jueves, 15 de mayo de 2014

jueves, mayo 15, 2014


$1.4 Quadrillion Derivatives Meltdown, Chaos & $11,000 Gold

May 10, 2014



Greyerz: “Eric, every day we get reminders that hyperinflation is on its way. The Congressional Budget Office now estimates that U.S. government debt will rise by $10 trillion to $27 trillion by 2024. This of course means that deficits will escalate and money printing likewise because with the U.S. running chronic deficits, no one will buy the Treasury debt. This means it all needs to be monetized, and thus bought by the Fed.

The consequences of this debt monetization will be horrendous. The dollar will collapse and interest rates will surge. This reminds me of what the world witnessed in the 1970s. To be older doesn’t always mean we are wiser, but it does give us a major advantage when it comes to experience....

“In 1972 I came to the U.K. from Switzerland and was CFO of the United Kingdom’s largest electronic retailer, Dixon's. I got my first options in the company at 1.30 pounds. Three years later those options were worth 11 pence. They were down from 1.30 to 11 pence. And I bought my first house in the U.K. in 1973.

A year after I bought my house I paid 21 percent interest on my mortgage. That was for a short time and then I paid about 18 percent for a long time. You ask yourself: How many people today could keep their homes if they had to pay 18 percent interest? Well, almost nobody.

Of course at that time there was a major recession worldwide, but in addition the U.K. had a coal miners strike and a three-day work week. The other two days there was no electricity. So if you take Dixon's, we had to sell electrical equipment such as televisions with candle-lights. Of course I couldn’t show the people that they were working.

That led to a shortage of candles. We had to get our candles from Switzerland. In 1972 inflation in the U.K. was 8 percent and in 1974 it was 16 percent. By 1980 it was 18 percent. We had a period of eight years with inflation in the mid-teens. So what happened to the currency?

In 1972 when I came to the U.K. one pound gave you 10 Swiss francs. By 1978 you only got three Swiss francs for one pound. So the pound had declined by two-thirds. Today you get only about 1.50. This tells you what happens to a weak currency in a badly managed economy. Luckily at the time the world wasn’t dependent on computers. Today a 3-day week would mean that the whole society would be paralyzed.

The reason why I am mentioning this very valuable experience is that the situation in the U.S. and many other countries is very similar to the 1970s. And the exponentially rising debt levels in the U.S. as well as many other countries over the next 10 years will guarantee hyperinflation. This will mean very high interest rates and collapsing currencies.

Of course this vicious circle will lead to higher interest rates with lower tax revenues. If we add to that problems in the financial system, with bad debt levels rising dramatically and the $1.4 quadrillion in derivatives blowing up, it’s not difficult to envisage massive hyperinflation.

But circling back to the 1970s, in 1972 when I came to the U.K. gold was $40. Over the next eight years gold went to $850. But it wasn’t a straight ride. In December 1974 gold was $204. In August 1976 gold plunged to $108. That was a massive 50 percent correction, and everyone thought that the bull market in gold was over. Then from August 1976 to January 1980 gold went up 8.5 times in price. So if we look at the price today at roughly $1,300, 8.5 times that would be $11,000.

But this is not the 1970s. Government debt and money printing worldwide are much, much greater. And virtually the whole world today is in trouble. In addition we have massive geopolitical risks. And it will not be like 1980-2000 when it comes to the gold correction. We are not going to see a similar correction after gold reaches a peak in the next few years.

At that time gold will either be money, because people will not trust paper money, or gold will be some other part of the monetary system. Therefore I don’t expect to get more than just a slight correction after this massive gold rally that we will see in the next few years.

But with regard to the short term, I still believe that gold and silver will rise to levels that few people can imagine. This is why people shouldn’t worry about the short-term price. People are holding gold to protect their wealth and they will need this protection in coming years.”

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