Stage 8 – Inflation Causes Civil Unrest and Riots

Stage 8The eighth stage in America’s Financial Endgame™ will occur when the relentless quantitative easing finally spills over into broad inflation.  This will create major problems for many people who are currently living at or near the edge of poverty since inflation typically impacts commodity products the hardest, and people with low incomes must devote a disproportionately large percentage of their incomes to basic necessities such as food, energy, and shelter.

As this process unfolds, there will be many people in both the US and around the globe who find themselves in desperate circumstances.  This is all but certain to lead to civil unrest and riots, which will inevitably cause large, volatile swings in the financial markets.  The tricky part about this phenomenon is that it will create the appearance of stabilization, just before the ultimate collapse.

Stage 8aThe reason for this is because the United States represents only one of many countries with a high ratio of debt relative to their economy.  Each successive country will have to deal with their own debt spiral that results from an imbalanced budget and high total debt burden.  What this ultimately means is that the civil unrest and riots are all but certain to begin in other countries as quantitative easing fails to stimulate the economy, but does manage to inflate prices.

As this occurs, the purchasing power of lower income and poor people will be decimated and the  social pressure will increase until it spills over into riots.  These riots will be particularly intense in major metropolitan areas with high densities of low income people who will be unable to afford the basic necessities of life at the new, inflated prices.

This civil unrest will create volatility in the financial markets of each country whose soverign debt and national economy are impacted by this phenomenon.  As each successive country encounters the problems caused by their debt spiral, they will experience capital flight toward the perceived safety of US Treasuries.  Once this cycle begins, it will result in a faster spiral for the impacted countries since the flight of capital will require the discounting of prices for national bonds, which will increase yields.  These increased yields will increase the interest obligation by the national government, and will expand the size of of the national budget deficit.  As the budet deficits continue to expand, it will require the issuance of more bonds, further expanding the debt spiral problem.

Stage 8bIronically, each successive step in the global financial end game will create the appearance that America’s national finances are growing stronger as the strength of US Treasury prices will be propped up by each sovereign debt crisis that occurs somewhere else on the globe.  The problem is that this appearance of stability will not change the underlying fundamentals or terminal deficits of the US government.

Thus, when the US financial endgame finally plays out, there will be nobody to bail out our economy.

What this means for astute investors is that there will be multiple years of international volatility that precedes the US financial collapse.  As the cost of borrowing continues to stay low, the US government will continue to spend with no regard to the future consequences.  This means that we must learn how to adapt our personal investing strategy for the volatility that is certain to emerge both domestically and internationally over the coming years.

One thing is most certainly true … the strategies that created wealth over the past 30 years cannot be relied upon to continue working for the next 30 years.  The financial world is in the midst of massive changes.  The people who adjust their strategies and decisions based on the the changing market environment will be the ones who survive, succeed, and thrive.  The question that each of us must ask ourselves is what we are doing to adapt?  What are we doing to make sure that we are ready for a future of extreme volatility?  How are we preparing our financial lives to deal with America’s Financial Endgame?

The next installment in this series will be the introduction of Phase 3 – The Bond Market Collapse.

Leave A Response