by Gianluca Errico with the Team TOKYO. During the 42nd G7 SUMMIT held this end of May in Japan, the Japanese Prime Minister Shinzo Abe also warned his Group of Seven counterparts that the world might be on the brink of a global financial crisis on the scale of Lehman Brothers. (The attendees include the leaders of the seven G7 member states, Canada, France, Germany, Italy, Japan, United Kingdom and United States as well as representatives of the European Union. The President of the European Commission is a permanently welcome participant in all meetings and decision-making since 1981) However 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 communiqué 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 remain 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 UKBREXIT 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.” 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. 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 bars will again protect and grow wealth in the coming years.
About this topic, today we see two opposite strategies from two gurus of finance, Mr Soros and Mr Paulson. On one side Soros, fleeing the Stock Market, returns to bet on gold, becoming a shareholder of Barrick Gold, the world’s largest gold mining producer, with an investment that is even more relevant according to his withdrawal from the stock exchanges. Instead, Paulson is disinvesting his gold holdings, but it was a big supporter of the metal in 2009, a bet that has paid more than good. Gold has gained 70% between June 2008 and June 2011, so Paulson in 2010 pocketed a gain of $ 5m, a gain even higher than the one that made him famous in 2007, when he earned 4 billion, betting against the US real estate bubble. But, after a peak in May of more than $ 1,300 an ounce, prices have dropped to $ 1270 and Paulson is now convinced that the upward trend will not last. Anyway, both Soros and Paulson are pessimist, they think that the global economy is showing bad signs, the same of the 2008 drain. But the inexplicable thing is that while high finance runs for recovering as best as it can, the common people do much as they did in the years leading up to the financial crash: people are still recklessly spending themselves into oblivion while the drain could be slowly sucking them in.