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Michael Pento continues:
“So they thought it was a much better idea every 50 years to do an involuntary purging of debt. This way it would be mildly painful, but in the long-term it would be very beneficial for the economy. Here is the problem. The major problem without any kind of debt forgiveness scheme, is that one entity’s debt is another entity’s asset.
Some people are thinking about doing something like this today. But let me explain why this could never happen today without unbelievably painful consequences....
Continue reading the Michael Pento interview below...
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“In Biblical times there was no fractional reserve system. They operated, for the most part, on a bimetal standard based on using gold and silver as money, and all lending was done on a 100% reserved basis. What that means is that you could not amass the debt levels we see today in the developed world.
For instance, there is $11.3 trillion of publicly traded US debt. Who does the government owe $11.3 trillion of their debt to? Well, as an example, commercial banks own $1.85 trillion of that government debt. That is at an all-time record high by the way.
So what would happen if there was a debt jubilee is the entire banking system would voluntarily fall on a sword and commit suicide, rendering itself insolvent. The thought here is that this would somehow lead to the days of ‘wine-and-roses.’
But we would wipe out the entire economic system of the United States overnight if we did something like that. What would happen to the economy if you had no banking system? The banks would all be instantly insolvent and forced to close down. That would mean a depression in this country which would be exponentially worse than what we witnessed in the 1930s.
So I think this is lovely talk, and it would have been wonderful every 50 years if we had a debt jubilee, and if we never went off the 100% fractional reserve gold system. But the problem is we are off that gold system and we have run up tremendous leverage and debt.
The world has never seen this amount of debt before. Any kind of forgiveness of that debt would wipe out the economy overnight. Would that be deflationary? Absolutely. You would see a huge cascading effect where all asset prices would crumble. All money supply measurements would plummet.
You would have massive insolvency across the entire planet overnight. So this is never going to happen voluntarily. I wish it would have happened every 50 years as the writers of the Bible envisioned. I also wish we were still on a 100% fractional gold reserve system, but we aren’t.
I do believe something like this could happen, but it will be an involuntary jubilee. It will come because the government simply defaults on the debt and walks away from it. That will be your ‘debt jubilee’ but nothing about it will be jubilant I promise you that.
I also agree with the premise of the recent Telegraph article that 100% reserve banking would end credit bubbles and vanquish inflation forever. However, the article does not deal at all with the effects of adopting such a plan. What would be the effect of wiping out $1.85 trillion in bank assets? We are talking about 20% of all bank assets! It would mean instant insolvency for the entire banking system because none of them have a 20% capital ratio.
Again, you are talking about eliminating all bank lending overnight. What would that do for the real estate market, commercial loans, car finance, credit card borrowing, etc.? As sound an idea as this plan may be for the future, as I mentioned earlier, its implementation would lead to a dramatic decline in money supply and credit creation, which would cause plunging asset prices and a global depression, the likes of which have never before witnessed on this planet.
We have quite simply past the point of no return, and there is no way this will ever be done voluntarily.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
The interviews with Dr. Stephen Leeb, Rick Rule, James Turk, Egon von Greyerz, Jean-Marie Eveillard, Bill Fleckenstein and Art Cashin (UBS $612 billion) are available now. Also, be sure to listen to other recent KWN interviews which included, Jeffrey Saut (R.J. $360 billion), John Embry and Gerald Celente by CLICKING HERE.
Eric King
No More Exits, We Are Already Past The Point Of No Return
On the heels of renewed discussion about a global ‘debt jubilee,’ today Michael Pento spoke with King World News about, “... why this could never happen today without unbelievably painful consequences.” Pento predicted, “You would see a huge cascading effect, where all asset prices would crumble.”
Pento has been incredibly accurate regarding his predictions of moves by the central planners. But regarding a debt jubilee he warned, “We have quite simply past the point of no return, and there is no way this will ever be done voluntarily.”
Here is what Pento had to say: “The ‘debt jubilee’ is a Biblical premise that every 50 years all debts would be purged. It’s a wonderful idea because without such debt forgiveness it meant that if you had inexorably rising levels of debt, eventually it would lead to an involuntary purging of that debt which would wipe out the entire economy.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
October 23, 2012
