Michael Pento continues:

“Mario Draghi doesn’t understand the commitment he has pledged to undertake.  If he is actually going to purport to the market that he will control the interest rates of the seventeen countries within the euro, my question for him would be, how long will you monetize European debt?

How much euro dilution will occur?  The ECB will become the entire market for European debt....

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“There will be no private market for these bonds.  This is a recipe for severe stagflation which will destroy the middle-class and European savings.

However, he seems to be very confused because Draghi wouldn’t commit to these purchases being unsterilized.  This means he could be buying short-term European debt, and selling mid and longer-term European debt, which would further drive up yields.  For instance, the Spanish 10-Year right now is 7.17%, up 6.5% in one day.

It tells me that he doesn’t really know what he’s doing.  Draghi had to take one side or the other.  He either had to say the PIIG countries borrowed so much debt that they can no longer pay them back and they must default explicitly, or we are going to stupidly try to monopolize the entire bond market, and monetize all of this debt.

We have an unlimited bazooka, with unlimited ammunition, and here we go, we’re starting today.  But by doing what he did, he promised the world, and delivered nothing.  That is the reason why we are down today on the Dow.  That is the reason why Spanish and Italian yields are blowing out today.

In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM.  This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”

When asked what investors should be doing in this environment, Pento responded, “I am telling my clients, I am gearing them towards the inevitable inflation.  But I think it’s silly to go ‘all-in’ right now.  We have significant holdings in precious metals and we have written covered calls against that strategy.  Then, we are ready to go all-in once we have a firm commitment on the part of these two central bankers to massively monetize the debt.”

Pento also spoke about what he expects to unfold as central planners add more liquidity:  “I think, temporarily, the euro will rise.  Bond yields will fall for a very truncated period of time.  You will see the major averages scream higher, but you will see the most salient moves in precious metals, base metals, energy and agricultural stocks and commodities.”

This is one of Michael Pento’s best interviews ever.  He puts KWN listeners ahead of the curve on what to expect from central planners, and how to position themselves ahead of those moves.  The interview 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 interviews with John Hathaway, legendary Art Cashin ($612 billion UBS), Gerald Celente, Don Coxe ($538 billion BMO) and Eric Sprott are available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include MEP Nigel Farage, Peter Schiff, and John Embry by CLICKING HERE.

Eric King

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© 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.

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