According to Egon von Greyerz of Matterhorn Asset Management in Zurich, the ongoing correction is actually in its infancy, and the entire unwinding of generations of accumulated funny money and excess credit may take a century or more to accomplish. Greyerz’ comments are worth reproducing in some detail:
"The world economy will soon go into an accelerated and precipitous decline which will make the 2007 to early 2009 downturn seem like a walk in the park. The world financial system has temporarily been on life support by trillions of printed dollars that governments call money. But the effect of this massive money printing is ephemeral since it is not possible to save a world economy built on worthless paper by creating more of the same.
Nevertheless, governments will continue to print since this is the only remedy they know. Therefore, we are soon likely to enter a phase of money printing of a magnitude that the world has never experienced. But this will not save the Western World which is likely to go in to a decline lasting at least 20 years but most probably a lot longer.
The hyperinflationary depression that many western countries, including the US and the UK, will experience is likely to mark the end of an era that has lasted over 200 years since the industrial revolution. A major part of the growth in the last 100 years and especially in the last 40 years has been built on an unsustainable build-up of debt levels. These debt levels will continue to swell for another few years until the coming hyperinflation in the West leads to a destruction of real asset values and a debt implosion….
Until the early 1970s the growth in credit to GDP had been going up gradually since the creation of the Fed in 1913. But from 1971 when Nixon abolished gold backing of the dollar, virtually all of the growth in the Western world has come from the massive increase in credit rather than from real growth of the economy. The US consumer price index was stable for 200 years until the early 1900s. From 1971 to 2010 CPI went up by almost 500%. The reason for this is uncontrolled credit creation and money printing. Total US debt went from $9 trillion in 1971 to $59 trillion today and this excludes unfunded liabilities of anywhere from $70 to $110 trillion. US nominal GDP went from $1.1 trillion to $14.5 trillion between 1971 and 2010. So it has taken an increase in borrowings of $50 trillion to produce an increase in annual GDP of $13 trillion over a 40 year period. Without this massive increase in debt, the US would probably have had negative growth for most of the last 39 years.
The coming hyperinflationary depression and the credit and asset implosion that is likely to follow will most probably lead to the end of a 200 year era of growth for the Western world. If only the excesses from the 1970s were corrected we might have a circa 20 year decline. But more likely we will correct the era all the way back from the industrial revolution in the 18th century and this could take 100 years or more."