Michael Pento, President of Pento Portfolio Strategies, recently argued that the failure of zero-interest rates and quantitative easing (QE) will lead to economic collapse and a rise in the price of gold.
Pento said, “It should be becoming obvious to everyone that zero interest rate policies and quantitative easing across the globe did not save the world from the great recession that occurred in 2007.” He said such policies accomplished two things:
- Re-inflated all asset bubbles thus making the rich even richer and destroying the middle class and lower classes
- Encouraged a massive increase in aggregate debt
Pento said global debt has increased by $60 trillion in nominal terms since January 1, 2008.
“When you make money free and make the amount available to be borrowed virtually unlimited, what do people do?” he asked. “They take on even more debt.”
Even worse, this $60 trillion debt “is a higher percentage in comparison to the entire economy than it was seven years ago,” he said. We are now close to the point where debt is 290% of global GDP.
Pento argues that all the printing of money and lowering of interest rates has failed to create greater economic activity. He said that Japan’s GDP is lower today than it was in 2012, while US GDP in 2014 was 2.4%, which is lower than it was in 2010. He said, “We have not been able to endanger growth.”
As he has predicted before, he foresees that “Once interest rates…normalize, we will have mass insolvency on a world-wide basis.” Those who are in debt will not be able to continue to pay the interest on their debt once rates rise.
Why does Pento foresee an economic collapse in 2015?
In June the US Federal Reserve said that unless the economy collapses, they plan to initiate the first increase in the Federal Funds rate. This will not be a singular event, but part of a protracted and prolonged increase in interest rates.
Pento said, “If that is the case…if burrowing costs go up,” it will end our “phony and ephemeral GDP growth.”
Even just with rumors of the Fed raising rates, US economic activity, Pento said, is already stalling.
“Virtually every piece of economic data…factory orders, industrial production, is heading directly south.” He said, “The US economy is heading into another recession in 2015.”
Pento sees dramatic repercussions from this coming recession. He sees the public concluding that “Central banks…(are) ineffectual and people will lose faith in their ability to generate growth, and then you are left with a tax base that cannot support the amount of sovereign debt.”
Pento believes that yields will then spike and the Fed be forced to back away from normalizing markets and initiate another round of QE, which will be even bigger than the $1.8 trillion printed for QE3.
Gold on the Rise
Turning to gold, Pento said the precious metal “is being held hostage by the Greek debt negotiations.” Greece owes the EU 320 billion Euro, with “no ability to pay it back.”
Even with all the talk in the media about a deal, he said, “There is no deal.” Any deal, he said, “will unravel.” If Greek government agrees to austerity, he predicted, “there will be riots in Greece.”
The only question, Pento said, is “How will Brussels allow the Greeks to default?” He foresees some sort of relaxed austerity deal with some debt restructuring.
However, if Greece leaves the Euro zone or if the ECB stops funding Greek banks, he predicts a huge capital outflow from Portugal, Ireland, and Spain into Germany. This will be “Devastating for the fiat currency known as the Euro in the short term, and absolutely wonderful for gold.”
In the United States, Pento believes that by June or July, the Federal Reserve will be forced to admit can’t raise interest rates, without causing massive disruption to the dollar. Therefore, if the Fed does not raise rates by June, Pento predicts, “the gold market will take off.”
This article was written by Patrick MontesDeOca. For more of his articles, please visit http://ema2trade.com/author/pmontesdeoca/