Greyerz - One Of The Most Important Charts Ever

Today Egon von Greyerz sent King World News one of the most important charts you will ever see. Greyerz, who is founder and managing partner at Matterhorn Asset Management, demonstrated, in this one chart, the incredible danger facing the global financial system and why gold will explode higher in price.

This is the first of two interviews KWN will be releasing with Greyerz today.  Here is what Greyerz had this to say in Part I, along with his chart:  “If I look around the world, the problems continue.  China has yet another round of QE totaling $60 billion.  China is under real pressure.  And if you look at ArcelorMittal, which is the biggest steel producer in the world, and for them China is a massive market, they had a 20% decline in sales in Q3.”

Egon von Greyerz continues:  

“That’s a massive plunge in sales, and a major part of that is due to China.  Steel production is a very good indication of what’s happening in the world, and a 20% fall is massive.  But, importantly, that is a sign of a worldwide fall in demand for raw materials, especially in China.

Looking at Japan, one company after another is having problems.  The electronic company Sharp is fighting for survival.  Panasonic has massive losses, and even Sony is suffering.  Japan is in trouble and their debt-to-GDP is a staggering 200%....  

“So the reality is Japan will need to continue to print money.  Argentina is another country which will default very soon.  It’s an absolute mess in Argentina, but that is not unusual because they have one default after another.

Moving to Europe, eight months ago Greece had a financing package, agreed to by the EU, of 175 billion euros.  Of course now we are being told that will not be enough.  They expected the debt to peak at 167% of GDP in 2014.  Now Greek debt will be 200% of GDP, and I doubt that will be enough.

The target for the Greeks was to get down to 120% by 2020, but there is no chance whatsoever of accomplishing that.  So the question is, who is going to finance even more debt for Greece?  Well, obviously the ECB will have to print more money.  

Spain is also suffering.  Retail sales last month had the biggest plunge in history.  We also see Europe’s unemployment is at a record high of 11.6%.  So everywhere we turn the problems continue.  In spite of that, the European Union is now having budget discussions for financing Brussels activities and the EU.

Well, of course the unaccountable bureaucrats want an increase in the EU budget.  Virtually every country is hemorrhaging in the EU, but the well-paid bureaucrats are asking for more money.  The UK Prime Minister Cameron is trying to fight against that, but he is unsuccessful.

Over in the US, hurricane Sandy is going to negatively impact the already struggling US economy.  The negative effect may be relatively small, but it will still be damaging.  With 50 million people on food stamps and unemployment at levels which can only be compared to the Great Depression, the US can ill afford additional unforeseen problems such as  hurricane hitting the east coast.”

Greyerz also warned about insolvency:  “I’ve spoken in the past about bankrupt governments, and the bankrupt banking system.  If you value debt in the banking system at market value, then no major bank would be standing today.  But in addition to that, if you then look at the derivative positions of the banks, this is a disaster waiting to happen (see chart).

The real over-the-counter derivatives outstanding, worldwide, is at least $1.1 quadrillion, and a major part of that is worthless.  People have no idea what kind of turmoil and destruction this can cause to the global financial system.  KWN readers need to understand that as the global economy edges closer and closer to collapse, the earthquakes in the financial system will become so enormous that it will eventually overwhelm politicians and central planners.  

This is why it is so important that investors protect themselves by holding physical gold and silver outside of the banking system because the coming derivatives disaster will create an explosion in the price of gold.  And when the chaos is finally over and a new financial system emerges, gold and silver will be one of the few assets left standing.”

I would just add to what Greyerz has said here that when you look at the ‘cubes’ within the cubes, which represent gold and alleged gold holdings, the smaller of the two cubes shows gold held by the central banks totals $1.6 trillion.  Greyerz, like Turk, believes the central banks do not physically possess all of the gold they claim to have.  

This could mean that the central bank gold cube may in fact only be half the size of the one Greyerz shows in his chart.  If that is true, then the case for an eventual explosion in gold is that much more compelling.