With continued unprecedented trading action across the globe, today King World News spoke with the man who recently had a fireside chat with billionaire Frank Giustra. On the heels of his recent meeting with Giustra, he discussed a nightmare scenario that he expects will be the catalyst for global panic and $10,000 gold.
Egon on Greyerz: “Eric, we have a world of record low or even negative interest rates and of record debts. This combination of high debts and low interest rates breaks every economic law that exists. We must not believe that this situation will be allowed to last for another 5 years because we will see interest rates at 20 percent in most countries….
Continue reading the Egon von Greyerz piece below…
“Higher inflation or even hyperinflation will lead to higher interest rates. At some point asset values will implode and the risk of lending money will then go exponential because lenders will want to be paid for that risk.
With the zero interest rates we have today, this means that paper money has virtually no value because when this money can be issued in unlimited amounts it obviously has no value except for the intrinsic value of the paper. And we will now go into periods starting in 2015 where the collapse of 2008 will be seen as a light rehearsal. And every single problem that was so terrifying at that time will look like nothing compared to the tens of trillions or hundreds of trillions of dollars that will be printed.
In our interview earlier this week I mentioned that U.S. banks officially have about $230 trillion in derivatives, but if you measure it correctly that figure is closer to $500 trillion. Most of these derivatives are linked to interest rates and most of them are dependent on interest rates remaining low. So higher interest rates will trigger massive losses and defaults on this mountain of derivatives.
We had subprime problems in property markets in 2007 and 2008 but now we are seeing the same thing developing in the oil market. People never learn. Banks have lent trillions of dollars in this sector when you include derivatives, and the estimate is that there may be $5 trillion at risk now in subprime loans in the shale oil business.
We can also add to that the $2 trillion in student loans that are expected to balloon to $3 trillion over the next 10-years. And of course with students not getting jobs, that amount is also at risk. And, it’s the same all over the world, Eric. 50 percent of global GDP is supported by zero percent interest rates.
So half of the world’s GDP requires zero percent interest rates and it’s still not growing. And equity markets across the globe are also being supported by virtually zero interest rates. No wonder stocks have been strong. But despite zero interest rates and massive money printing, real GDP is hardly growing. This means we have reached the end of the line of this free-for-all money printing binge and Ponzi scheme.
Also, Eric, half of the government bonds in the world yield less than 1 percent. Governments can’t even survive borrowing at 1 percent since virtually every major economy in the world is running horrendous deficits. So at 5 or 10 percent interest rates, almost no countries will be able to function anymore. And it’s guaranteed that we will see 5 – 10 percent and eventually much higher rates, which means there will be defaults, anarchy, and misery.
Eric, I was amused to see sales at McDonald’s in the United States were falling. If those 300,000 jobs that were supposedly created in the U.S. can’t afford to eat at McDonald’s they must not be well paying jobs. Of course we know that the 300,000 jobs created were not real anyway.
Looking at the oil markets, if prices remain depressed there will be serious problems for the U.S., Middle East, Russia, and for the emerging markets. At this price we are below production costs for many countries. And this will precipitate a major downturn for the world economy in 2015. Stock markets are certainly confirming that we are at the end of a major era. They are topping here and dramatic and sustained downfalls will start in 2015.
Turning to the gold market, I was amused to also see Belgium looking at repatriating their 227 tons of gold. Most of this gold is supposedly stored in London. So this trend of repatriation is continuing. But these central banks will soon find out that there gold isn’t there.
I believe the 3-year correction in the gold market is now over and we will see a major rise in 2015. My target which I predicted back in 2002, is still $10,000 for gold in today’s prices but I don’t think we will have today’s prices because of the economic destruction of paper money. In that hyperinflationary environment we will see much higher prices than $10,000 for gold as global panic sets in and the Western Ponzi scheme collapses.”
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