The central banks are leading the world into a black hole and have no idea
what a disaster they have created. What initially seemed like a nice money
spinner for the private bankers in 1913 when the Fed was set up has resulted
in a $2 quadrillion (at least) monster that is now totally out of control.
Banks and central banks are experts at forging money
During the last hundred years, the Ponzi scheme seemed to work beautifully
under the guise of Keynesianism. So whenever there was a problem in any
economy in the world, all that was needed was some stimulus in the form of
credit or forged money creation. And there are so many ways to forge
money.Through the unlimited flexibility of the fractional banking system,
money printing became the most perfect perpetual motion system whereby the
more credit that was created the more credit and paper money could be issued
by the banks. There is absolutely no limit to how much money could be
printed.
So banks and central banks have been in collusion to print or forge paper
money which has no value and no asset banking. Any private individual doing
the same would spend the rest of his days in jail. But when the bankers do
it, it creates massive wealth and respectability for them since they have the
full backing of governments. What a rotten world!
Can Deutsche Bank survive?
Thus, it is a fallacy to believe that governments and central banks are
the only money printers. Most of the false wealth is created by commercial
banks that blow up their balance sheets 10 to 50 times. And if derivatives
are included the bank’s exposure can be over 100 times the equity. Take
Deutsche Bank for example; the total balance sheet exposure is 25 times
equity. Adding their derivatives exposure of €68 trillion, Deutsche’s
leverage is 100 times share capital and reserves. This means that a depositor
hoping to get his money back from the bank should be aware that any loss
above 1% of Deutsche’s assets would make them bankrupt. There is
obviously no question that Deutsche will lose only 1%. They are virtually
guaranteed to lose more than 10% and probably at least 50% of total assets
which means that if you are a depositor you will definitely not get your
money back. Most European banks are in a similar position and so are many US
banks including JP Morgan, Bank of America and Citigroup. And don’t believe
that Japanese, Chinese or Emerging Market banks are in a better position.
This is of course the reason why most major banks’ share prices have fallen
75-95% since 2006.
Central banks’ balance sheets have exploded since 2006
Governments and central banks were virtually bankrupt in 2006, which is
when the fraud of central banking was finally revealed to the world after
almost 100 years of manipulation and abuse. Nothing, no absolutely nothing
has been mended since then. With propaganda, more money printing and interest
rate hocus pokery, the world economy has been dragged forward like a fatally
wounded creature. The outcome has always been certain but the road there has
been long and painful. Yes, a minuscule minority of much less than 1% of the
world population has continued to benefit greatly whilst the masses have been
burdened with another $100 trillion in debt plus unfunded liabilities and
derivatives of much more than that.
And most major central
banks have blown up their balance sheets by more than four times since 2006.
If we just take the Bank of Japan, ECB and the FED, their total balance
sheets are expected to increase from $3.2 trillion in 2006 to $13.5 trillion
in Q1 of 2017. Although this increase of “only” $10 trillion is a drop in the
ocean compared to the total increase in debt, these central banks set the
trend through their irresponsible policies. The assets that these three
central banks hold will be totally worthless in the next 5-7 years. But
before that their balance sheets will expand exponentially in a final
Keynesian attempt to save the global financial system from total implosion.
This will lead to a short period of hyperinflation before the deflationary
implosion of the system. Because you cannot solve a problem using the same
method that created it in the first place, this will be the necessary total
eradication of all debt. But it is not only debt that will disappear, most of
the assets financed by this debt will also decline dramatically in value,
leading to a massive destruction of wealth.
Central banks will of course attempt all the methods available to them
before they give up. This will include not just money printing and more
negative rates but also debt forgiveness, devaluations, moratoria, stealing
pension funds and bank deposits, bail-ins plus many other tricks that will
impoverish most ordinary people. Neither governments, nor central banks will
have any qualms about totally destroying the wealth of their people.
Central banks’ roller coaster misgovernance of the financial system
The Federal Funds rate over the last 60 years shows that central banks
have no policy but are only reacting to events in their desperate attempts to
manipulate the financial system and the economy. The only thing they succeed
with is to create wealth for themselves and their banker friends at the
expense of ordinary people. From the end of WWII to 1980, the Federal Funds
rate went from 1% to almost 20%. And since then it has come down to virtually
zero in 2008 and stayed there. So rates have now been in a downtrend for 35
years but within that there have been massive volatility as the Fed has
reacted to events.
Master Greenspan played yoyo with the rates up and down clearly showing
that he didn’t know what he was doing. So when Bernanke took over in the
midst of the crisis he sent rates to zero and printed more money than all
previous heads of the Fed together. But in spite of his helicopter money, the
world is now in a state where there is no solution but only consequences. And
sadly these consequences will be horrendous for a very long time before we
see new green shoots again.
Greenspan and Bernanke playing yoyo with rates
So there we have it. Central banks have led the world on a course that
could only have one result. And sadly, I believe that we are now very near the
beginning of a disaster that will have a bigger impact on mankind than any
war, disease or depression that the world has ever experienced.
But this extremely serious adjustment to the progression
of the world and mankind is not the end of the world as long as there is no
major nuclear war. It will change our lives for quite a considerable time but
human beings are infinitely adjustable even if the transition will be
difficult.
Family and friends will be more important than ever. Some
physical gold and silver will be the best money to own instead of worthless
paper currency. Because precious metals will in the next few years reflect
the total mismanagement of the world economy by central banks in their final
and failed attempt to save the financial system. This will lead gold and
silver prices to levels which will be difficult to imagine today.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
matterhorn.gold
goldswitzerland.com
