*******************************************

Money manager Axel Merk says everyone should pay attention to recent comments made by former Fed Chief Alan Greenspan. Merk points out, “Greenspan said the balance sheet of the Fed is a pile of tinder that waits to be lit, and inflation will have to rise. A few days later when he was asked about those comments, he doubled down, and he said he didn’t think we could have a Fed exit without turmoil. . . . He basically said we are just going along for the ride; Congress tells us what to do.” Greenspan also said gold would be measurably higher in the future because history says governments will print money. So, what is the takeaway here? Merk contends, “To us, it’s very obvious. You have too much debt on the consumer side, and you have too much debt on the government side, and you are going to try to debase the value of that debt.” Merk, who manages around $400 million in assets, goes on to say, “We have very negative interest rates. If we do have economic growth and the Fed promises to be slow (raising rates), interest rates on a real basis would become more negative. If you look out 10 years, I don’t think we can afford positive real interest rates. How can we afford our entitlements? We might have an additional trillion dollars a year if we go back to the historic cost of financing our debt. We have the same problem in Europe, and we have the same problem in Japan. We are going to have financial repression as far as the eye can see.”

On the Fed ending QE 3, or money printing, Merk says, “It’s wishful thinking. We have had this a few times and the market has had a little bit of a fit. The one thing that central banks have achieved is that they have compressed risk premiums, meaning risky assets don’t appear risky anymore. Junk bonds don’t yield anything anymore, and the stock market doesn’t appear risky anymore. If risk comes back into the market because the Fed wants to do an exit . . . means asset prices will have to plunge. . . . It’s just not possible to have a Fed exit without having a very, very severe recession. That’s not what the Fed wants.” Merk goes on to say, “Ultimately, asset prices do not reflect fundamentals. Everybody is trading on technicals these days. The one thing I am cautious about is, one day, somebody is going to decide to sell and not buy. Guess what, everybody is going to pile in there. A few months ago, I thought we definitely would have a crash, but that was before the Bank of Japan decided to buy a couple of hundred billion dollars worth of stock and, sure enough, the market went up yet again. One of these days, the glass is going to be half empty and the market is going to come down on good news.”

On Japan, and news of even more money printing there, could they lose control and melt down the global economy? Merk says, “Japan is a little bigger than Cyprus, right, and Cyprus got us all a little jittery. So, yes, we do have odds there can be a little bit bigger of a crisis. . . . If Japan fails, it can have major ramifications. The thing is we know the play book. They foam the markets with liquidity and they can keep zombie banks alive, but when the public confidence erodes, all bets are off.”

On the vote by the Swiss to back their currency with physical gold, Merk says, “I actually think it is a very ingenious idea. Basically, the Swiss National Bank would not be allowed to ever sell gold again. It has to buy when the gold reserves are less than 20%, which means, over time, it’s going to inch up and up and up. Ultimately, we are going to get to 80 or 90% if it was to go through, and the Swiss National Bank would cooperate. I think it is a very nice way to try to introduce something close to a gold standard.”

Join Greg Hunter as he goes One-on-One with Axel Merk, founder of MerkInvestments.com.

http://usawatchdog.com/financial-repression-as-far-as-the-eye-can-see-axel-merk/

***********************************************************