It’s a gloomy, rainy day outside and I’m stuck in front of a computer.
That makes it the perfect day for thinking about the future of the global system and why resilient living isn’t an option, it’s a necessity.
A highly likely future to explore, as opposed to the very unlikely “Zombie Apocalypse,” is a global financial collapse. In this “Zombie Apocalypse” the zombies don’t eat your brains, they eat your financial assets.
How might a financial collapse occur? I found a presentation that Raoul Pal gave late last month in Shanghai that makes a very compelling case for financial collapse.
Raoul is a Goldman Sachs alum that went on to co-manage one of the world’s largest hedge funds in London. He now writes research for senior money managers at the Global Macro Investor from his (early) retirement home on the coast of Spain. In short, he’s an insider’s insider.
The presentation is very straight forward, incisive, and very dark. It makes a clear case why the current version of our global financial system will collapse and what the results of this collapse will be.
Stick with me on this, there’s something to be learned here. Something we can plan against.
The Big Reset
Why will the financial system collapse?
Raoul’s answer is simple: too much debt. Debt that can’t be repaid. Worse, this $70 trillion in debt serves as collateral for $700 trillion in financial derivatives (an amount 12 times larger than the entire global economy!).
Raoul then points out that our ability to service this massive public/private debt load is rapidly decreasing: All of the big economies are now entering a new recession, at the same time. This is the first time this has happened since the 1930’s. Worse, these economies are entering a new recession without recovering the ground lost in the last recession, again the first time since the 1930’s.
This is a recipe for disaster.
How will the collapse play out? Europe’s current meltdown will result in huge bank and sovereign defaults since there isn’t a mechanism that can stop them from occurring.
These early defaults will cause a domino effect of sovereign and bank defaults. These sovereign and bank defaults will be so large that they will be beyond the ability of central banks and governments to prevent them.
Worse, it will happen as a tsunami (huge and fast). The damage of each sovereign default will be both a) amplified and b) quickly spread throughout the entire global financial system by a hideously complex tangle of financial derivatives.
As the collapse occurs, the dollar and gold will be the only remaining forms of wealth still liquid. However, even that won’t last. When things settle down, it will be clear that the entire system we built on fractional reserve banking and fiat money will be gone.
So, what happens after that? Raoul makes the case that a new financial system will be built. In short: it will be a Big Reset with new forms of wealth replacing old, bankrupt forms. So, what should you do to prepare for the Big Reset? Raoul recommends urgent action, but uses a conventional, rearranging the deck chairs on the Titanic, approach that falls well short of what is really needed:
“We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses. Spend your time looking at the risks of custody, safekeeping, counter-party etc. Assume that no one and nothing is safe. After that…we put on our tin helmets and hide until the new system emerges. From a timing perspective, I think 2012 and 2013 will usher in the end.”
The Best Way to Prepare for the Big Reset
Unfortunately, the Big Reset isn’t fantasy.
It’s a highly likely outcome given our current precarious situation. As a result, preparing for it isn’t optional.
The only remaining question is: how do you prepare for it? The real answer is quite simple.
Live resiliently.
Become a producer rather than a consumer and help your community to do the same.
In a Big Reset, local production is king. It trumps all other forms of wealth.
Resilience doesn’t only produce the tangible wealth you need to ignore the effects of a decade of global economic depression. It ensures that you and your community will be in a good position to help decide what the next global economic system looks like (rather than being told).
So, how do you build a resilient lifestyle that enables you to avoid the effects of a Big Reset while improving the quality of…
- your health,
- your wealth, and
- your relationships?
Finding the answer to that is what resilientcommunities.com is all about.
The future is bright folks.
Join us.
PS: If Raoul is as smart as his background and presentation suggests, he’ll be using whatever virtual, ephemeral wealth he has today to finance a resilient community around the home he lives in today and in as many locations as possible.
