Are You Prepared For The Contagion?

Posted at 2:36 PM (CST) by & filed under Bill Holter.

We have been harping on the question “are you prepared?” for years. We have asked if you were prepared financially, mentally, physically, and with your maker? The potential boogeyman as we suggested could come from anywhere or any angle but the end result would affect the economy and thus finance (credit) and would then spill over socially.

I have to admit, a “pandemic” was low on my list of possible sparks, but after thinking it through, a pandemic is a financial disaster. Yes it is a human disaster and many will die, but the odds of dying from the virus are and will remain quite low. The real problem is what the human response will be. I say this because we live in a world of just in time inventory AND production. We also live in a financial world with more debt and financial leverage (and thus monthly debt service) than ever before. So much so that even a small hiccup (which this does not appear to be) where business slows and contracts will be enough to quickly default some credits. The problem is not the initial defaults, rather, it is the “contagion” throughout the system because our world is so inter connected (globalism).

We saw this back in 2008 where one entity (Lehman) going down had the ability to torpedo the entire system if it were not for $10’s of trillions mobilized from the central banks. Remember, back then “liquidity” was shoved into the system so the banking system could withstand the shock of a small handful (but large) of upside down institutions. I would use the analogy that 2008 was a snapshot event which lead to the motion picture of what they called “recovery”…expansion never came. Today is different, because back then the central banks and sovereign treasuries had the ability to print/borrow in an effort to reflate…which they have continually done since then. Now, in a world with a debt to GDP ratio of 332%, who has the ability to step up and reflate?