In one of our recent articles we shared our pessimistic views on where our economy is going. We compared the way the global economy works to a Ponzi scheme and argued that until we return to fundamentals and start rebuilding the economy on new healthy principles, no recovery is possible. As much as we hate being pessimistic, the recent developments make the gloomy outlook even worse, primarily because of the stupid decisions the major world governments are making.

The word bailout was voted word of the year in 2008. But at that time it was done mostly in the United States. A currency failure or a government default confined to just one country, even as large and wealthy as the United States, wouldn’t be as devastating as the same events happening on a global scale. But this is exactly where we are moving. On April 2 (April 1 would be more appropriate) fueled by a push from US and UK, the G20 summit in London ended with a decision by the major countries to inject massive amounts of money in their economy despite opposition from Germany and France. This decision puts the whole global economy in a dangerous area.

When Bernie Madoff was caught, nobody thought about bailing him out. But if the government had just injected some liquidity, the pyramid would still be able to pay interest to its investors who would be still wealthy and happy. This wasn’t done, because it was obvious that injecting money into something fundamentally wrong wouldn’t be sustainable. The pyramid would require more and more cash and the government would accumulate more debt which would eventually become unbearable.

So why is the same government injecting massive amounts of taxpayer’s money into something as fundamentally wrong as our banks, real estate and stock markets, auto industry, etc.? A system built on overextended credit and overvalued assets cannot sustain itself long term. A company share is not worth 100 times earnings, a house is not worth ten times median income in the area, an automobile manufacturer cannot remain profitable if an assembly line worker is paid $70 an hour. The government needs to find the courage and let the pyramid collapse in order to build something more sustainable in its place. Instead, we continue to feed it with ever increasing amounts of taxpayer dollars. And by doing this, we are not only simply delaying the collapse, but also making it louder and more painful.

Predicting what is going to happen is not our business, but the signs we see are very alarming. Our advice to you - sit tight and get ready for a ride.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.