Where have all the dollars gone?
Long time passing
Where have all the dollars gone?
Long time ago
Where have all the dollars gone?
Uncle Sam has spent them everyone
When will he ever learn?
When will he ever learn?
When Pete Seeger wrote the famous song “Where have all the dollars
flowers gone” back in 1955, little did he know that the total US
debt which then was a few hundred billion dollars, would 63 years later be
almost $70 trillion.
But there is no reason why Seeger should have known. He was a singer
songwriter and his legacy will last a lot longer than Nixon’s, Greenspan’s,
Bernanke’s and all the other players that have contributed to this massive
growth in credit and destruction of the dollar. Whilst Seeger’s song – a work
of art – is likely to be around for at least another 50 -100 years or much
longer, all the opportunists that have destroyed the US economy, and thus the
world economy, will soon be forgotten.
It is absolutely unreal how the world pays so much respect to
mediocrity or even incompetence when it comes to running the financial
system. Central banks and their heads have created this monster
balloon which is now waiting to be popped. They have given the world the
impression that they have been instrumental in saving the world economy when
they in fact have created the bubble. The central bank chiefs that managed to
retire before the balloon burst can count themselves lucky. In my view the
luck for the present ones is now in the process of running out.
QE HAS FAILED AND QT WILL FAIL
These chiefs believe so much in their own ability as saviours of the world
that they don’t understand that all they are doing is to create a much bigger
monster by printing and printing and printing. They are so arrogant that they
can’t even name their actions by an honest name. What they are doing is sheer
Money Printing or MP. But instead they call it QE or Quantitative Easing.
What an absolutely ridiculous name in order to hide their own inadequacies as
well as cheating the people. Nobody understands what QE means and that is of
course deliberate. Confuse the people and mislead them to believe that your
hocus pocus is actually some alchemistic formula that creates eternal
prosperity.
These central bank heads are now so confident of their control of the
situation that they are turning the QE to QT (Quantitative Tightening). That
is of course utter and sheer arrogance. The QE hasn’t worked. All it
has done is to turn a fragile financial system to the biggest bubble in
history. Even with zero or negative interest rates combined with
massive MP, real GDP is not growing (measured with real inflation). Also
several dollars, euros or pounds of credit expansion are required to create
just ONE dollar, euro etc. of GDP growth.
Since QE, MP, or whatever you call it hasn’t worked how the hell
does anyone think that QT will work. This is like taking away the punchbowl
from a chronic alcoholic who will die from his drink or die due to lack of
drink. And it is exactly the same for the global economy. It will collapse
with more QE and will collapse from QT. So QE / QT = TE (THE END).
$240 TRILLION MONSTER BUBBLE & $2.5 QUADRILLION MONSTER BALOON
“When will they ever learn, when will they ever learn” that you
can’t create prosperity by printing money. And remember that money printing
is not just what central banks do directly. Money printing also means credit
expansion by banks, credit card and finance companies etc. All these lend out
10-50 times the deposit or capital they receive.
There is of course only one way to learn a lesson properly which is the
hard way. And the hard way in the case of the world economy is that the
monster bubble pops. And like with many bubbles, this one only contains hot
air. Thus the $2.5 quadrillion monster balloon contains just empty
promises that all disappear when the balloon is popped, like debt, unfunded
liabilities and derivatives. But these promises are not only words
but also $2.5 quadrillion of monetary promises or IOUs. To keep the balloon
from deflating, central banks have had to constantly pump it up bigger and
bigger. So more and more debt to fill the balloon together with inflated
assets and even more empty words from bankers and politicians to make it all
look plausible.
The debt explosion is not just a US disease. It is a US led global
phenomenon that has infiltrated most nations with a central bank that can
print money.
Just look at the chart below how global debt has tripled since
1999 from $80 trillion to $240 trillion today.
GLOBAL DEBT AND ASSET BALOON IS EMPTY INSIDE
When the global debt and asset balloon pops, the world will find out that
there was nothing inside. Of course, some of that has been real assets and
real wealth. But the problem is that when the balloon pops, all the
debt will implode as no one can repay it and with that a lot of the assets
will become worthless too.
It is only a question of if stocks, bonds, property and other
assets will go down by 75% or 95%. In my view, the biggest bubble in
history will lead to the biggest collapse. There just is no one or nothing
that can save the world from the biggest financial calamity in history. MP
(QE) will have zero effect except for causing temporary hyperinflation. A lot
of assets will decline by 100% such as money in the bank, bubble companies
which are heavily leveraged, like Tesla, and many others. Even very valuable
assets can be bought for pennies on the dollar, euro or pound.
CHINA HAS ACCUMULATED 16,000 TONNES OF GOLD SINCE 2007
Paper money has always come and gone throughout history since no
fiat currency has ever survived. Gold has for 5,000 years been stable purchasing
power and the only money that has survived. This is why countries that
understand the importance of physical gold continue to accumulate, countries
like Russia, China and India. In the meantime the rest of the world has only
invested less than 0.5% of world financial assets into physical gold.
Just look at China in the chart below. Another 140 tonnes bought in June
taking the total up to 16,000 tonnes or $650 billion, with virtually all of
it acquired since 2007.
PAPER MARKET IN GOLD AND SILVER WILL COLLAPSE
When the monster balloon pops, so will the paper market in gold, silver
and other precious metals. The size of this market is at least 100 times
bigger than the physical market. The rise of this market is very much linked
to manipulation of the precious metals by central banks, the BIS and bullion
banks. When the paper metal market pops there will be no gold (or
silver) offered at any price. This is the time when overnight or over a
weekend the price can go from $1,250 to $10,000 or $100,000. This
might sound totally unreal and sensational but this will be the most likely
consequence of the monster bubble popping and everyone in markets running for
the exit.
Most people believe that the status quo can go on forever and that central
banks will continue their ridiculous game of pretending that air is real
money and can create wealth.
There is a serious risk that the system will not survive in its present
form, and that most assets, be it cash bonds or stocks, could decline
substantially in value. With financial risk at an extreme, investors must
seriously consider insuring their wealth.
THE BIGGEST BEAR MARKET IN HISTORY IS IMMINENT
The next decline in financial markets is likely to start later in
2018 or early in 2019. And this will not be an ordinary decline or normal
correction. Instead it will be the beginning of the biggest global bear
market in history. And this time central banks and governments will
fail in their attempts to save the system. They will certainly print a lot of
money and try to reduce interest rates. But as bond markets collapse, rates
will go up rapidly and not down. This means that bonds and stocks will both crash
together with most assets.
The only real insurance against what is coming is physical gold and some
silver, obviously held outside the banking system. There is
absolutely no argument against holding precious metals to protect against the
risks in the financial system. The only question is, should you hold 10% of
your financial assets in gold or more than 50% as some of our wealth
preservation clients do? In my opinion, this is the time in history that you
need to be fully protected. Each one to himself to decide what full
protection means. But remember that this time it will be costly to
underinsure.
The recent decline in the metals is the end of a several year long
correction. This is the last opportunity to buy gold and silver at what will
prove to be extremely favourable prices.
Hopefully no one reading this will ask when it is too late: “When will
we ever learn”?
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management
Zurich, Switzerland
Phone: +41 442 136 245
Matterhorn Asset Management’s global client base strategically stores an
important part of their wealth in Switzerland in physical gold and silver
outside the banking system. Matterhorn Asset Management is pleased to deliver
a unique and exceptional service to our highly esteemed wealth preservation
clientele in over 55 countries.
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