Higher Risk of World Depression

Dear Friends,

Putting the Hyper Inflation Scenario aside, which is a Wild Card in the sense that we don't know exactly when it will happen, or that whether it will happen at all, the latest information is pointing to a higher risk of a World Depression.

I still believe that the risks of Hyper Inflation is growing with each passing day, but let's just assume that this will not happen in the near future, for the purposes of the current discussion.

The most significant news in the last one to two months has been the Eastern European Banking and Economic Crisis the potential Disintegration of the European Union.

Potential Losses in the European Union Financial System has been estimated at US$25 trillion!

To put things in perspective, the total potential losses in the American Financial System is estimated at US$3 trillion, and thus, the losses in EU dwarf that of USA.

However, as we have already experienced, the US Government is struggling to keep its Financial System from drowning in its losses, and thus, can you imagine what even 20% of the total estimate, i.e. US$5 trillion loss will do to the EU?

Rumours are growing of the impending bankruptcies of Greece, Ireland, Sweden and Austria. Some are also showing concerns over the financial health of Italy and Spain. Britain is facing one of its worst economic crisis, but there is confidence from Professor Roubini that UK will survive, although questions have been raised in the media as to whether UK will follow the path of Iceland, which collapsed financially a few months back.

This will be the most significant driving force, aggravated by a significant and rapid rise in World Interest Rates, as per my blog article, "US & World Interest Rates Set to Rise?"

If the estimated losses of the EU Financial System is true, then it is very likely that the EU will disintegrate, and European Economies will fall deeply into Depression, dragging the whole World with it.

It never rains, it pours.

What should one do to prepare for a Depression? Very simple. Have Zero Debt, and lots and lots of cash because everything will be very cheap, from labour to goods in a Depression. If you have cash, lots of it, you will live like a King in a Depression, because everything is so affordable. Real Purchasing Power with the same Dollar you have in the banks, can buy you a lot more in the future, then, today.

On the other hand, if you have debt, you will struggle in vain, to keep the family's heads above the water. This is because interest rate will be high, whilst the potential to earn will be very weak.

For those of you who want to get a good idea of what life is like in the Great Depression, watch the movies, "The Grapes of Wrath" and "Cinderella Man".

Best wishes,

Ooi