The Mother of All Stagflationary Debt Crises

07 Jul

The Mother of All Stagflationary Debt Crises

“Stagflation” is one of those made-up words.  Like “rockumentary,” a documentary about rock music, or “brunch,” combining breakfast and lunch.  Stagflation describes an economic malady so well that it has become widely used for a period of weak or stagnant economic growth accompanied by inflation.

The 1970s are often referred to as the stagflation decade, a period in which both gold and silver soared.

Now, if economist Nouriel Roubini is right, we are entering another period of stagflation.  The famed NYU professor insists a “slow-motion train wreck looks unavoidable.” 

Indeed, much higher debt ratios today threaten to make conditions much worse than in the 70s, according to Roubini.  Debt ratios are three times higher than in the stagflation decade.  It sets the stage “for the mother of stagflationary debt crises over the next few years.”

As we have written repeatedly, the Federal Reserve has painted itself into a corner.  Roubini describes it this way:

“Making matters worse, central banks have effectively lost their independence because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. With both public and private debts having soared, they are in a debt trap. As inflation rises over the next few years, central banks will face a dilemma. If they start phasing out unconventional policies and raising policy rates to fight inflation, they will risk triggering a massive debt crisis and severe recession; but if they maintain a loose monetary policy, they will risk double-digit inflation – and deep stagflation when the next negative supply shocks emerge.”

For the monetary system itself, there is really no way out, except straight through the crisis itself.  The inevitable attempts to forestall a reckoning will only make the crisis bigger.  But while there is no systemic fix, individuals can protect themselves and their wealth in a time-proven way –  with gold and silver.

“The stagflation of the 1970s will soon meet the debt crises of the post-2008 period,” says Roubini.  “The question is not if but when.”

Contact us today.  Take steps to protect yourself now, before the “unavoidable” train wreck.