Pento – Inflationary Death Spiral & The Global Credit Card
April 14, 2012
With investors nervous about the action in global stock markets, gold and silver, today Michael Pento, of Pento Portfolio Strategies, writes for King World News to warn that central planners have us headed into an “inflationary death spiral.” Pento had this to say about the situation: “The three primary factors that determine the interest rate level a nation must pay to service its debt in the long term are; the currency, inflation and credit risks of holding the sovereign debt. All three of those factors are very closely interrelated.”
Michael Pento continues:
“Even though the central bank can exercise tremendous influence in the short run, the free market ultimately decides whether or not the nation has the ability to adequately finance its obligations and how high interest rates will go. An extremely high debt to GDP level, which elevates the country’s credit risk, inevitably leads to massive money printing by the central bank.
That directly causes the nation’s currency to fall while it also increases the rate of inflation. It is true that a country never has to pay back all of its outstanding debt. However, it is imperative that investors in the nation’s sovereign debt always maintain the confidence that it has the ability to do so.
History has proven that once the debt to GDP ratio reaches circa 100%, economic growth seizes to a halt….