Former IMF Head, Hendrikus Johannes Witteveen (head from 1973-1978), said in an editorial on the Economic Crisis in the Financial Times, “The world’s financial system is threatened by a new crisis that could be even worse than that of 2008.” He further states, “The problem now exceeds the capabilities of developed countries. Yet it also threatens the growth of the world economy and therefore of emerging countries.”
He believes that the ECB and the Federal Reserve are at the end of their rope in terms of what they can do to make and impact, having exhausted most options dealing with the crises of 2008 and the more recent European debt problem. His solution is to create a “debt facility” which would allow countries with debt problems room to work out their problems by borrowing stronger countries foreign reserves through the IMF. This puts less risk on each individual country to bail out weaker nations. It also seems to give the IMF more power.
It has worked in the past, and the IMF has always been the back up plan for times like these. What I think is most important about Witteveen’s statements is that he believes that there is a probability of a new crisis, one that is worse than 2008, and that the US and Europe are not capable of handling it, and I think many would agree. Just look at the price of gold. It is a barometer of fear and inflation, and the price has been on a rapid rise as of late.
This brings us to Quantitative Easing round 3. There is a lot of talk in the mainstream that the markets are expecting QE3 and that it could be announced as early as this Friday after the annual Fed meeting in Jackson Hole, Wyoming. But if QE3 is announced, no matter what form it will be in, will it make any difference? It is widely believed that QE2 did little to help the economy or solve any of our problems. In fact it has only pushed the price of gold even higher, and if QE3 is announced, look for gold to break $2,000 per ounce soon thereafter.
Wittevenn warns, “International action is now urgent to avert a vicious recessionary cycle, which many governments – bound by their debt problems – would be unable to counter, even becoming a recessionary force themselves.”
I think the world is waking up to the fact that these problems are deep, systemic and dangerous for all of us worldwide. In order to protect your assets effectively you need to own gold and silver, the monetary metals, they both thrive during times like this economic crisis.