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Felix Zulauf - Collapse Will Cause Governments to Change Rules

With gold nearing $1,600, silver making its way back towards the $40 level, Europe in turmoil and serious concerns about the United States, today King World News interviewed one of the greats, Felix Zulauf of Zulauf Asset Management. When asked if he was surprised about gold breaking out to new highs during the summer period Zulauf stated, “Well it was a little bit surprising because the technicals were pointing to some further correction and the correction was essentially a sideways affair, but the fundamentals are still very bullish.

I mean we have negative real interest rates in virtually all of the major currencies and that is historically a very bullish underpinning of the gold market and that’s why it is not so surprising. It’s just that it didn’t really react to the overextended technicals leading to some downside reaction, it was more a sideways affair and this really shows you how strong the (gold) market really is.”

When asked about where the financial world is headed Zulauf had this to say, “I really don’t know because we have never seen, me in my lifetime I have never seen anything like this, and I think not even in the last 100 years has anything like this happened. We have had several countries that were indebted and went down the drain in the emerging world, and those emerging economies and governments, they have always eventually done the right thing.

They have let market participants go bankrupt, they have reformed the currency, they have cut the debt down to a new operational level, but it was very, very painful and a lot of people lost all of their money. Because they did that, they have always come back strongly. For instance Brazil today is a very strong economy, but fifteen years ago it was bankrupt. It (Brazil) cut out the debt, it created a new currency and started all over again.

Now the industrialized world is just trying to prevent that. They cannot do that and by trying to prevent it, it will happen anyway. But they just postpone and postpone and postpone, and by doing that they make the problem much, much bigger and the risk is that we will eventually have a collapse. Usually collapse of systems work through the currency, the currency goes down the drain. And I am not sure we can then expect free capital flows anymore.

So the risk is that we move into a situation where one big guy starts to collapse, and then it’s over with free capital flows and then we enter a new world that is highly dirigiste (economic planning and control by the state)....

Continue reading the Felix Zulauf interview below...

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“They (governments) change the rules, they change the law, etc., etc., and we will be a totally different world that has more resemblance of what was the case in the old communist block. That’s my big fear.

It won’t happen that you see a meltdown in the so-called free market or Western world and they will let it happen, that won’t happen. I think the governments will interfere, they will change the rules and you will have a highly government dominated economy with very little freedom for the individual and it won’t be a very pleasant world, that’s for sure.”

When asked about the risks of continued money printing Zulauf replied, “The US can do that (print money) and the same goes for the UK which is another serious case, and I do not doubt for a minute that the central banks of those countries like the US and the UK, they will continue to print money to help the government to finance the budget. For a while, and it may probably take longer than many fear, that will not be inflationary because they are only filling up the holes of destroyed paper that had to be written off. Until that whole is completely filled up, it won’t be inflationary.

It’s only once you do an extra liquidity infusion that it will get inflationary and we are not there yet. That’s why the situation with highly inflationary monetary policy, in an environment of extreme deflationary pressure by too much debt in the system will continue. (It will) keep CPI inflation rates at the relatively benign level and keep interest rates even at the long end within a range at the very low end historically speaking.

It can continue for another few years, but at some point it will change, and then the risk is definitely on the inflationary side.”

The KWN audio interview with Felix Zulauf will be available shortly and you can listen to it by CLICKING HERE.

Eric King

KingWorldNews.com

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