The Fed, together with other central banks from around the world, have created the perfect crescendo of worldwide credit bubbles and asset bubbles leading to the excesses and decadence which are the normal finale to a secular trend. They have totally destroyed all major world currencies and left the world with debts that cannot and will not be repaid with normal money. As such, there are only two alternative outcomes, debt default or hyperinflation. Both will have disastrous consequences for the world economy.
So says Egon von Greyerz (goldswitzerland.com) in edited excerpts from his original article* entitled The lost Century.
[The following is presented by Lorimer Wilson, editor of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
von Greyerz goes on to say in further edited excerpts:
The world financial system almost collapsed in 2008 but with the help of $25 trillion in printed money, loans and guarantees the world got a temporary stay of execution.
- Japan is a basket case,
- China’s financial system is under massive pressure,
- Europe is a failed experiment in socialism and a common currency with Spain, Portugal, Italy, Greece and France all on the verge of collapse,
- the U.K. is having a temporary bounce but is probably not far behind these countries and
- the U.S. is the most indebted nation in the world and is borrowing and printing money at an exponential rate
Ben Bernanke has been the most productive chairman of the Fed ever. During his reign:
- U.S. debt went from $8 trillion to $ 17 trillion…up $9 trillion and
- the Fed balance sheet went from $800 billion to $4 trillion…up more than $3 trillion
in just 8 years. Not a mean feat! In total Bernanke has managed to create a total of $12 trillion during his rule which is a 133% increase in total debt including the Fed. These amounts can of course never be repaid in today’s money – never! [As such,] there are only two alternative outcomes, debt default or hyperinflation. Both will have disastrous consequences for the world economy. In addition to the extremely precarious situation in the developed world, we are now seeing a crisis in many Emerging Markets worldwide with falling currencies, bond markets and stock markets. This could easily lead to contagion.
A lot has been written about the centenary of the Fed so rather than adding to this, I am showing a couple of graphs that tell the story very well. The first chart (courtesy World Gold Council) shows the destruction of paper money since 1913. This is what the Fed and other central banks have achieved. All major currencies have declined between 97% and 99% including the dollar which is down 98% in real terms which of course is measured in gold.
The destruction of paper money
As we all know, gold is the only real money and cannot be destroyed. What is absolutely guaranteed is that many currencies, and especially the U.S. dollar, will go down the remaining 2-3% and reach their intrinsic value of ZERO in the next few years. The dollar does not deserve to be the world’s reserve currency and will soon lose that role – and gold will reflect this decline of the dollar and go to heights which are unthinkable today.
The next chart (courtesy Goldman Sachs) shows the total failure of central bank intervention in trying to eliminate peaks and troughs in the economy. The chart shows 10 year US Treasury yield from 1790 to 2013. Between 1790 and 1913 interest rates fluctuated between 3% and 8% with very few violent swings. Since 1913 we have seen swings in the 10 year rate of incredible proportions going from a low in 1945 of 1.7% to 15.8% in 1981 (with Fed Funds at 20%) and down to 1.6% in 2012.
The Fed’s creation of boom and bust
So as the chart shows, rather than eliminating booms and busts, the Fed actually creates them and makes the situation exponentially worse than it would have been in a free market without interference. I would expect rates to reach the 16% level at least in the next few years as investors dump worthless government bonds.
The Fed and other central banks have created a time bomb over the last 100 years and any single one of the crisis areas that I have outlined above could be the catalyst to make the world economy implode…They have totally destroyed all major world currencies and left the world with debts that cannot and will not be repaid with normal money. It will lead to misery and famine for a lot of people in the world, and empty stomachs are likely to lead to social unrest in many countries.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
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