Today one of the wealthiest, street-smart professionals in the markets, who is also business partners with billionaire Eric Sprott, warned King World News about the ultimate black swan that will bring the global financial system to its knees. He also discussed a jaw-dropping chart that illustrates the madness of central planners.
Eric King: “Rick, I know you’ve seen the Fed balance sheet vs gold price chart (below). We’ve never seen the chasm between the price of gold and the Fed balance sheet as large it is right now. You can see the Fed’s war against gold (price suppression) in that chart — your thoughts.”
Fed Balance Sheet vs Gold Price
Rick Rule: “I think it also shows people’s overconfidence in the current financial system. As you know, Eric, I happen to believe that confidence is misplaced. The thing that really concerns me about that chart is the fact that the Fed is probably not going to be able to deleverage….
Continue reading the Rick Rule interview below…
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“This is particularly the case if we don’t have a real economic recovery in the United States. I’m talking about a recovery that includes an actual increase in jobs and real wages. I believe that they are going to have to continue to leverage the Fed's balance sheet in order to fund the operations of the federal government. That means the chart will get worse and worse in terms of the Federal Reserve’s balance sheet.
The most important thing about that chart has to do with confidence in the system. There are two lines on the chart: One is the Fed’s balance sheet and the other is the price of gold. If confidence begins to falter, it’s very likely that the second line on the chart that represents the price of gold will begin to move significantly higher.”
Eric King: “In the series Star Trek, this was one of Spock's many great quotes:
Spock: “It would be illogical to assume that all conditions remain stable.”
Eric King continues: “I’m sure that statement applies to the current madness we are seeing today in global markets.”
Rick Rule: “I think you are right. As I’ve said many times, 'Real money is made by finding a popular belief and betting against it,' just like Paulson did with the U.S. real estate market in 2007.
My own personal view is that if the whole belief surrounding gold being strong in 2010 had to do with the unsustainable U.S.government on-balance sheet liabilities of $14 trillion, then the belief today that the U.S. balance sheet is somehow more sustainable with $18 trillion in liabilities seems preposterous.
I would like to add that gold doesn’t need to win the war of confidence against the U.S. dollar. If you look at the fact that gold has to be mined, which is incredibly difficult, and dollars can simply be created with keystrokes, it tells you that the price of gold only has one direction to go over the long-term and that’s much, much higher.”
Eric King: “Earlier you brought up the loss of confidence. During these cycles the crises accelerate in terms of market violence. When the stock market mania ended in 2000 and collapsed to the lows in 2003, after the recovery, people just couldn’t imagine the next collapse being worse. Then we had 2007 – 2009. Some event is going to create a loss of confidence that will kickoff the next and much larger shockwave. What will usher in that next reign of terror in the financial markets?”
The Ultimate Black Swan
Rick Rule: “That’s the $64 trillion question. The nature of a black swan, of course, is that it’s an unforeseen event. It may not be a single catastrophic event that ignites the next global crisis, instead it may just be an overwhelming sense that the global Ponzi scheme has reached its limit in terms of the madness of money printing and the subsequent distortions in global markets. Meaning, there is a sudden realization in the United States and other places that with the synchronous decline in economic activity, the fiat currency and the quantitive easing game is in fact counterfeiting. That realization would be the beginning of the end. That would be the ultimate black swan.”
***ALSO JUST RELEASED: Paul Craig Roberts – The Greatest Threat The World Has Ever Known CLICK HERE.
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The audio interviews with Egon von Greyerz, Eric Sprott, Robert Arnott, Gerald Celente, Michael Pento, David Stockman, Marc Faber, Felix Zulauf, Andrew Maguire, John Mauldin, Dr. Paul Craig Roberts, Lord Christopher Monckton, Bill Fleckenstein, Dr. Philippa Malmgren, John Embry and Rick Santelli are available now. Other recent KWN interviews include Jim Grant — to listen CLICK HERE.
