Egon von Greyerz told King World News that the entire financial system is under pressure and will eventually see a massive panic. The Fed has just announced its extension of Operation Twist, which is another way to continue printing money, and hinted at significant downside risk in the United States.
June 21, 2012
King World News
With global stock markets plunging and gold coming under serious selling pressure, today Egon von Greyerz told King World News the entire financial system is under immense pressure and we will eventually see a massive panic. Egon von Greyerz is founder and managing partner at Matterhorn Asset Management out of Switzerland. Here is what Greyerz had to say about the ongoing crisis: “Eric, the entire financial system is under immense pressure. First you have the ESFS, the European Stability Fund, they are saying they must buy euro debt. The problem is that fund is now just 440 billion euros, which is nowhere near enough to support all of these failing European countries or their banking systems.”
Egon von Greyerz continues:
“The Fed has just extended Operation Twist. This is just an indirect way of printing money. But what the Fed hinted at is even more important, which is significant downside risk. The risk in the financial world as a whole right now is enormous. The Fed knows this and they are trying to avoid direct QE, but they will not be able to do that for very long.
We also now have a new scheme to give UK banks 160 billion pounds of cheap money. This is the government lending to the banks....
“So they are also printing money in the UK. Virtually every single country and government is under pressure, and one way or another they are all printing money and will continue to do so.
The printing will continue because the risk to the financial system at this time is enormous. Cross-border lending in Europe has collapsed 40% since 2007. This means that none of the banks are getting any financing. Lending has stopped in Europe. The banks will not survive for very long in their present condition.
The Germans have tremendous pressure on them to lend, but it is not politically acceptable for Merkel to go ahead with lending. The problem is if the Germans don’t lend, in the end they will have a banking system that is not going to survive. They will probably suffer losses of at least 700 billion euros, if not in the trillions under that scenario.
It’s an impossible situation for Germany, but they are unlikely to help out with lending. This is why I see a joint package coming from the ECB, Fed and the IMF. This package will come when there is a panic situation like we witnessed in 2008. When that panic comes, and we’re not too far from that, central banks will ignore politicians and agree to print.
The problem is the countries themselves are bankrupt. Many countries are borrowing over 100% of GDP, but if you added in all of the unfunded liabilities of the US, UK, Japan and Greece, many countries have commitments of 500% to 700% of GDP. So every day the risk is increasing for investors. Complacency here would create an enormous risk for investors.”
So what should investors do? Anything being held in a bank is at risk. Investors will also have their cash destroyed by money printing. So we are back to a very simple solution again, investors have to have assets such as gold outside of the banking system in order to protect themselves.
We may be seeing a pullback, but the price of gold will be in the thousands going forward. So investors need to keep their eye on the big picture during these types of declines.”
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