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And here's the forecast: the economic masquerade will end badly in 2021

In the coming year the debt bubble is expected to be emptied of air.

The credit ratings of large countries and corporations will continue to decline and some small businesses are likely to disaster.

Senior economists warn: The 20s of the current century are expected to recreate the 30s of the last century

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Hanan Steinhart

Saturday, 26 December 2020, 20:31

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Netanyahu: Israel will be the first country to emerge from the corona plague in a few weeks (Photo: GPO)

Towards the end of 2019, we estimated from the pages of Globes that next year Bitcoin will return and President Trump will disappear, that "the 20 will be the new 30" (the 20s will resemble the crisis years of the 30s of the last century) and that during the crisis, central banks They will print money beyond imagination.

What sounded a bit delusional in 2019, became a reality in 2020.

So what awaits us next year and the one that follows, the first two years of the Biden administration?

Two powerful forces are now wrestling in the American economy.

The deflationary wave and the inflationary wave.

America, like most developed countries' economies, including China, has been sustaining an unsustainable credit bubble for decades.

The corona was thus a real crisis that hit a fragile economy in the first place.

An economy that at the end of 2019 sat on a debt of $ 75.5 trillion, maintained a government deficit of about $ 1 trillion a year, and increased GDP per year by barely a third of the rate at which it increased its debts.

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Entering a tangled and dangerous reality.

Biden (Photo: Reuters)

The corona stopped the music at once.

The halt in economic activity and the huge credit bubble threatened to bring about the collapse of the entire economy.

The Federal Reserve and the government were forced to do the only thing they know, and more than four trillion new dollars were poured into the economy.

When debts in the economy are not paid and written off, the amount of money decreases - the opposite of money production through the debt mechanism.

The result is that the economy begins to shrink.

The wave of bankruptcies and insolvencies reduces the consumption of others in the economy, and the insolvency crisis becomes a dizzying one that feeds itself and drags more and more businesses and households.

So until a balance is achieved, after the economy has shrunk significantly and huge debts have been written off.

There is no elegant way

There is no other, more elegant way, for a credit bubble to be emptied of inflated debt, and the idle investments it brings.

With the disappearance of credit and money, assets also disappear.

Every debt is someone else's property and therefore every insolvency is a property that has disappeared.

A similar process took place in the early 1930s, when the debt bubble of the 1920s collapsed.

In order to avoid such a scenario, all central banks have all begun to print money on a scale that has never been seen in history.

More than $ 8 trillion, or a 42% increase in their balance sheets, since February this year, brings the balance sheets to an aggregate peak of about $ 28 trillion.

The Federal Reserve, for its part, has printed in less than ten months more than it has printed in the previous ten years, and the total debt in the American economy is expected to grow by more than $ 7.5 trillion this year.

Will this massive printing, and the one that will undoubtedly come next year as well, succeed in preventing the deflationary process and insolvency?

Will the trillions of new dollars that are poured into the economy be able to prevent the credit bubble from collapsing at least until the third quarter of next year, when the economy hopes to return to functional function free from the corona?

According to the credit rating agency Moody's, since the beginning of December the insolvency rate of US public companies has tripled since February. According to the S&P rating agency, this rate is expected to reach 12.5% ​​of businesses in early 2021. In addition, the agency downgraded the credit rating of 37% of S&P companies and 30% of banks.

Not only companies received a credit rating downgrade this year. A record was also set in the number of governments whose ratings were downgraded. The rating agency Fitch made 32 such downgrades, including giant lenders such as Italy and Mexico. given warning of damage to the ranking.

all the damage and dangers of credit at relatively large companies, pale in comparison to the devastation and calamity occurred in small businesses. according to a report in October the company Maillefer, which deals with registration and show business like this, over 163 thousand businesses were open in April did not exist in September And that number has only grown since then.

Other reports point to higher numbers. According to a study from the University of Santa Cruz in California, 317,000 businesses closed between February and September. the

And only, and 31% of those in New Jersey have closed since January 2020. The

devastation that has fallen on the heads of small businesses well illustrates another problem.

Is there at all an effective mechanism for dispersing the trillions that the central bank prints so that they will not only inflate Wall Street stock prices but also reach the suffocating businesses on Main Street?

In March, as part of the aid package, the Federal Reserve launched a program for small and medium-sized businesses to which $ 600 billion was devoted, called the "Main Street Loan Program."

The loans were to be executed through the commercial banks which received a guarantee from the Fed for 95% of the credit.

The minimum threshold for a loan is also set at a low amount of $ 100,000.

As of the end of October, $ 3.7 billion in loans had been granted in the program, less than one percent of the amounts allocated.

The main reason for the failure of the program is the refusal of commercial banks to cooperate in the distribution of loans.

Strangers, strangers and strangers.

Jerome Powell, Fed President (Photo: Bill O'leary, Gettyimages)

"Long and lasting recession"

Even if the central bank and the government manage to spread the money to places where it is really needed, will all this help?

Mario Draghi, the former president of the European Central Bank, added: "You can give a certain amount of resuscitation but at some point the companies will be left without animals, no matter how large the liquidity flow.

An association of former central bankers, economists and academics, calling itself "G30" recently published a report on the global debt crisis, saying "there is a growing debt and repayment crisis in companies around the world, not only from corona losses, but many companies have To the corona crisis with an unusual and particularly high level of debt. "

Therefore "we reject the thought that the worst is behind us. It will be a long and lasting recession."

Proponents of her case have been working to make the actual transcript of this statement available online.

On the other hand, as we have mentioned many times before, we are in a new world where the central bank does not hesitate to print any amount and the government does not hesitate to run into any deficit.

This process will continue in the coming years.

In 2021, trillions of government bonds will be repaid and will need to be recycled, to which must be added at least 2.5 trillion of new deficit.

It is no wonder, then, that many analysts estimate that the Federal Reserve's balance sheet, total printed money, is expected to cross the 10 trillion line by 2021, and the entire economy will be flooded with more and more negative, real and nominal printed money to avoid the deflationary scenario.

Unbelievable records

Massive prints have results.

Thus, this year's Fed printing poured hundreds of billions of new dollars into the stock market and pushed it to unbelievable historical highs.

This is at a time when the number of unemployed, the queues for food distribution to the needy, and the number of sick and dead from the disease, are also reaching a peak.

Given the fact that 87.5% of the shares belong to the top decile it is clear that the social time bomb is only fueled.

The increase in money production is exponential and as the process intensifies it needs more and more of it to stay in place.

This massive print that no human eye has ever seen will not be able to continue forever.

Sooner or later she will run into a wall.

Social unrest is one possibility.

The other two are inflation not only in asset prices, and / or the destruction of the US dollar.

In an article here at the end of 2018, they argued that the illusion that the Bank of Israel could handle the Federal Reserve's printing press had no basis, and that it should take practical steps, such as controlling capital movements, to prevent the free flow of dollars to Israel. .

Only two years have passed, the Israeli central bank's balance sheet has swelled by another $ 50 billion, and it is clear that the bank has lost control of the shekel exchange rate.

Of course, the Bank of Israel is not alone.

As the Fed aggressively tries to print its way out of the economic crisis and the crumbling credit bubble that threaten to destroy America's economy, the chips are coming and hitting every other currency and economy in the world.

And the question is, until when?

At some point in time more and more people, economies, and countries will refuse to accept the declining pieces of green paper in return for their hard work and the products they produce.

Even before the dollar loses its international status, it will lose its purchasing power in the United States. Even today, the cost of living in America is skyrocketing, even though it is not reflected in the official consumer price index, due to deliberate manipulation in the late 1990s. , At some point in time, and especially if the government and the Fed succeed in dispersing the large amount of printed money, the official index will also begin to express the massive prints.

Total loss of confidence in the dollar (Photo: Reuters)

Shock waves in the bond market

An official rise in the price index will send shockwaves through the global bond market, which even today is priced sharply, and at least 18 trillion of it is traded at a negative interest rate.

More than 50% of the $ 128 trillion of the global bond market is denominated in US dollars. When official US inflation also begins to rise, capital movements in this market will turn any central bank in the world into a helpless Bank of Israel.

Official inflation will also increase social and economic pressures within America.

But since raising interest rates is not a viable option unless the Fed seeks to destroy with its own hands, and in one, the card tower it has built, the global monetary and financial system will be dragged to a dead end.

Then, in its inflationary or deflationary scenario, America, and with it the whole world, will be forced to begin, by choice or by the power of reality, the next and most obligatory stage in the history of money, the rush, the great boot.

The process will include a massive write-off of debts and consequently also of financial assets, and a reorganization of the wealth in the company.

So in the richest country in the world the absurdity will not happen again, like the one now unfolding before us, while 25 million people report that their households do not have enough food to eat, and more than 14 million households are facing eviction unless Congress intervenes in legislation before the end This year, at the same time the fortune of America's 651 billionaires increased by $ 1 trillion, a direct result of the stock market inflating.

The year 2021 will be the year in which this reality becomes clear and understandable to a growing number of people, and the beginning of the end of the Fiat Silver Age will emerge from all sides.

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