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Egon von Greyerz,
annotated by FM Duck
Jan 31, 2014
Switzerland -- In November 1910, some powerful US bankers joined by the
influential Paul Warburg had a meeting on Jekyll Island that would determine
the destiny of the world financial system and the world economy for over 100
years. This infamous meeting led to the creation of the Federal Reserve
System in the US on December 23, 1913.
The Fed was
created by private bankers for the benefit of private bankers and today, 100
years later, they have been more successful than they could ever have
imagined in 1913.
Not only have
they created a system that efficiently controls the world financial system
for their personal benefit but also world politics. They totally understood
the advice of Mayer Amschel Rotschild, the founder of the Rothschild banking
dynasty, who famously proclaimed:
“Give me control of the nation’s money and I care not who makes its laws.”
exactly 100 years now, the Fed and other central bankers have totally
destroyed all major world currencies and left the world with debts that
cannot and will not be repaid with normal money. And whilst achieving this
unprecedented wealth creation for the top level of financiers, they have in
the last 15 years also managed to enrich almost every single individual who
works in Wall Street in New York or in the City in London. In 2008 the
financial system almost collapsed had it not been for an injection of
printed money, debt and guarantees by governments and central banks to the
level of $25 trillion. Banks like Goldman Sachs, JP Morgan and Morgan
Stanley would not have survived without this massive liquidity infusion. But
even that year when these banks were on the verge of bankruptcy, most
bankers received a similar bonus to the previous year.
At the same
time, wages for ordinary people in the US, UK and many Western countries
have hardly increased in real terms for decades. Normal people have a
perceived increase in living standards due to a massive increase in personal
debt as well as government debt – debts that they of course can never repay.
Now don’t get
me wrong, I have nothing against bankers. I have a few in my family. But I
know that the system which was created 100 years ago is untenable. It will
not only lead to an implosion of the financial system and the value of
assets financed by the credit bubbles. It will also lead to misery and
famine for a lot of people in the world. And empty stomachs are likely to
lead to social unrest in many countries.
A lot has
been written about the centenary of the Fed in the last few weeks but the
overriding summary is the destruction of paper money since 1913. What the
Fed and other central banks have achieved is: all major currencies have
declined between 97% and 99%, including the dollar which is down 98% in real
terms, which of course is measured in gold.
As we all
know, gold is the only real money and cannot be destroyed. What is
absolutely guaranteed is that many currencies and especially the dollar will
go down the remaining 2-3% and reach their intrinsic value of ZERO in the
next few years. The dollar does not deserve to be the world’s reserve
currency and will soon lose that role. And gold will reflect this decline of
the dollar and go to heights which are unthinkable today.
failure of central bank intervention in trying to eliminate peaks and
troughs in the economy is well known. Charts from Goldman Sachs showing 10
year US Treasury yield from 1790 to 2013, reveal that between 1790 and 1913
interest rates fluctuated between 3% and 8% with very few violent swings.
Since 1913 we have seen swings in the 10 year rate of incredible proportions
going from a low in 1945 of 1.7% to 15.8% in 1981 (with Fed Funds at 20%)
and down to 1.6% in 2012.
So as the
charts reveal, rather than eliminating booms and busts, the Fed actually
creates them and makes the situation exponentially worse than it would have
been in a free market without interference. I would expect rates to reach
the 16% level at least in the next few years as investors dump worthless
End of an era
The world is
now at the end of an era that has lasted for many centuries. The last
hundred years have been the culmination of a major cycle and the Fed
together with other central banks have created the perfect crescendo with
worldwide credit bubbles and asset bubbles which have led to the excesses
and decadence which are the normal finale to end a secular trend.
financial system almost collapsed in 2008. With the help of $25 trillion in
printed money, loans and guarantees the world got a temporary stay of
execution. But none of the underlying problems were solved in 2008 and the
risks are currently greater than ever. The world has never before been in a
situation when most countries are bankrupt and with a financial system which
is also insolvent. Japan is a basket case, China’s financial system is under
massive pressure, Europe is a failed experiment in socialism and a common
currency with Spain, Portugal, Italy, Greece and France all on the verge of
The UK is
having a temporary bounce but is probably not far behind these countries.
And the US is the most indebted nation in the world and is borrowing and
printing money at an exponential rate.
has been the most productive chairman of the Fed ever. During his reign US
debt has gone from $8 trillion to $17 trillion. Remember that it took the
US over 200 years to go from zero debt to $8 trillion. Bernanke managed to
preside over US debt going up by $9 trillion in just 8 years. Not a
mean feat! But not only that, Bernanke also printed over $3 trillion as the
Fed balance sheet went from $ 800 billion to $4 trillion during his 8
years. So in total Bernanke has managed to create a total of $12 trillion
during his rule which is a 133% increase in total debt including the Fed.
These amounts can of course never be repaid in today’s money.
only two alternative outcomes, default or hyperinflation. Both will have
disastrous consequences for the world economy.
to the extremely precarious situation in the developed world we are now
seeing a crisis in many Emerging Markets worldwide with falling currencies,
bond markets and stock markets. This could easily lead to contagion.
The Fed and
other central banks have in the last hundred years created a time bomb and
any single one of the crisis areas that I have outlined above could be the
catalyst to make the world economy implode.
have made incredible fortunes in the last century due to the central bank
policies. But what the masses have achieved is perceived wealth built on
exponential increases in personal and government debts. And sadly, one way
or another, the masses will pay for this for a very long time.
So the 100
years of the Fed is nothing to celebrate. It will in retrospect be seen as a
lost century which destroyed the world economy for many generations to come.
– FM Duck
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