The World Is on the Edge of a Deflationary Black Hole

by Egon von Greyerz

The world economy is at its most dangerous point in history. In almost every major country or region, there are problems that could trigger a collapse of the financial system. Because of the interconnectivity of the system, when the first domino falls, there is no possibility of stopping the other dominoes from crashing, one after the other, in quick succession.

World Is on the Edge of a Deflationary Black HoleThe world is now staring down a deflationary black hole. Governments and central bankers around the world are aware of this and are ready to push the button for the biggest money-printing bonanza the world has ever experienced.

Up for discussion: Deutsche Bank is worse than Lehman; Bank of Japan’s policies have failed for over 20 years; emerging market debt is unsustainable; US federal and corporate debt continue to surge; the coming money printing will greatly exceed Weimar and Zimbabwe debacles; hypertension will be followed by deflationary implosion; and gold acts as protection against inflation and deflation.

During this period of transition, money will be needed as payment or for barter. Throughout periods of crisis, whether inflationary or deflationary, gold has always functioned as money. During the hyperinflationary period, gold will reflect the destruction of paper money and appreciate substantially both in inflationary terms as well as in real terms.

Many don’t realize that gold also does well during deflationary periods. If we get deflation, there will be no financial system for a while and gold will be one of the few methods of payments. This is why gold will also be excellent protection in a deflationary period, although the nominal value will be lower than in a hyperinflationary period.

With the current unprecedented risk in the financial system and the world economy, physical gold, and some silver, will be the best insurance and protection that anyone can hold.


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