Messy Politics
Fatal Flaws
Parallel Currency
Market Fireworks
The Mutualization of European Debt
Staying Close to Home

Train wrecks and their financial analogues are a worldwide phenomenon. Europe, as I have written for several years, remains a giant accident waiting to happen—as Italy reminded us last week. You may have noticed the results when US trading resumed Tuesday. A wider crash may not be imminent but is certainly possible and will have worldwide effects if/when it happens. So now is a good time to review what’s already happened and what could be coming.

This letter is chapter 4 in my Train Crash series. If you’re just joining us, here are links to help you catch up.

Briefly, my thesis is that over the next decade, we will endure increasingly damaging debt crises that culminate in a coordinated global default—“The Great Reset,” as I call it. There are limits in how much leverage the world can handle, and I think we are already beyond them. And that is before we have a global recession. The only question now is how we will manage the collapse.

I previously quoted former BIS Chief Economist William White on how this will all unfold. Here’s his key point again.

… the trigger for a crisis could be anything if the system as a whole is unstable. Moreover, the size of the trigger event need not bear any relation to the systemic outcome. The lesson is that policymakers should be focused less on identifying potential triggers than on identifying signs of potential instability.

Bill says the financial system is so fragile that practically anything could trigger a crisis. Better to watch for signs of potential instability… and in Italy, instability isn’t just a potential. It is a probability at some point.