Michael Pento From Europacific Capital….Interviewed By King World News

Posted By on May 25, 2011

From King World News……Michael Pento Of Europacific Capital…non-financial debt as a percentage of GDP is now 244%, it has never been higher!  QE2 is done, if interest rates rise it’s game over.

 “I just want to highlight some things that Jim Bullard said (President of the St. Louis Federal Reserve):  You have to remember that he was one of the first Fed Presidents to go on record saying that he wanted desperately for the Fed to launch QE2, and now he’s the first one to say that QE3 is off the table, it’s not going to happen.”

Pento continues:

“So when you have communiques coming from the Federal Reserve like this, and since inflation is never an accident, inflation always comes from a central bank monetizing the national debt, if they stop doing that, if they are indeed serious about doing that, it has massive implications for the stock market, for precious metals and for the economy in the short-term.

…If the Federal Reserve exits monetization of the middle of the Treasury curve, real interest rates will rise in the short-term, and that is deadly for an economy that exists on borrowing money to the tune of trillions of dollars per annum, and most of that is monetized.”

When asked about the implications for the economy Pento replied, “You have to look at what’s going on in the labor market.  Initial jobless claims, they are above 400,000, existing homes sales dropped to an annual rate of 5.05 million and the prices of those homes continues to fall, they are down 5% year over year.  The months supply (of homes for sale) is surging above nine. 

So there is no healing for the economy, the economy has started to fall off a cliff even before QE2 ends.  What’s going to happen when they completely stop?  Now understand, in the long-term we need this to occur.  We need to have a sustainable and viable economy that is not based on borrowing and printing, but when you have that removed, the government thinks the training wheels can come off the bicycle, but the training wheels have become the entire bicycle.  

The entire economy is artificially driven.  When those training wheels come off, you better have your crash helmet on…They (the Fed) think the economy is healed, but if you look at a very simple calculation, look at the total of non-financial debt as a percentage of GDP.  It is now 244%, it has never been higher. 

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