By Gregory Mannarino, TradersChoice.net
For many years now, I have warned that at one point a “maximum saturation” moment would eventually occur in the financial system—it’s already started.
A maximum saturation condition triggers a rapid meltdown of the financial system.
A maximum saturation situation occurs when the system becomes unable to support any more debt and then starts to break down. The current central bank-run debt-based system demands that an ever-increasing amount of debt is constantly, and more importantly exponentially, added to the system to function.
In other words, the debt must expand by ever increasing multiples, and it cannot ever stop—until a maximum saturation is achieved, then the system stops itself.
At its core, the current central bank debt based financial system operates in a perpetual vacuum, a literal black hole which MUST relentlessly be fueled with ever more debt in greater and greater amounts. The paradox here with a debt-based system is this; although the system must continually be fueled with more debt, it therefore can never be made whole.
What this means is that although the system is already saturated with debt, it remains in a constant deficit state. However, even with that, there becomes a point when the effect of ever-increasing debt overwhelms the system. When the effect of ever-increasing debt overwhelms the system, a “maximum saturation” situation or “critical mass” is achieved, and the system implodes. A debt-based system assures that at one point a maximum saturation condition will eventually occur—it is a mathematical certainty.
The earliest signal that a maximum saturation condition has been achieved is rising GLOBAL inflation. In this situation, inflation must be WIDESPREAD, involving multiple nations. Secondly, this widespread inflationary situation must be followed by repeated, and unsuccessful attempts by central banks collectively to stop inflation—clearly these things are happening now.
As the maximum saturation condition worsens, holders of debt securities, which are sold to the public as the safest investments, begin to lose value.
Bonds lose value as risk increases because of several factors which include rate increases, defaults, bankruptcies, and inflation itself. This process leads to debt “selling off” which pushes bond yields even higher, further exacerbating losses for holders of debt securities—a negative feedback loop. This mechanism in turn pushes yields even higher, further exacerbating the problem.
As a further result, as the maximum saturation condition worsens and bond yields rise, world equity/stock markets start to rattle as risk increases. Currencies also suffer, losing more purchasing power, making inflation even worse.
The end result of a “critical mass” or “maximum saturation” condition is a complete meltdown of the entire worldwide financial system, and there is no solution.
What we will see moving forward is a herculean effort to “save the system” by adding more debt to it. World leaders colluding with their respective central banks will attempt to find every manner of reason to continue to inflate the system, but this will again only exacerbate the problem.