 The global debt crisis is coming and in this video I want to show you what's going on in the global debt environment, why it is so important to know what's going on and why it's extremely dangerous. We are in a 75 year debt cycle at the top of it and sooner or later it will burst and it will be very very painfully. There are several scenarios that can happen. We will discuss them but first look at the velocity of money. The velocity of money shows how much of the available liquidity is actually used in transactions and this is measured by dividing the gross national product to the total supply of money and you can see that the US velocity of money is at historical lows. It has never been so low in history. This means that the money remains in the banking system, financial system and doesn't go into the economy. It doesn't add to your wages. It doesn't spur inflation. It doesn't increase productivity. It just makes the rich richer those who own stocks. Similar situation is in Europe and Japan and that's a very very big problem because those countries are taking on both loads of debt to cover for this situation. So the velocity of money is slow and we have more and more debt. This means that there are less economic transactions which don't allow for debt repayments to come from a fundamental basis. Let's take a look at the total household debt versus the real GDP. In the last 20 years household debt in the US has tripled while the real GDP increased only 70%. So debt is really much bigger than the GDP growth. Without the increases in debt GDP growth would be negative which is a terrible terrible thing and this acknowledgement that debt fuels the economy means that when there is a reversal in debt when you will not be able to take on more debt to buy a new car, a new house, a new television, a new phone whatever then the economy will be in big big trouble. Just an example look at how did the debt for cars increase in the last 40 years. It increased tenfold in the last 40 years which means that most of the cars on the road now are financed by debt. Nobody's buying a car with cash and this is all fine as long as interest rates stay low as long as there is no inflation. If interest rates start increasing then you cannot pay off your car or you cannot buy a new car or you cannot refinance your debt and then the economy starts turning negative because car makers can't sell anymore cars and we see that happening already. Before a recession if you look at this chart for the last 40 years car sales dropped first and then recession comes 1979 1989 2000 2008 first we have a small drop in car sales and then we have a recession look at where we are now similar pattern to the past ones. Another important thing is that the big chunk of car loans 33% are given to subprime borrowers with the fi ceo score below 550 so we are practically seeing the same thing that happened with subprime borrowers in 2008 and buying houses now buying houses is regulated so let's give subprime borrowers a brand new car that's an excellent investment usually brand new cars increase in value every year while they will still have to pay the debt so we have a new subprime crisis coming great news if we take a look at the global environment the situation is terrible in europe most of the countries have a depth to GDP ratio above 80% of the significant european countries only germany and let's put netherlands as a significant country has a depth to GDP ratio below 80% italy is above 100% 120 greeces at 179% this means that as soon as interest rates or inflation increases most of those countries go bankrupt as they will not be able to finance their debt levels without huge inflation or increases in taxes which is a painful deleveraging and negative economic activity so the economic activity positive and current economic activity in europe and japan can be just thanks to huge debt burdens from governments from central banks from consumers and that's not a good sign another country that is a lot in depth and they are increasing their debt to gdp hugely is china however china is growing at the 7% yearly rate and it has to increase its gdp per capita fivefold to reach the developed country levels therefore i'm very positive about china because their system is different they are communist they're not capitalist people listen to what the party has to say and do it no matter what so it's a different mental system we cannot assess china the same way we assess europe or the us be wary of that nevertheless the debt is huge so if the perception comes that the debt is really huge there will be a crisis in china too so we already have the us europe japan and china highly indebted when that turns when interest rates increase where there is a run on liquidity we have a global debt crisis and it can happen like that and it can happen tomorrow or in the next few years but it will happen mark my words now you would think there is no other way than to take a lot of debt to grow let me show you an example that you don't need a lot of debt or you don't need increasing debt to grow you can grow by increasing your productivity your knowledge your capital and so on and that's what india is doing the indian government debt as percentage of gdp has been stable in the last eight years and india has been growing at amazing rates eight percent per year however they are not increasing their debt which means that their growth is fundamental is strong comes from productivity not from debt growth and they show that it's possible to do so we in the developed world have to change something in order to grow at a healthy and sustainable rate just increasing our debt creates a huge burden for future generations which will have to pay off or pay the consequences of hyperinflation devaluation of money huge increases of the cost of buying things from india sale of assets loss of value of pension funds and so on and so on and so on so the scenarios are many i will discuss them in separate videos however when the deleveraging comes it will be painful especially as economic growth is not based on healthy fundamental increases in productivity but just on increases in debt and leverage and everybody knows that you cannot increase your debt forever that's wishful thinking and that will lead to severe consequences so what we can do to protect ourselves is to be hedged hyperinflation huge debt amounts that have to be paid makes me think of hedger portfolio with gold even if gold is at one thousand three hundred now it was at three hundred two hundred fifteen years ago i think it can go to ten thousand in the next ten fifteen years especially if there is financial turmoil so if you're hedged whatever happens whenever it happens you are set and that's the message from today there is a crisis in the world there will be a crisis in the world everything is based on debt it will implode so just be hedged thank you for watching click like if you like the content share it with your friends if you think it's meaningful to them share your opinions thank you for watching again and i'll see you in the next video