On the heels of wild start to the 2016 trading year, today the man who has become legendary for his predictions on QE, historic moves in currencies, and major global events, just warned about China’s shocking crisis, going cashless as world economies crumble and governments have their eye on your life savings.
Egon von Greyerz: “As the sole focus of the media in the US is on the upcoming presidential election, the Americans are happily unaware of the fact that the US and the world economies are crumbling. Also, the debate between the candidates seems totally oblivious of what is happening in the real world since this is hardly being discussed…
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Egon von Greyerz continues: “Global trade is collapsing, global liquidity is crashing and bank to bank lending is falling fast. And then we have credit and asset bubbles in virtually every major economy as well as emerging markets around the world. The only solution desperate central banks know is to reduce interest rates and print more money. This is what the ECB just did again this week.
Back in 2006 – 2009 interest rates were around 5%, which gave the central banks some margin to cut rates. But now we are in new territory with many countries at zero or even negative rates. No one understands the effect of negative rates because it has never occurred before in history. Eventually home buyers will go to their bank and ask to borrow €1 million and request that the banker pay the borrower for taking the loan. This is of course totally absurd and that is one of the reasons why negative rates don’t work.
But no presidential candidate understands these problems or has the ability to discuss them. And even if they did, the voters would not be interested In such a debate, especially since elections must be all about good news and nothing about doom and gloom. Bad news or austerity are a guaranteed vote loser.
What most people don’t realise Eric, is that their money is going to become totally worthless in the future.
Let me try to explain the problems that will be facing all of us in coming years.
Government Confiscation
Firstly we have ZIRP or NIRP in most countries which means zero or negative interest policy. This means that in many countries in Europe and in Japan, the bank charges you when you deposit money. This is of course confiscation of your money. Every year you have less and less left, especially when bank charges are also deducted from your capital.
But it doesn’t end there, Eric. Banks in Europe are now stopping depositors for taking out more than nominal amounts of cash. In France for example, the maximum is €1,000 and in Italy €3,000.
Governments Going Cashless To Stop Bank Runs
The reasons for this are manifold. Firstly authorities want to stop the use of cash in order to totally control people. By only allowing payments through the bank account, the government and the tax authorities are now the real Big Brother watching every step we take and every penny we spend. Sweden for example, is talking about being totally cashless in five years’ time.
But the biggest reason for creating a cashless society is stop bank runs. The banking system is insolvent and leveraged up to fifty times and even more if derivatives are included. This means that there is only enough money in the bank for one client in fifty or two percent of clients in total to take out their money. If more people tried, the bank would have to close its doors because it would be bankrupt.
By stopping clients to take cash out, bank runs are no longer possible. In theory clients could transfer their money to another bank but that would also be stopped. So now the bank has your money, it charges you for that pleasure and you can’t get your money out because your money is frozen or confiscated. This is what has become of the bankrupt banking system.
But wait, the state has many other ways to take your money from you. When a bank is on the verge of going under, central banks around the world are no longer going to bail you out like they did in 2007 – 2009. No, next time there will be bail-ins. When a bank becomes insolvent, depositors money will be used to save the bank and to pay the banks losses.
Another method that bankrupt governments will apply is to use bank deposits for forced savings. Every depositor will be obliged to put some or all of his cash into long term government bonds, probably for at least thirty years. It is easy to imagine that the money will be totally worthless after thirty years.
Worthless Money And Greater Financial Collapse
And if your money hasn’t been lost already after all the above, central banks are guaranteed to print enough money in coming years that most currencies will reach their intrinsic value of zero. Governments will have no other option in their attempt to save the financial system. We know of course that money printing can never save the world. All it will do is to add more debt thus making the final collapse even bigger.
Eric, all the risks that I have just outlined, are a fail-safe guarantee that anyone who holds money in a bank today is likely to lose most or all of it over the next few years. As you know, I haven’t trusted the banking system for many years. When the odds are against you, why should you take such a massive risk that could lose you all your money.
Remember that the banks are also custodians for clients’ securities and if the bank goes under, segregated securities are unlikely to remain segregated. Just remember what happened to Lehman and MF Global.
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The wonderful thing is of course that there is such a simple solution. There is real money, which is gold and silver. The precious metals have been money for thousands of years and are the only money that has survived in history.
Gold and silver, stored outside the banking system, is far superior to keeping cash in the bank. It is instant liquidity and it can be bought or sold in seconds. It is a superior way to keep liquid funds, and with zero or negative interest rates, the holding costs are very low. And if the financial system temporarily ceases to function, gold and silver will be used as barter. Throughout history, whenever there has been a crisis, gold or silver have always been used instead of paper money.
We have talked many times about global risks Eric. There is virtually no major country that can survive economically intact from the coming crisis, whether we talking about Japan, Europe, the US, or emerging markets. Every day we hear of more problems. China’s borrowings for example, have gone from $2 trillion to $35 trillion in this century. The problem is that so much of this has been spent on redundant infrastructures. We all know of the many ghost towns.
China’s Shocking Situation And Global Cataclysm
But what is astonishing is that in three years China consumed more cement that the US did during the whole of the 20th century. There has been a tremendous amount of spending in China on projects that are now standing idle. This is why the Chinese government has just come out with a new scheme to save the Chinese financial system. Banks will be allowed, with government assistance, to turn bad loans into equity.
But that is of course no solution. Instead of loans that won’t be repaid, banks will now hold equity in companies that are either worthless or worth considerably less than the value of the shares the bank is holding. Another consequence of this scheme is that banks will now have more lending capacity so they will again inflate their balance sheet with more bad loans. No one knows the amount of bad debt in the Chinese financial system but it could easily be up to 20% of the total loans or $7 trillion.
Eric the risks are so substantial everywhere we look that a problem anywhere in the world could trigger a global cataclysm. This is why wealth protection in the form of gold and silver is so important and everyone who has liquid funds should own precious metals as insurance against these risks.
***KWN has now released the incredible audio interview with former White House official Larry Lindsey, where he discusses the coming chaos, the fight for freedom, gold, and how to take back control of our money, and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO RELEASED: ALERT: Crucial Update On The War That Is Raging In The Silver And Gold Markets CLICK HERE.
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