The Central Banks Are Leading The World Towards A Disaster

The ECB President, Mario Draghi, forced interest rates even further into negative territory, last Friday, March 11th, 2016. Nations like Sweden, Switzerland, Denmark and Japan have also initiated negative interest rates. The FED Chairwoman Dr. Yellen, confirmed having considered it, as well, at an earlier time and kept her options open to implement it in the future, if the situation warrants it.

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Lower interest rates were intended to facilitate ‘easy credit’ to corporations, which, in turn, was supposed to create new jobs and increase wages. This money was used by the corporations to repurchase their stocks and implement dividends; thereby, leading to an ‘artificial’ massive stock market rally.

These funds were not allocated properly. They were to provide job security and extra disposable income into the hands of working people, hence, consumption would then increase, resulting in a lower growth environment in the economy. However, since the ‘last financial crisis’, the new jobs that were created, however, lacked in wage increases and are languishing at their slowest pace, since 1997.

chart 1

Despite several rounds of money printing and a zero interest rate policy, the Central Banks have not been able to achieve their objective. Hence, in desperation, they have resorted to negative interest rates, whereas, one will have to pay the banks an interest rate fee just to maintain cash in one’s account. Why would any sane person deposit money into the bank, rather than stuffing in their mattresses or in the wall. With no confidence in the Central Banks, chances are that people will want to save more for a rainy day, rather than spend, as shown in the chart below. People are saving more these days as compared to that of a decade earlier.

Chart 2

With the Central Banks resorting to negative interest rates and pushing it yet further into negative territory, it is possible that we will witness a run on the banks and they will close down indefinitely.

Currently, the banks have not yet passed on the negative rates to the retail customers, as their margins will take a hit. In order to save their reputation, chances are that they will lend recklessly, similar to what occurred in 2006 and the entire world will end up in a much larger disaster causing a crisis which cannot be controlled. Hence, the Central Banks are now out of ‘ammo’ and are the cause of this reoccurring crisis.

Some shocking data, as reported by The Telegraph;

  1. Currently $8 trillion of sovereign debt is trading at a negative yield.
  2. Interest rates have been cut 637 times by the Central Banks, globally, since March of 2008.
  3. The Central Banks have printed a staggering $12.3 trillion of money, since March of 2008.
  4. What have they achieved? Since ‘The Great Recession’, the nominal GDP, of the world, has grown by a paltry 11 percent, according to Bank of America Merrill Lynch.

With all of the resources and the expertise which are available, the only actions that Central Bankers performed, was to come forward on the day of the monetary policy announcement and declare a rate cut and a certain amount of money printing. If this is the only solution they can find to do a better job everyone is in trouble. It seems as though any fifth grader is capable of performing these responsibilities and repeating the same process. After all, the world has survived for thousands of years, without the Central Banks and probably prospered better during the ‘Gold Standard’, at which time, the Central Banks had limited scope to alter monetary policies, as they are now doing.

How can you save yourself and your family from this madness?

Banks will charge you for holding on to your own cash, hence, there is no point in parking your money in such funds. The stock markets are in a ‘Asset Bubble’ and a “Earnings Bubble’ just waiting to’ burst’, I witnessed a precursor to this situation in the first two months of this year. Currency wars are escalating in the world and are moving towards ‘economic self-destruction’.

Gold is the only asset which will increase value:

Gold is the only asset class, which will maintain its value during times of ‘financial crisis’. It has done so previously in the past and I observed its performance during the beginning of the year, in which its status affirms it as the preferred safe haven. There will be times during this ‘crisis’ when different assets classes will be in focus. I will continue to guide you as to the best profit making assets, during these periods of time. If you are holding any stocks, this current rally is the last chance to liquidate your holdings; gold will give one an excellent buying opportunity within a few weeks of time and should be used to purchase this for the long-term period.

Chris Seebert the President and CEO Gold Gate Capital where they specialize in helping clients roll over there  IRAs and 401k into Physical Gold that they can store at their house or in a depository, to help protect their assets from the next crash said this to me.

For Institutional portfolios a typical classic asset mix achieves a higher long term return with a percentage gold component depending on base currency (based on research going back to 1987). With likely further acceleration of money printing by the largest economies in the world, leading to further destruction of paper money, investors will become even more aware of the necessity to owning real money. Gold has been money for 5,000 years and maintained its purchasing power throughout history because it cannot be printed.”

Mr. Seebert also agrees with my forecast of what is to unfold and his free book called “The Looming Financial Crisis” that focuses on how to properly invest in metals and how to do it properly. He also mentioned their key clients who can benefit the most are those between the ages of 65-85.

Unfortunately, I foresee very difficult economic times ahead for all. Therefore, it is best to be prepared and take proactive measures, in advance, so as to avoid the pain rather than regret it later!

Follow my lead if you want to safely navigate the financial markets over the next couple year to protect and profit from the coming the bursting of some asset classes and rise of bull markets emerging in others.

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Chris Vermeulen

[Image Courtesy of Wikimedia]


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