If you think that economic meltdown cannot happen, or you don't want to hear anything about it, please do not read this article. It's too controversial and speculative.
The human history is full of economic crisis even in the top 10 economies.
During the mid-ages some kingdoms were heavily indebted, what has caused end of their expansion or even social economic problems. This happened in 1789, what we call the French Revolution when people decided not to subsidy the French court.
American Revolution in 1776 and Latinamerican Independence were subject to heavy increase of taxes imposed by England and Spain.
In the XIX century a lot of people from European countries fled to USA seeking better economic conditions and freedom, in Ireland it was due to Great Famine and the emigration had a dramatic effect, so that by 1871, the 26-county population had dropped by over a third to four million, and by 1926 had reduced further to three million. It held firm around three million until the early 1970s, when the population began to rise again.
After World War I, in Germany there was a hyperinflation period in 1923. I still have banknotes of 10,000,000 Deutche Mark, which probably was value of one dozen of egg. After that period German economy stabilized a little and then Great Depression occurred.
Great Depression began in 1929 when Stock Market in USA collapsed. It spread to a lot of world economies, especially in Europe. Manufacturing production, stocks, housing – everything collapsed, and it took at least a decade to recover from that market crash. Massive unemployment surged in many countries, a lot of people from middle class became poor and moved from their houses to less expensive houses or camp communities. The Great Depression led to the surge of Nazism and World War II.
After World War II – financial troubles occurred in some communist countries, when there was transition from democracy to communism. For example in Czechoslovakia rich became poor over night after the communist government decided to devalue currency in 1:50 ratio. So if you had 1,000,000 crowns suddenly you had only 20,000 crowns.
I have relatives from Vietnam, their economy after the war in 70’s was collapsed, a lot of people suffered famine, during that period some people ate their pets and my relatives escape to the island of Guam, where they obtained access to USA. That’s a true story, not my invention.
In 1980’s there was a decade of hyperinflation in Latin America, the most affected countries were Argentina – inflation over 1,000% stabilized by President Menem’s parity – Argentinian Peso vs USD, which had negative outcome one decade later. After the sovereign debt default in 1982, there was a strong inflation in Mexico in 80’s, which was stabilized by neoliberal policies at the end of 80’s. Of course we can’t forget the first negative effects of globalization – Tequila Effect in Mexico 1994, Samba – Brazil – 1998, Tango – Argentina 2000, Dragon – Honk Kong in 1990’s.
The first crisis of this century started in 2000, after the bubble in tech stocks burst, and was accelerated by 9/11. However US and other countries stabilized relatively quickly, but in 2006 the housing market came to its record and the derivates debt and mortgage subprime started to affect negatively American economy, the Great Recession started to strangle not only American economy, but impacted economy of Mexico, European Union.
Some common patterns happening in the modern crisis is:
- Real estate loses values
- Surge of unemployment
- Credit tightening
- Fall of prices of some commodities: oil, corn, wheat, etc.
- Before the recession starts itself you can observe a drop of sale of real estates, cars and less tourism.
Some prestigious economists predicts next crisis based on following patterns. The next crisis will be multifactorial due to:
- a) Trade Wars
Politicians are raging trade wars in order to protect local economies. The most important trade war nowadays is USA – CHINA. That completely changes diplomatic relationships between US and its other countries. The world economy is experiencing slow down.
- b) Pensions
US, Canada, Australia, European Union are having increasing number of seniors. The fiscal load of pension is unsustainable and some countries don’t have enough money for it and they finance it, increasing their debt ratio.
- c) National (or External) Debt out of control
Today the debt is measured against the GDP of determined economy.
One of the highest ratio comes from Japan, where this ratio reaches 260%, second is Greece over 190%, Italy is another ticking bomb with 140%. US, France, Brazil and Spain have the debt ratio between 100% and 110%. Economist state that the sustainable ratio is below 80%. High debt produces high interests and that’s why a lot of government cut down their expenses.
Financial crisis in Greece was a vivid example what a debt crisis means, it isn’t only debt moratory, but it implies a social meltdown of society, high unemployment and a lot of people leave countries.
- d) Climate Change
It’s an important factor for many developed countries and makes food more expensive for their people.
Today there are also some chart which are another proof that we are ahead of another crisis.
- e) Stocks indexes don’t overpassed their records.
Dow Jones reached its maximum 26,500 points – in three occasions but it seems as a strong resistance, so probably the stocks will be declining in next month. Bear Market in stocks is considered when the accumulated fall is higher than 20%.
Here come the cryptos:
One of the biggest enemies of bull market of cryptos are:
- a) strong dollar
- b) rising stock market.
Today’s situation of the beginning of declining stock market and trade war tension help to pump Bitcoin Price.
We can be absolutely certain that some hard currencies on the long run will loose their today’s value. The top 3 are: Japanese Yen, Euro and US Dollar. One solution of course very unpopular how to pay the unsustainable debt of any country is to devalue their currencies.
In case of default of any currencies, cryptos will likely substitute any of them because people will be looking for alternative mechanism.
On Internet you can see a lot of speculative theories, JP Morgan forecast Bitcoin to 250,000 dollars as a record high. I personally think it can reach 290,000.
For me thinking that we will be buying cars in XRPs, stocks in BATs, houses in Hydros, Bytecoins, CNNs, groceries in Litecoins or Cardanos and insurance in SHE makes for me a perfect sense; digital gold will be Bitcoin but it will be a scarce cryptos because there aren’t so many bitcoins for the world population. After this catastrophic crisis people will trust more other mechanism rather than centralized money system, banks or highly unprofitable stock market. The advantage for us, the cryptoholders is that we will be protecting our assets against inflation, and the value of crypto assets actually will be rising. For me investing in cryptos is much better option that accumulating money in any pension fund that will be affected by the decline of our current monetary system.
This is my personal opinion, things of course may change but I personally believe that we should get ready before those time come to our countries, cities and homes.