Friday, September 6, 2013

Dangers of the Global Economy

Dangers of the Global Economy - How to Protect your Assets
by Lisa Newland

With the current state of the global and local economy, it is becoming clearer and clearer that whatever assets we might have saved over the years can evaporate in an instant, and that the global economy itself is teetering on the edge of collapse. While there are certainly alternatives available to standard forms or savings and retirement funds, how sure can we really be that these are not equally vulnerable to the machinations of the global economy?

Why the Global Economy is Built for Collapse
Although we are currently experiencing an economic downturn, we can predict fairly accurately that it will not be the last. In fact, a brief look at the history of global economics shows us that recession is almost inevitable. The 1930’s saw one of the worst economic down turns in history, now famously known as the Wall Street Crash, but the repercussions went far beyond wall street. Again, we saw severe economic problems in the 1960s, and are now experiencing them again today. In order to understand why the global economy is so delicately balanced on the edge of disaster, we need to understand the real causes behind these economic problems. While there are a number of propositions and explanations as to what caused the most recent financial crisis in 2007, one that is crucial to understanding the wider problem is that of the value of debt. Mortgages in particular in the US, and in other countries in Europe, were a key component in causing the collapse. By selling mortgages and debt on, that were ranked as guaranteed and stable, despite in actuality being given to individuals and families that banks and mortgage lenders knew had very little chance of paying them back due to low incomes, global financial institutions were making huge short term profit gains. This, coupled with the lack of regulation from governments around the world, but particularly the US and UK, and a number of other contributing factors led to a major collapse. However, despite apparent reforms, and the ‘bail in’ policy adopted by all the major financial institutions, the core of the problem remains, with the potential to collapse once again. Debt.

‘Bail In’
The intricacies of what a bail in policy actually entails is clearly outlined by the IMF in a staff document. Essentially, this document puts forward the merits of a bail in policy and how it can be executed. We have already seen this in action globally, when the IMF has stepped in to help certain countries with the economic crisis. However, what we might see as a benign move by financial institutions is in fact anything but. Bail in essentially means that instead of a government taking control and using tax payers money to save a financial institution, the bank is simply able to use it’s shareholders money. Additionally, any debt a bank may get into as a result of risk taking or market collapse can be converted to equity, which is in itself then a commodity to be traded. As an individual with savings in such a bank, your assets could quickly become forfeit as a result. Furthermore, this could render services such as income protection insurance useless, as in effect your assets are still subject to the whims of the market. This is why, according to, taking out such insurance is something to consider carefully, and making sure you look carefully at all the options available is fundamental.

The Alternative
Where does that leave the average citizen then? If we are unable to place our trust in financial institutions and the global economy at large, what alternatives are there that will offer a secure investment and safe climate for our retirement funds, savings and so on? The answer comes by examining the market. Precious metals, especially gold and silver, are in increased demand since the economic crisis for the very reason that they are physical representations of value. One of the main ingredients in the economic collapse, and one that is still present, is the lack of actual, physical capital. The Federal reserve for example, is a private banking institution, that lends money to the government via bonds. This creates credit, which is simply added to the banks funds. There is no physical form of this credit - it exists as debt. Gold on the other hand, is a form of physical capital, and this is the reason that many governments are buying as much as they can. Market prices of gold over the last few years show that it is a sold investment, and while prices do fluctuate, it is one of the safest investments to make, provided your investment is kept out of the global market in secure and private vaults.