Friday, April 15, 2005

Paul Volker on Financial Crisis

Paul Volker who was chairman of the U.S. Federal Reserve from 1979 to 1987 has predicted the coming financial crises, in an article in the Washington Post on April 10, 2005. This man is not some crazy "gold bug", this is an Ex Chairman of the U.S. Financial Reserve, so there is a good chance when he warns of a financial crisis ahead, he knows what he is talking about or at least knows something that the rest of us don't. This is surely the biggest news item of the week, aside from the Dow Jones being down over 400 points this week.

Paul Volker says "there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot."

Paul Volker says "I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change."

Paul Volker suggested that in order to avoid the financial crises, "Japan and Europe should work promptly and aggressively toward domestic stimulus" and "the United States should forcibly increase its rate of internal saving, thereby reducing its import demand."

However, Volker had no confidence that any of these policies will be put in place.

Paul Volker says the U.S. is "skating on increasingly thin ice". Volker predicts the that if the U.S continues on its present course, the deficits and imbalances will increase and that at some time the confidence in the U.S that supports the flow of Foreign investment in the U.S. could fade.

There is going to be something that precipitates this financial crisis and once the cascade begins there is going to be a rush to get out of dollars. However, money may not necessarily flow into Euros, as the economies of countries in Europe are looking increasingly shaky and will get worse as the U.S. starts to decline.

The money will flow into gold, the safe haven in times of crises for over 5000 years.

At this time we will see a gold price of $2500 to $3000 USD per ounce, says Jim Papluva of

As James Turk of says, while we have a gold price below $500 ounce, just keep buying gold and once the gold price goes over $500 US, sit back and enjoy the ride!

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