Pento:  “I’m focused on the fact that the Fed and the Treasury are primarily in the process of blowing disastrous bubbles.  The economic recovery has been predicated on consumption.  That consumption is 70% of US GDP.  The consumption is, in turn, predicated on borrowing because we don’t have any real income growth on the part of the consumer. 

The borrowing has been predicated on asset bubbles in stocks, bonds and real estate....

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“But people have to also understand where these bubbles come from, and the fact is that the whole progenitor of this cycle is the Fed.  The Fed does this by providing low interest rates, and monetizing government debt. 

So now we have a situation where the FHA is on record saying that they probably have a $1 billion shortfall.  Because of this shortfall, the FHA will need to tap the Treasury, which according to Jack Lew is already pretty much tapped out itself. 

And why do we have to bail out the FHA, which basically provides insurance to lenders such as banks and other financial institutions?  The reason is because they allow these institutions to make loans with only a 3.5% down payment.  Therefore, we have subjected ourselves to yet another huge bubble in housing, where home prices are up double-digits.  So the FHA will need a bail out for the first time in its 79-year history. 

It’s not just house prices which are in a bubble.  Stock prices are also growing at double-digit rates.  But these double-digit gains in stocks are taking place on no earnings growth.  Meanwhile, bond yields are only half of their average going back over 40 years.  So, for the first time in our lives we have three bubbles that exist together -- equities, bonds and real estate.  But the real catastrophe this time is that these bubbles will be exponentially larger, and when they burst the devastation will also be exponentially worse.

For those that think the Federal Reserve is going to address these problems, what they don’t understand is that the Fed is the creator of these problems in the first place.  Today Minneapolis Fed President Narayana Kocherlakota stated, ‘The Federal Reserve should take actions to strengthen its support for the economy, instead of tapering.  Again, this is a quote from Fed President Kocherlakota. 

What he is saying is that the central bank of the United States should draw a line in the sand, and just like Volcker said, ‘We will do whatever it takes to crush inflation,’ this Federal Reserve is saying, ‘We will do whatever it takes to create inflation, with the hopes of engendering economic growth.’

This is the perfect environment for gold.  I don’t understand why it’s not soaring today after the comments made from the Fed, and after the bail out that’s coming to attempt to rescue the FHA.  Everybody should be aware that we are creating the same environment which has sent gold soaring in the past.

The bottom line is that all of this means that QE4 is becoming QE5, which will become QE-to-infinity.  ‘Banana’ Ben Bernanke will be succeeded by the ‘Queen of the Counterfeiters’ Janet Yellen.  There will be no tapering, and if there were to be any small tapering, it will be inconsequential because the Fed is addicted to creating these bubbles in order to bring about this artificial and temporary anemic growth.  God help us all because there will be hell to pay when this tragic collapse begins.  This will end in total devastation.”

IMPORTANT - The audio interview with outspoken hedge fund manager William Kaye is available now and you can listen to it by CLICKING HERE. 

Michael Pento: President & Founder of Pento Portfolio Strategies and the author of

“The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market”

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The audio interviews with William Kaye, Dr. Paul Craig Roberts, Chris Powell, Michael Pento, Eric Sprott, Andrew Maguire, Grant Williams, Bill Fleckenstein, Pierre Lassonde, Art Cashin and Egon von Greyerz are available now. Also, other outstanding recent KWN interviews include Marc Faber and Felix Zulauf to listen CLICKING HERE.

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