With the Dow and Nasdaq hitting new highs again this week, today John Embry warned King World News that the world’s debt explosion risks global collapse.
The World’s Debt Explosion
November 3 (King World News) – John Embry: “Eric, as far as I can see there is very little, if any, legitimate price discovery occurring in any market of any significance today. They are all being influenced by the central banks are their cohorts in order to create the impression that all is well in the world…
John Embry continues: “For example, there seems to be confusion as to what is going on in the world of interest rates. Many central bankers are discussing withdrawing accommodations, shrinking their balance sheets and raising short-term interest rates due to the alleged strength in the world economy. In my opinion, whatever economic growth is currently occurring is unsustainable due to the grossly over-indebted state of the entire global economy. Thus, the central banks are using moral suasion to retain confidence in the present pure fiat currency system, without having any real ability to tighten. If they were to raise rates to any real degree and significantly reduce liquidity, I believe the world economy would quickly begin to recede and the whole debt pyramid would collapse.
There was an initial indication of this recently in Canada when Stephen Poloz, the Governor of the Bank of Canada, followed through on his promise to raise rates in the wake of better than anticipated short-term economic results. The economy has slowed noticeably in the wake of the second rate increase, and the Canadian dollar has come under downward pressure. That shouldn’t be surprising if one looks closely at the debt situation in my home country of Canada. The present debt burden exceeds that of the US consumer prior to the 2007 – 2008 global meltdown. Many of the provinces are struggling mightily with unsustainable debt loads, and there is trouble in the corporate world due to the weakness in key industries like the oil patch.
However, Canada’s problems are just representative of the world’s situation. The magnitude of China’s debt explosion in the past 9 years has never been seen before. The European situation remains critical with Mario Draghi and the ECB providing whatever liquidity is necessary, despite continually talking about tapering, and the US’s total debt burden including unfunded liabilities and derivatives is staggering. Thus, I encourage everyone to fully enjoy what is occurring in global financial markets because it is unsustainable, and what is going to follow in its wake is going to be extremely painful.
Gold and silver continue to build massive bases as central banks and their allies keep the prices of both under pressure in the paper markets. However, they and their respective equities remain among the few underpriced assets in a grossly overinflated financial environment. When the tide turns, most observers will be greatly surprised by the upside price action in the precious metals. The fact that many investors have given up on them just adds to their attraction at the current time.
In closing, I would suggest that Bitcoin enthusiasts be careful here as the authorities are now in the process of setting up a futures contract. That is how gold and silver prices have been controlled and continually suppressed through the past decades.”
Pierre Lassonde: Chairman / Founder of Franco Nevada & the Lassonde Entrepreneur Institute – Pierre was President of Newmont Mining Corporation from 2002 to 2006 and prior to that from 1982 to 2002 was a co-founder and co-CEO of the original Franco-Nevada. He is past Chair of the World Gold Council, author of The Gold Book and has served on many mining boards and industry committees and is recognized for his philanthropy.