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Eric King:  “Bill, you wrote about the Fed’s expansion of its balance sheet and the fact that they (now) own 20% of the outstanding U.S. debt.  You said there were going to be dislocations at some point, and I’m just wondering what that will look like?”

Fleckenstein:  “Let’s say Ben (Bernanke) comes out tomorrow and says, ‘We are not going to taper.’  But let’s just say the bond market trades down anyway, and the next thing you know we go through the recent highs and a month from now the 10-Year is at 3%.  And people start to realize they are not even tapering and the bond market is backed up....

Continue reading the Bill Fleckenstein interview below...


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“They will say, ‘Why is this happening?’  Then they may realize the bond market is discounting the inflation we already have.

At some point the bond markets are going to say, ‘We are not comfortable with these policies.’  Obviously you can’t print money forever or no emerging country would ever have gone broke.  So the bond market starts to back up and the economy gets worse than it is now because rates are rising.  So the Fed says, ‘We can’t have this,’ and they decide to print more (money) and the bond market backs up (even more).

All of the sudden it becomes clear that money printing not only isn’t the solution, but it’s the problem.  Well, with rates going from where they are to 3%+ on the 10-Year, one of these days the S&P futures are going to get destroyed.  And if the computers ever get loose on the downside the market could break 25% in three days. 

That wouldn’t be hard at all because it’s only going up because it’s going up.  It’s not like things are better.  And the fact that it’s gone up people are willing to look at the glass and say, ‘It’s half full.’  There is nothing half full about this glass.  There is only the fact that money printing has driven stock prices higher.

So all of the sudden in a short space of time the interest rates are now higher and equities get destroyed and that makes the economy worse and that feeds on itself.  And how do you solve that?  You can’t print money to solve that.  We are going to that place one day. 

But if we can’t print money to buy bonds, then stocks are going to be a lot lower, bond prices are going to be a lot lower, interest rates higher, and at some point the government is going to have to tighten its belt.  I will leave it to other people’s imaginations to figure out how bad this is going to get and where everything is going to go, but nobody is going to be making money long financial assets once that process starts.”

© 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.

IMPORTANT - This was one of Bill Fleckenstein’s best audio interviews ever.  The above section was just a small portion of what Fleckenstein had to say as he discussed the coming financial chaos and gold and silver.  The extraordinary audio interview with Bill Fleckenstein is available now and you can listen to it by CLICKING HERE. 

The audio interviews with Eric Sprott, Egon von Greyerz, David Stockman, Gerald Celente, Andrew Maguire, John Mauldin, Dr. Paul Craig Roberts, Art Cashin, William Kaye, Marc Faber and Dr. Benn Steil are available now.  Also, other outstanding recent KWN interviews include Jim Grant and Felix Zulauf to listen CLICKING HERE.

Eric King

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