This is an excellent and very short explanation of the world economy and financial markets in the story The Emperor’s New Clothes.
In short, the Emperor, duped into thinking he is wearing a beautiful new suit, goes out naked. Everyone states their admiration for his new clothes until a little boy says “But he has nothing on at all.” Everyone then chimes in that he is naked. How does this explain the world economy and global financial markets?
In 2005, the banks were lending to people to buy homes:
- with only 3% down (they still do it)
- were lending without any income or verification of ability to pay
- were lending 110% of appraised value
I said to my wife that this cannot end well. But for another 3 years this went on until someone said “there is no equity supporting those loans,” and down came the house of cards.
The World Economy is in Trouble
Today, I see experts stating how the bull market is not over and that the US economy is doing fine, blah, blah. I say “open your eyes man.”
- The second largest economy on earth (China) is imploding
- China has so much internal debt, there is no way to pay it off
- There is incredible excess in most industries and no way to continue to support them
- There is a saying “when China sneezes, Asia gets the flu”
I don’t care how well we are doing in the US. If 50% of the world economy is failing badly (all of Asia), to say nothing of the shrinking economies in Russia, Saudi Arabia and Venezuela, we are not immune. The emperor has no cloths and I am saying it out loud.
You can read the details and see the evidence in my prior posts on deflation.
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