Greyerz:  “Eric, when you are living through history-making events, it’s often difficult for investors to see exactly what is happening.  I have, for some time, put forth the argument that we are at the end of at least a 250-year cycle, and possibly at the end of a cycle that is of the same magnitude as the Roman Empire.

As KWN readers know, the Roman Empire fell and this ushered in 500 years of the Dark Ages....

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“Interestingly enough there is a university professor called Robert Gordon, of Northwestern University, that recently gained some fame by predicting that growth for the next 15 years, if not longer, is going to be half of current growth.

But more importantly, what he calls the ‘Second Industrial Revolution,’ which is the one that started with the U.S. growth in the 1870s, he said that cannot be repeated.  What led to that growth was the invention of things like the combustion engine, electricity, the car, the plane, radio, telephone, etc.

He says what is happening now is not at all of the same magnitude.  A colleague of his also spoke about the computer revolution, and what he says is happening now is that 65% of U.S. workers are actually processing information.  So they are sitting in front of computers and basically just processing information.  This is obviously non-productive.

So, Eric, as I’ve been saying for quite some time, there are many signs pointing to the fact that we are at the end of a major era, both in the U.S. and around the world.  When you look at debt worldwide it’s out of control.  Total debt-to-GDP in most countries in the world is at a staggering 300% to 400%, and we know this is debt that can never be repaid.

We have talked about the exponential growth of debt in the U.S. and the fact that not only is the debt continuing to grow, which forces the U.S. to borrow more, but also the fact that the Fed has to buy all of the debt.  The Fed now owns $2.2 trillion of federal debt, in Treasury bonds, out of $3.6 trillion.  Of course in 2013 the Fed has purchased all of the debt that has been issued.

But it’s not just in the U.S., in Switzerland, since 2008 the Swiss National Bank has printed as much money as it has in its entire history since the bank was first created.  So this is happening everywhere in the world.  Debt is one of the primary factors pointing to the fact that we are at the end of an era because it is an unsustainable debt level that we are now seeing.  There are also massive excesses in the world, and there is also a decline of moral and ethical standards. 

Of course non-productive countries are redistributing up to 60% of GDP.  Just take the U.S. as an example, federal spending is up 300% in 40 years, and yet earnings are only up 24%.  It’s just unsustainable.  This leads to highly bureaucratic countries with the government taking away the initiative and the entrepreneurial spirit of the individual.  I have illustrated on King World News that 50 to 70 years ago each $1 of debt used to produce up to $4 of additional GDP in the United States.  Now it’s producing no additional GDP.  So we are running on empty. 

Another factor which is pointing to the world having difficulties getting out of this cycle is the demographics.  In many countries we are seeing more older people and fewer younger working people that can actually take care of the aging populations.

When you look at unemployment, southern Europe has a remarkable 25% unemployment, but the youth unemployment is over 60% in many countries.  And the real U.S. unemployment is not 7%, it’s 23%.  Young people today will have no chance of repaying the massive debt levels that the world has.

So in my view we are now at the beginning of a secular decline of the world.  How long will this last, and how bad will it be?  Only history will tell us afterwards.”

Greyerz also added:  “Looking at the short-term, the bond market is the biggest bubble in the world.  The yield on the U.S. Treasury has doubled in 12 months.  As I’ve said repeatedly, governments cannot hold long-rates down.  The market will force rates higher. 

Of course the increase in rates will have a massive effect on global debt servicing, and world debt is somewhere already around $230 trillion today and growing.  As interest rates go up above 10% in the next few years, printing presses around the world will be working overtime.  Just the recent spike in rates has cost the Fed almost $200 billion.  Of course they are not marking-to-market so they are never showing that loss, but remember that the Fed’s capital is only $62 billion.

Bank leverage in developed nations around the world is still at an astronomical 25 to 30 times.  That means a 3% to 4% loss will wipe out the entire banking system, and that level of loss is guaranteed.  This leverage of 25 to 30 times excludes derivatives.  So very little has improved since 2008.  The only improvement for the banks has been in their profits and bonuses.  But their balance sheets certainly haven’t improved much.”

Greyerz went on to discuss markets:  “Looking at currencies, the euro is now breaking up from a 2-year downtrend.  This will mark the beginning of the end of the U.S. dollar as the world’s reserve currency.

When we turn to the metals, gold mines are closing in Australia because they are not profitable.  Miners are also beginning to hedge production once again at the absolute worst time.  Banks financing these companies are demanding that they hedge.  This practice will end extremely badly for the mining industry.

From our point of view we are seeing major moves of physical gold out of banks and into private storage because people are worried about the risk of being in banks, as well as the risk of bail-ins.  We are continuing to see Swiss banks resisting letting their clients transfer the gold out of the banks. 

They are making up one rule after another as to why clients can’t take the gold out of the banks.  In the end we help the clients to achieve the transfers, but the banks are doing all they can to keep the gold within the banking system.

When we look at the precious metals, it has become quite apparent that we have already seen the lows of the major correction, and we will see massive moves to the upside this autumn and into 2014.  The move has already started now, and will accelerate very soon.  So for investors who are not fully positioned, right now is the time to invest any spare cash that they have because the upside move in the next couple of months will be considerable in my view.”  

© 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 audio interviews with Gerald Celente, James Turk, Hugo Salinas Price, Chris Powell, Bill Fleckenstein, Eric Sprott, Egon von Greyerz, David Stockman, Andrew Maguire, Art Cashin and Marc Faber 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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