Felix Zulauf on weaponizing the US dollar in response to Russia's invasion of Ukraine

[T]he Biden administration has made many blunders, but that was the biggest by far, weaponizing the U.S. dollar at the SWIFT payment system because that taught the world that is not as close and friendly to the U.S. as some others, that we should not hold our reserves in the U.S. dollar.  Therefore, the U.S. dollar's role as the major reserve currency is beginning to decline.  I think that China cannot store its reserves in U.S. treasuries any longer.  And I think they know that as well as I do.  And therefore I believe that in the current cycle you will see that there will be a shift, once the U.S. dollar has topped...  Those countries will put their reserves into stuff, into hard assets, that they can store within their own national boundaries.  And nobody can freeze those assets...  I think this was so dumb, so stupid, by the U.S. government, it's unbelievable.  They basically terminated the dollar system.

~ Felix Zulauf, interview with Adam Taggart, Essential Investing, 10:05 mark, December 27, 2022

Felix Zulauf on private sector shrinking in the West and growing in China

In think the private sector is constantly shrinking relative to the government sector.  We see that going on everywhere, even in the U.S.  In the U.S. we have jumped from the low 20% several years ago; we are now up to the upper 30% of government share of GDP.  In the European Union we are at 59%, so more than half.  In France we are at 64%.  In China we are at 35%, and I have been traveling to China when it was at 100%.  They have gone in the other direction.

~ Felix Zulauf, interview with Adam Taggart, Essential Investing, 8:25 mark, December 27, 2022

Felix Zulauf on Bitcoin mania

I don’t believe that Bitcoin will ever make it as money used in daily payments.  It is too complicated, the price is too volatile, and “mining” it requires too much energy.  But as long as people think of Bitcoin as a safe store of value, the price could go higher, and it could become a mania.  At the peak of the tulip-bulb mania [in the 1630s], the most expensive tulip bulb cost as much as a house.  That suggests Bitcoin could reach $1 million someday.  But tulip bulbs trade today at only $10 a dozen.

~ Felix Zulauf, "The View From Europe," Barron's, February 20, 2021

Felix Zulauf on economic stimulus and government spending

The government share of the economy will continue to rise.  The more government is involved in the economy, the less productive and efficient the economy becomes.  If productivity falls, prosperity declines.  An ever-larger percentage of the population falls into poverty or near-poverty, and society takes on a bigger role in caring for those people.  We are slipping into planned economies and greater socialism. In the long term, it is the wrong recipe.

~ Felix Zulauf, "The View From Europe," Barron's, February 20, 2021

Felix Zulauf on Trump, Brexit and the anti-establishment political movement

When you look at the current political landscape in Europe and also in the U.S., you see that more and more political parties and politicians are popping up that were not part of the establishment before.  For instance, in the U.S. it was a big surprise for most that Donald Trump took the lead in the Republican Party eventually, and probably become the nominee by the Republican Party.  It was a surprise by many that Bernie Sanders did as well against the established Hillary as he did. And I think this is a reflection of people being completely dissatisfied by the establishment for all the economic reasons I explained before.

The same in Europe.  For the last few years we have seen new parties popping up all of a sudden.  In Italy, in Spain, in Portugal, in the Netherlands, in France and so on.  And those are all parties - be they left or right - that are against the establishment.  So the established parties are losing ground big time and that is because people want change.  They are dissatisfied with the results of politics over the last 20 years, and they want change.

And I think you have to look at the Brexit question in the same way.  The British will vote on whether they want to be part of the European Union or not.  As you can see, the European Union was designed to function as a Greater Europe entity, but it only functions well when the sun shines.  When it starts raining and problems prop up, it stops functioning and all hell breaks loose.  And it proves again that the smaller and entity is, the better it works and functions.  And the bigger it is, the worse it gets.  And I think the EU has overstretched it because they want to define every little part of everyone's life, and that is just too much.

~ Felix Zulauf, interview: "Monetary Policies, Outlook of Markets and Gold," Korelin Economics Report, June 3, 2016

Felix Zulauf on the Japanese government's massive debt problem

Zulauf: The Japanese government is in a difficult position, with the country's debt running at 230% of GDP. Japan is in a recession. The budget deficit exceeds 8% of GDP, and could top 10% this year and next. The deficit was easy to finance as long as Japan was running a structural current-account surplus and the domestic pool of savings was large enough to do so. In recent times the country's external accounts have deteriorated, and that could continue.

Japanese institutions have always been the largest and steadiest buyers of Japanese government bonds, or JGBs. They recently announced they lack the funding sources to keep buying on the same scale. Japan Post Bank is an example. It formerly was a government institution in which individuals held savings of more than $2 trillion. It was a big buyer of government debt, as were pension funds and life insurers. All said recently they can't keep buying. The moment has arrived where the Bank of Japan needs to bridge the gap and buy more JGBs with newly printed yen. In other words, the supply of yen will increase dramatically. Japanese inflation will be pushed from slightly below zero to 2%, and the yen will be weakened. This is a major change for Japan, because the yen has been one of the world's strongest currencies for a long time, right behind the Swiss franc.

Q: There is definitely a trend here.

Zulauf: Japan's big life insurers are pension-fund-style entities for the Japanese public. They are big investors overseas, and because of the yen's strength, have hedged part of their exposure to the currency. What would happen if they unwound 10% of their hedges? The four largest life insurers would have to buy $25 billion worth of dollars and sell yen. Many pension funds and industrial companies are in a similar position. The potential purchase of dollars and sale of yen is gigantic. Of course, Japanese bond yields would rise under this scenario, which is another problem, as Japanese banks have 900% of their Tier 1 equity capital in JGBs. To prevent the bond yield from rising, the Bank of Japan will have to buy even more bonds, and print more yen. They will keep things under control for a while, but eventually this plan will fail.

~ Felix Zulauf, Barron's Roundtable, January 21, 2013

Felix Zulauf on the coming currency reform due to repeated financial crises

We are in the final, in the end game, of this system.

It means that we will enter a deflationary period that is accelerating, and the policymakers are trying to counter-act and fight this by using highly inflationary policies. It's sort of a dance on a high-rope, a high-risk dance, and we don't know for certain which way the dancer will eventually fall down to-- some argue it's going to be a deflationary collapse and others argue that it will be hyperinflation.

I think the deflationary pressure on our system will increase and intensify over the next few years and we will come to the point where we will have Lehman, AIG, Citi, in one day happening. At that point in time, there is no way the banking system can handle it.

Therefore, next time, the governments can not come in again because many of those governments are already perceived as bust, too. At that point in time I think the central banks will come in big time and you will see that the balance sheets of the central banks will not expand by a factor of 2 or 3, but of 50, or 100, or something like that.

And once that happens, you will have virtually, in a few weeks, a situation where basically you make our currencies as we knew them, invaluable-- you destroy them.

~ Felix Zulauf, King World News, May 28th, 2010

Felix Zulauf on the gold bull market

The ongoing bull market in gold, which is really a bear market in all of the other currencies, will continue for a number of more years.

~ Felix Zulauf, King World News, May 28th, 2010

Felix Zulauf on gold as the ultimate currency

Big money investors have realized that they need to hide in a currency that has no liabilities and can not be created out of thin-air just by pushing a button or writing a note, or whatever, by central banks.

Gold, I see, not as a commodity but as the ultimate currency, a currency that can not be increased without working hard and getting it out of the ground.

~ Felix Zulauf, King World News, May 28th, 2010

Felix Zulauf: "China is in a dangerous situation"

China is in a dangerous situation. Credit growth is the one factor that all the bubbles that burst had in common. Because China isn't an open economy, the bubble there can probably keep inflating longer than it otherwise would have. But the Chinese can't escape the laws of economics. If China's bubble bursts, it would cause a second hit to the world economy, and that would be terrible...

Where would China be without the huge fiscal programs its government put in place? The numbers already are beginning to come down. Export statistics show diminished growth. China's net exports -- exports minus imports -- are at 8% of GDP. But gross exports are one-third of GDP, so the dependence on exports is much higher than economists say. You can keep the engine running for a while, if you have the finances. If you can't sell the products, you fill up inventories. But that is not a policy for the long term.

~ Felix Zulauf, "New Strategies for a New Era," Barron's, January 18, 2010