There’s Not a Single Free Market Left in the World (Video)
Greg Hunter of USAWatchdog spoke with Michael Pento, author of The Coming Bond Market Collapse. Pento agrees with Peter Schiff on the fundamental problems with the global economy. Central banks and irresponsible politicians have loaded governments with unsustainable levels of sovereign debt. The endgame is an inevitable financial crisis of epic proportions. Pento’s analysis is brutally honest and harshly critical of the financial media. What is his advice for the average investor? “Run for gold.”
We actually believe that small group of… plutocrats can decide better than the free market where commodity prices should be, where currencies should be, where equity prices should be, where bond yields should be. [Central bankers] haven’t just tinkered in that regard. They’ve dominated, usurped, vanquished the entire market. The free market is gone… We put it all in the hands of these few people, and they have screwed things up royally.”
Highlights from the interview:
“We live in a world now where free markets have been completely obliterated. You can’t find a free market left in the world. That goes for commodities; that goes for equity markets; that goes for currencies; and that particularly goes for bond markets. The bond markets now do not represent any vestige of reality whatsoever. That should be evident to anybody with a pulse or an IQ better than a retarded amoeba.
“[The reverberations of the unpegging of the Swiss franc from the euro is a harbinger of bad things to come.] It’s the steady erosion of the lack of faith that we have as investors in central banks and in fiat currencies. In the case of the Swiss National Bank, they just could no longer peg to the euro. Their currency dropped 12% against the dollar in one year. The Swiss are known as a hard-money economy and a hard money currency. They did not want to suffer what was going to occur with the ECB’s decision to launch massive QE…
“We have created a huge vacuum in markets. Let’s just take for instance Japan. Their debt – forget about the debt as percentage of GDP; GDP is irrelevant, because you cannot tax 100% of the nation’s GDP. Their debt as a percentage of revenue is well over 1,000%. You are insolvent by any definition. The US isn’t much better. We are approaching 600% of revenue. If you want to buy a 10-year note in Japan, you’re getting 0.25% going out 10 years. You have to factor in currency risks if you’re an investor in Japan, inflation risks, and credit risks… Who is buying the JGB at 0.25% for 10 years, when the central bank has told you… that they are going to get inflation above 2%, guaranteeing that you will lose at least 1.75% every year for ten years.
“This is something I could never imagine in 1971 when Nixon broke the gold window. Central bankers used to tinker with, on the very short term, interbank lending rates. Now they own the entire yield curve. They own the entire sovereign debt market, because if they ever stop and they let free markets come in, there’s going to be a vacuum, a slingshot in interest rates. They’re going to go so high so fast that there will be no revenue left to service debt. That’s the sad condition we have across the developed world…
“We are getting to a point where the central banks own so much of the sovereign debt, that if they ever stop – and I think they are going to have to stop manipulating the entire yield curve once inflation becomes entrenched in the economies. So far to date, the Federal Reserve has increased its balance sheet to $4.5 trillion from about $800 billion in 2007. They did it without creating intractable inflation. Yes, we had inflation back in home prices; they inflated the stock market to the moon. These things are unsustainable and they created a huge bubble in bonds. But that didn’t translate automatically – yet – to rapid consumer inflation. [That] has to occur, because when you look at every example throughout history, whenever a central bank dominates sovereign debt – they own a tremendous amount of it – and that becomes entrenched into investors’ consciousness, then you will get inflation. It has happened every single time throughout history…
“If the US had to pay just 7% interest on its outstanding debt – which is normal, going back since 1971, that’s the average – we would be insolvent. We would have to pay $1 trillion in interest payments every year. The deficit right now is half a trillion dollars. Can you imagine what the deficit would be if we had to go back and pay $1 trillion just on interest payments? It would be game over.
“Not only that, as interest rates rise, you prick this artificial economy, which has been generated by reinflating housing bubbles, reinflating stock bubbles…
“The financial media, these bauble heads – If they were on the Titanic, they would say, ‘Look everybody, we’ve got fresh ice cubes for our brandy.’ These people are trying to promote stocks. They don’t care about reality. The reality is that in March of 2009, oil prices went to $33 a barrel. Was the oil price that collapsed from $147 in 2008 to $33 a barrel by March of 2009, was that a sign of a healthy economy? I don’t think so. Actually, oil prices seem to go in tandem with economic growth. If oil prices were down 50% because of a massive influx of supply, I would agree with you. But why is copper also down 50%? Why are iron ore prices crashing? Base metals crashing? The rate for freight to be carried across the ocean – that is crashing… Why are bond yields at negative rates going out five years in Germany? All those things are signs of a deflationary depression. That’s exactly what happens every time the Fed ended its QE programs…
“When you run from fiat currencies, you run to real and honest money. And that’s gold. It’s virtually indestructible. It is extremely rare, and it’s beautiful. It isn’t bitcoin, it isn’t Swiss francs. It sure as hell isn’t the Japanese yen. Where do you go when you want to preserve your savings, preserve your wealth? You run to gold. It’s been true for thousands of years, and it’s not untrue right now because it’s unpopular with central banks and certain bauble heads in the financial media. You can’t erase thousands of years that says that something that’s virtually indestructible, that’s very rare, that’s portable, that’s divisible, that everybody wants, is suddenly not money because somebody comes on TV and tells you that it’s a barbarous relic…
“Gold is going up in all currencies, because investors are coming to this realization that you cannot trust central banks…“
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