Greyerz:  “Eric, the deflationary pressures are continuing in many areas.  As an example, the eurozone consumer confidence had the biggest drop in 18 months.  And in Germany, the latest figures are showing wage deflation of 0.6%.  We also saw the same deflation in France of 0.6%....

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“The French economy is under tremendous pressure and France is the next sick child of Europe.  The eurozone now has a situation where the cost structure in Spain, Italy, Greece, and Portugal is too high, and this is all due to the common currency.

In order for these countries to become more competitive, they need lower wage and cost levels.  But if Germany also now has deflationary wages, it makes it impossible for the Mediterranean countries to become more competitive.  The only other alternative would be a weaker currency, but Germany won’t have that.

This is why the euro currency union is not tenable.  The euro and the eurozone were created as a pipe dream of the European leaders and have nothing to do with economic reality.  This is also why the euro will fall to its intrinsic value just like all other fiat paper currencies. But in the short-term it is the US dollar that will fall hard and fast and that fall is now imminent.

So if the eurozone countries can’t be saved by a currency devaluation, there is only one way of prolonging their suffering and that is with QE.  The German Constitutional Court is trying to stop QE by the European Central Bank, but their mandate is very clear:  In an emergency, the ECB can print money.  It is guaranteed that the eurozone is not far from an emergency right now.  Thus, there will be money printing.

If we look at Japan, they are continuing to print money and inflate, but they are failing.  Q4 GDP was only up 1% annualized last year, which was half of expectation.  Also, Japan’s trade deficit was the biggest since 1979.  I’ve said it before but I will repeat it:  Japan is bankrupt and a basket case.  Japan’s economic and demographic problems are guaranteed to create a massive failure of the world’s third largest economy.

In China they have just drained liquidity again with an $8 billion repo.  The Chinese financial system is a massive bubble, and now the authorities are trying to restrict lending.  But they will also fail because the banking system and the shadow banking system are full of debt that will default.  That will just lead to even more QE in China.

The Fed is still optimistic about the US economy and confident about the tapering decision.  They continue to focus on the 6.5% unemployment rate, when the real unemployment rate is 23%.  But I can see US authorities continuing to insist that US unemployment is near 6% levels even as tens of millions of people in the United States line up to the modern-day soup kitchens of the food stamp program.

If we look at housing starts in the US , they had their biggest fall in three years, and mortgage applications were the lowest in 19 years. The US economy is only showing some temporary strength due to increases in government and household borrowing.

We know that government debt and the Fed’s balance sheet are growing exponentially, but household debt is also rising rapidly.  We have just seen the highest rise in six years to $11.5 trillion.  Mortgage debt is also up, and so is auto debt.  So the US is continuing its spending based on debt.  This very unsound and untenable trend will soon lead to the US dollar losing its value.

If we move to the emerging markets, for them to survive they will need growth in industrialized countries, which will not happen.  So emerging markets will be another catastrophe not only economically but also socially.

Eric, I’ve stressed many times to get money out of the banking system and pension system.  Country after country are planning to introduce bail-ins and forced savings systems.  In Australia the treasurer has suggested instead the ‘Superannuation’ pension funds for financing government projects.  The US has the ‘myRA’ system now and there will be more of this in coming years.

I’ve talked about protectionism previously, Eric, and it will happen around the world.  In 2016, the US will require all foreign banks to keep capital in the US, which will be frozen.  Thus the US regulator will, beginning in 2016, control foreign banks.  If European banks reciprocate and do the same, bank lending will be reduced substantially worldwide.  This of course is extremely deflationary, and the consequences of that will be even more QE eventually.

If we turn our attention to gold, it’s behaving immaculately.  We’ve seen a 12% rise in gold since the beginning of 2014, and a 16% rise in silver.  The HUI (Gold Bugs Index) is up 30% since the end of 2013.  If we look at the gold/silver ratio, it looks very weak, which means silver will continue to outperform gold. 

Gold has also turned down against the mining shares, which indicates the gold miners will greatly outperform gold in the coming year.  So technically this is extremely bullish and gold and silver look superb and so do the mining shares.

Gold and silver have risen strongly and are now consolidating at the highs, which just means they are recharging for the next move higher.  I’ve said that the next big move in the metals will be triggered by a falling dollar and that fall is likely to happen soon.  So with the world ready to enter another cycle of major turmoil, the gold and silver markets are set to be the primary beneficiaries once again, only this time the gains will be much more fantastic than the highs seen in 2011.”

IMPORTANT - Egon von Greyerz will be speaking at the Mines & Money Conference in Hong Kong on March 25 - 27.  There will be a large guest speak roster that includes Jim Sinclair and many others.

UPDATE - KWN will be releasing interviews all day today.

© 2014 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 Andrew Maguire, Andrew Huszar, Michael Pento, Art Cashin, Rick Rule, David Stockman, John Mauldin, Eric Sprott, Egon von Greyerz, Dr. Paul Craig Roberts, MEP Nigel Farage and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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