When Will Governments Tell The Truth
About The World Economy
By Egon von Greyerz
On June 3rd we had another set of figures which although
fake, still shocked the financial world.
Non-farm payroll increased by only 38,000, massively
lower than any forecast. But add to that 244,000 fictitious jobs created and
484,000 workers which were forced to go from full time to part time work,
then we get to a reduction in full time jobs of 690,000! Also, the workforce
has grown by 21 million since 2007 but the actual number of employed has
grown by only 5 million and out of those only 2 million are full time
workers. And the quality of the jobs is also declining dramatically. Since
2007 1.5 million manufacturing jobs have been lost whilst 1.5 million
hospitality workers (waiters, restaurant workers etc) have been added. But
still, because of the idiocy of how the figures are calculated, the
unemployment rate went down from 5% to 4.7%. The fact that people capable of
working are leaving the labour force in droves is totally ignored. There are
now 95 million Americans capable of working who cannot find a job. And for
the ones who have a job, average wages have declined since the 1970s.
The real unemployment rate is of course nowhere near 4.7%
but instead 23%.
These statistics certainly don’t point to an economy
which is booming. And still the whole world focuses on monthly, manipulated
figures such as unemployment. The US economy, as well as many other nations’,
is bankrupt and has only got a temporary stay of execution due to massive
money printing and zero or negative interest rates. US federal debt has more
than doubled since the crisis started in 2007. Student and auto loans have
grown exponentially and are both now above $1 trillion. Corporate profits are
falling and most economic statistics are in a downtrend including housing and
retail sales.
How long can the Fed fool the world
Market observers are totally ignoring the real figures
and the long term trends and are instead focusing on what the Fed will do.
Most people don’t realise that the Fed can only fool the world for so long.
The rate hike in December was totally against economic trends in the US and
even more so against the international economic and monetary trends. As more
and more countries have gone to negative rates, it is totally indefensible
for the Fed to believe that they can raise rates. There are now $10 trillion
of global government debt with negative yield. As I said back in December,
the rate hike then was an anomaly and I do not believe that the Fed can
increase rates in the next few months or even this year.
Debt explosion
World markets are focusing on short term indicators and
actions and totally ignoring the desperate situation that the world economy
is in. Global debt has grown by over 60% since the crisis started in 2007 and
is likely to accelerate at a much faster rate in coming years. Just take US
federal debt which is forecast to grow from $19 trillion to $25 trillion in
the next nine years. But that is the optimistic forecast and debt could
easily increase to $35 trillion. And if the banking crisis flares up again,
including a derivatives failure, we could easily be looking at money printing
in the hundreds of trillion dollars.
I know that all of this sounds like scaremongering but we
must remember that virtually no one believed that the subprime housing crisis
would develop to a disaster that almost brought the financial system down.
Since none of the problems have been resolved since then, we are only looking
at a temporary postponement which will eventually lead to a crisis that
governments and central banks are unlikely to solve next time around. Last
time it was mainly a US and a European problem. But this time around the
problem is not only in these two areas but also in Japan, China and Emerging
Markets. In an interconnected world, the crisis will spread like wildfire and
there will be nowhere to hide.
A debt and asset implosion coming
Coming back to the poor US unemployment figures, they are
not the reason for a change in the world economic outlook. The die was cast
many years ago and the world is now going through a gruelling process which
can only have one outcome. For the world economy to embark upon a continued
long term growth path, the unsustainable global debt must first implode. That
will of course include an equivalent fall in asset prices such as stocks,
bonds and property. The financial system is unlikely to survive this process
intact. But before that we are likely to have a brief hyper-inflationary
period as Central Banks desperately try to save the financial system with
massive money printing.
When we consider the size of the global bubble, we should
not really worry about short term timing since the key is to protect your
assets rather to try to guess when it will all unravel. Any short term event
could trigger the inevitable. We recently had the Fed interest decision which
as I forecast did not change. Then we have the Brexit vote on the 23rd. The
latter could have major repercussions for the very fragile European economy
but it now seems that the Elite has managed to scare the Brits to such an
extent that they are likely to stay in the EU. In spite of that we are now
seeing the beginning of the end of the failed European Super State.
New highs for gold and silver in 2016
Gold and silver are of course the ultimate wealth
preservation asset. The correction since the 2011 top ended in December 2015
and we have seen a strong upmove to $1,300 and a subsequent retracement to
$1,200. It now looks as if the long term trend has resumed and I would not be
surprised to see new highs in both gold and silver in 2016.
For anyone not invested (or underinvested) in precious
metals there is now an urgency to protect assets by buying gold and some
silver. The expected major price move is not the main reason for this
urgency. The main purpose is to own “insurance” in the form of gold and
silver in order to be protected against economic and financial risk which has
never been greater in world history.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG
matterhorn.gold
goldswitzerland.com
