Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.
What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.
However, this process will not be fast by any means.
Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).
There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.
By way of example let us consider the details surrounding the Tech Bubble: the single largest stock market bubble of the last 100 years.
In this case, the Bubble pertained to just one asset class (stocks). In fact, the bubble was relatively isolated to one specific sector, Tech Stocks.
And to top if off, it was absolutely obvious to anyone that it was a Bubble: note that the Cyclical Adjusted Price to Earnings or CAPE ratio for the Tech Bubble dwarfed all other bubbles dating back to 1890 (see the next page).
Stocks were so obviously overvalued that it was truly absurd.
And yet, despite the fact that this bubble was absolutely obvious and involved only one asset class, it still took investors well over six months after the initial 20% crash to realize that the top was in and the bubble had burst.
Moreover, during this six month period in which the single largest stock market bubble of all time burst, stocks did NOT go straight down. In fact, they were an absolute ROLLER COASTER with more than EIGHT price swings of 16% or greater.
Let that sink in for a moment. Stocks were clearly in a bubble. Indeed, it was literally THE stock bubble of the last 100 years. And yet, when it burst, there was no clear consensus as to where the market was heading.
In a six month period, investors moved stocks down 19%, up 8%, then down 27%, then up 21%, then down 22%, then up 34%, then down 17%, then up 16%, then down 28%, then up 16%, and finally down 17%. Only at that point did stocks break their trendline for the bubble (the blue line) and it became obvious that the bubble had burst.
My point with all of this is that even when the bubble was both very specific AND obvious, the collapse was neither quick nor clean. There were several large 20%+ crashes, but overall, it was a roller coaster with jarring rallies than gradually wore its way down.
This same process has likely begun for the markets again… but this time it will be global in nature as the bubble in question is not just in stocks but in bonds, commodities, real estate… indeed in the very Central Banks themselves.
The situation is clear: the 2008 Crisis was the warm up. The next Crisis will be THE REAL Crisis. The Crisis in which Central Banking itself will fail.
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