King World News weekly – June 6, 2014
The risks to the world economy are now multiples of the risks that we saw 1999 and 2007-8. Stocks are driven to dizzying new heights due to money printing and tens of trillions of money has been created by Central Banks but to no avail for the real economy. So governments worldwide have created a massive bubble and have no weapons in their armoury to solve the inevitable fall of the world economy. In 1999 US short term interest rates were 6% and in 2007 they were 5%. Today they are virtually zero and the ECB now has a negative deposit rate. This century, global debt has increased by over $200 trillion from $60T to $260T! And in spite of this massive $200T injection which is three times current world GDP, the world economy is more fragile than ever. But we know of course that printed money does not create wealth.
All this money creation has achieved is a stay of execution for the world financial system. In 2007-8 the problems were primarily in Europe and the USD. Today they are worldwide. As I have outlined many times, Japan is a basket case and the Japanese economy is likely to disappear into the Pacific. China now also has major problems with the banking and shadow banking systems as well as with their property market. In Europe and the US, the only booming part of the economy is the stock market. But that euphoria is soon coming to an end and we will see falls exceeding the 80% Nasdaq fall after the late 1990s bubble. I know that very few investors believe this magnitude of collapse is possible. This unexpected turn in markets and the world economy will lead to massive panic and despair. We are in for some very, very difficult times.
Egon von Greyerz