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Michael Pento continues:
“However, China’s electricity consumption has slowed much faster than growth in official GDP, (electricity generation was unchanged in June from a year earlier at 393.4 billion kilowatt-hours), when they normally move in tandem. Turning to the U.S., the Labor Department announced last week that initial jobless claims fell 26k to 350k. Sounds great, but wait, digging into the unadjusted data, there was actually an increase of 69,971 claims for the week—an increase of 19% from the week prior. Now that’s some seasonal adjustment!
It is really any wonder why global governments and central banks are starting to panic?....
Continue reading the Michael Pento piece below...
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“As I indicated in last week’s commentary on King World News, the European Central Bank decided to lower its deposit rate it pays to banks to 0%. While some foolishly believed this move would have no effect on money supply growth, we just received empirical evidence of how banks behave when the interest on their reserves are cut to nothing.
Last week the ECB reported that overnight deposits parked at the central bank plunged by the most on record, or €484 billion in just one session. It now seems my theory that banks would deploy their reserves was proven correct in a matter of days.
The truth is that most global central banks are now acting in a concerted and unprecedented effort to battle deflation. South Korea cut interest rates by 25 bps and Brazil cut rates 50 bps to a record low last week; joining China, Europe, England and Japan in an aggressive attempt to raise asset prices. Not only have these central banks massively increased liquidity, but they are now moving towards taking measures to punish banks that do not do their part in expanding the money supply.
While it is true that banks don’t depend on a tremendous level of reserves to make new loans, it is imperative not to ignore the increase in the level of their excess reserves. These reserves came into existence when the central banks purchased assets from banks. A bank cannot afford to have a significant portion of its assets, which used to be productive and earning interest, to then become latent for an extended period of time.
However, the key point here is that while the Bernanke Fed has been on hold, other central banks have been cutting rates, reducing reserve requirements, buying equities, and ceasing to pay interest on excess reserves. That has caused the U.S. dollar to rise 12% in the past year. This factor alone has stoked Bernanke’s deflation phobia to an unbearable degree.
I believe the cyclical period of deflation that I warned about several months ago is now close to an end. The Fed, foolishly, feels compelled to stop the rise of the U.S. dollar, and will soon opt to follow the lead from the ECB and stop paying interest on excess reserves.
That move will not increase bank lending to the private sector, as much as it will force banks into purchasing even more sovereign debt. If the Fed does indeed go down that road, I would expect to see U.S money supply growth increase significantly. This will cause gold and commodity prices to soar and the dollar tank. I would also expect to witness the global economy sink ever further into the stagflationary abyss.”
To learn more about Michael Pento’s financial management services CLICK 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.
Today KWN released an absolutely extraordinary interview with Egon von Greyerz. This was an incredibly powerful interview with Greyerz and you can listen to it by CLICKING HERE.
The interviews with Egon von Greyerz, Bill Fleckenstein and Jean-Marie Eveillard (oversees $50 billion) are available now. Also, be sure to listen to this week’s line-up of other KWN interviews which include Michael Pento, Gerald Celente, MEP Nigel Farage, Dr. Stephen Leeb, Rick Rule and Eric Sprott by CLICKING HERE.
Eric King
This Major Fed Move Is About To Create An Explosion In Gold
King World News is continuing to receive extraordinary levels of interest in what has turned into a series of Michael Pento pieces. Today Pento reports more stunning news, “Last week the ECB reported that overnight deposits parked at the central bank plunged by the most on record, or €484 billion in just one session. It now seems my theory that banks would deploy their reserves was proven correct in a matter of days.”
Pento also predicted, “I believe the cyclical period of deflation that I warned about several months ago is now close to an end.” Pento is now calling for another significant move, and he noted, “If the Fed does indeed go down that road, I would expect to see U.S money supply growth increase significantly. This will cause gold and commodity prices to soar.”
Today Michael Pento, of Pento Portfolio Strategies, writes exclusively for King World News to put global readers ahead of the curve, once again, on what is unfolding as a result of the major unprecedented moves by central banks. Here is Pento’s piece: “Could it be that world governments and central banks are now taking drastic measures to re-inflate their economies because they don’t believe their own economic statistics? For example, China reported that GDP growth came in at 7.6% last quarter. That’s slower growth, but still not so bad.”
© 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.
July 15, 2012
