2017 has just started but some longer-term trend changes already seem to develop. It is interesting how a new year combined with a new US president act as a catalyst for what will be the start of monumental events in the world economy. Not that many of these will come as a surprise to the readers of my articles but for the rest of the world, there will be one shock after the next which will create real panic.
We are now seeing the beginning of reversals in many markets. Some of these new trends will take longer to develop and some could happen surprisingly quickly. Most major markets will be affected namely: Bond & Credit Markets, Currencies, Stocks, Metals, Precious Metals Mining stocks and Property.
The law of diminishing returns
Let’s first look at the biggest bubble of all bubbles ever in history – the Global Bond Market.
This is a market which has virtually exploded from $10 trillion in 1990 to $100 trillion today. And if we look at the debt expansion in the last 10 years since the Great Financial crisis started in 2006, the global bond market has gone up by 70%.
With the 10 times increase in the global bond market since 1990, you would have expected to see a major expansion of global GDP. But this is far from the case. World GDP has gone from $20 trillion in 1990 to $74 trillion today. This is an increase of only 3.7X. For every $1 increase in GDP, the world has had to issue 2.7X as many bonds. That is what is called the law of diminishing returns. More and more debt is required to expand the global economy.
Sovereign bonds are over 50% of this market and it is governments worldwide that have been the most profligate in creating debt. No government will ever be in a position to repay this debt with real money. The problem they now have is that they…