On the heels of six weeks of chaotic trading in markets, today the man who has become legendary for his predictions on QE, historic moves in currencies, and major global events, just warned that we’re now entering the most dangerous phase of the worst crisis in world history.
By Egon von Greyerz, Founder of Matterhorn Asset Management
February 14 (King World News) – BLACK HOLES IN THE WORLD ECONOMY
Central Bank heads believe they are magicians who can wave their magic wand to create whatever economic conditions they desire. But the problem is that they are consistently wrong in their assessment of the economy so they don’t know what to do with the wand. Also, the wand is not magic but just bogus. And this is the dilemma of all central banks. They are given unlimited powers to manipulate monetary policy and to print money…
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Egon von Greyerz continues: But when you give infinite powers to someone who can neither assess the situation properly nor understand the consequences of his actions, it is like giving weapons of mass destruction to a bunch of kids. It is actually worse than that because the bankers are using the weapons to create wealth for their banker friends.
Booms, Busts & The Destruction Of The World Economy
Thus central banks have created mega wealth for a small minority and unlimited debt and misery for the rest of the world. What central banks are doing is to create booms and busts of a magnitude that destroys the economy. And this is exactly what will happen in the next few years.
The world economy would function considerably better without central banks. Instead of the massive booms and bust that we currently have, there would just be natural self-correcting economic cycles of much smaller amplitude. The turn of the cycle that is now beginning will change the world for a very long time. One hundred years of mismanagement will lead to economic and human misery that could last decades or even centuries as at the end of the Roman Empire.
US Monetary Policy Has Created A Global Problem
Back in December after the Fed rate increase, we said the Fed again made an incorrect decision that soon would have to be reversed. Well, this week in her statement to Congress, Federal Reserve Chairwoman Janet Yellen started to backtrack. But like all politicians she neither sees nor would admit that most global economic problems stem from US monetary policy. It is because the US has lived above its means for more than half a century and flooded the world with worthless printed dollars that we are now in this mess. But since she is a politician, Yellen would never admit to that. Instead she blamed market turbulence and higher risks from China for conditions being less supportive of US growth. It is amazing how politicians can never be honest and see the log in their own eye rather than the splinter in their neighbor’s eye.
It reminds me of Gordon Brown, the former Labor Party prime minister of Britain who, when he was chancellor of the exchequer, told Parliament that he had abolished boom and bust. But when the 2006-9 crisis started, Brown blamed international conditions and not his own mismanagement of the economy.This is the immorality of politicians — they take credit for all good things but blame others for all the disasters they create.
Negative Rates In The US
So Yellen has made another mistake that she half admitted to. As I said back in December, it will not be a question of no more rate increases but of rate reductions and probably even negative rates. Yellen confirmed that the Fed is studying negative rates. She said, “We would want to be prepared in the event that we needed to add accommodation.”
This Fedspeak is just unreal. Why can’t they ever use language so that ordinary people understand? Well, we know why. They create fancy terms like “quantitative easing” and “accommodation” to make people believe that the Fed is doing something very complex and clever. Why not use the proper words like “money printing” and “interest rate manipulation”? But then the world would know it is just trickery, so that is why central bankers must hide behind incomprehensible Fedspeak.
Anyway, Yellen knows that negative rates are likely to come to the U.S. jusdt as 13 countries have them already.
The competition for who has the lowest rates is heating up. Switzerland is still leading with -0.75%. But Sweden is now catching up and just went to -0.5%. (I promise it is just a coincidence that I am both Swedish and Swiss!) Sweden’s economy is in relatively good shape currently so a rate reduction is not really justified. But the Riksbank’s official reason was that inflation is too low. What they don’t realize is that low or negative rates don’t stimulate the economy. They discourage savings and therefore also discourage investment.
But the real reason to lower rates is not low inflation but to win the currency race to the bottom. This is what Sweden and Switzerland are competing for together with at least another 11 countries with negative rates.
Investors Are Still In Denial
Financial markets have for years ignored economic reality and just rejoiced over money printing and credit creation. We have said for quite some time that these false conditions would end in tears and this is what is finally happening since the start of this year. This is of course just the very beginning. There is no panic yet in markets but that will soon come.
In the last week I have met with a number of wealthy people. They are worried but not enough to change their investment strategy, which mainly consists of private equity, hedge funds, and property. Hedge funds in general have had a bad 2015. Private equity investments are valued at fantasy prices. Very few investors realize that they might get only half the nominal valuation in current market conditions. And it is fascinating how property investors believe that they are holding a wealth preservation asset. Little do they realize that bricks and mortar have zero value when buildings are empty with no income stream.
$200 Trillion of Assets To Evaporate
In coming years we will see the most massive wealth destruction in history. Most investors will hold on until the bottom, when maybe up to $200 trillion worth of investments has evaporated. What is interesting is that very few of the wealthy investors I meet hold gold or understand gold. But that is of course natural since less than a half percent of world financial assets are in gold. Very few realize that the Dow and other stock markets have lost 71% against gold since 1999.
But more importantly in 2016 the Dow has already lost 22 percent against gold. Before this asset destruction is over, the Dow will lose at least another 90% against gold. If investors realized that putting just 20% of their market investment into physical gold, they would both insure their assets and preserve wealth.
Much Worse Than 2007 – 2009
We are now seeing bad news everywhere. Take AP Möller Maersk. They are the world’s biggest container shipping company and had a Q4 loss of $2.5 billion. Their CEO stated that conditions are now worse than in 2008. I repeat what I have said many times: The 2007 -2009 crisis was a light rehearsal. What happened then will be dwarfed by the economic collapse in coming years. In 2006 interest rates were a lot higher worldwide. In the U.S., for example, short-term rates were 5%. Since then there have been 637 rate cuts, which have led to 500 million people living in countries with zero or negative rates. Also since 2007 governments have spent more than $12 trillion buying assets, many of which are worthless.
Will The Banking System Survive?
And finally investors are waking up to the fact that most banks are unlikely to survive the coming crisis. Bank stocks around the globe are down 20-40% this year. The cost of credit default swaps (insurance) on these banks is soaring. Bond traders are describing the situation as “worse than Lehman.” Banks like Credit Suisse and Deutsche Bank are losing billions. Deutsche’s derivative book is 20 times Germany’s GDP and the Swiss banking system is seven times Swiss GDP, excluding derivatives. It is not only bank client deposits that are at risk, but also any asset held in custody such as stocks and bonds. Now is not the time to hold any major assets within the financial system.
The Most Dangerous Phase In World History Is Looming
We are now entering the very dangerous phase of the coming crisis. Confidence is quickly evaporating and fear replacing it. We know that the world economy is resting on a foundation of debt and false government promises. The world is starting to realize that most of this debt is worthless and that governments’ empty promises add up to nothing.
There are so many black holes in the world now that any morning we can wake up to find that a bank or a sovereign state has disappeared into one of these black holes. Yes, governments will create more negative rates and print unlimited amounts of money but to no avail. The process of assets imploding could happen very quickly and unexpectedly.
But whether it happens in a matter of months or it takes up to five years, the world will look very different at the end of the coming calamities. The lucky few who can afford some physical gold will weather the storm better financially. But no one will escape the suffering that will hit the world in coming years.
***The extraordinary KWN audio interview with Gerald Celente has now been released and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: The Entire World Is Collapsing Around Her CLICK HERE.
***Felix Zulauf’s remarkable audio interview, where he discusses the gold market and tells listeners exactly how they can avoid wealth confiscation as well as how the global collapse will unfold, and much more, has now been released and you can access it by CLICKING HERE OR ON THE IMAGE BELOW.
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