Greyerz: “Eric, on the surface it looks like there is deflation on the way. Japan is failing to inflate and China is tightening because of the problems in their banking system and shadow banking system. The EU banking system has also restricted lending...
“This has led to the ECB having reduced its balance sheet substantially. In the US there is now tapering of $20 billion per month. If this continues we will have a deflationary implosion of the world economy. We will have a total collapse of the financial system because the massive debt cannot be repaid in that environment.
Central bankers are aware of this but they seem to either be totally paralyzed or perhaps overconfident in their ability to reflate if necessary. Judging by Japan and Europe, it’s much harder to reflate than these central bankers would imagine.
Printing money at current levels no longer has any effect, and interest rates are already at virtually zero. Governments also know that a deflationary implosion will also lead to a total loss of power and control. This would just usher in anarchy.
So let me again state that money printing is not the solution. Worthless pieces of paper cannot create wealth. Whether central banks print or don’t print wealth, they are doomed because either alternative is catastrophic for the world. They are just a different way of reaching the end game. As Ludwig von Mises said, ‘There is no way of avoiding the final collapse.’
This collapse will be a final catastrophe for the already fragile global fiat currency system. I agree with what Ludwig von Mises said because either way the collapse will take place. But even though there are signs of deflation in the economy, the markets are telling us something different.
Many commodities have bottomed and the CRB is already up 8% since the start of 2014. Many food categories have already bottomed and are already starting a major rise. If you look at soybeans, coffee, cocoa, rice, oats, wheat, sugar, and so on, they have all turned higher and are now set for a spectacular rise. Oil is also set to surge. Gold and silver have also finally broken out of their cyclical bearish correction, and they are now on the way to new all-time highs. The US dollar is also starting to break down, which will only accelerate the inflation.
Eric, the markets are setting up for hyperinflation in many countries because of excessive money printing, leading to collapsing currencies. The gold price will simply continue to reflect the falling currencies. Initially we will have an orderly rise of gold and silver, but in the next few years financial markets will not be orderly.
As a result of the major structural problems in the world and in the world economy and in the financial system, there will be collapses of currencies and money printing will become disorderly. This will lead to an exponential rise in gold and silver, and we won’t just reach my longstanding target of $10,000+ for gold, but also Jim Sinclair’s $50,000 figure. And if the $1.4 quadrillion derivatives bubble blows up, we could easily see gold at a Weimar price level, which was $100 trillion.
But remember that gold is held for the purposes of preserving purchasing power. So the reason why it’s so critical for investors to hold physical gold is to preserve their wealth, and there is no better way of protecting wealth than gold. The wealthy who are not prepared for the coming carnage will see their wealth reduced by 75% or more.
But remember also that gold going up is a reflection of a very unstable world, not only financially and economically, but also socially, politically, and geopolitically. Sadly, our children and grandchildren are likely to live in a much more unstable world then we have.
Many people have no jobs as it is. Look at Greece, with 61% youth unemployment, and 28% overall. But unemployment will continue to increase all over the world, and so will famine, especially with higher food prices. Meaning, people’s priorities will move from wanting the latest iPhone to getting enough food to survive. But the good part of all of this is the network of family and friends will again become the core of society, just as this is happening in Greece today.
Those people who are prepared will not only be able to survive but also thrive and even help to rebuild society into a much better place when all of the chaos finally comes to an end. But time is running short to prepare, and people should be aware of that.”