Here Is The Frightening Reality The West Faces Going Forward

With continued uncertainty in key global markets, today Egon von Greyerz spoke with King World News about the frightening reality of what the Western world faces.  Geryerz also discussed gold, silver, and what investors can do to protect themselves.  Below is what Greyerz, who is founder of Matterhorn Asset Management out of Switzerland, had to say in this powerful and exclusive interview. 
Greyerz:  “Eric, I’ve been looking at the reserve currency status of various countries over the last few hundred years, and if you look back to the early 1400s we’ve had six countries which have had a reserve currency status.  If we start with Portugal, then Spain, the Netherlands, France, Britain, and now the US, as I said, they have all had reserve currencies at one point or another. 
They have also had colonies, and stolen from the colonies.  In the cases of Portugal and Spain, they stole a lot of gold from South America which they lived very well on for quite some time....

The U.S. now has federal debts of $17 trillion.  So not only is the U.S. now issuing debt at an unprecedented rate, but the U.S. is also buying its own debt because nobody else wants to buy it.  When you include unfunded liabilities the United States now has a staggering $230 trillion of debt that can never be repaid.  And debt that can’t be repaid is worthless.

That also means that all of the assets which are financed by this worthless debt will eventually be worth less.  That includes stocks, property, bonds, and of course cash.  Eric, if we look more closely at the U.S. figures, we can clearly see where the decline comes from.  First of all, the U.S. government is constantly adjusting the figures so that they are impossible to analyze and follow.

Recently, we just had a major GDP adjustment going back several decades.  In other words, all figures are now manipulated.  This is of course to mislead the people.  If you look at real U.S. GDP, and you use a proper GDP deflator, real U.S. GDP is down 6% since the year 2000.

If you look at real median incomes, they have tumbled 7% since 2000.  So more and more debt does not make real GDP grow in real terms, and this is what these figures are showing.  There are now 50 million people on food stamps in the U.S., but at the same time the U.S. is trying to say their unemployment rate fell from 7.5% to 7.4%.  That’s a joke, Eric.

The job participation rate is declining every month, and now it’s down to 63.4%.  Fewer and fewer people are working, and unemployment is down?  It just doesn’t add up.  Apparently, the way these numbers are now configured, the lower the job participation rate goes, the lower the unemployment rate goes. 

In July, 174,000 part-time jobs were created vs 92,000 full-time jobs.  If you look at 2013, 950,000 jobs have been created, and of those, 730,000 jobs are part-time.  These are almost entirely low paying jobs that will not make the economy grow.

Another problem for the U.S., and the rest of the world, is the dependency rates.  Meaning, the percentage of children and retired vs the working population is tremendously imbalanced.  Right now in countries like the U.S., Japan, and Western Europe, the dependency rates are a staggering 70%.  

Well, by 2050 that number is expected to grow in the U.S. to an astounding 85%, and in Japan to a stratospheric 120%.  So massively indebted nations will have fewer and fewer working people to pay for and look after more and more older and younger people.  This is of course unsustainable, Eric.

This brings us back to the U.S. as having the world’s reserve currency.  It is now clear that its time is very limited.  U.S. deficits continue to grow and they are currently growing exponentially.  Bernanke has achieved in just 7 years what it took the U.S. 200 years to achieve in terms of debt.  But this is nothing compared to what we will see.

Debt in the next few years will not grow exponentially, instead debts will grow hyperbolically.  This is because it will be necessary to finance the U.S. government’s deficits, a failing financial system, and to finance the collapse that is still to come in the one quadrillion dollar derivatives markets.  All of this will lead to the end of the U.S. dollar as the world’s reserve currency.

So how, in light of this horrendous situation, do we actually preserve wealth?  Well, two assets that will maintain their value in real terms will be physical gold and silver, but they must be held outside of the banking system.”  

Greyerz also added:  “Just looking at the metals in the short-term, Eric, I see them rising from here.  I think the correction we have seen is now finished and I expect new highs for both metals in 2014.”