n the old Greek mythology, the opening of Pandora’s box unleashed many evils on the world. Within the next few years, we will see a modern Pandora’s box being opened that will lead to events in the world which will be as devastating as when the ancient box was opened. The very big difference is that this time the consequences will not be part of historical mythology. Instead they will be real and catastrophic for the whole world on a scale never experienced in history.
Pandora – the all giving – was the first human woman created by the Greek gods. Zeus ordered her creation to punish humanity due to Prometheus’ theft of the secret of fire, a secret he gave to humanity. Pandora got hold of a Box (actually a jar) belonging to Prometheus’s brother and opened it, thereby letting out all the evils of humanity including death and disease. Realising her mistake she closed the jar and the only thing left inside was Hope.
Just as the punishment Pandora inflicted on humanity, the world will in coming years be punished for the excesses, debts, deceit, lies, decadence, and lack of moral and ethical values. As the modern Pandora’s box is opened, there will be so many problems and shocks that the world will experience that the list will be endless.
There have been numerable periods in history when a sound economy based on sound principles has been transformed into massive debts, money printing and war. Some of these cycles have been of a smaller magnitude and virtually all of them have been local or regional. Thus we have seen many examples of economic collapse in individual countries like Argentina or in regions like the Roman Empire.
But never before in history has virtually every country and every region been insolvent or bankrupt simultaneously.
CHINA – DEBT TO GDP 833%
If we start with China, debt has grown exponentially in this century from $2 trillion to $40 trillion. Like most debt based countries, China has to grow debt at ever increasing rates to expand GDP. Since 2009, Chinese debt has grown 3x faster than GDP. China’s debt to GDP ratio is estimated at around a massive 300%. But if we base debt to GDP on the Financial Stability Board figures, the result is very different. Included in their calculation is also all Financial Assets. On that measure, the Chinese debt to GDP ratio is a staggering 833%.
UK – DEBT TO GDP 1008%
But China is not the worst. Using the same measure, the UK, being the world’s largest financial centre, has 1008% debt to GDP. Many industrialised countries are above 400% as the table shows. Switzerland with a banking system which is too big for the country would also be at the top of the list.
JAPAN’S ECONOMY TO SINK INTO THE PACIFIC
Third on the list above is Japan with 657% debt to GDP including financial assets. Japan’s economy is totally bankrupt and will sink into the Pacific. The country will of course survive but the economy won’t. The national debt of Japan is Yen 1.013 quadrillion ($10 trillion) which is 250% of GDP. Currently the interest cost of this debt is 1.1% and absorbs 20% of tax revenues. If Japanese rates go up to 5%, which is very likely, the interest cost would be 100% of tax revenue. But even if interest rates stayed at 1.1%, the interest expense would amount to 100% of tax revenues by 2041.
Another major problem for Japan is the ageing and shrinking population. By 2065 the population is expected to shrink by 1/3 from 127 million to 88 million. Also, in 2065 40% of the population will be 65 and over as opposed to the under 14s which will be just 10%. But severe problems in Japan will not wait until 2065. Due to the massive Japanese debt and deficits, there is likely to be an economic and currency crisis within the next 2 – 5 years.
THE EU – A DISASTER WAITING TO HAPPEN
The unelected and unaccountable Brussels elite is doing what they can to hide the Euro areas problems. Going from a custom’s union to a political and economic union has been a disaster for major parts of Europe.
The people in the UK decided that they did not want this elite to make most of the laws and regulations for Britain. Brussels are using all the tricks in the book to stop Brexit with threats, blackmail etc. The UK is not the only country fed up with being ruled by Brussels. Poland, Hungary and the Czech Republic have difficulties living with foreign rule.
A major problem is the inequality in the Eurozone due to one currency for all. Greece, Italy, Spain and Portugal cannot survive with a currency which is much too strong whilst Germany is prospering due to a weak Euro, from their perspective.
The Target 2 balances say it all. This is the settlement system between the Eurozone nations. As the chart below shows, Germany is owed almost EUR 900 billion by primarily the Mediterranean countries but also by the ECB. Italy is the worst culprit and owes EUR 433 billion with Spain second owing EUR 374 billion. These two countries alone will bankrupt the financial system in Europe, but so could Greece, Portugal, Ireland, France etc. Germany looks strong on this measure but their biggest financial institution, Deutsche Bank, has a balance sheet exposure and a derivatives position which will not just be the demise of Germany and the ECB but also of the European financial system.
We could go on to country after country and almost without exception, every nation is in a dire state. In my article last week I talked about the US and how debts are likely to double to $40 trillion by 2028.