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Rob Arnott continues:

“The US debt just passed 100% of GDP in February.  But if you factor in state and local debt, and the GSE’s Fannie Mae and Freddie Mac, our contractual, binding debt obligations today stand at 170% of GDP.  That’s the same as Greece before its default.  So that’s a problem.

We’re the largest economy in the world and the world’s reserve currency, so that buys us time....

Continue reading the Rob Arnott interview below...


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“It doesn’t mean we can keep running the ATM without limit indefinitely into the future.

There are places to put your money, I’m not so sure stocks are the right place at the moment.  Right now things can go a couple of different directions.  The US is seen as a safe haven, until we’re not.  But it doesn’t feel, to me, like an environment where we want to take heroic risks.

A relatively ordinary bear market would be 20% to 30%.  I think that’s pretty easily in the cards some time in the next 12 to 18 months.”

Arnott also added:  “Deleveraging is inherently deflationary, but not if you’re running the printing press.  That’s what we’re doing.  You’ve got the ECB ostensibly standing firm against the demands of the Southern peripheral European economies, and saying, ‘No, we’re not going to run the printing press.’  Yet, in four months, their LTRO program printed one trillion euros of new money.

You have the US Federal Reserve dithering over whether to launch QE3.  You can bet that if we see any hints of deflation, they will run QE3.  There’s no doubt about it.  Deflation can always be avoided.  You can always run the printing press enough to avoid deflation.

The issue that becomes very nuanced, is what happens when velocity of money starts to increase if people lose confidence in their currency or even begin to?  Then the velocity of money is suddenly picking up.  Money is circulating through the system faster.

That is not inflationary if you have a Federal Reserve that is fully prepared to reverse gears and take money out of the system.  I have yet to meet anyone who thinks that Bernanke, faced with renewed velocity of money, would be willing to reverse gears and pull money out of the system, knowing that it would create a recession.”

Rob is one of the most brilliant and original thinkers in the financial world today.  It is not surprising that he oversees more than $100 billion.  He is warning KWN readers to expect a bear market, as well as more infusions of liquidity by the Fed and other central banks.  The outstanding KWN interview with Rob Arnott is available now and you can listen to it by CLICKING HERE. 

© 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 King World News interview with Art Cashin ($612 billion UBS) is available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include Newmont CEO Richard O’Brien, John Hathaway and James Turk by CLICKING HERE.

Eric King

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