the media cheerleaders for Wall Street selling us this bunk as if it were somehow sensible. It is not.

Look, millions -- likely billions -- of people are at risk of getting badly hurt. When this bubble blows, it’s going to be enormously destructive and take out a lot of wealth along the way. Millions of jobs will be destroyed. What people think of as wealth will evaporate as though it never existed in the first place (it didn’t). Political dynasties and major financial institutions will be ruined.

As I wrote recently, this will be widely and popularly referred to a period of wealth destruction. It will feel that way to must, but it will be actually be a period of wealth transfer:

The summary here is this: We are still printing and borrowing enormous amounts of money and credit, but the world is not growing any larger in response. The pressure is building. Nobody knows when all of that money and credit will have to be 'trued up' against the amount of real stuff out there. But it will. History shows us that it always does.

And that moment will be referred to by most as a period of wealth destruction. 401ks will be shredded, bonds will become worthless, defaults will spike, institutions and entire countries will fail - but the truth is that all of that paper 'wealth' was an illusion. People's faith in it had been betrayed long before, when those in power started abusing the system by creating too many tertiary claims.

After the dust settles, there will be winners and losers, and those with the proper framework will understand that what actually happened was that all of the wealth was transferred from those who thought they owned it, to those who actually did.

The biggest remaining question is whether the wealth transfer comes about in the form of an inflationary destruction, like in Venezuela today, or as a deflationary bust more in the fashion of Greece.

The only thing that capable of preventing this coming carnage would a resumption of rapid economic growth. And I mean growth that exceeds the rate of debt creation.

But that's simply not going to happen.

The Problem With Growth

We can dispense with the idea of “solving” our too-much-debt problem by a resumption of rapid economic growth either by deduction or observation. Both work just as well on their own, but each tells a similar story in this case.

The deductive route notes that economic growth stimulated by ever-higher amounts of borrowing simply requires greater and greater debt loads to accomplish. Eventually debt levels simply become too high, and pinch off growth.

We can also deduce that because economic growth is tightly linked to energy consumption, lower amounts of usable energy flowing through an economy will cause that economy to stall out as well. Because we know that both the quantity as well as the net yield we get from our energy-producing activities are flattening, this explains why GDP growth is flattening too.

Thus, from a deductive standpoint, combining what we know about high levels of debt and flattening energy returns energy there’s really no more room for confusion about why GDP growth is, and will remain, anemic (at best).

Observationally, we now have more than a full decade of sub-par (i.e., ‘too low’) world GDP growth:

Notice that the last year of data, 2016, is coming in at the lowest reading since the Great Recession, while the next two years are estimated to also come in at less than 3%. The world hasn’t averaged 3% GDP growth in a decade. Even the mighty US has gone more than ten straight years without breaking into the 3% range.

We have to ask: How many years does it take to finally admit that there’s something seriously wrong with our hopeful story line that robust growth is going to save our debt-ridden bacon?

Just for the record, things are not shaping up any better here in 2017 either…

Atlanta Fed GDPNow model predicts 1.2% 1Q17 growth

And, just for kicks, we might also note that the GDP forecasting agencies of the world have consistent in over-estimating future growth. Of course, this doesn't deter them from continuing to predicting higher future growth each year. As a case in point, here are the IMF's predictions for world growth over the past 6 years:

Each of those colored lines is a forecast. Each of them foresaw growth going notably higher in the near future. Not only was every one of them utterly wrong in direction, each failed at getting even the next quarter anywhere close to right. See how none of those lines ever dips below 3%? See in the prior chart how global growth never breached 3% in any of these same plotted years?

For a variety of reasons, with aging demographics being a huge factor, future growth in the OECD countries must slow:

My ‘prediction’ is that these projections will turn out to be far too high. Mainly because I include declining net energy in my views and no mainstream economist ever does. But the track records of these outfits shows that taking the ‘under’ side of the over/under bet offers incredibly safe odds.

At any rate, the main story here is that the only way we can begin to justify the astronomical levels of debt currently on the books, let alone slathering on new tranches just to keep the whole thing form imploding, is to have a story of endless, rapid future economic growth. Which is, we've already shown, a delusional fantasy.

Stagnating growth, ever more trillions of debt, and a finite amount of depleting net energy all adds up to an unsustainable mess. With asset price bubbles everywhere and wealth transfer mechanisms already in place, the end-game involves a very few winners and a lot of losers.

Anything that is this unsustainable will someday end. But how? And how should we position ourselves for it?

In Part 2: The Ka-POOM! Survival Guide, we detail in depth the most likely progression predicted by the Ka-POOM! model. First, a punishing crash in prices as natural market forces eventually overwhelm the Fed's doomed efforts to print the world to prosperity. Think of the 2008 crash, but on steroids.

Then will come the inevitable response from the central banking cartel: Set the printing machines on maximum speed! While this may seem to work for a brief while, it will soon collapse the world's currencies in a hyperinflationary deluge.

This will be a very tricky time for preserving wealth as things swing violently from disinflation to inflation. Understanding the mechanics and knowing what to expect will be critical -- not just for safeguarding your money, but for taking advantage of what will surely be some of the best bargains of our lifetime.

What do clay pots have to do with to preserving American history?

NurPhoto / Contributor | Getty Images

Editor's note: This article was originally published on TheBlaze.com.

Why should we preserve our nation’s history? If you listen to my radio program and podcast, or read my columns and books, you know I’ve dedicated a large part of my life and finances to sourcing and preserving priceless artifacts that tell America’s story. I’ve tried to make these artifacts as available as possible through the American Journey Experience Museum, just across from the studios where I do my daily radio broadcast. Thousands of you have come through the museum and have been able to see and experience these artifacts that are a part of your legacy as an American.

The destruction of American texts has already begun.

But why should people like you and me be concerned about preserving these things from our nation's history? Isn’t that what the “big guys” like the National Archives are for?

I first felt a prompting to preserve our nation's history back in 2008, and it all started with clay pots and the Dead Sea Scrolls. In 1946, a Bedouin shepherd in what is now the West Bank threw a rock into a cave nestled into the side of a cliff near the Dead Sea. Instead of hearing an echo, he heard the curious sound of a clay pot shattering. He discovered more than 15,000 Masoretic texts from the third century B.C. to the first century A.D.

These texts weren’t just a priceless historical discovery. They were virtually perfect copies of the same Jewish texts that continue to be translated today. Consider the significance of that discovery. Since the third century B.C. when these texts were first written, the Jewish people have endured a continued onslaught of diasporas, persecutions, pressures to conform to their occupying power, the destruction of their temple, and so much more. They had to fight for their identity as a people for centuries, and finally, a year after the end of the Holocaust and a year before the founding of the nation of Israel, these texts were discovered, confirming the preservation and endurance of their heritage since ancient times — all due to someone putting these clay pots in a desert cave more than 2,000 years ago.

I first felt a prompting to preserve our nation's history back in 2008, and it all started with clay pots and the Dead Sea Scrolls.

So, what do these clay pots have to do with the calling to preserve American history? I didn’t understand that prompting myself until the horrible thought dawned on me that the people we are fighting against may very well take our sacred American scriptures, our Declaration of Independence, and our Bill of Rights. What if they are successful, and 1,000 years from now, we have no texts preserved to confirm our national identity? What kind of new history would be written over the truth?

The destruction of American texts has already begun. The National Archives has labeled some of our critical documents, like our Declaration of Independence, Constitution, and Bill of Rights, as “triggering” or “containing harmful language.” In a public statement, the National Archives said that the labels help prepare readers to view potentially distressing content:

The Catalog and web pages contain some content that may be harmful or difficult to view. NARA’s records span the history of the United States, and it is our charge to preserve and make available these historical records. As a result, some of the materials presented here may reflect outdated, biased, offensive, and possibly violent views and opinions. In addition, some of the materials may relate to violent or graphic events and are preserved for their historical significance.

According to this statement, our founding documents are either “outdated, biased, offensive,” “possibly violent,” or a combination of these scathing descriptions. I’m sorry, the Declaration of Independence is not “triggering.” Our Constitution is not “outdated and biased,” and our Bill of Rights certainly is not “offensive and possibly violent.” They are glorious documents. They should be celebrated, not qualified by such derogatory, absurd language. Shame on them.

These are only the beginning stages of rewriting our history. What if they start banning these “triggering” documents from public view because they might offend somebody? Haven’t we torn down “triggering” statues before? What if we are no longer able to see, read, and study the actual words of our nation's founding documents because they are “harmful” or “possibly violent”? A thousand years from now, will there be any remnant to piece together the true spirit behind the nation that our founders envisioned?

The Declaration of Independence is not “triggering.”

That is why in 2008, I was prompted to preserve what I could. Now, the American Journey Experience Museum includes more than 160,000 artifacts, from founding-era documents to the original Roe v. Wade court papers. We need to preserve the totality of our nation’s heritage, the good, the bad, and the ugly. We need to preserve our history in our own clay pots.

I ask you to join with me on this mission. Start buying books that are important to preserve. Buy some acid-free paper and start printing some of the founding documents, the reports that go against the mainstream narrative, the studies that prove what is true as we are continually being fed lies. Start preserving our daily history as well as our history because it is being rewritten and digitized.

Somebody must have a copy of what is happening now and what has happened in the past. I hope things don’t get really bad. But if they do, we need to preserve our heritage. Perhaps, someone 1,000 years from now will discover our clay pots and, Lord willing, be able to have a glimpse of America as it truly was.

Top 10 WORST items in the new $1.2 TRILLION spending bill

Kevin Dietsch / Staff | Getty Images

Biden just signed the newest spending bill into law, and Glenn is furious.

Under Speaker Johnson's leadership, the whopping $1.2 TRILLION package will use your taxpayer dollars to fund the government through September. Of course, the bill is loaded with earmarks and pork that diverts money to fund all sorts of absurd side projects.

Here is the list of the ten WORST uses of taxpayer money in the recently passed spending bill:

Funding venues to host drag shows, including ones that target children

David McNew / Contributor | Getty Images

Money for transgender underwear for kids

Funding for proms for 12 to 18 year old kids

Bethany Clarke / Stringer | Getty Images

Border security funding... for Jordan and Egypt

Another $300 million for Ukraine

Anadolu / Contributor | Getty Images

$3.5 million for Detroit's annual Thanksgiving Day parade

Icon Sportswire / Contributor | Getty Images

$2.5 million for a new kayaking facility in Franklin, New Hampshire

Acey Harper / Contributor | Getty Images

$2.7 million for a bike park in White Sulfur Springs, West Virginia, a town with a population of less than 2,300 people

$5 million for a new trail at Coastal Carolina University

$4 million the "Alaska King Crab Enhancement Project" (whatever that means)

FRED TANNEAU / Stringer | Getty Images

There is no doubt about it—we are entering dark times.

The November presidential election is only a few months away, and following the chaos of the 2020 election, the American people are bracing for what is likely to be another tumultuous election year. The left's anti-Trump rhetoric is reaching an all-time high with the most recent "Bloodbath" debacle proving how far the media will go to smear the former president. That's not to mention the Democrats' nearly four-year-long authoritarian attempt to jail President Trump or stop his re-election by any means necessary, even if it flies in the face of the Constitution.

Meanwhile, Biden is doing worse than ever. He reportedly threw a tantrum recently after being informed that his polls have reached an all-time low. After Special Counsel Robert Hur's report expressed concerns over Biden's obviously failing mental agility, it's getting harder for the Democrats to defend him. Yet he is still the Democratic nominee for November, promising another 4 years of catastrophic policies, from the border to heavy-handed taxation, should he be reelected.

The rest of the world isn't doing much better. The war in Ukraine has no clear end in sight, drawing NATO and Russia closer and closer to conflict. The war in Gaza is showing no sign of slowing down, and as Glenn revealed recently, its continuation may be a sign that the end times are near.

One thing is clear: we are living in uncertain times. If you and your family haven't prepared for the worst, now is the time. You can start by downloading "Glenn's Ultimate Guide to Getting Prepared." Be sure to print off a copy or two. If the recent cell outage proved anything, it's that technology is unreliable in survival situations. You can check your list of supplies against our "Ultimate Prepper Checklist for Beginners," which you can find below:

Food

  • Canned food/non-perishable foods
  • Food preparation tools
  • Go to the next level: garden/livestock/food production

Water

  • Non-perishable water store
  • Water purification
  • Independent water source

Shelter

  • Fireplace with a wood supply
  • Tent
  • Generator with fuel supply
  • Go to the next level: fallout shelter

Money

  • Emergency cash savings
  • Precious metals

Medicine

  • Extra blankets
  • Basic first aid
  • Extra prescriptions
  • Extra glasses
  • Toiletries store
  • Trauma kit
  • Antibiotics
  • Basic surgery supplies
  • Potassium Iodate tablets

Transportation

  • Bicycle
  • Car
  • Extra fuel

Information

  • Birth certificates
  • Insurance cards
  • Marriage license
  • Immunization records
  • Mortgage paperwork
  • Car title and registration
  • House keys, car keys
  • Passports
  • Family emergency plan
  • Prepping/survival/repair manuals
  • Go to the next level: copy of the Bible, the U.S. Constitution, and other important books/sources

Skills

  • Cooking
  • Gardening
  • Sewing
  • First Aid
  • Basic maintenance skills
  • Go to the next level: farming/ranching
  • Self-defense training

Communication

  • Family contact information and addresses
  • HAM radio

Miscellaneous

  • Flashlights and batteries
  • Lamps and fuel
  • Hardware (tools, nails, lumber, etc)
  • Extra clothes
  • Extreme weather clothes and gear
  • Gas masks and filters
  • Spare parts for any machinery/equipment

Is Trump's prosecution NORMAL?  This COMPLETE list of ALL Western leaders who served jail time proves otherwise.

PhotoQuest / Contributor, The Washington Post / Contributor, Win McNamee / Staff | Getty Images

Mainstream media is on a crusade to normalize Donald Trump's indictments as if it's on par with the electoral course. Glenn asked his team to research every instance of a Western leader who was jailed during their political career over the past 200 years—except extreme political turmoil like the French Revolution, Napoleonic Wars, Irish Revolution, etc.—and what we discovered was quite the opposite.

Imprisoning a leader or major political opponent is not normal, neither in the U.S. nor in the Western world. Within the last 200 years, there are only a handful of examples of leaders in the West serving jail time, and these men were not imprisoned under normal conditions. All of these men were jailed under extreme circumstances during times of great peril such as the Civil War, World War II, and the Cold War.

What does this mean for America? Are Trump's indictments evidence that we are re-entering times of great peril? Below is a list of Western leaders who were imprisoned within the last 200 years. Take a look and decide for yourself:

Late 1800s

The Washington Post / Contributor | Getty Images

Jefferson Davis: The nearest occurrence to a U.S. President to serve jail time was in the case of Jefferson Davis, the first and only president of the Confederate States of America. Jefferson was captured in Georgia by Northern Soldiers in 1865 and locked up in Fort Monroe, Virginia for two years. He was offered a presidential pardon but refused out of his loyalty to the confederacy.

Early 1900s

PhotoQuest / Contributor | Getty Images

Eugene V. Debs: Debbs, a Midwestern socialist leader, became the first person to run for president in prison. He was locked up at a federal penitentiary in Atlanta having been convicted under the federal Sedition Act for giving an antiwar speech a few months before Armistice Day, the end of World War I. Many of his supporters believed his imprisonment to be unjust. Debs received 897,704 votes and was a distant third-part candidate behind Warren G. Harding, the Republican winner, and James M. Cox, the second-place Democrat. Harding ordered Debs’s release from prison toward the end of 1921.

Nazi sympathizers and collaborators: After the end of World War II in 1945, several European leaders who had "led" their countries during the Nazi occupation faced trial and imprisonment for treason. This list included Chief of the French State Philippe Pétain, French Prime Minister Pierre Laval, and Minister-President of Norway Vidkun Quisling. The latter two were also executed after their imprisonment. President of Finland Risto Ryti and Prime Minister of Finland Johan Wilhelm Rangell were also tried and jailed for collaborating with the Nazis against the Allied Powers.

Late 1900s

The Washington Post / Contributor | Getty Images

The end of the Cold War: The fall of the Berlin Wall in 1989 was one of the pivotal moments that brought the Cold War to a close and marked the end of Communist East Germany. With the fall of the wall and the collapse of the German Democratic Republic (East Germany), the former leaders were brought to trial to answer for the crimes committed by the GDR. General Secretary Erich Honecker and General Secretary Egon Krenz were both put on trial for abuse of power and the deaths of those who were shot trying to flee into West Germany. Honecker was charged with jail time but was released from custody due to severe illness and lived out the rest of his life as an exile in Chile. Krenz served 4 years in jail before his release in 2001. He is one of the last surviving leaders of the Eastern Bloc.

Lyndon LaRouche: Larouche was a Trotsky evangelist, public antisemite, and founder of a nationwide Marxist political movement, became the second person in U.S. history to run for President in a prison cell. Granted, he ran in every election from 1976 to 2004 as a long-shot third-party candidate. When he tried to gain the Democratic presidential nomination, he received 5 percent of the total nationwide vote. Even though in 2000 he received enough primary votes to qualify for delegates in a few states, the Democratic National Committee refused to seat his delegates and barred LaRouche from attending the Democratic National Convention.