Japanese Prime Minister Shinzo Abe has warned world leaders at this years G7 summit that the world is on the brink of a huge global financial crisis, the likes of which we have never seen before.
Abe warned that the coming crisis could rival the 2008 crash, and presented data that proved that commodities prices had fallen by over 55 percent since 2014 – the same amount they fell during the 2008 crash.
The other G7 leaders appeared to ignore his warning, as a communique issued at the end of their summit downplayed any hint that a global economic crisis was about to occur.
The final statement failed to address the scale of the financial crisis facing the world today and instead gave the impression that the worst is over with somewhat Orwellian language which declared that G-7 countries “have strengthened the resilience of our economies in order to avoid falling into another crisis.”
The communique gives the impression that there is little risk due to strengthened, resilient economies when the truth is that there are significant risks facing the global financial system and the global economy. Some of which include:
• The global economy remains vulnerable to recessions and new debt crises. There are fragile recoveries in the Eurozone, UK and U.S. while Japan remains in a recession
• Financial and banking systems remains vulnerable as seen in the very sharp falls in bank shares in recent weeks. Spanish, Italian, Greek and German banks have seen sell offs
• Geopolitical risk in the Middle East (Syria, Saudi, Iran etc.), increasing tensions amongst Russia, China and western powers and the increasing spectre of terrorism and war
• The Eurozone crisis is far from resolved and there is the risk of debt crises in China, the U.S., the Eurozone and indeed the UK
• BREXIT causes a short term risk but the real risk is the poor financial fundamentals of the UK economy – total debt to GDP ratio (public and private) is over 450% and completely unsustainable.
Japan had pressed G-7 leaders to note “the risk of the global economy exceeding the normal economic cycle and falling into a crisis if we did not take appropriate policy responses in a timely manner.” However, leaders again failed to take leadership and opted for spin and again lulling their electorates into a false sense of security about the financial and economic outlook.
Rather than doing the responsible thing in this regard, there appears to have been an attempt to focus on BREXIT and to scare UK voters into not voting for a UK exit from the EU. German Chancellor Angela Merkel went as far as to say that BREXIT had not even been discussed but that there was a consensus that they wanted the UK to stay in the EU.
Yet, a 32-page declaration putatively from the G7 leaders declared that “A UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth.” Brexit was listed alongside geopolitical conflicts, terrorism and refugee flows as a potential shock of a “non-economic origin”.
Japan is right to be warning that there is a danger of the world economy careering into another financial crisis on the scale of the 2008 Lehman shock given the scale of the debt in the world today is much, much more than it was prior to the first financial crisis – see McKinsey Global Institute chart above.
Diversification remains the key to weathering the likely impact of the next financial crisis on financial markets and assets including deposits. Paper and digital assets, including digital gold, contain unappreciated risks such as bail-ins and inability to transact, be paid, liquidity etc.
Direct legal ownership of individually segregated and allocated gold coins and barswill again protect and grow wealth in the coming years.
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