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Michael Pento: “Central Banks Have Jumped The Shark,” May Even Buy Stocks

Date: Friday, June 5, 2020 3:14 PM EDT

Michael Pento: Yeah. There're some people who are on record saying, "the dollar is going to collapse, the dollar is going to collapse." Well, collapse against what? That's the question you have to ask. I mean, it's a currency, you measure a currency's value against something, right? What is it buying? What is the purchasing power of the dollar? Well, I don't think it's going to lose a lot of value against the euro or the pound or the renminbi or the yen. It's just not going to happen. It's going to lose its value against hard assets, against energy, against gold, against platinum, against farm land.

That's where the dollar is going to lose most of its value, not against other flawed fiat currencies. But here's the truth, Mike, we have insolvent nations replete around the world. This was the case going into the virus. It's just gotten a lot worse. Let me give you an example. If you just give me a minute or two here, this is important. We now have a $26 trillion national debt in the United States that is up against, supported by about three trillion in annual revenue.

So, that means our existing debt is 850% of our revenue. And by the way, that revenue still leaves you with about a $4 trillion annual deficit red ink this year alone. So let me boil it down to like a household. So, let's say your household has $100,000 in income and that household has outstanding debt over $850,000. But here's the real problem, that $100,000 of income isn't enough to match your annual expenses. You're spending $130,000 per year more than your income if the household was the United States.

And making matters much worse is that this government is aggressively pursuing inflation, which will make the cost of servicing that debt go much higher. What am I saying? This is just the United States. We are a nation that is insolvent. We're going to have an insolvency and inflationary collapse of our bond market. That is where this is all headed.

And I've gotten on some things wrong in my life, Mike. I've gotten a lot of things right in my life, too… especially when it comes to investing. I have been predicting the collapse of the sovereign debt market for many, many years. I never thought that central banks would print, globally, $26 trillion worth of fiat paper to try to push and repress interest rates down to zero and below. That's what they've done.

But when that backfires… so, we already have the insolvency portion of the equation. That's done. All we need is for these central bankers to become successful and achieve inflation. That is when you're going to have the big catastrophe in the bond markets. That is when you're going to have the stock markets around the globe implode. And that is when you'll have the real greater depression begin.

And by the way, if I could just say one thing, Mike? I want to just add that if you're an active manager, you have a chance to survive. If you are a passive investor, you are going to get slaughtered with various iterations of minus 30, minus 50% of your portfolio that happen regularly because of the dynamics put in place. Because of the fact that free markets no longer are viable. Markets are now controlled by sovereign nations and central banks.

Mike Gleason: Yeah, well said. Crystallized it very well there and yeah, I think the buy and hold days of investing are behind us for sure, and people need to come to grips with that.

Well, one of the Fed economists came out this week in favor of negative interest rates here in the U.S. Now Chairman Powell has voiced somewhat of a negative opinion on negative rates in the past, but it's probably not out of the realm that we could see it here in the States at some point. Talk about what that might mean and then handicap how likely you think it might be.

Michael Pento: Well, they haven't worked in Europe, Mike. They've demonstrated very clearly that negative rates don't really help the economy and they destroy the institutions. So I mean, the Fed is in place, it has its existence because of the fact that it's there to protect banks. So I don't really think we're headed for negative interest rates in the nominal sense of the word. So, if you're asking me if we have a condition where negative interest rates will be in real terms? I mean, that's a 100% guarantee. They're here already. Negative rates in a real sense, after adjusted for inflation, they'll be here now. They're coming now. And they will be here for a very long time in the future and they will be growing more and more negative. That's a fact.

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