Financial Jenga Brings New Challenges

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Financial Jenga has hit the world, and it is bigger and better than previous versions. Call it Jenga on steroids if you like... and it can be found in many markets. It is often endorsed and promoted by those we look to for financial guidance. Like the real Jenga game, the aim is to try and make the tallest tower using the blocks. Remove blocks from lower down the tower, then take things to a whole new level by stacking the piece on top.

The game of financial Jenga is the product of central banks across the world as a result of their continued QE and money printing policy. A little research rapidly reveals that today the biggest banks in the world are larger in terms of gross assets than prior to the 2008 financial crisis. The size of total deposits and the notional value of derivatives, everything that was too-big-to-fail in 2008 is bigger and exponentially more dangerous today. This should lead any prudent market watcher to the conclusion that those directing the financial system have learned little from the past.

Those of us troubled by the direction governments and central banks have taken us are bracing for a financial avalanche that will dump on everyone's parade. The warning signs have been in our face for a long time now as a series of what would have at one time been considered outlandish ideas - such as a war on cash, forgiving debt through a debt jubilee, giving everyone a guaranteed income, and even injecting money into the economic system by dropping it from a helicopter - have all found their way into economic conversations. Our current monetary policy has long been moving us towards what may prove to be an inevitable collapse, the kind that always occurs in the game of Jenga.

To many of us, it now appears this disaster will unfold during Donald Trump's time in office. What will make this event so devastating and vast is that it has been fueled for years by all the major central banks, making it truly global in nature. If a global financial panic takes place, will it become a major legacy of Trump administration or will he simply be seen as the patsy on whose watch everything came tumbling down? It won't be Trump's fault, merely his misfortune that he reaps the ill fruit of seeds planted years ago. Knowing nothing last forever, we should not be surprised in the wake of a total global collapse to see support grow for a new currency. We can only speculate whether America's new president would come around to endorsing such a non-"America First" move.

More than a few of us have predicted that when facing the next global financial meltdown, world leaders will huddle together and then turn to the IMF for a solution, claiming it has the only clean balance sheet remaining when liquidity is so desperately needed. It is assumed that if the IMF were to print the equivalent of $10 trillion or more in "world money" called special drawing rights, it could, in effect, become our savior. Of course, in such a situation, China and Russia as well as several other countries would acquiesce in this liquidity injection, provided it hastens the demise of the dollar as the benchmark global reserve currency.

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