On the heels of a weaker than expected jobs report in the U.S. that sent the gold market surging nearly $30, today Michael Pento warned King World News that the world is about to fall into a terrifying deflationary crater. Pento also discussed what he is doing with his firm’s money ahead of the coming chaos.
By Michael Pento of Pento Portfolio Strategies
November 7 (King World News) – This Will Trigger A Wipeout Of Markets & Economies Worldwide
There is a saying: “The rich just keep getting richer.” And by all accounts, since the 2008 financial crisis, they have. Unfortunately, for the struggling poor and middle class, wealthy asset holders have been the only beneficiary of six years of the Federal Reserve's easy-money policies. Under Ben Bernanke, the Fed introduced QE in March 2009 with the hope it would save the economy from collapse. The goal was to create a vibrant market for borrowing to replace the former vibrant market for borrowing that had just blown up, taking the economy with it. I am sure Bernanke began this ruse with good intentions and the mistaken belief that real economic prosperity could be manufactured from creating money.
But as they say, hindsight is 20-20, and here we sit six years and $3.5 trillion later with the realization this money-printing scheme did not work as planned. Don’t just take my word for it. According to The Wall Street Journal, former Fed Chairman Alan Greenspan said the QE program had failed to achieve its primary goals. As a means of boosting consumer demand, Greenspan said, the asset purchase program “has not worked,” though it did a good job of increasing asset prices.
Bond king Bill Gross agrees, noting that the roughly $7 trillion pumped into the financial system since the financial crisis by the three biggest central banks has succeeded mostly in lifting asset prices rather than wages: “Prices go up, but not the right prices.”….
Continue reading the Michael Pento piece below…
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And hedge fund manager Paul Singer recently noted: “The inflation that has infected asset prices is not to be ignored just because the middle-class spending bucket is not rising in price at the same rates as high-end real estate, stocks, bonds, art, and other things that benefit from quantitative easing.”
Why QE Hasn’t Worked
The U.S. government has done a splendid job of continuing its borrowing spree, as federal debt has increased from $9.2 trillion to $17.9 trillion. But if we learned any lesson from these last few years, it should be that government borrowing and spending in the form of transfer payments (such as food stamps) doesn’t grow an economy.
The Fed hoped that printing $3.5 trillion would encourage private companies to borrow money and grow their business by investing in property, plant, and equipment. Unfortunately growth doesn’t happen in a vacuum. With the consumer tapped out, business was more realistic about demand. The idea that low interest rates and available credit would spur growth similar to what we saw in the 1990s with the technology boom did not manifest itself. So instead of borrowing at low rates to grow their businesses, many companies just took on cheap debt and bought back stock — growing their earnings per share but not the economy. This kept the “beat the expectation” crowd on Wall Street happy but did nothing to encourage sustainable growth.
Central banks have failed to realize that lasting economic growth comes only from real savings and investment, which lead to an increase in labor hours and productivity. The government’s borrowing and printing scheme left the banking system intact but did nothing to help consumers deleverage. While the Fed was frantically printing money to re-inflate asset prices, most American incomes have decreased, as real after tax income has actually fallen by 5.9 percent. In fact, in this recent election we learned that 65 percent of Americans are still concerned primarily with the economy, and nearly the same number of people believe they are worse off since the Great Recession began. This is despite manipulated data from the federal government meant to persuade them otherwise.
With the prospect of viable economic growth pushed further out of reach and the Federal Reserve out of the QE game, deflationary forces should prevail and equity prices should be falling. But if there is one thing central banks are famous for, it’s not learning from mistakes. Fittingly, taking a page from the hyperinflationary playbook, Japan has gone on a kamikaze mission to destroy its currency; announcing an escalation of its bond purchase rate to $750 billion per year. In addition to this, Japan’s state pension fund intends to dump massive amounts of Japanese government bonds and double its allocation to equities, raising its investment in domestic and international stocks to 24 percent each. The Bank of Japan is also planning on tripling its annual purchase of exchange-traded funds and other equity securities. Japan has taken the baton from Yellen and will run with it until the nation achieves runaway inflation and its currency is destroyed.
Central bankers have succeeded in hollowing out the middle class but have failed miserably in achieving growth. This game will continue until the inevitable currency collapse unfolds and investors lose faith in government-manipulated asset prices. The tsunami resulting from currency, sovereign debt, and equity market destruction will soon begin rolling in Japan. The problem is that Japan isn’t some isolated banana republic but the world’s third largest economy. When its currency collapses it will wipe out markets and economies worldwide. At that catastrophic moment in history investors will finally insist on putting their faith and wealth in money that can’t be destroyed by governments — gold. KWN will be releasing interviews all day today, including an incredibly powerful one with former U.S. Treasury official Dr. Paul Craig Roberts.
To learn more about Michael Pento’s financial management services CLICK HERE.
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The audio interviews with Andrew Maguire, Eric Sprott, Rick Santelli, Bill Fleckenstein, Rick Rule, Michael Pento, Dr. Paul Craig Roberts, Andrew Huszar, MEP Nigel Farage, John Mauldin, Egon von Greyerz, Michael Belkin, and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.
