Michael Pento: When The Yield Curve Inverts Soon, The Next Recession Will Start

Expected timing: this Fall
Wednesday, June 27, 2018, 2:34 PM

Collectively, the world's major central banks have pumped $1.1 trillion into the markets over the past year.

The result of all this money printing is now well known: massively inflated real estate, stock and bond asset price bubbles, as well as extraordinary wealth and income gaps across society.

Some day all of this insanity will end. But how? Will it unwind in an orderly and polite way, as the world's central planners hope? Or will be disorderly, resulting in painful portfolio losses and mass layoffs?

Michael Pento, fund manager and author of The Coming Bond Bubble Collapse returns to the podcast this week to offer his prediction that events will most likely take the latter route. In fact, he sees the developing inversion of the yield curve as a dependable precursor to the US economy entering recession as soon as this Fall:

The Fed is now raising rates. They raised rates from 0% up to 2%. They're supposed to do it again in September/October. And again in December. That will be four hikes this year. 

They are also selling assets, aka 'draining their balance sheet'. I say 'selling' because that's exactly what they have to do. Let's say the Fed is holding a 10-year note that's due: if they want to destroy that money, they say "OK, Treasury, give me the principal". The Treasury doesn't have any money so it has to go the public and raise money. Well, the Treasury will have to do that to the tune of $50 billion per month come October. Right now it's $30, it has to go in July to $40 billion a month then it goes to $50 billion. That's $600 billion a year added to the public supply of Treasurys they have to actually finance at a market rate. That's on top of the $1.2 trillion debt we're going to have in fiscal 2019.

So the Fed is tightening. But here's the problem: the spread between long-term rates and short-term rates is about as narrow as it can be without being inverted.

Right now, as we record this interview the spread between the 2 and 10-year Treasury note is just 34 basis points. That means when the Fed tightens rates in September, which they've pretty much promised to do, assuming the 2 and 10-year note stays at that same spread above the Fed funds rate, we're going to have a yield curve that is almost completely flat. And will be inverted when they go again in December.

Why is that so important? Well, when the yield curve inverts it almost always brings about a recession. In fact, I can say pretty distinctly that in modern times, in this fiat currency regime, given the conditions today, it will definitely cause a recession. The reason is because the fuel for asset bubbles is monetary creation, a boosting booming money supply which we don't have any more. And the reason why the money supply gets shut off when the yield curve inverts is because banks' loans are earning less than their liabilities, which are deposits. So when your assets are earning less than your liabilities, you don't make any more loans. You don't want any more assets. That's a great way to make your bank insolvent.

So what happens is that the money supply gets completely shut off. You're not going to make a loan against a deposit -- you don't even want these deposits anymore. By the way, when there's a recession and there's a withdrawal of asset prices, a contraction in those prices usually results in a run on the bank as well. So asset prices get stumped because there's a run on the bank and these deposits get withdrawn. That is what usually causes causes a recession. And that's exactly where we are going to be come the fall, and even closer towards the end of this year.

Click the play button below to listen to Chris' interview with Michael Pento (35m:59s).


Chris Martenson: Welcome everyone to this Peak Prosperity podcast. I am your host, Chris Martenson. It is June 19th, 2018. Full confession time. I never and I mean never thought that the world of financial and monetary recklessness would carry on this far or this long. Here we are a full 10 years into an endless sea of money printing and only now are the world's central banks considering ending money printing. Yes. The U.S. Federal Reserve is slowly unwinding its balance sheet by allowing certain items to run off, but collectively the world's major central banks have pumped 1.1 trillion into the markets in the past year. The result of all this money printing is now well known. Massively inflated real estate stock and bond bubbles as well as extraordinary wealth and income gaps that are fueling mass political shifts in Europe and the U.S.

Someday all of this insanity ends. Someday things get back to what we might call normal, but how? That is the question. Will it be orderly and polite as the world's central banks and politicians are hoping or something more disorderly if not irreparably damaging to the average investor's portfolio and possibly even employment? So we are going to dig deeper into the insanity with Wall Street expert -- financial expert -- president and founder of Pento Portfolio Securities and author of the book, The Coming Bond Market Collapse. Mr. Michael Pento last sat with us in 2016, and we are really pleased to have him back. You have probably seen him on all the major financial news networks or maybe read his book or invested in his portfolio. Michael, it's a real pleasure to have you back with us today.

Michael Pento: Thank you for having me back on, Chris.

Chris Martenson: All right, Michael. You're on record as saying you think there will be another financial crisis - recent article of yours. Take us through your thesis.

Michael Pento: Well, gee we don't have an hour and a half to do that. Let me give you the Reader's Digest version. First of all, you touched on it in your opening comment -- you said that the central banks printed over a trillion dollars this year. Let me expand on that for a second.

So since 2008, global central banks since thy want to repeal the business cycle and eliminate recessions forever, they took their balance sheets as a whole from $3 trillion to $15 trillion. Now by my math that's $12 trillion of money printing or what I like to call as counterfeiting, to try to keep asset prices from collapsing. Well, they've done that. They've taken stock prices to a record high. We are now at 145% of GDP, so equity price in the United States, their market cap. As a percentage of the economy 145% that's really never happened before. We are at an all time record high there. Ties the previous record set in March of the year 2000 - an ominous time.

The normal ratio there is 50% or so. So stock prices should be - the value of assets should be about 50% of the economy. The underlying, overall economy. But now 145% today. So we printed all this money. Put stocks in a bubble. We obviously put bonds in a bubble. There is trillions of dollars worth of negative yielding sovereign debt around the world. And of course, now real estate is back into a bubble, too.

So we roll these bubbles coming to a confluence to get there at the same time, extend together. And now central banks are tightening. Now my personal opinion, Chris, and I'm sure people will argue with me, as they like to do, but my personal opinion is that the Federal Reserve is the most aggressively tightening, hawkish central bank that we have ever had. And I will explain why.

Chris Martenson: Ever?

Michael Pento: We know the Fed has been raising rates. They raised rates from 0% to 2% and they are doing it now about four times per annum. They are supposed to do it again in October -- September/October. Supposed to do it again in November. So September and December that will four hikes this year. They are supposed to go four times next year. But there is no problem. Wait. Hold on. Let me back up a second before I say what the problem is.

They were also selling assets, also draining their balance sheet. And I say selling because that's exactly what I have to do. So if the set has a bond there if they have a 10 year note that is due. And they want straight up money they say okay, treasury, give me the principal. Treasury doesn't have any money so they have to go the public and raise money. Well, they have to do that to the tune of $50 billion per month come October. So now it's 30 it has to go in July to 40 billion a month, then goes to 50 billion. That's 600 billion dollars a year added to the public supply of treasuries they have to actually finance at a market rate. That's on top of the $1.2 trillion debt we are going to have in fiscal 2019.

So, the Fed is about as tightening as they could ever -- as hawkish as they could ever be and ever have been. But here is the problem -- the spread between long-term rats and short-term rates is just about as narrow as it can be without being inverted.

So right now, as we record this interview the spread between the two and ten year treasury note is just 34 basis points. That means when the Fed tightens rates in September, which they pretty much promised to do because they are so deathly afraid of people working and being gainfully employed. As if that caused inflation. Oh my God, the economy is overheating we have to shut it down.. To raise rates again. That's 25 basis points. Assuming the 2 and 10 the 2 year note stays at that same spread about Fed funds. We are going to have a yield curve that is almost completely flat and will be inverted when they go again in December. And why is that so important, Mr. Pento? Who care about the yield curve -- I'm sure someone is out there asking.

Well, when the yield curve inverts it almost always brings it by the recession. In fact, I could say pretty distinctly that in modern times in this fiat currency regime given the conditions they extend today. It will definitely cause a recession and the reason is because these asset bubbles the fuel for asset bubbles monetary creation. SI boosting booming money supply which we don't have any more. And the reason why the money supply gets off when the yield curve reverse is because their loans are earning less than their liabilities, which are deposits. So when your assets are less than your liabilities you don't make any more loans. You don't want anymore assets. And you don't want any -- that is a clear way to make your bank insolvent.

So what happens is if the money supply gets completely shut off because you're not going to make a loan against a deposit you don't even want these deposits anymore. Deposits usually, by the way, when there is a recession and there is a withdrawal of asset prices, a contraction in those prices usually are run on the bank, as well. So asset prices get stomped because there is a run on the bank and these deposits get withdrawn. That is what usually cause -- in fact, always causes a recession. And that is exactly where we are going to be come the fall and even closer towards the end of this year.

Chris Martenson: Michael, so many excellent points in there. You mentioned something i really -- I would love to get your input on. You mentioned that the federal reserve and maybe the other central banks they sought to replace the business cycle with I guess we will call it a credit cycle. So now instead of business failures we end up with these credit market failures, which I am going to argue -- and I'm sure well, maybe not put words in your mouth. They're an order of magnitude more harmful in the end than an ordinary business cycle recession where some bad business ideas get swept out. But when a credit bust happens first you agree with that analysis. And second, what happens - you mentioned part of it with the falling money supply but why are credit cycle disruptions so much worse than a business cycle disruption?

Michael Pento: Well, you know we had a gold standard. We had a normal business cycle. The recession is very mild because the primary point here is that asset prices never got so far over blown over their skis as compared to the underlying economy. But when you had negative yielding debt. In other words, when you are a government or even in some cases in Europe a corporation and get paid to borrow money, this is a process that gets unwound very quickly, which causes bond notes to spike in dramatic fashion. Now, so far we have LIBOR that has gone from .3% to 2.33%, but you imagine the spike in LIBOR when that occurs. By the way, LIBOR, the London Interbank Offered Rate, is used to price 370 trillion, I didn't misspeak -- a trillion dollars worth of loans and derivatives. We talk about a busting of a credit cycle. I mean why in the world would you ever have 370 trillion dollars worth of loans and derivatives? Outstanding. When the global -- when the actual debt outstanding of the economy-- global economy is a fraction of that size. And the debt outstanding is 200 and I believe it's 330 trillion, 230 trillion.

Chris Martenson: 233 the last time.

Michael Pento: 233 and 330% of GDP.

Chris Martenson: Right.

Michael Pento: So you know, 370 trillion worth of loans and derivatives? When you have these bubbles that are created by a credit boom, you have housing that's distorted in price, you've got bonds that are distorted in price and of course you have, as I mentioned, equity markets which are massively overpriced. People say the market is fair value. I have to chuckle at that. When I look at median P rations, price to sales and the market cap to GDP, this is the most expensive equity market ever.

Chris Martenson: So let's talk about the expense in the bond market for just a second. I know you write about this and I am really keen on the insights we picked up from you in your book about the coming bond market collapse. So let's first, first again I never thought we would be here, but Michael what really astonishes me is not only are awe making mistakes, but we are making the same mistakes. They don’t even rhyme they are the exact same one.

Michael Pento: Not the same. Much worse mistakes.

Chris Martenson: Let's talk about those worse mistakes. You mentioned LIBOR. Something I think people don't understand is the difference between a corporate bond and a loan. Because I want you to take us into the world of covenant light loans. But help people understand why that's an issue..

Michael Pento: Well, first of all you have to understand that the quality of debt -- so corporate debt as a percentage of GDP is at an all time record high. About 45% of the underlying economy.

Chris Martenson: Wow.

Michael Pento: That's at a record high but the quality of that debt -- in other words the number of zombie corporations is at a record high. What a zombie corporation that is; that the cash flow from operations does not match their liabilities as far as payment debt service. So these are zombie corporations and the number of triple B credit is also at a record high. So you have record corporate debt that exists in the context of the quality of that debt, which is at a record low. This is something we have never before seen. And that means when interest rates rise and they are in the process of rising. Central banks -- by the way, even Mario Draghi has vowed to end his quantitative easing program in October. It goes from 30 billion euros to 15 billion euros and then to 0 by the end of the year. The reserve in October goes to 50 billion dollars worth of reverse QE. So Centrals banks are raising rates. LIBOR is spiking as I've already indicated from .3 to 2.33. As these rates rise that is more and more stress on these marginal corporations, zombie corporations and junk corporations that are merely existing by issuing debt to pay debt because they do not have the earnings to pay interest on outstanding debt. That has never before been the case. That makes this next recession/depression so much worse because when we had the great recession of 2008 central banks had the ability to lower interest rates. Let's just take the Fed, for example. The Fed had interest rates at 5.25%, took interest rates to 0% and began quantitative easing. Their balance sheet was about $800 billion in 2008, the end of 2007, beginning of 2008.

However now, our central bank can only rates from 2% to 0 and their balance sheet is at 4.4 trillion dollars. And not only this, the government of the United States, their outstanding debt was $10 trillion in 2007 and now it's $22 trillion; so they don't have the wiggle room in their balance sheets anymore But even worse if you look at the European central bank and the Bank of Japan the ECB is at 0 and the Bank of Japan is also at 0. There equivalent of the fed funds rate is at 0, in negative territory and their 10 years note is 0. The German Bund is .35% and even worse if you look at Mr. Kuroda, the head of the Bank of Japan if the Japanese economy was to hit a recession by the way, they are halfway there. Their Q1 GDP was -0.6% so they are halfway to an official recession. What are they going to do, Chris? How can they extricate themselves from a recession when they are already at 0 and below and in the case of Japan printing 80 -- let's say counterfeiting 80 trillion yen per annum. I don't make this up. I don't make these numbers up. That is why thank God, I got a successful business because I just look at the numbers and the numbers tell me where to go.

You have a central bank of a major world power a major world economy. I believe they are number four on the planet and they are printing, in order to stay afloat, to stay alive -- 80 trillion yen each and every year to keep their bond market from imploding. To keep their equity market from imploding and if they go into a recession, I guess all they have to do Chris, is throw their hands up. What are they going to do lower rates? Are they going to start printing money? There is nothing they can do. We are globally linked economy. So when Japan goes down and the recession in the United States and the recession manifests and the matastisizes in China and the United States there is really nothing these global central banks can do because all of their balance sheets are stretched beyond limits.

Chris Martenson: Well, Michael this is certainly an idea that it is getting floated more frequently. People ask and I think maybe rightly so or at least presumably so -- hey, what is to stop them from unilaterally doing this all over again and just expanding the balance sheets by another factor of three or five or 10.

Michael Pento: I will tell you why things are difficult. When you have a Fiat currency regime it's all based on faith. See if my dollars were backed by gold I know gold has intrinsic value. It's beautiful. It's extremely rare. It's virtually indestructible. And it’s held it's purchasing power for thousands of years. It's not really based on faith it's based on science. It takes about a thousand dollars an ounce of energy and effort to take an ounce of gold. A thousand dollars to remove an ounce of gold from the earth. I know it takes that much energy and effort.

I know it's that intrinsic value in gold. But it might -- when my currency is backed by nothing it's only backed by the faith that the central banks have the ability to control interest rates. In other words, you can print, the Federal Reserve in the case and point. You can print money, you can print 85 billion dollars a month for several years. You can take your balance sheet from 800 billion to 4.5 trillion at its apex and you could only do that without having your currently collapse if two things are in place. Number one, nobody else is doing it at the same time and most importantly you understand or at least the market has an understanding that you, central bank, have the ability to sell those assets and drain that money supply, drain those excess reserves out of the banking system. And that gives me faith that my lousy fiat dollar will hold some semblance of its purchasing power.

However, if you print $3.7 trillion and take interest rates from 5.25 to 0 and then just raise them a little bit a couple of hundred basis points 2%, and then you say to me I can never drain my balance sheet because if the US economy enters a recession -- that was your question -- if the global economy enters a recession why can't they just go back to the money printing, which I'm sure they are going to do. But when they do that the market which is the real progenitor of inflation. The market's verdict on the value of your currency and the ability for it to maintain its purchasing power goes away and it goes away to zero and it goes away quickly. So when the Federal Reserve under Jerome Powell says, we are lowering interest rates. We couldn't get any higher than maybe 2.5 and when Jerome Powell says we are going back into QE the cat is out of the bag as they say. The market will understand that the Federal Reserve has permanently monetized trillions of dollars worth of assets of which it will never be able to sell. It will never be able to take those assets, those dollars out of the banking system and that is a recipe for runaway inflation, even if other central banks are doing the same thing. And that means that the big winner here is gold.

Chris Martenson: I'm glad you came to that conclusion. I was going to get to gold eventually, but before we do I have to follow this train of thought because it seems very important, which is -- well, I hinted at it. Europe seems to be having -- well it has a more rested, more active population than the United States for sure at least politically when it comes to issues. And the people of Europe have managed to figure out that it is a raw deal when your central bank prints money, throws it into air quote time the market, which is of the big banks. It all seems very unfair because certain people just get enriched massively int hat process. But when you look at people -- working people of Italy or Spain or Greece, etcetera, they really got the short end of the stick. Politically, I think it is going to be difficult for all the central banks to hold hands and sing kumbaya this next time. Because I don't think the ECB has the political firepower left. Maybe. I mean Brussels seems pretty tone deaf and maybe the ECB follows, but what is your thought that maybe Europe could be a fracture point in this coordinated global banking action we have been seeing.

Michael Pento: I've said it a long time, it's a great point, Chris. I said for a long time that in order for the removal of the stimulus to be successful that all these central banks have to do it in coordinated fashion. It has to have concurrently. In other words you couldn't have the Fed raising rates while the ECB didn't do that and neither did the Bank of Japan. And what happens is the Fed is raising rates and you see what is happening now in emerging markets. I mean if you look at the Argentine peso and Brazilian Real and what is happening in Poland and Turkey -- Turkish Lira, these currencies are blowing up. It is very, very difficult to unilaterally remove the stimulus. Now you touched on a good point I want to just comment on it. This is the progenitor of the Trump administration. This is why he became president. The reason is the middle class of not only the United States, but in Europe has been decimated. Has been eviscerated, as a matter of fact.

And what happens when you follow this financialization model to prevent the business cycle and to eliminate it from ever occurring and to outlaw recessions forever and ever, what happens is you get people in the very wealthy tier of the population they become more wealthy because they own assets. They own stocks, they own bonds and they own real estate. What happens is you create inflation and energy and other things like food and clothing and that's a much higher percentage in the weighting of the lower classes, of their weighting of their monthly stipend, of their monthly payments structure.

So what happened is you have a situation where the rich get richer and the poor get poorer it is that kind of stratification that is causing the five star movement to come to power in Italy and will cause Trump to rise to the presidency. And I see more of this populous movement to unfold as we get closer and closer to the inevitable what I would call unfortunately, a global recession/depression that is going to commence probably later this year.

Chris Martenson: I completely agree with that line of thinking, just as a quick aside. Wall Street Journal just ran a very big, very nice, very empathetic piece on Italy and focusing on all these attractive young women who still live with their parents and all this stuff. And they managed to get through an 1800 word article and never mentioned the cause of the factor which you and I just discussed which is the central banks and how they have actually driven this wealth inequality and opportunity inequality wedge into society.

How is it that we still have -- I mean just editorially how is it that we are still subject to what I would consider it is almost -- if it's not fake news it's really context free. How is it still possible here?

Michael Pento: I think it's -- well, you know, the population has been numbed and it's very convenient to keep people as ignorant as possible as to the machinations behind what makes a currency valuable and the benevolence of having it backed by gold. It is to their advantage today. It is just to the illuminati's advantage to make sure people are kept ignorant. If they really knew what was happening with the purchasing power of their money. If they really understood the trench and gap between the rich and the poor. They understand necessarily, but they don't have it really explained to them. That is why I come on programs like Peak Prosperity because you are not going to watch CNBC, first of all, you are probably watching CNBC on mute if you are watching it at all. But if you take it off mute, you are not going to get a conversation like this. You are not going to get somebody and I have been thrown off the channel for over a year and I don't' even know why. Maybe it is because I come out and I call it what it is. I call the printing of $12 trillion by central banks counterfeiting. And I make people understand that these central banks can never take back this money. When you take back money, when you destroy dollars like I was saying before about how the Fed has a treasury that came do and they asked the treasury for money. The treasury has to float that to the public. The treasury gives that money to the Fed and the Fed burns it. Pretty much destroy it. They take it out of the system. They destroy money. That raises interest rates.

But when you raise interest rates on top of record asset bubbles and record debt the economy collapses just like it did in 2008, so that is where we are headed. But I you know, when you have central banks that maybe they are ignorant as well, perhaps. They are looking at Phillips Curve models to tell them what to do. So they are looking at the unemployment rate in the United States up 4% on the U3 metric and they are saying oh my God we are on the cusp of hyperinflation. We are on the cusp of a deflationary depression, not hyperinflation. It is quite the opposite. But they are looking at four models that have never worked that are broken and that have the data input is lagging. The inflation is a lagging indicator.

So you know, you have a central bank that is worried about their; a growth overtaking their economy, but what they really should be worried about is what happens when the economy collapses? What are we going to do and why didn't we let the gales of creative destruction in 2009 allow asset prices to collapse to a point that they can be supported by the free market? And we can have a currency that is stable and inflation dynamic inflation/deflation dynamic that is stable. Stable interest rates. We opted to get out of what was potentially a very short, truncated depression; maybe two years. But we got instead was a decade of, really a decade long recession. I mean the economy never really grew. It grew at 2% or less and that is only because you under calculated inflation. Really a decade long wasted economy just like they have in Japan. Decades long. And that is leading up to this next step, which I believe is going to be much worse. A synchronized global depression. Unfortunately, that is what central banks and governments have heaped upon their population.

Chris Martenson: I think this gets to a very, very good point which I love to reinforce if and maybe you can let me know if you got this or right. CNBC they are trying to tell us the central banks are sort of this benevolent organization and if they do their job right money printing is a zero sum game. Some people win, and some people lose. In the case of Japan when they print to lower the value of the yen they are like yay. Record profits for Sony. But you look at people who are trying to live in fixed incomes or the people who live on imported food they get killed. The central banks transfer wealth away from everybody into the pockets of some corporations because well, that makes sense to them. I'm sure they have reasons why that all make sense. But they are redistributive organizations. I mean Marxist at core, if ever there was a way to look at it like that.

So your thesis would be that they can't do this and they can pump these things up but that they fail inevitably because it's not real prosperity it is printed commercial prosperity and when it fails it fails rather suddenly and maybe even comprehensively.

Michael Pento: Exactly right. I wouldn't call it a zero sum game I would call it a negative sum game because in the short terms you are going to have the evisceration of the middle classes and the lower classes. Everybody becomes lower class, the middle class becomes lower class and you have a plutocracy develop, a very small aristocracy in the country. What happens is that is not even bad enough. What happens at the other end of this credit cycle when it blows everybody becomes impoverished. And at the end of this next cycle, Chris, you thought the money printing was bad before -- what is going to happen is instead of just lowering interest rates and then going to quantitative easing, they are going to have to deploy new things such as helicopter money, negative interest rates and the banishment of cash to get inflation going.

I don't think just going from United States going from 2.5 to zero and then starting to print money. What I mean is just printing money and going through the primary dealers. Giving them excess reserve isn't going to be enough to turn around the economy. They are going to have to circumvent the banking system and send cash directly. In other words, the central bank is going to directly monetize treasury debt and have the treasury send it to their citizens.

And also, they are going to banish cash. I think they are going to have to make cash illegal. This whole BS about the crypto currencies being allowed to flourish for so long because I believe and I wrote out this now for well over a year. That central banks will adopt something I call like a Fed coin that is traded on the blockchain. So you will have money in the bank that is electronic and you will be unable to withdraw that money in physical cash. You cannot hoard your assets because they are going to go to negative interest rates in order to get the velocity of money to increase. In order to get the money supply to increase they are going to have to go to negative interest rates. In other words you are going to have a coin, a virtual coin in a bank worth X amount of dollars, a thousand dollars worth of a Fed coin and that will be diminished by 10% per annum in negative rates so you will have $900 at the end of next year and you can only withdraw that money to spend it. You cannot withdraw it to hoard it. Physical cash will be banned. Those are the kind of things. That is why I think it is a negative sum game. You are going to have run away inflation, you are going to have social unrest because the structure created by central banks is not a tenable situation and you can see it now breaking down around the world.

Chris Martenson: Excellent. Excellent points. Michael in the time we have left-- how does the average investor protect themselves here?

Michael Pento: Well, I created an inflation deflation portfolio. Right now, today we are net short the market using the inverse CTS. We don't use any leverage or any margin. We denou portfolio short emerging markets. We are long the dollar right now because vis a vis other currencies we have the growth here in the United States as well as differential. There is no stop clocks here. You know, I do think gold is going to have its day, but we have been underweight gold in the model portfolio because gold doesn't like rising interest rates. People there is a few schools of thought here. There is the buy and hold dollar cost averaging everything is going to be fine. Our school of thought the balance portfolio stocks and bonds. The theories work well when both aren't in the big bubbles, but they are. The market is going to collapse. It is going to bring down stocks and bond when that happens. You have to be in a model that lets you know when it's time to get out and when it's time to protect and profit from what I believe is the third massive and the worst decline in stock prices since the year 2000.

NASDAQ lost 85%, the S&P lost about half of its value in 2000. It did that again 2008. I think this third round is going to be much worse. Like I said before there is not much central banks and governments can do right away to turn the runaway deflation into inflation. But I do think they are going to be successful in the mid team and that is why I think gold during the right time is going to have a rally such as we have never before seen.

Chris Martenson: Excellent, Michael. Well thank you so much for your views and your time today. Please direct our listeners where they can follow you more closely and find out about your portfolio fund.

Michael Pento: Well, I have a website it is PentoPort.com you also email me directly at [email protected] or you can call the office here at 732-772-9500.

Chris Martenson: All right, well Michael, thank you so much for your time today.

Michael Pento: Thank you, Chris.

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Good morning folks,

I am a bit confused. First gold is discussed as having intrinsic value, which I interpret to mean that gold has the same REAL value independent of how it is measured in fiat currency. Next the bid for gold is something not to be missed - the next financial wave to be caught.

If there is a huge increase in the price of gold, like say from $1K to $10K, and if gold has a value independent of the fiat currency measurement stick, shouldn't we care more about how much gold it takes to buy a basket of groceries (another item with intrinsic value) and not the fact that gold is now worth $10K? When a dollar is worth a dime, is it not time to abandon the currency? Maybe before your original dollar is worth a penny?

Next, I have been paying attention to the idea that unsustainable debt will implode someday and that "someday" really should have been yesterday. But that day has not come. Is this a problem with how the world actually is or is this a problem with our model of how the world works? We humans look at the world through the lens of models that help us epxlain how it works. If our models stop working, it usually is not a problem with the world, but is a problem with the lens we are looking at the world. 

So I humbly ask, is there somehting that we are missing that is keeping this house of cards afloat?

Thank you,


Rodster's picture
Status: Bronze Member (Offline)
Joined: Aug 22 2016
Posts: 41
Re: Confused

You have every right to be confused. The natural laws of economics 101 have been thrown out the window by the Banksters and financial magicians. What we have had for the last 30-40 years and more so recently since 2008 are financial and Bankster magicians who are conjuring up every trick in the book so the population doesn't figure out what's being done to them, which is basically stealing their/our money.

Think David Copperfield running the banks and you get an idea why the financial, money and banking system makes absolutely NO sense. It's why banks have multiple owners for the same bars of gold. Think crazy greed. It's why Chris decided the phrase demoralized is the appropriate term instead of depressed for people.

The population is being hoodwinked by a bunch of hucksters. Think 3 card monty if you will. The House always Wins!

So you have every right to be confused as to why none of this makes any sense and why this entire House of Cards i.e. Ponzi Scheme has not blown up yet.

Rodster's picture
Status: Bronze Member (Offline)
Joined: Aug 22 2016
Posts: 41
Two Rats In A Cage

Chris you should post this on the main page. It's awesome and I never knew of that experiment and it really does explain a lot about the ill's and the fighting amongst ourselves.

Carl's picture
Status: Member (Offline)
Joined: Jul 17 2008
Posts: 24

Is the transcript on the way?

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