There is only one reason why the Great Recession of 2008-09 did not become a full-fledged depression: The Obama administration printed more than four trillion in paper dollars.
They then used that money to buy bonds … drive bond prices higher … and force interest rates to practically zero, the lowest level in centuries.
The zero interest rates made almost everything cheaper to buy on credit — Houses and cars … gasoline and food … and every speculative investment under the sun.
If it weren’t for these record low interest rates, the housing market and the world economy would never have recovered. GM would have gone bankrupt. Chrysler would have gone under for a third time.
Trillions in corporate profits would never have materialized. Millions more would be unemployed today.
That’s how Obama & Co. avoided a second Great Depression — by kicking the can down the road to President Trump.
But, in the process, they created …
The Largest Financial Bubble in History
The Central banks of the European Union and Japan printed even more money than the Obama administration. They artificially pushed interest rates down to BELOW ZERO and kept them there for years.
These zero interest rates “saved” the day in the U.S., Europe and Japan, but also created the biggest bubbles in history in their bond markets and their entire economies.
That’s the ticking time bomb Obama left for the next president — and for the world.
Right now, these bubbles are about to burst in Europe. Indeed, if it weren’t for zero interest rates, Italy, Spain, Portugal, Greece and Ireland would have already sunk into bankruptcy.
Ultimately, Japan and even the United States would have been hard-pressed to pay the interest on their huge debts.
What’s the trigger event that will burst these bubbles? The answer should be obvious:
Interest Rates Are Finally Going up Again!
What are the likely consequences? They should be equally obvious:
First, In Europe, Japan and the United States, homebuyers will have to pay much higher mortgage rates. Monthly payments on the same home will be twice as much or more.
And if you’re already a homeowner with an adjustable-rate mortgage, your payments will go up immediately. Millions could again be under water on their mortgages. Defaults will surge.
Second, all over the world, bond prices recently reached the highest level in history as central bankers shoved interest rates down to zero. Now, as rates have begun to rise, bond prices are already falling.
As a result, the world’s biggest insurance companies, pension plans, banks and millions of individual investors are already suffering losses.
Third, as interest continue to rise, only one thing can happen: Bond prices will fall even more and these losses will turn into a massacre.
Municipal bonds will be among hardest hit. Hundreds of municipalities, including some major cities, will default. But the companies that insure municipal bonds only have enough money to cover about two cents on the dollar. So don’t count on them paying up.
Corporate bonds, Treasury bonds and fixed instruments of all kinds will fall in value.
Pension plans, which invest heavily in bonds, will also suffer big losses. So don’t count on them paying up either.
The Day of Reckoning is Coming
When interest rates soar and bond markets collapse, highly indebted nations like Spain, Italy, Germany, Greece, Portugal, Japan and even the U.S. will face their ultimate day of reckoning.
This is when they will have to pay exorbitant budget-busting rates to borrow.
And this is when lenders will go on strike saying “NO MORE! Your credit application is denied!” Or even worse: “The loans we’ve already granted are RECALLED!”
Governments around the world owe $275 trillion in debts that will never be paid off.
So imagine what will happen with just a meager 2-percentage-point rise in interest rates. It will add trillions in interest costs to home mortgages, car payments, credit card bills and most of all, the interest payments of governments that are buried in debt.
These governments can barely make their debt payments even now.
When interest rates go up, the time bomb that Obama left behind will explode, starting overseas.
It’s the greatest debt cycle of all time. And it is just one of five great cycles now converging.
Good luck and God bless!