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 that the risk of total global collapse is greater today than any time in history.
Egon von Greyerz: “The US economy has been a wonder for a major part of the last 100 years. For the first half of that time, the economic wonder was genuine. There was real growth and investment was financed primarily by savings. Real wages were growing and the budget was balanced. There was also a trade surplus and only moderate growth of debt. The US wonder started to fade slowly in the 1960s. In 1961, the US started a record run of 55 years of budget deficits, a disastrous trend that is unlikely to end in the next ten years…
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Egon von Greyerz continues: “The Clinton surpluses were fake as debt continued to increase in that period.
The cost of wars is always a major drain on the finances of empires. The Vietnam war was costly and gradually the US current account surpluses started to decline, leading to a falling dollar. With gold backing the dollar, it was more difficult to print money. As sovereign nations, led by de Gaulle in France, refused to accept the weakening dollar as payment from the US and instead demanded gold, Nixon finally closed the gold window on 15 August 1971. This was a disastrous decision and the beginning of the end of the US economic wonder.
And today, 45 years later, the US is still a wonder. Well that is a massive understatement. The US is an absolute miracle. Because it is totally incomprehensible how a country can survive with chronic budget and trade deficits and with debts which are increasing exponentially and that will never be repaid in today’s money.
So how has it been possible for the US to maintain the totally unique position of being able to issue and sell debt that by any measurement is worthless and that can only be serviced by issuing more debt. To impose on the rest of the world to use the dollar for international trade has been one prerequisite. But to make that work properly, it has also become necessary for the US to police the global financial system and to penalize any country, bank or individual who doesn’t abide by US financial laws and regulations. Another crucial prerequisite is to have a strong military machine which the US has with a total of 800 bases in over 100 countries.
Even The Mighty Roman Empire Destroyed Itself
The dilemma is that an empire always has the seeds of its own destruction within it. This is true for all fallen empires whether it is the Persian, Roman, Mongol or British. In very simplistic terms, once the conquered land has been plundered of cheap or free goods and resources, combined with cheap or slave labour, the conqueror loses his focus as well as control and starts to live above its means at the same time as the resources are running out. The conqueror still believes they can maintain the high standard of living for their country but now has to borrow and print money to achieve that. Eventually money runs out and the decline of the conquering nation is a fact. The final act of desperation of an empire in decline, with massive debts, is often to start a war. This diverts attention from the financial state of the country and makes it possible to borrow even more money in a final attempt to save the country.
The US has of course never been an empire in the sense that it has not expanded its territory in any major way except for temporary intervention or interference in other countries. Initially the US empire was built on an entrepreneurial spirit which created a very powerful country and the world’s biggest economy. The US became the world’s greatest manufacturer and dominated the world for many decades. But as mentioned above, the downturn started slowly in the 1960s and accelerated in the 1970s as the dollar fell. Gradually over the last few decades, the US strong manufacturing base has declined and most manufacturing jobs transferred to China and other emerging markets.
As a consequence, US average wages for workers have declined in real terms since the 1970s. This is quite ironic, as US workers are buying cheaper products from the Chinese, their wages are declining and thus erasing the benefit of the cheaper imports. Not only that, but as the Chinese workers are improving their standard of living and saving a major percentage of their income, US workers are finding it hard to make ends meet and therefore borrow more money to maintain their standard of living.
US total debt, including unfunded liabilities such as Medicare and insurance, has ballooned in the last 30-40 years and now stand at around $300 trillion. That is almost 1,700% of GDP, dramatically worse than any major nation. But even if we look at total US debt excluding the unfunded liabilities, it is 400% which by any measure is massive and unsustainable.
Fed’s “Wizard Of Debt,” Ben Bernanke, Enabled U.S. Debt To Skyrocket
So is there any chance for the US to reduce this debt over coming years or decades? Well, it is certainly guaranteed that none of this debt will ever be repaid. Just take US Federal debt at $19 trillion. Bernanke managed to contribute to this debt more than doubling from $8 trillion to $17 trillion between 2006 and 2014. So far Janet Yellen has been fortunate to contribute to a mere $2 trillion increase. But that’s just the beginning. The CBO (Central Budget Office) is forecasting that US debt will grow by another $9 trillion in the next ten years to $28 trillion. But this “optimistic” projection assumes that wages and tax revenues will grow at normal rates of increase.
But if we assume subpar growth in both income and fiscal revenue, we could easily see the deficit ballooning to average $2 trillion per year and the debt to $38-50 trillion. I know that few people will subscribe to this projection, but tell me anyone who forecast that US debt would to double between 2006 and 2014. So far in this century, every single forecaster whether they are the IMF, World Bank, OECD, the Fed, other central banks as well as governments have been consistently wrong and hugely optimistic in their projections. And as we approach the culmination of the biggest economic and financial bubble in world history, they will be dramatically wrong in their forecasts.
So what do Druckenmiller, Dalio, Paulson, Singer, Bass and many other hedge fund founders all have in common? Well, they have all become billionaires by identifying risk and spotting trends and investment opportunities. And each one of these gentlemen sees the risks that I have outlined above and recommend gold as the most important asset class to insure against unprecedented global risk.
Risk Of Global Collapse Is Greater Today Than Any Time In History
What is totally clear is that global risk, both economic, financial and geopolitical, is today greater than any time in history. We obviously don’t know when this risk will turn into a global cataclysm of a magnitude that the world has never previously experienced previously. What we do know is that just like with fire insurance, you must buy your protection before the event.
Gold is the most perfect insurance you can own as long as it is in physical form and stored outside the financial system. Because gold has survived every crisis in history and has, over time, always maintained its purchasing power, whatever the circumstances. Also, remember that gold is the only insurance you can buy that will at least maintain its purchasing power or, in the case of economic calamity, vastly outperform every other asset.
I end with the words of billionaire hedge fund manager Ray Dalio:
“If you don’t own gold, you know neither history nor economics.”
***KWN has now released the extraordinary audio interview with Bill Fleckenstein and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.
***Also released THIS IS TERRIFYING: Will All Of Your Money Be Wiped Out In The Blink Of An Eye? CLICK HERE.
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