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Today is more like the day before the Great Depression, Kirill Sokoloff * said in an interview with the Financial Times. Therefore, the best book to understand current events is Gareth Garrett’s work, The Bubble That Destroyed the World, written in 1932. In it, the journalist talks about how the Fed-driven debt-driven boom led first to the rise of the stock market and then to its collapse.
* ProFinance.ru: Founder of the analytical company 13D Research, whose services, among others, are used by billionaires like Mukesh Ambani, Sam Zell and Raymond Kwok. Through many decades of investment activity, the expert has established himself as a true visionary who predicted key changes in the economy and social life, including the emergence of the Chinese economic miracle and the boom of the 1990s.
The dynamics of the Dow Jones index from 1918 to 1932 is very reminiscent of the dynamics of the S&P 500 index from 2009 to the present (see the table above – ProFinance.ru comment), the expert points out. Therefore, the stock market has not yet found the bottom.
“If history repeats itself, then the stock market will have to go even lower before finding the bottom,” believes Mr. Sokoloff. “Then, as now, the central bank of the United States struggled to stimulate the real economy with monetary methods.”
But the more the debt burden increases due to monetary or even fiscal measures, the more the economy slows down. Therefore, the incentive programs launched in the USA. The US, Europe and other parts of the world are likely to end in tears, the expert warns.
When the debt-to-GDP ratio rises above 90%, the potential for economic growth is reduced by a third and the speed of money is reduced, says the investor. The economic efficiency of the new debt is also decreasing. Previously, each new dollar of debt gave 40 cents to GDP, but today (taking into account all the new incentives) this figure is approximately 25 cents and is likely to continue to fall further.
“I think we are at the beginning of a long period of deflation and a decline in the purchasing power of fiat currencies, which will resemble the Great Depression,” believes the strategist. “The only way out of this is through a long period of savings and a sharp increase in the level of savings in the United States.” For example, during World War II, the US federal budget deficit. USA In some years it significantly exceeded 20%, and this year this situation can be repeated. But then, unlike today, Americans’ savings level reached 25%, compared to 8% at the beginning of the current crisis. “
In the world, the old system is discarded: the era of wealth creation gives way to the era of its distribution, says the expert. According to his forecast, the new paradigm will destroy all the trends we are used to, from a constantly growing stock market to the reliability of US public debt. Therefore, Mr. Sokoloff invests primarily in gold and gold mining companies. Therefore, the recent stock market crash ignored it.
The expert considers that gold is a protection against the imminent devaluation of the dollar, which will cause the printing of money by the Federal Reserve. In addition, it stores goods that can be easily used for barter. For example, he stored diesel fuel so he could get around the country in his car in any situation.
“No one knows what the next transformation will be: slow and gradual, or extreme and violent,” concludes the investor.
Prepared by ProFinance.ru based on the Financial Times
About the topic:
The recession in the United States increasingly resembles depression
Roubini: the new Great Depression will be worse than the previous one
IMF: the global economy faces a new Great Depression
