The Greater Collapse
Itís the beginning of November as I sit down to write my notes
for 2017. Over the past two or three years I have not been
concerned to talk about specifics, that is because the general
situation is such a mess that looking at the smaller issues,
such as house price direction, pale into insignificance in the
face of so many other issues, such as bankrupt governments,
bankrupt banks, the march of AI, negative interest rates,
Brexit, and the possible collapse of the EU. Maybe the biggest
issue is going to be the collapse in the importance of
individual currencies in the face of the coming onslaught of
digital money linked to SDRs.
Those of you who have been following my ravings over the past
few years will know that I am waiting for what could be called
The Greater Collapse. I have been expecting it, but had no idea
when the roof would fall in. My original view was sometime
around 2021. I revised that view a couple of years ago in favour
of 2017. I am not panicking just yet, but from the spring of
2017 I shall be starting to get very nervous in the face of any
new crack appearing in the already seriously cracked egg of
world economic madness. In short, although I dont have that
crystal ball, I have a nasty feeling that 2017 may turn out to
be a disaster.
Even if the roof doesnít fall in there will be ever more
nervousness, more and more panics, and life will become
impossible, at least in one essential element ó planning for the
Is there anything I can usefully say about the future? And there
we have the problem bang in front of us. I used to think nothing
of planning for the next year or two. Nowadays I wonder if one
can seriously plan for the next month or two.
As I look around me, what do I see? First, living in Southern
Europe, at least for some of the time, I note the influx of
people from France to Portugal. The French are fleeing a tax
system they find oppressive, and a way of life that seems to be
crumbling around them. France at the moment is clearly not a
place to invest in. My new neighbours are French so I get the
ugly facts first hand. They may be biased of course, but the
last time I looked I noted that two thirds of French voters are
dissatisfied with the Eurozone, and the way the EU functions.
Thatís a much higher percentage of potential leavers than in
However, look at the political calendar for the next few months.
On December 4th, Italy holds a referendum on constitutional
reform which is expected to topple the government. On the same
day, itís the next round of the Austrian election. It could
prove a pivotal day for the EU. Should Italy be thrown into
chaos, it could trigger a crack up across the continent. And
next year sees the Dutch, French, Hungarian and German general
I also hear rumours of dissatisfied Dutch and Danish. This is
not apparent in the countries that have joined much later,
especially in the Baltic regions. In that neck of the woods
there is a feeling of relief that they have escaped the
Russians, and feel to some extent sheltered by the EU political
This situation gives the EU a lopsided structure. The less
well-off nations are to some extent dependent upon the more
wealthy nations, and the way things are going, the wealthier
group is rapidly going broke. That in itself is a recipe for
disaster. Italyís GDP is said to be lower now than it was at the
beginning of this century. Not only that, but itís banking
system is shot to hell. It will only take a small push to knock
it over. The French economy is stagnating, and there is panic
about the French bank loans made to Italy, loans which now look
as though they will never be repaid. Even the German economy,
which has been relatively strong, has only edged forward a
fraction of a per cent over the past year. In fact the strongest
performer in the west appears to be the UK.
As far as I can tell every western government would be bankrupt
if the day of reckoning came sometime next week. The problem is,
with the European banking system on Skid Row there is every
possibility that the day of reckoning really could come next
week. Iím reminded of the last scene from The Italian Job with
the coach hanging over the cliff. Every so often the contents
slide towards the back of the coach just a little more, and the
tilt gets steeper, which encourages the weight to shift a bit
more to the back. Sooner rather than later, the whole thing will
go over the edge. Michael Caineís last words sound very much
like the words of the worldís central Bankers. ďHang on chaps,
Iíve got a great idea.Ē
The only great idea is to get off the bus before it goes over
the cliff. But how do we do that?
Obviously the world isnít going to end. Even if we pursued The
Italian Job a few days further into the future there would be
the remains of a bus in the valley. The money would still be
there, maybe scattered about, but discoverable. Life would be
difficult, and sacrifices would have to be made, contingency
plans to hide the money while someone got some alternative
transport, and so on. What it would mean is a totally different
set of operations would be needed to get things even partly
right side up.
To some extent we can work out what is going to happen in the
next few months even if the banking system doesnít implode.
Letís have a look at some obvious points.
If your income is dependent upon the government then you are at
risk because the government is broke. It may well be able to
function in a broke condition for years, but I would hate to be
totally dependent on a pension from that source. Let me remind
readers what bankruptcy is. The concept has nothing to do with
debt, and everything to do with meeting your commitments as they
fall due. The moment you canít do that, you are bankrupt, even
though a month earlier you had debts of several billion.
The UK government can handle the problem of debt. There is a
simple solution. It can print more money. Life goes on.
Eventually the increased money supply causes inflation, so the
money becomes worth less, but the world keeps turning.
Thatís one thing that is in the Brits favour should they ever
leave the EU.
Let me broach that delicate subject. If we stay within the EU we
must get rid of sterling and start using euros. That is an
essential part of the deal. At the moment the UK is excluded
from all agreements that relate to the euro. That means we are
excluded from a vast area of the union. That is not sustainable.
Sterling has to go. If we sacrifice the £ we then lose the
ability to control our finances. The government immediately
loses the ability to print money. That may be a good thing, but
look at Italy, Spain, Greece, Portugal. All those countries have
lost the ability to control their own finances, and they are
going bust at a fair rate of knots. They have become states that
are mortgaged to the European Central Bank. There are only two
routes out of that condition; pay off the debt, or have the debt
foreclosed. The former isnít going to happen. The mortgage
holder is the one in control.
There are all sorts of ways to invade another country. You can
send in an army. Why bother? Even as long ago as 1939 the
Germans had a simpler way. They took down the frontier posts
between Germany and Poland. Border? What border? Now the easiest
way is to lend a country money, then lend it more, until it
canít pay back. Then you impose sanctions, and austerity, which
makes it harder to pay back the loans, and then the country
loses its credit rating, and then no-one else can lend it money,
and so the debtor has been completely controlled. A cheap method
of control without a shot fired and no expense.
This could be a long game. Who knows? However, there is one
warning that is obvious. You need to be careful where you
invest. No-one in his right mind invests in a company going
bust. No-one should be investing in a country going bust. Buying
a house is a big investment. You could invest in Greece. That
doesnít sound very sensible to me. Iím sure that investing in
Cyprus has to be on the list of mad things to do after midnight
when pissed. The same is true of Portugal.
There is another issue which has burst to the front of the queue
over the past six months. Exchange rates.
Generally speaking currency movements are small, unless you
happen to trade South American currencies. However, this
century, currency movements have been huge. We dont have to go
far for a recent example. At the beginning of the century the
sterling/euro rate was roughly 160 to the £. Itís gyrated like
crazy ever since. Even as recently as this time last year there
were 138 euros the £. As I write, this the figure is something
Iím making money hand over fist on this as I have a lot of
euros. I can now get a lot more sterling than I could a year ago
to invest in the UK. Never mind whether I should do this. For
the purposes of this article I am more interested in looking at
things the other way round.
Where I am staying at the moment my neighbour is a retired
Englishman who lives on a government pension. His income has
been cut by a third. Pensioners are usually by definition on
small fixed incomes. Having that cut by such a large amount is
life threatening. Brits are returning to the UK in droves for
the simple reason that they canít survive in the eurozone at the
current exchange rate. Were you prepared for this?
If you are paid in one currency and move to a different currency
zone, in these times of violent currency swings you are at the
mercy of every scare.
If you sold up in your home country and invested in another
country, you are now tied to your investment, or you can try to
sell it on if you change your mind. Who are you going to sell it
to? Certainly not the locals because you probably paid over the
odds for a property in a tourist ghetto. Certainly not the
Brits, they are broke. Youíre now stuck between a rock and a
I have been banging on about this issue for decades. Most people
ignore me. I dont give a damn what happens to sterling. I dont
care what happens about Brexit, or when the EU implodes, which
it will. I own property where it keeps itís value. I regard real
estate as an investment, and investments should increase, or at
least keep their value, and should produce a return.
Which brings us to an obvious conclusion: real estate is usually
a good place to put your money, but where should it be?
Iíve rambled enough for this week. Iíll start to answer that
question next week, and then, over the coming weeks, Iíll take
on as many of these difficult issues as I feel competent to