Money manager Michael Pento says that profound chaos surrounding the economy is coming. The insolvency is becoming clear, and soon, we will no longer be able to sweep the problem under the rug.
Sitting down with USA Watchdog’s Greg Hunter, Pento discussed the chaos people predicting in the markets and says that it’s already here. Pento is the author of the book titled The Coming Bond Market Collapse, as well as a financial expert and he says the media is lying when they say the economy is doing well.
“There are so many things that can go wrong with rising interest rates. First of all, you have to understand that the permabulls that you hear on CNBC will tell you there is nothing wrong with rising interest rates. It is a symbol of growth. If you look at industrial production and retail sales for January, they were negative. So, rising rates are occurring, not because of growth, they are caused by insolvency concerns. That is the key metric here, and they are credit risks and insolvency concerns.”
“For the first time in 40 years, you are going to have bond prices and equity prices in free-fall. That happened in the 1970’s, but it’s going to be worse because in the 1970’s, you didn’t have an insolvency concern. . . The chaos coming to markets is here. It’s not going away, and it’s not going to be brushed under the rug. It’s not going to stay on the sidelines for another few years. The years from 2007 to 2017 were the years central banks were buying everything. There was no volatility, and stocks just went up. Those days have ended, and the volatility is only going to become much more profound.”
Hunter then asks Pento to explain who is insolvent. The answer isn’t calming in the least.
“They’re all insolvent. Europe is insolvent. The United States is insolvent. We have $21 trillion of national debt…it’s seven times our revenue. So we are technically insolvent. And you haven’t seen anything yet because as interest rates rise, debt service expenses rise. The ECB is insolvent, certainly, beyond a shadow of a doubt, the Bank of Japan is insolvent. I’ll tell you who else is insolvent…you asked me what’s gonna happen. So, as interest rates rise from 1.4 from where they were in the summer of 2016, to well about 4 %, and I think it can go much higher…I think the end game here is that central banks are going to come back and buy everything.
What we’re gonna have here is a collapse in the bond market…and as interest rates rise, it’s not just treasuries that are gonna blow up.”
Pento is not the first market analyst to show a grave concern over insolvency. The U.S. deficit is beyond any control at this point. But Hunter presses Pento after he uses the term “unwinding” to describe the dire economic situation the government has gotten us into. Hunter asks if there are people whose debt is just going to be wiped out and if at some point, the debt is going to go to “zippo.”
“According to the Bank for International Settlements, 10% of all corporations don’t have enough…to cover interest expenses. That’s ten percent of the world’s corporations. So, how have they even existed in the past eight, nine, years? By issuing debt to pay debt. So when yields rise, it’s very likely that a high percentage, maybe even all ten percent of these (they call them zombie corporations) go out of business.”
“That would be millions of jobs globally!” Hunter said. And there’s no way out. The central banks are now out of options.