THE FRIGHTENING PROBLEMS FACING THE U.S. & THE WORLD / KING WORLD NEWS

The Frightening Problems Facing The U.S. & The World

Egon von Greyerz

December 6, 2013


On the heels of global stock markets remaining strong, today the 42-year market veteran who correctly predicted that the Fed would not taper spoke with King World News about the frightening problems which are facing the United States and the rest of the world. Below is the tremendous interview with Egon von Greyerz, who is founder of Matterhorn Asset Management out of Switzerland.

“Since 2008, the main central banks of the world have printed $9 trillion. On top of that, the US federal debt has increased by almost $8 trillion during that same time period. If we had a temporary crisis in 2008, then money printing should have stopped. But it hasn’t.

And the printing is continuing at the same rate since 2010. Since 2010, the biggest central banks have printed $5 trillion, and US debt has increased by another $5 trillion. So, Eric, anyone who believes that printing can end, or that tapering can start, doesn’t know what’s happening in the world.

Let’s first look at the European banks, they are under tremendous pressure. The ECB has lent them one trillion euros, and very little of that has been repaid. Most of it falls due in 2014. Both Spain and Italy owe well over $200 billion each. There’s no chance of these countries repaying that money.

Money supply in Europe is falling fast, and so is bank lending. In October, bank loans declined by 6% in Italy, and by 19% in Spain. These countries are already under massive pressure, and they don’t have banking systems that can support the survival of the economy. They have essentially stopped lending to their economies.

This is why the ECB lowered their discount rate by .25%. On top of that, European banks need another 280 billion euros for the Basel III requirements next year. Again, they have no chance of finding $280 billion. Remember, none of the toxic debt that started the problem in 2008 has been dealt with -- it’s still there. So we have a European banking system which is fighting for survival.

And if we look at the banks in the US, why do you think that Goldman Sachs, JP Morgan, and Morgan Stanley are all downgraded? It’s because their balance sheets would have had major deficits if they valued their toxic debt at market value. In addition, US banks have several hundred trillion of derivatives, a big part of which is worthless.

Many so-called experts today say we will have a continued deflation. Eric, in my view there is no chance of a deflation because every government and every central bank in the world knows that deflation means a collapse of the financial system. The central banks have now created a system which is totally dependent on ever-more credit and QE. So there is nothing that can stop them from printing money. On the contrary, they will need to print a lot more. Instead of central banks printing $2 trillion each year, it will soon be $10 trillion, and eventually a lot more.

Of course the printing will lead to a collapse of the currencies. This will require even more printing. So this vicious cycle will continue until paper money dies. Of course the printing of worthless money will have no effect, but they will still print more until governments and central banks have lost control of the economy.

That will lead to a total police state or anarchy in many countries. There is a risk that this will happen in several countries, including the US. There will be virtually no support system. Paper money will have no function. Instead, there will be barter and theft.

Will there be a reset to a new reserve currency after this hyperinflationary depression? I doubt that it will come very soon because governments in such a scenario would not be in control of their countries. So it will be difficult to come to an agreement on an international level. So in my view it could be a long time before we have a reset.

Instead, after the hyperinflationary depression, I think there will be a deflationary implosion. In that scenario the banking system will not survive, and all of the assets values which have been blown up by the credit bubbles will collapse. When will this happen? In my view the first phase is starting now which is the inflationary, leading to the hyperinflationary phase. So the risks are there now.

Would insurance in the form of gold help in this scenario? Some governments might attempt to ban gold, but others won’t. That’s why it’s so important to keep your gold in a country where the rule of law prevails. Switzerland and Singapore fits into that definition.

Of course I hope all of these terrible events won’t happen, but the risks are greater than ever. Coming back to the markets, investors must watch the dollar because the fall of the dollar will be the trigger of all of these events. And unlike gold, the dollar is almost impossible to manipulate because of the size of the market.

We can now see the dollar gradually and consistently falling. But we are very near the point where we could see a major dollar waterfall decline. This would mean that the massive move we expect higher in gold and silver could start anytime. That would make 2014 into a very exciting time for precious metals investors, but a tough time for global stock markets and the world economy.”