Back in the 1970s when we had massive inflation and Paul Volcker raised interest rates to finally resolve the crisis, but this time around the system is too weak and too much indebted. This time, the only solution Central Bankers have is CTRL+P. John Embry gives his opinion on an interview with King World News.

I see a lot of people making comparisons to the 70s.  The 70s was an inflationary period, which was demand driven inflation.  When inflation got out of control and people were concerned about the demise of paper money, Paul Volcker rode to the rescue and he dramatically raised interest rates in the US and crushed a lot of things.

 What Volcker really crushed was inflation’s psychology.  This allowed the entire disinflation era to take place, where all of the money printing went into financial assets.  Well, this time you can’t do that.  This time it’s monetary debasement, that’s where the inflation is coming from.

 The economies are on life support, and the idea that when inflation starts to rear its ugly head you can just raise rates to squeeze it out or withdraw stimulus is completely wrong.  The economy is so fragile, and the financial system even more so, that the whole thing would collapse.

 So the solution that was brought forward at the end of the 70s, that essentially gave us another 30+ years, does not exist this time.  The thing is that inflation is a dynamic.  The central planners cannot just say, ‘Well, I think 5% annual inflation should alleviate our debt problem.’

If inflation starts to head towards 5%, you can be sure it’s headed for 10% because they don’t have the ability to stop it now.  The only antidote they have to the mess we are in, which is massively excessive debt reinforced by derivatives, is unlimited money printing. The idea that you can withdraw the punch bowl or sharply raise interest rates, it just doesn’t exist, unless you want to take a complete deflationary collapse.” 

Germany are not in favour of bailing out Europe based on their history.

“Man can generally rule the events, he can sort of deal with them.  But every once in a while things get so serious that the events overtake the men, and they are incapable of dealing with the event.  I think we are in a situation like that. 

A good example of this is Europe.  Every time they have a meeting and come up with some patchwork fix, we always get a big relief rally, but they haven’t solved a thing.  I’m still not convinced as to what Germany is going to do here.  I saw an interesting piece from Marc Faber, who suggested people should be worrying about a Ger-Ex, not a Gre-Ex.  Meaning a German exit from the euro, not a Greek exit. 

I don’t think, in the end, when push comes to shove, Merkel can convince her population to bail out all of these Southern peripherals that are in deep, deep trouble.  If you wanted to really put Europe back together, it would take, as I said, unlimited amounts of money.  That would require huge backing from Germany.

I just don’t think, given their long history of currency disasters in the 20th century that they are going to buy into that.  So we’ll see what happens.”

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