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Merk Investments President and CIO Axel Merk compares the U.S. to Italy and says that there’s a great threat to the U.S. dollar brewing.
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-- shift just say the following that the next financial crisis but how will happen.
Before President Obama leaves office it will be precipitated by the bond market.
And massive jump in interest rates but that's -- mark think about that prediction he's president chief investment officer and mark investments joining us now from Mountain View California.
Do you think that what happened spike in interest rates spike -- year -- financial calamity.
In the US before the end of this term.
Peter is an optimist.
Let's put it this way yes I do think that there respect -- is is pointing out -- real.
And let me point out why look at the difference between what's happening he and in Italy.
-- we think Italy has a crisis week when the same boat we have just as -- comes from the government that.
Did one thing we have learned from the crisis in the eurozone is that the only time policy makers -- Is when the bond market forces them to act all the progress on the reforming Europe took place when the bond market forced it to to take place that difference though is.
The Euro zone does not need to finance its deficits from abroad.
They don't have a current account deficit in the eurozone.
In the US we have a current account deficit that's why Peter pointed out to the to the threat to the dollar and I fully agree that.
Everybody has been chasing yield.
Jumping into bonds and the biggest threat -- facing is actually that we get some economic growth at that kind of bond market -- unravel.
On the at that point probably will -- get any reform -- we have a good -- nothing is going to happen is all just politics now.
The politicians will move when the bond market forces them them.
We'll stay on Italy -- first second also want to ask you about the Federal Reserve but in Italy you have.
While what a lack a work ethic.
A socialist state this deeply ingrained in the culture like it -- not so lovely place to visit -- very relaxing he's not the work that much.
That is not the case in the United States and this is kind of an esoteric way of looking at it.
But wouldn't people be.
More willing to lend us money thinking that we could grow our way out of it just -- -- of the American way and our desire to work and start businesses.
While the Italians probably think that -- good people to we have an entitlement attitude to comment just think about the few cuts we have to take and everybody is screaming.
That's nothing compared to the -- we have to do we have trillion dollar deficits not -- eighty billion dollar deficit.
And as much more -- to be done.
And true in the bond market is giving us the benefit of the doubt one of the reasons why people love to invest in the US is because you can take your money out you know capital controls gonna happen condos and Italy either.
But what it means is that the US dollars attractive because of liquidity.
Not because of quality.
And we can't just the rest on those -- we have to do something to improve the fundamentals.
Otherwise at some point these days moving almost I don't know whether it will happen before the end of Obama's -- but there's a risk that it will happen and as such investors have to take precautions.
Have to be a way -- there is -- risk in the bond market and in the dollar but it.
I have been here and that -- several years now axle and you don't see that in the way people are acting with their money at least looking at the ten year and that kind of brings us to the point.
A what the Federal Reserve is doing you say.
The trigger for higher interest rates would be economic growth why won't it -- the federal or is are welcome may be able 'cause the Federal Reserve won't act until.
It sees some growth or maybe not.
And then the Federal Reserve has not in control here it is the market come if you have good economic news the bond market might plunge everything -- -- -- reserve has been doing is trying to prevent that.
Communicate keeping interest rates low buying bonds Operation Twist telling folks forget about inflation we focus on employment.
It's all about trying to prevent the bond market from falling off a cliff if and when we get economic growth.
Maybe it will work.
Nothing has worked defendants wanted to work and again maybe they succeed may be everything is going to be dandy but the point is there's a risk things might not work out perfectly and -- -- -- you about a -- what.
And if you look at the tech bubble if you look at the housing bubble is -- very difficult to predict when these -- -- Timing it is difficult so the time to take precautions now not when it's -- Now the tech bubble burst in as a walk in the park compared to debt based -- like no one that we saw during the housing ban it looks like where.
At least set ourselves up for another one potentially Axel thank you so much as great top team Axel mark -- well my --
