Greyerz:  “Eric, since 2008 the major central banks, the Fed, the ECB, Bank of Japan, Bank of England, and the Swiss National Bank, have increased their balance sheets by a staggering 50%....

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“But they are pushing on a string because all of this printing has no effect.  If you look at the Fed, they have printed money virtually every month since 2008.  And if we look at early next year, there is unlikely to be an agreement regarding the debt ceiling.  All this money printing has done is to create a temporary deferral of the world’s problems, and in the meantime debt will continue to grow at an exponential rate. 

Last week I mentioned that the US debt has grown 17-times, from $1 trillion to $17 trillion in the last three decades, but tax revenue has only grown from $1 trillion to $2.5 trillion.  This means that debt is growing unbelievably faster than tax revenue.  But what is so important to understand here is that tax revenue is supposed to repay the debt.  But instead of repaying the debt, the US has increased the debt by $1 trillion each year in the last few years.

Just looking at the trend of debt and the trend of tax revenue, we know that the US can never repay the debt.  This is because the debt is growing exponentially.  This means that the US is in catastrophic default now.  I know people will think, ‘Interest is being paid, so there is no default.’  Well, if you first have to borrow the money and then buy your own debt, you are in default.

It’s clear from the trends of the last decade that this debt will never be reduced.  Instead, it will be increased in a Ponzi scheme fashion.  This will take place as the US issues more debt and prints more money to buy its own debt.  The US need to do this in order to service existing debt, but also to finance a continued deficit.  Japan and many European countries are in the same hopeless situation.  This will only accelerate the race to the bottom in the major currencies, leading to hyperinflation in many economies.

In my view 2014 will be a year of transition and a year of massive wealth destruction.  Most global stock markets are now showing signs of ending a long secular bull market.  This will turn into a very unpleasant and wealth-destroying bear market.  Investors are not prepared for this.  We could even see a major sucker’s rally that draws the public in before a major fall.

As currencies and stock markets fall, interest rates will rise.  As we know, the bond market is the biggest bubble of them all.  The perpetual motion of the US government issuing bonds, and then the Fed buying everything that the government issues will lead to the rest of the world dumping US bonds.  At that point, long-term interest rates will start to rise strongly.

The Fed has no chance of stopping this.  Their action will be to print more, and this will only exacerbate the situation, with bonds falling faster and interest rates surging.  The reality is that the world is now worse off than it was in 2008 because we have tens of trillions of additional debt in the world, and also more dangerous derivatives.  If you take asset-backed and CDO’s (collateralized debt obligations), we are now back at 2008 levels.  This is because the issuance of these is greater than it’s been for many years.

What also worries me, Eric, is that the rich are getting richer and the poor are getting more into debt.  This is a very dangerous situation.  What the Venezuelan leader has just done is a good example.  He has jailed 100 capitalists because they have increased prices of goods too much.

Officially, inflation in Venezuela is now at 54%.  It is probably much higher than that, but 54% is high enough.  Of course if businesses can’t increase prices, they will go out of business.  This is what happens in inflationary situations.  Government tries to stop it, which people like, but nobody can run a business in a highly inflationary or hyperinflationary economy by running losses.  This could happen in many other countries in coming years.”

Greyerz added: “In the meantime, gold is watching all of this from the sidelines.  While art and diamonds are surging in price, gold is still burdened by the paper manipulation.  As we know, the physical market is very strong and there is continued robust demand, particularly from the East.

But we will see a dramatic change in the gold market in 2014.  As the dollar and other currencies fall, gold will reflect this, and it will more than regain the lost ground in the past 2 years.  This will be a very exciting time for gold and silver investors.  The cyclical bear market is coming to an end, and the wind will once again be at the backs of gold and silver bulls.”

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