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This simple chart illustrates the frightening force driving the economy

grant williams debt chart

Grant Williams, the author of the widely-read financial publication “Things That Make You Go Hmmm” and co-founder of Real Vision Television, says we’re experiencing something “truly historic” in the global economy.

In a new 40-minute video presentation called “Crazy,” Williams highlights the extraordinary levels of global debt and unprecedented monetary policy we’ve seen since the 2008 financial crisis.

“The investment landscape today is unlike anything we’ve seen in our lifetime,” he says.

There’s simply too much debt, he argues. He illustrated this in the chart above, which shows the growth of credit instrument eclipsing the much more modest climb in US GDP.

Following the 2008 financial crisis, central bankers unleashed ultra easy monetary policy. One of the efforts involved the Fed making large-scale purchases of bonds, aka quantitative easing.

Williams points out that since the crisis there’s been 650 interest rate cuts by central banks around the world — or about one rate cut every three trading days. And in the eight years since the crisis, interest rates remain at or near zero, and in some parts of the world they’re negative.

“If you woke someone up this morning and explained what’s going on with negative rates and central bank balance sheets… it’s a snapshot of how far we have gone into crazy town. It happened incrementally … It happened slowly,” Williams tells Yahoo Finance.

In the presentation, Williams points to a “fabled wealth effect.” The Fed’s policies were meant to encourage the consumer to spend and thus stimulate the economy. The unintended consequence is that the American consumer suddenly decided enough was enough and that it was time to start saving.

“That’s a big problem,” Williams says.

Basically, people are frightened so they’re saving their money, but they’re not getting any return on it.

All of this matters with the recent Brexit decision and the upcoming election in the US with Hillary Clinton and Donald Trump being the presumptive nominees from their parties.

“People are unhappy. It’s more expensive to live. They sense all this stuff,” he tells Yahoo Finance, adding, “It’s never the question you ask that gets answered…”

According to Williams, the only way out is to raise rates. And at this point, neither the domestic or global economy is strong enough for a rate increase, he says.

“Once you’ve gone down this road, it’s very hard to go back without an extreme event that forces you to go back… No matter what the Fed says about the unwind, they can’t do it. More extreme actions are needed on their part or an extreme event exogenous to central banks like a market crash or a loss of confidence.”

For now, while the “central bankers rule the world,” Williams recommends gold as an investment.

“The end game will likely be the dollar and gold both rising along with the US treasuries. It’s time to play defense. Most importantly, it’s vital to preserve your capital. Right now, I believe this isn’t a time to be fully vested in equities— not while central bankers rule the world.”

Watch the full video below:

Julia La Roche is a finance reporter at Yahoo Finance.

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