Will 2016 Bring Another 2008-Type Crash? Pt. 1

The world is lurching towards another Crash.

Japan, which has been ground zero for Keynesian insanity, is back in technical recession. This comes after the Bank of Japan launched the single largest QE program in history: a QE program equal to 25% of GDP launched in April 2013.

This program bought an uptick in economic growth for just six months before Japan’s GDP growth rolled over again. Similarly, an expansion of QE in October 2014 pulled Japan back from the brink, but GDP growth collapsed again soon after, plunging the country into technical recession earlier this year.

japan-gdp-growth

Japan is completely insolvent. The country has no choice but to continue to implement QE or else it will go crash in a matter of months. However, with the Bank of Japan already monetizing ALL of the country’s debt issuance, the question arises, “just what else can it buy?”

We’ll find out in 2016. But Japan is now officially in the End Game from Central Banking.

Europe is not far behind.

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The ECB has cut interest rates to negative, cut them further into negative, launched a QE program, and then cut interest rates even further into negative while extending its QE program.

EU GDP growth has flat-lined at barely positive.

european-union-gdp-growth

But the economy is having serious difficulty fending off deflation.

When your ENTIRE banking system is leveraged by 26 to 1, as is Europe’s, even a 4% drop in asset values renders the system insolvent. Without significant inflation, the EU’s banking system will crash.

european-union-inflation-rate-1

ECB President Draghi better have more in his bazooka that what he’s fired so far, or the EU’s $46 trillion banking system will crash. However, as is the case with the Bank of Japan, the ECB is facing a shortage of viable assets to buy.

Between these two banking systems alone, you’ve got the makings of a global financial crisis at least on par with 2008. Both countries are sinking into deflation at a time when their respective Central Banks have little if any ammo left.

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Chief Market Strategist
Phoenix Capital Research

 

 

Posted by Phoenix Capital Research