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Eric King:  “Bill, when people lose confidence in the system and they see theft of bank deposits, how do you restore it (confidence)?”

Fleckenstein:  “You can’t.  Here’s what happens when you lose confidence.  I’ll describe it to you.  It happened in America not too long ago.  Paul Volcker, no one believed him when he first came to the Fed.  Then, in late October he raised (interest) rates by 200 basis points on a Saturday night because he was serious about fighting inflation and they were going to target the money supply.

They were going to break the back of inflation.  He told you what he was going to do, which he certainly did.  People thought he was so full of hot air that between October of 1979 and January of 1980, the gold price ran from about $475 to $875....

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“That’s how much they didn’t believe him (Volcker).  And look what it took:  Interest rates went to 20% on the short end.  Government bonds went to 16% and they broke the back of inflation.  But that’s what it took to restore confidence.

We don’t know to what extent confidence will be lost because the pendulum is just starting to swing in that direction.  Once we do that (lose confidence) we don’t know what it will take to get it back, but it’s not going to be simple.

It hasn’t really unraveled very far yet because the central bankers and governments of the world are getting away with what they are getting away with.  It’s hard to argue that much confidence has been lost so far, but it will eventually because all of these currencies are going to buy less and less as inflation gets higher and higher.

It’s a huge train wreck.  It will be a different kind of train wreck than 2008.  It will be a massive train wreck just the same, and it won’t start until it starts.  You won’t be able to predict when it starts, you will just have to be alert to the clues that something has changed.”

Eric King:  “The late 1970s, early 1980s you just described there was such a chaotic and frightening time for investors.  Do you see that ahead of us again in the future?”

Fleckenstein:  “Of course.  When you have been living on the money printing central bank standard for 40 years, and every problem has been solved by a government bail out, the Fed or whatever central bank printing money, and when you can no longer do that, rates will rise and you will have a crisis of confidence and it will be a disaster.  I don’t know when it’s going to happen, I just know it is going to happen for sure.”

Eric King:  “How big of an event (Cyprus) is this for the gold market?”

Fleckenstein:  “Gold is an expression of lack of confidence or fear for your wealth, any number of things like that.  It’s about an expression of lack of confidence in the authorities.  It (the Cyprus disaster) is a huge catalyst ... All I can say is the markets are so warped by money printing for so long, they don’t react to anything until the last minute and then they implode.”

© 2013 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 above portion was just a small portion of what Fleckenstein had to say about the Cyprus disaster, the coming knock-on effects, and the markets.  He covers a great deal of ground in a short period of time.  The tremendous audio interview with Bill Fleckenstein is available now and you can listen to it by CLICKING HERE. 

The audio interviews with Rick Rule, Bill Fleckenstein, Dr. Paul Craig Roberts, Gerald Celente, Michael Pento, Nigel Farage, Eric Sprott, Egon von Greyerz, Rob Arnott and James Turk are available now.  Also, be sure to hear the other recent KWN interviews which include Marc Faber, Felix Zulauf and Art Cashin by CLICKING HERE.

Eric King

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