While at the New Orleans Investment Conference this past weekend, Chris and I had the great pleasure of sitting down with Grant Williams, publisher of the economic blog Things That Make You Go Hmmm and principal of Real Vision TV.
There will be no smooth transition back to sustained economic growth, he warns
Instead, the distortion of today’s excessive asset prices will require a systemic reset to fix. Either by a deflationary event that destroys the malinvestment, or by an inflationary event that destroys the currency.
Either way, a shock to the system awaits us:
When the 2008 crisis hit, we were “at the brink”. Guys like Jamie Dimon will tell you that we were *this* close to the banking system not functioning, people being unable to get cash out of the ATMs.
If you live in Cyprus, if you live in Greece, you’ve seen this movie play out in real-time over the last few years. You’ve had your savings confiscated by the government or a bail-in.
It may not happen here in the US until the very end, but to say “it couldn’t happen here” is clearly wrong. There’s nothing that says the United States is exempt from the laws of finance and thousands of years of historical precedent. Even though it happens to be in the ascendancy globally at the moment, those things change.
Ask Portugal who used to be the holders of the world’s reserve currency centuries ago. Today they’re just one part of the euro. These things ebb and flow. They rise and fall.
A true systemic crisis is what we saw in 1929 -1933. It is to a large extent what we saw in 1971 when Nixon closed the gold window although didn’t have the same outcome and it didn’t look the same. But we had the punishing massive period of inflation afterwards, so it was a systemic crisis.
2008 was a systemic crisis, too. In 1929 and 1971, the answer was dealt with through the gold standard and through the pressure valve of the gold price. In 2008 they tried a different route. They tried printing money and throwing as much fake money at the whole thing as they possibly could. The worst thing that I think happened, was it did stop it. It was enough to arrest the slide. Did it fix it? No. And that’s the problem. Nixon’s move in ‘71 fixed the system for a while. It was a massive one-off reset that allowed the world to rebuild from a much more solid base.
The same thing in 1929. We went through tremendous unemployment and all the problems that came with The Great Depression, but that gave markets a clearing price. It allowed society to reset.
That’s what we didn’t get in 2008. We had an investment bank go down. We had a lot of people lose their homes. But in many cases, they were homes that they simply couldn’t afford anyway. So being told that you’ve lost your third condo that you’ve bought with leverage, that’s not a great depression-type event. That’s the financial gods coming back and saying, “this is not how it’s supposed to work”. If you’re a dancer in Florida and you own 13 condos all with leverage, don’t start crying when it doesn’t work out.
So what’s likely to happen is another reset of the system. They’re fighting tooth and nail against it and that’s their job. Frankly, if you say to them, what are you trying to do? They’re trying to avoid these outcomes, which is fine.
But these outcomes unfortunately are only truly avoided by not letting them build up in the first place. That’s the problem. Because man has unquenchable thirst for leverage, once the system resets and leverage is cheap again and we’re no longer overindebted, we will do the same thing again. Because that’s how society has become conditioned to grow, through the use of credit. Credit is a fantastic thing in the right circumstances; but it always ends up to be the thing that brings these cycles to an end. And we’re there again unfortunately.
Click the play button below to listen to Chris’ interview with Grant Williams (56m:13s).
Chris Martenson: Hello everyone and welcome to this featured voices podcast. I’m hour host Chris Martenson. It is November 2, 2019. You can probably hear some background noise. I'm at the New Orleans Investment Conference and it's been going fantastic, so far. Had a really wonderful talk. Met some of the members of our tribe here was of course wonderful. Always good to meet our people, but so excited that also here magically is…with us today Grant Williams. He is just absolutely one of my all-time favorite people and one of the best financial analysts and commentators out there. His newsletter, Things That Make You Go Hmm is an absolute international treasure at this point. So here is. He's with us and I we’re going to be talking with Grant today. Grant, welcome to the program.
Grant Williams: Thanks for having me Chris. It’s good to see you in person. Not over Skype for a change.
Chris Martenson: I know. I know. It's just absolutely wonderful. So even before I hit record, we realized we had to hit record because we started to stray into interesting territory right away. Here it is November 2nd; starting in September, the fed started to something very unusual. They started printing like crazy. Hundred and 30 billion dollars a month over the last two months of quantitative easing or balance sheet expansion. Gold is going up. Open interest is exploding. I'm out here in the cheap seats. I’m trying to help people make sense of it. I don't know what's going on and I’d be just absolute enthralled to find out what you think is going on and what you've heard from all the wonderful people you interview at Real Vision.
Grant Williams: Well, it's a great question. I actually wrote about this last week and my conclusion was, the important thing to understand is there is something going on. I've spoken to…I’ve lost count of how many people spoke I’ve spoken to about this repo market dislocation. It’s clear to me from talking to everybody that nobody knows. Nobody actually knows. If anyone gives you a definitive answer, the chances are they’re wrong. Because there is a kinds of crosscurrents going through here. The important thing that I’ve…the conclusion I came to was that, understanding there’s something wrong and this is not normal behavior is the important thing.
So, once you look at it through that lens, it just means that you’re on guard for any signs of where this stress might be showing up. I think the gold market is a perfect example. I think the way the Fed are dealing with is a really interesting example. By going out of their way to insist this isn’t QE. It's exactly the same as what they were doing with QE3. They’re doing exactly the same thing. They want to tell everybody it’s not QE and there’s a reason for that. Because they're worried about the psychological effect that's going to have on people.
Back during QE, does that mean QE3 failed after they had hung up the mission accompanied banners, which any time someone does that in this day and age, it’s a big, big mistake. So, there’s an awful lot happening. It means something, but what it means and where the stress is going to be felt, I don't think we know yet. Is it to do with the banks and liquidity issues? Very possibly. Is the gold market reflecting that? Potentially. But I suspect gold is sniffing out a lot more than just the damage in the repo market right now.
Chris Martenson: Well, thanks. I agree with that and I want to sort of sift through what the smoke is that we might see. See if we can find out where the fire is in this story. Now the former EU President Juncker was famous for saying, when it becomes serious, you have to lie. So poor Jerome Powell. He appears to me to be a person of principle and I like him more when I hear him speak than any of the prior Fed chairman that we’ve had for quite a while going all back to Volker I think in my case. At any rate, that poor guy, he comes out and he's trying to say this isn’t QE. Everything is okay. Don't worry about it. We’re trying to fix some plumbing in the system.
So, here's my limited understanding and we have a very broad sense of listeners here on this program. The repo market is where institutions…you’re an institution, you’re a bank, I’m a bank, you have an overnight funding requirement to meet some regulatory requirements. So, I have money, you have money and Powell was coming out saying, there wasn't quite enough money in the system. But I wander over to the data and I see there’s 1.3 trillion of excess reserves and I'm wondering, there somehow isn’t enough for us to find a way to borrow a little from each other without the fed coming in? All I can interpret is, there is a profound breach of trust in the system that has come up. How do you see it?
Grant Williams: I think that’s a great point. There's two things. There’s an inability to lend and there’s an unwillingness to lend and the two send very, very different messages. Both are dangerous. But I think what we saw in 2007 into 2008 was this lack of trust among the banks. That, as it turned out, stemmed from the fact that they knew how problematic their own balance sheets were and so they didn’t want to lend to other people. Just they made the blanket assumption that everybody’s in the same boat. And guess what? They were.
So I think if this is a lack of trust, which is the most obvious answer to it, then as I said before, I don't think we’re going to know immediately why they don't trust each other. But it will come out at some point, because the Feds are going to have to keep pumping money to this. Obviously, the repos have gone up significantly already. They’ve had to increase the quantum of the repose often every night dramatically just over the first couple of weeks, which tells you that now they’re coming with collateral for people and with money for people. There’s a desperate grab for it, which tells you that before this, people were kind of getting by and now they want that extra cushion.
So, there’s clearly something going on about here. To go back to your point about Jay Powell. I was in a very similar boat to you. When he first took the reins, I listened to every press. I thought, here’s a guy, he understands, he’s not a career academic. He’s a finance guy. So, great career in finance. He gets it. If you look back at some of the minutes of the 2012 Fed meetings when he was on the board, there are things that is quoted as saying, which really are eye opening. I’ve used them in presentations before. But he talked about…he clearly understands what the Fed was doing. What they were trying to do by instilling confidence. What the market was doing in front running. I mean, he got the whole thing.
So, when he took the helm and his first couple of press conferences were very straightforward and he wasn't bowing to any pressure, I made the catastrophic mistake of tweeting out, I like Jay Powell. There, I’ve said it. From that day on, it's almost as if he’s had a peep behind the curtain and he’s seen how bad things are and he realizes that, look, the buck stops with him to keep this thing together now. So he’s walked a lot of that back and he’s now to me, I like the way he carries himself. Gut I think he's also been co-opted now into objective number one is, do whatever it takes as Mario Draghi famously scribbled on a piece of paper before he took the stage to keep this thing together. Because if it goes down on his watch, he’s going to forever be the bad guy.
Chris Martenson: Now, this was really a subjective of my talk earlier this morning. One of the things I alerted people to is just the macro picture. Sometimes it is hard to figure out what's happening when you're too close up. So I said, let's all take a few steps back together. Of course, you look at this thing that the fed is trying to preserve which Jay Powell has the unfortunate task of attempting to preserve is, a third credit cycle. It’s the largest in the world. It’s led to the everything bubble. There's credit stuffed in every possible crevice.
We have the highest level of corporate debt right now. Household debt. Sovereign debt. It’s just everywhere off the charts. As best I can figure, the Fed is tasked with this thing of keeping everything stitched together until growth returns and it’s been MIA for going on 15 years now by the by the charts I look at. I know you have some of the same. So, in your mind, if you were suddenly in Jay's position, what's the plan? What are they really trying to do here given that on the surface doesn't seem to be working?
Grant Williams: I think you’ve articulated well that the plan I think as much as there is a plan was to kind of keep things moving along until growth returned. In previous periods where growth has kind of faltered, there’s always been some big economy somewhere picking up the slack. People point to Japan as it was then the second-biggest economy in the world and they said, well, look. Japan has managed to muddle through this all the way. But Japan when they faltered, the US was growing at a healthy clip. Europe was growing and of course we had double-digit growth in places like India and China.
We've now seen those engines of growth, places like China, they’re down to six percent GDP year end year growth. That's the official statistic. It is the lowest we’ve had in a long, long time and the trend is not reversing anytime soon by the look of things. So without one of those major economies experiencing real organic growth, this thing becomes a lot harder. Europe is a mess. Draghi has walked out the door. Christine Lagarde has come in and her first day in office, she actually said yesterday, she said people should be happy they have a job and not worried about having their savings confiscated through low interest rates.
Now, for the head of the central bank to say that, that pretty much tells you exactly what they’re going to do. They are not worried about the compensation of interest earnings through penalizing them negative interest rates. They’re not worried about that. This is about employment. This is about growth. This is about keeping society together. Look, it's an admirable goal, but keeping society together was never one of the mandates of the central bank. One could argue quite coherently I think that a lot of the problems pulling society apart are down to the central banks, anyway.
The arsonist has been called to put out the fire and they’re doing everything within their power. They’re doing whatever it takes, as I said before. The question is, is it going to be enough? Unless we do get some miracle growth from somewhere, I just can't see them managing to keep this thing going long enough for that growth to return. So at some point, we’re going to face that day of reckoning and throwing another 130 billion dollars every month, every six weeks onto the Fed's balance sheet is not going to make that transition any easier.
Chris Martenson: Now in some ways, my model for this is 2016. You were right there front seats. Adam and I were watching this. We had this beautiful head and shoulders top on the US equity markets. We had Brexit come along real early on and everything looked like it was breaking down. We had global trade figures. Everything is kind of going off the rails. Then magically, it all goes the other direction. Now we know with courtesy of hindsight we see, oh my gosh. China created how extra many trillions of dollars of new credit? They had a massive credit impulse. They threw everything in the kitchen sink. The built empty towers. ECB got in on that.
They cranked up the steepest, the fastest rate of balance sheet expansion. So all this money got thrown in. I’m worried that the central banks learned something which is, oh. We can defeat actual economic signals by just throwing more money at it and this feels like what they're doing again. This I’m a little extra panicked. I think if anybody sees 130 billion a month of QE by the Fed and isn’t a little worried that they are missing part of the story. I think that's a problem. But do you think are they saying, we’re just going to do 2016 again and that's our plan here?
Grant Williams: Absolutely I think it is. Look, they’ve used the same solution to every problem now which is to lower rates and flood the system with liquidity. It's been a solution to illiquidity. It’s been a solution to low growth. It's been a solution to every kind of probably they’ve faced, and they really are out of tricks. It’s interesting to see how many articles if you look for them, you'll see central bank is crying out for fiscal stimulus. But that simply a horse with another color. This is just more money that’s going to be generated from nowhere and thrown at the problem.
Look, I don't know whether they believe that this is the solution, or it literally is the only thing they’ve got so they’re just going to do it until it doesn’t work. I suspect it’s somewhere between the two. I think they do have this belief that it’ll work because their models have told them it’ll work, and all the research has told them it’ll work. But we’re dealing in the real world here and it never goes the way your models tells you. There are always unintended consequences and you could argue that things like Brexit and things like Trump and all the populist uprisings we’ve seen are ramifications of that policy. But just look around the world today.
Look at how many protests you’re seeing. People in the streets in two dozen countries around the world. This is not coincidental. They aren’t just doing that. There doesn’t happen to be two dozen different situations that are dragging people out into the streets. This is fundamentally the same thing we saw in the 1920s, which is the roaring 20s exacerbated the wealth divide in America. The one percent and the .1 percent in America, which is what I’m going to talk about in my presentation tomorrow; became insanely wealthy. It caused great social upheaval. It caused the Great Depression when this thing burst.
One of the big problems that I think we have as humans is, when you look back through history and you see the parallels, generally speaking, if the parallels are good, no one’s really worried about it. We saw these conditions when we had tremendous growth after it. It's great to talk about. But when you go back as I’m going to do tomorrow and show what happened in the 1920s and what happened in the 1930s, people kind of think you’re a doom monger and…stuff. We’re not going to have another Great Depression. Look, maybe we don’t. But the people who say, we will never have another great depression. They’re out of their minds.
I mean, these things have happened throughout history. Yes, the last one hasn’t been for 80, 90 odd years. But that’s not to say it can’t happen again. All the building blocks that we saw in the 1920s and into the 1930s are in place for the same thing to happen again. So, you don’t have to believe it’s going to happen and not I'm saying it is going to happen. What I’m saying is, these circumstances led to it happening before and the chance that they don't lead to it happening again is not zero and that's the important thing. People that deal in zero percent and a hundred percent chances of outcomes are missing the big picture here.
If you think there’s a one percent chance that we have another Great Depression, then you need to sit down and think about okay, how does it come about? What does it mean for the world? And from an investment standpoint, what does it mean for me and my portfolio? What do I have to do to give myself the best chance of dealing with that? If it’s only a one percent chance in your eyes, you don’t really have to spend much time thinking about it. But at least think about it. If you think there’s a 10, 15, 20 percent chance it happens, then you’ve got some real thinking to do.
Chris Martenson: Well, absolutely. In my case, even if there's a 1 in 10,000 chance…here's my example. I won’t get on a 737 Max right now. It probably is a 1 in 10,000 or less chance of going down, but I can assess that say well, pretty low chance. But catastrophic outcome. Not going to participate. When I can do something else and fly an Airbus 320. Why not? So you’re just talking about being a prudent rational investor and I get that. Unfortunately, I think our marketing machine is just try to keep the faith on everything. So, this is really…all credit based systems are faith based on some level. Ours, the more credit you have, the more faith-based it becomes.
So, I get why the fed is like, everything is fine. Don’t look at this. Hundred thirty billion, we’re just throwing this back in here. It's insurance. But really, they’re fighting something, and they don't want us to know what it is. The more they do that, the more I suspect it’s actually pretty bad. But that’s a normal thing. I want to get back to this idea of the social divide. As Plutarch said, a gap between the rich and poor is the oldest and most fatal ailment of all republics. So inarguably, I think the central banks rescued markets. They have the courage to act. All that stuff.
At the same time, they've given us the largest wealth gap in all of human history. Last figure I saw was five people have as much wealth as 3.8 billion. The bottom half. We know that the average median household in the United States doesn’t have four hundred bucks to rub together in an emergency. The Fed is really the proud owner of those statistics, yet they pretend as if nothing is going on. Do you think they are aware of that and if they are, how does this factor into their thinking at all?
Grant Williams: It's a great question and I go backwards and forwards with this all the time. I struggle to see how so many of us that are involved in markets can see the linkage so clearly and yet they can’t. But people I know that have lived and breathed and worked and moved in those circles have told me, look. They are pure academics and they really don't see these linkages. They believe the models. They believe everything they’re doing is right and they’re doing what their models tell them to do. I don’t know. I mean, I find it very difficult to believe that people of this level of intelligence don't see the links.
I'm sure they don’t want to see the links. I'm sure they are willfully blind to the best degree they can, but it's clear. I mean, the linkages are very, very clear. If you want to sit down and draw the lines between central bank policy, housing market reactions, wealth inequality divides; they’re right there. We’ve seen…so far we’ve seen two major resets of the system. One back in 1933 when FDR confiscated gold and reset the system. The other one in 1971. Again, at the root of that was a reset of the gold price. Because that is the anchor to finance. It is the anchor to the financial system and it’s the only…I call it the apex predator in presentation I did last year.
At some point what the central bankers have done in terms of creating this completely fiat world around us, at some point, the stresses on there are going to prove such that we do get a ‘29 like event. It may not be the same, but it’ll be similar or 2008. This is when conversations about the gold standard come into play. The point I was trying to make when I did this presentation cry wolf was, if you ask people about the gold standard, they will tell you there’s no way they will institute a gold standard. It won’t happen. They’d be crazy to do it. That's right.
But people look at this the wrong way. The gold standard as I keep trying to explain is not a willing choice made by a set of politicians who decide that decide that, look, decide that we want to be disciplined. The gold standard is a reaction to a system that’s broken down. It's a way of restoring order, restoring sound money, restoring an anchor at the center of the financial system. So it's not a choice that gets made, it's a decision that's imposed upon them by a total breakdown of the monetary system.
Anyone who reads history knows that these breakdowns happen not regularly, but periodically. And they are big events when they do. We’ve had two in the last hundred years. We just have happened to not have had one for almost 50 years now, so people have forgotten about it. So, we will be in that position again and they will have decisions to make and I suspect they’ll make the wrong decisions and then they will have to institute something that restores the sanity of the financial system.
Chris Martenson: Now I have a little moment of schadenfreude, because I’m a bad person this way. But when Argentine basically floated the hundred-year bond, I was just jumping up and down going, anybody who buys this is an idiot. Seven and three-quarter percent. Are you…how many times have they defaulted in a hundred years? What eight? It’s not like a nonzero probability, as you’re saying and yet, people bought them and guess what? The inevitable happened what, two years, three years later? Whatever it was. It was not a long period of time. So, I'm interested though and I’m quite envious of your ability to interview all the people you do on Real Vision TV. Some just amazing experts.
I’m wondering if you have a synthesis of their views. Let’s see if it's captured and what the Dutch National Bank said. So, this is a national bank about a month ago came out and said, oh, hey. Nothing to worry about, people. But there's a couple of awful scenarios we can think of where we might have to be forced back into this gold standard. For a national bank…for the Dutch National Bank to say that I thought was extraordinary. It's not a usual thing that comes across my financial screen very often. So I’m wondering if you could interpret that and if you're catching that sort of a vibe from the people you interview who are very deeply invested and very knowledgeable about the financial system and how it works.
Grant Williams: One thing that’s been common when talking to people is an increase in not just the number of people who are starting to look at gold, but also the profile. We’ve had in the last few months we’ve had Paul Jones call it his number one trade for the next 12 to 24 months. We’ve had Ray Dalio write very eloquent about the 1930s and why anyone that doesn’t have gold in their portfolio is missing the point. We’ve had Stanley Druckenmiller say that it's his biggest currency allocation. He thinks it’s a currency, which he thinks is a great way for people to think about it.
So, as you talk to people in the last six months, it's been very noticeable to me the increase in the number of smart people who aren’t gold bugs, they’ve not been out banging the drum about gold, but they all started to say, you know what? Now is the time when I want to own some gold. Look, they want to own it for all the reasons that we’ve spoken about. They want to own it in case there is some sort of systemic meltdown. To want to buy gold at 1,500 because you think it’s going to 2,000 is to miss the point. I mean, there are plenty of things you can speculate if you want to make a 30 percent gain. I just don't happen to think that's what gold is for.
I understand why people are attracted to trading…it trades very well. It’s volatile. It has all the thing you want in a training vehicle. But that’s not why I own it. It’s why I very rarely talk about the price of gold when I present about it or I talk about it because it's just secondary to me. It’s an insurance policy and to Stan’s point, I think he said it very well. it's a currency. So people are noticing it. People are starting to think about it and people are starting to allocate to it. You and I know perfectly well, that as small as the gold market is, it doesn't take a big shift.
It doesn't take a big allocation on the part of the average pension fund to really move the needle in gold itself. Then with all the inherent leverage in the mining stocks, yeah, I mean, those things still despite golds run up to 1,500, the miners are still the most hated stocks on the planet. Which is both fascinating to me and provides a great opportunity for people that want to actually do the thinking that we’ve spoken about and start looking at some of these companies.
Chris Martenson: Well, indeed and most pension have a zero percent weighting towards gold at this point in time. So even going to .1 percent will be a seismic shift. As we know here at this table, it's a very small market and there's not a lot around it. If you want to subdivide it even further, silver, it’s said that there's maybe a billion ounces out there available and a lot of that's got industry’s name on it. But let's imagine you could buy all of those at the current price of I’ll say 18 dollars give or take. It would take 18 billion dollars to buy it all assuming you didn’t move the price while you’re doing that.
But 18 billion when the fed just created a hundred thirty billion. Well, it’s literally just a few days of fed pocket change is the entire world market for silver. That’s part one. Part two, the price has been suppressed for so long. Hitting a high in 2011 and just seven years of doldrums, eight years of doldrums that being here to a resource conference, they’re still struggling. They’re basically at their marginal cost for production, so not a lot of new investigation has happened. Not a lot of new exploration. So this is where I think finance in all of its wonderfulness comes in with its COMEX markets and doing all that fancy paper stuff is this divorce reality.
The place we’re going to feel that most acutely in my world is in oil. Oil prices have been below the cost of exploration and discovery and companies have missed about 1.7 trillion dollars of first investment decisions or FIDs and it hasn't happened. The idea, the conceit I think people have is oh, but when the time comes Chris when it gets to a hundred a barrel, they’ll just go do that. I’m like, yeah. With a five to seven-year lag and next thing you know, there's a big shortage in there. So, my question here is around, do you think…is that a fair way to look at that somehow prices and value have gotten so divorced that the prices are giving us the appropriate information that we used to get?
Grant Williams: I think you have to separate oil and precious metals with that, because oil is priced in dollars the world over. There are very clear moves being made by the Chinese, and the Russians, and the Turks, and the Iranians and kind eastern side of the world to deal with that. To find a way to transact oil and let’s just call it currencies other than the dollar. Some announcements have been made recently to that effect. Gold and silver on the other hand trade in local currency everywhere. You’d be hard pushed to find a currency outside the US dollar where these two metals haven't made all-time highs and aren’t currently trading at all-time highs.
So there is this kind of disconnect about doldrums since 2011. That really is a US dollar phenomenon. Yes, the oil price is down about 20 percent since the peak in 2011. But got to Australia, Canada, New Zealand, Indonesia, India, Japan, Europe; they’re all trading at all-time highs. So if you had gold as a currency allocation as Stan Druckenmiller did for some of your savings, you’re doing just fine. This really is a dollar phenomenon. Oil is different and I think your point is well taken. But a lot of these things have been driven certainly recently by the strength of the dollar, which I understand, I don't think it lost much longer. Could we have one more spike? Yeah, we could simply because there is this shortage of dollars and I think the repo situation perhaps is a part of that.
But as the dollar weakens, I think you will see the price of commodities in dollars start to move higher. Potentially significantly and they would certainly be reflecting the inflationary pressures that we are seeing despite what the fed wants to tell you what the CPI is. We all know it's been nonsense for a long, long time. It's getting harder and harder I think for them to talk about being unable to create inflation with a straight face, because the evidence is there for anybody that lives in the real world and not in these academic ivory towers. We all know that the inflation is not just above what feds say it is, but it's multiples of it.
Chris Martenson: Well, indeed it is. That's the program of financial repression, which includes some multipoint program but it's the way to allow the government to live beyond its means or other debtors as well. But the government being the prime one. I think just surpassed the 23 trillion-dollar mark here in the United States and oops. Over a trillion dollars of deficit in the last calendar year. So that's interesting. When I look at really where this is going and where it might go, I don't like sounding like a catastrophist, but I’m somebody who studies these things very carefully and carefully and I was really taken after 2008, probably around 2010.
We got the autobiographies. We got Polson writing one. We’ve got Mervyn King. Both of them are saying we were within hours of a full-blown systemic crisis. We had newspaper reports years later coming out, ha, ha, ha, in Wall Street Journal. Isn’t that funny that the CEOs of banks were getting cash out of ATMs on their way into emergency meetings, because they did know if the ATMs would be up at the end of the meeting. That's how close we got. They tell us, that can't happen again. But we even here in this interviewer we’ve said things like, systemic crisis. I think a lot of people don't know what that really means and I’m not here to paint a very darkened in the picture, but I'd like people to know what's possible in this story. What do you think is possible?
Grant Williams: Well, to your point, we were “at the brick”. Now we don't know what that brink looks like. But when you talk to the guys like Jamie Dimon, who will tell you that we were this close to the banking system not functioning. People being unable to get cash out of the ATMs. That is, for I think particularly people in the United States that’s a problem. If you live in Cyprus, you live in Greece, you’ve seen this movie play out in real-time in the last few years. You’ve had your savings confiscated by the government - a bailin. So all these things that people think…those famous words, it couldn’t happen here.
It may not happen here until the very end, but to say it couldn't happen here is clearly wrong. I mean, there’s nothing that says the United States is exempt from the laws of finance and thousands of years of that, it happens to be in the ascendancy globally at the moment. But those things change. I mean, ask Portugal who used to be the holders of the reserve currency. Now they’re just one part of the euro. These things ebb and flow. They rise and fall. So, a true systemic crisis, I guess is what we saw in 1929, 1933. It is two a large extent what we saw in 1971 when Nixon closed the gold window. It didn’t have the same outcome.
It didn’t look the same, but we just had the massive period of inflation afterwards. But that was a systemic crisis. 2008 was a systemic crisis. The first two I spoke about the answer was dealt with through the gold standard and through the pressure valve of the gold price. 2008 they tried a different route. They tried, as we’ve said, printing money and throwing as much fake money at the whole thing as they possibly could. The worst thing that I think happened was it did stop it. It was enough to arrest the slide. Did it fix it? No. And that's the problem. Nixon’s move in ‘71 fixed the system for a while. It was a massive one-off reset that allowed the world to rebuild from a much more solid base.
The same thing in 1939. We went through tremendous unemployment and all the problems that came with The Great Depression, but that gave markets a clearing price. It allowed society to reset. That's what we didn't get in 2008. We had an investment bank go down. We had a lot of people lose their homes. But in many cases, not all obviously, but in many cases, they were homes that they simply couldn’t afford, anyway. So being told that you’ve lost your third condo that you’ve bought with leverage, that's not a great depression type event. That's financial gods coming back and saying, this is not how it's supposed to work. If you're a dancer in Florida and you own 13 condos, all with leverage, don't start crying when it does work out.
So what's likely to happen is another reset of the system. They’re fighting tooth and nail against it and that’s their job. Frankly, if you say to them, what are you trying to do? They’re trying to avoid these outcomes, which is fine. But these outcomes unfortunately are avoided in not letting them buildup in the first place. That is the problem. Because man has an unquenchable thirst for leverage and once the system resets and leverage is cheap again and we don't over indebted it, we will do the same thing again. Because that's how society has become conditioned to grow through the use of credit. Credit is a fantastic thing in the right circumstances. It always ends up to be the thing that brings these cycles to an end, and we’re there again unfortunately.
Chris Martenson: Now you mention Ray Dalio earlier and one of my favorite charts was put out by Bridgewater Associates and shows, all that debt we’re talking about plus the unfunded liabilities. He calls it the IOUs, the promises of the nation. Right now, the promises of the United States collectively when he put this out two years ago were 1,100 percent of GDP. We have one world record holder that managed to work its way out from a 260 percent leverage ratio at a national scale and that was England and that was in the period of 1815 onwards.
Of course, two things happened. They got to dismantle the Napoleonic war machine and that had this little thing called the Industrial Revolution and the steam engine come along. As we cast forward and by the way, I've taken that same graph and I showed it to Bradley Belt who’s the former director of PC. The Pension Benefit Guaranty Corp. and I said, Brad. How do we get out of this? And he said, “growth?” With a little question mark. He had that little quizzical growth. It's the only answer. I don't see the engine of growth. I don't see that steam engine. We’ve had the internet revolution.
Energy is much more expensive. When we grow, we find certain limits. I’m the resource guy and I think that the natural world ecological world is saying enough. You’re not going to get more fish from this ocean. The soils can’t give more than they already have. Insects are disappearing. So we feel like we’re already at the edge of this story. But somewhere in the system there has to be…they must have a narrative that says we’re getting back to growth. What are they hinging that on do you think?
Grant Williams: Well, the same way that you and I can sit here and tell people they need to think seriously about the ramifications of some kind of great depression type event. We have to sit here and think through the ramifications that hey, there could be some miracle growth come out of somewhere. I mean, it could happen. If it did, then it would change the narrative completely. But everywhere you look, this amount of debt is deflationary. The demographics everywhere you look pretty much are deflationary. We live in a deflationary environment which when you have this kind of debt level is the kiss of death. That's the bell ringing for you.
Technology is the big bright hope, but technology tends to be deflationary. We are creating fantastic products. I would argue a lot that we don't need, but most of which reduced the need for humans to operate them. At the same time, the revolution is in longevity. So we are creating generations, we will live longer and require more aid from the state. Now if longevity works and I was told at a conference earlier this year that if I could make it until 2025, then I would have a really good chance at living as healthy as I'm at that stage until I’m 110. Which I don’t know. I’ve got some serious work to do. Because I don’t want to live like this for another 60 odd years.
But they're are possibilities out there, but with each one of them comes the threat that it will actually require more resources, more time and that to me is a concern. We’re not seeing the great physical infrastructure growth everyone talking about that's the answer as we start throwing fiscal spending at infrastructure projects. That's great. But the US built the highway system in the 50s, which was phenomenal and led to enormous growth. Repairing them is not going to have the same effect.
Building more highways realistically, I mean, a quantum of that as opposed to what it did in the 50s is going to be negligible. Can they do that in China? Well, they’ve already thrown those dice in China. Can they do it in India? Yes. But it's not going to have a global effect. The rest of western democracies are in the same boat. So, can we find some growth from somewhere? It’s possible. It's possible. And I think there is more chance of a bad outcome than there is of a miraculous growth spurt somewhere in the world that lifts all boats. But it's something that we have to think through as a potential outcome.
Chris Martenson: Great summary. As I think through the various technological things, yeah, we got the robotics. We’ve got AI. Some great productivity improvements can easily come out of that and a lot of people are going to lose their jobs as a consequence, as well. I was at a think tank talking about the future jobs and they were looking at AI. I’m talking with people from DARPA and I asked a guy directly, what jobs can AI not do? He thought long and hard. Puzzled up a bit and he said, give a human on human massage. But everything else legal fee…every other possible thing he was parsing through…everything that you think a human can do, AI can do better.
I don't see that is being a great growth spurt. It is for the capital owners who own the AI, but for everybody who’s out of work, it creates a different sort of condition. So, I'm not surprised given all those pressures that we’re hearing now for the first time rumblings in the United States of modern monetary theory. MMT. This idea of money for Main Street instead of for Wall Street. I understand. I was very sympathetic to how that view can come about. But what are your views on the MMT pushes? A possible savior, which hinges on this one idea. Governments can issue as much money as they like and it's not inflationary, because reasons.
Grant Williams: Yeah, right. Look, two things. I think it’s coming. I think we better get used to the idea and I think it’ll fail. It's that simple. Will there be a honeymoon period where it looks like it's working the same way all the stimulus plight of 2008? Yeah, it's very, very possible. Because it’ll be another massive dose of liquidity. But I think had they done MMT in 2008, they would've had to throw a lot less at it then they will now thanks to what the central banks have done. But look, if you look at the campaigning for 2020, you will see that the policies that are all gaining traction are all redistributed. It’s taking money from the rich, whether it’s in taxes or wealth taxes.
It’s helping the poor whether it be writing off student loans, or universal healthcare, or universal basic income. This is again another outcome of this divide between the haves and the have-nots in society. Which again, as can be traced directly back to cratering interest rates and allowing asset bubbles, which obviously, enrich the people that have the assets, which is not the poor, unfortunately. So these policies are very appealing to large sways of society who have been left behind. The data is all there. They will absolutely get votes and so they will absolutely be used.
Whoever runs on the Democrat side is going to offer all kinds of handouts because they’ve got a young voting base who are energized. They didn't like what saw at the last election. They feel like it was stolen from them. They don't like the way American politics has turned in the three years since the election of Donald Trump. They will lash out against that and they will vote for the other side. I think Liz Warren is a lot more dangerous than people think. I think if she ends up running against Trump and I know Trump would like to run against Liz Warren. I think she embodies everything that he isn’t. She is a woman. She is a democrat. She is erudite. She is composed. She is calm.
So, I suspect people will vote for her just because not only is she not Trump, but she’s the antithesis of Trump at every single way. There will be plenty of protest votes that will vote for this. So, I think MMT in one form or another is absolutely on our horizons. We need to get used to the idea. We need to think through what it will mean. I suspect it will mean more of what we’ve seen in terms of the inflation to asset process, but I think it will not get the kind of traction that their studies will have told them. Because they will be thinking about, okay, what's the number? I think their number will be wildly low versus what they will actually need for this thing to actually move the needle.
Chris Martenson: I'm wondering if MMT has ever been tried historically, are you aware?
Grant Williams: Chartism as they called it back in the day. Look, it's been posited, kind of dabbled with but it's never been adopted in a mass mainstream economy. But that's not to say that the textbooks and the white papers don't make it look like it’s a shoe in. I think the more they talk about it and the more they talk about how great it is for the people who have been left behind, the more chance that it's something that’s going to galvanize voters into voting for candidates and once they get a whiff that offering MMT is the way to get people to put an X on a piece of paper, they will go for it full force.
Chris Martenson: So I spend an unfortunate amount of my time online, and on social media, and Twitter, and Facebook and sort of getting the Zeitgeist of what's happening. One of the vibes I’m picking up more and more is from young people. Let’s call them 30 and under who’ve really checked out from the system. They’ve said they’ve looked at it and they said there's nothing here. They don't like the bullshit jobs in David Graber's terms. They’re not depressed. They’re described as depressed. What they are is demoralized, which is what happens when your cognitive map no longer aligns with the reality you're facing.
So in America, our cognitive map breakdown is, hey there’s this thing called the American dream. You're going to go to college. You’re going to get a good job. You’re going to get a house. 2.5 kids and then there’s retirement waiting for you. A lot of younger people peer down that path and they go, bullshit. It doesn't map anymore. It doesn't make sense. I'm wondering, to me, that’s at least part of the political vibe that’s going on here. But I’m seeing this more and more and I think we’re seeing it in the environmental climate protest that have shown up. Young people are increasingly saying, hey boomers. I'm not sure what y’all have done. But I'm not in on this. I'm not clear where they go with that. I’m wondering if you have any thoughts there.
Grant Williams: I do. I think this boomer, millennial as a Gen Xer who’s stuck in the middle of this, it’s actually a really interesting question. Because I think this boomer, millennial…it's not quite a conflict yet. But something's brewing there. Just this week, I saw someone had put a tweet up and there’s a meme going around that’s okay, boomer. It's basically millennial's giving stick to the boomers about talking about how in my day and my day and calling out on what it's like to be millennial. I thought it was a very cleverly done thing and it highlights a very important issue. I posted this thing and immediately into my twitter feed, people were getting into fights with each other. You’re a boomer. You looked after yourselves.
Or you’re a millennia. Talk divide is very, very real. These are two generations that struggle to communicate with each other because their experiences have been so different. There is no argument. The boomers have had everything go their way. Everything. The people who are going to be left to pay the bills are the millennials and the homeland generation after them. They are going to foot the bill. So the angst is palpable and it's credible. There is very, very good reason for the millennials to be angry at the boomers.
Now look to a large extent, it was their lot in life about when they were born. But the boomer generation as they’ve been in power have…they’ve not gone out and voted against anything that’s in their best interest that’s for certain. We are at an interesting point, because when you look at the rise of people like AOC, you look at the rise of millennial politicians. We’re close to that point where the millennial generation in the next sort of 10 to 15 years will be the guys in power. They’ll be the guys voted into positions of authority and they will start voting for their generation. Neil Young…Neil Young.
Neil Howe and Bill Strauss wrote a book called The Fourth Turning. Which I’m sure a lot of people listening to this would have read if they haven't they should read it. If they’re read it, you should read it again. I spent some time with Neil recently talking about this. This is not something that hasn't happened before. Generally speaking, again, we come back to this idea of conflict around a fourth turning, which is where we are now. This is when the system gets poked. It’s when it gets reset. Not just financially but societally.
All the signs are there that is growing divide between millennials and boomers is really just beginning. Well, it’s not just beginning, but it's beginning to manifest itself in anger and if not direct physical confrontation between the two, thank God. But there is clearly confrontation brewing because the millennials now are starting to have voices like AOC who are very appealing to them. They have the floor; they have the microphone and they can articulate an entire generation’s angst. That’s something people need to be very, very aware of.
Chris Martenson: I'm glad you brought up Neil Howe. We've interviewed him a couple times. So anybody who's interested, check out the Fourth Turning interviews with Neil Howe on Peak Prosperity. You can see him in other places, as well. Every time I think of that interview and what I've read in The Fourth Turning, my hair stands up a little on the back of my neck, because it's mapping really well. We interviewed him what, six, seven years ago or something. It’s just everything that he said was going to happen has sort of been falling line. The general theory is that the generations go through their cycles. The fourth cycle.
The fourth turning, which is an 80 cycle. Last 20-year chunk we’re in the middle of it. He says it goes for another…oh, I forgot. Buy it gets out into the mid-late 20s. But the chance of war arising in that band is very, very high. I think I understand that, now. Whether that's…I feel the intellectual civil war has already begun in my own country, the United States. We’re starting to see the breakdown of communications between Russia and the United States, which frankly is confusing to me as reading Guns of August and trying to find out what happened in 1911. Yeah, it’s like a sclerotic political and family dynasty ruling. Nobody can actually say what happened. The archduke got shot. We’re going to go with that.
But really it was all this bad intent and bad treaties and breakdowns in communication. It feels a lot like that again to me now. So, I get concerned when Neil Howe comes out and say, oh, yeah. War is a distinct possibility. Which again, it's enough, I think people need to factor that in at least enough to dismiss and say I don't consider that a possibility. But to me, it's a non-zero probability in the next 10 years that something breaks out. And I don’t mean like the United States beats up on some countries that’s been under sanctions for 20 years and has its way. I mean, something between Russia and the United States or China or something. What are your thoughts here?
Grant Williams: It’s another one of those situations that to your point it's a nonzero percent chance, as I can see. So you have to do the thinking. Everywhere you look, you see conflict. Whether it is generational conflict. Whether it's east versus west. It’s old versus young. It’s the haves, the have-nots. It's everywhere you look there’s conflict. That's what Neil spoke about. In previous fourth turnings, we had things like the US Civil War was a fourth turning. World War II was a fourth turning. So we’ve had these things occur at this point in history.
I think, for me, when I read that book the first time, it resonated with me simply because these cycles are natural. Everything is a cycle. The man is born, grows up, dies. Everything is a cycle. This is a natural cycle. So, it's not difficult for me to understand why these natural cycles repeat. Every day is a cycle. Every lifetime is a cycle. So, to be here at a point where we’ve been before, where we have a fracture in society, and we have a new young power in the sense a new young generation coming through and an older power resisting that they want to actually take some of what they have and redistribute it.
This has all happened before. So you and I can sit around and talk about this and we can all sit and talk about it. We’re all making guesses about unknowable future. So surely it makes sense to read the past and understand okay, one we’ve been here before. What happened? That’s the best guide we have. Because anything can happen. But as you so beautifully said, this is nonzero percent outcome of a conflict of some sort. By that, I think Neil is talking about traditional conflict that we expect. Not generation on generation, but country on country, man on man. Just talking about them doesn't mean you're a doom monger.
It doesn't mean you’re trying to scare people. This is history. This is history rewriting itself again. As history tends to do, it rewrites history in a very circular, cyclical nature. So that book I think is required reading for people. Neill is a fantastic guy. He’s become a friend over the years. I talk to him whatever I can just to pick his brains about this. Some people say that book is a load of hooey. Which is fine. Read and say you think every word is nonsense. That’s absolutely fine. But at least take the time to listen to well-reasoned historical documentation of previous events and then decide for yourself whether you think the past represents the future or not. Because 99 times out of a 100 it does.
Chris Martenson: The big unknowable for me in that story too is that, I don't know what the next conflicts is going to look like. So, I put on my fantasy fiction writer and I imagine that all those Russian programs working on the high-frequency trading programs, they’ve built little back doors in so that at some point they can freeze a market or who knows. It’s going to have all new components to it because of…I love our global just-in-time integrated delivery system. It's very cost-efficient and it's absolutely not robust. So we had the Yokohama earthquake in 2011.
Takes out one plant that makes a gel polymer and suddenly there's no more lithium batteries being made for cell phones and other small devices that need multiple batteries. That just shows you it was very cost-efficient to concentrate all that in that one plant. That made a lot of sense. There’s a million representations just like that. So, we live in this world where either everything continues to work as is, or we experience fairly sizable disruptions in this story. Again, not to say I know it’s going to happen, but I think somebody who can look at all of that and say, I’m not going to do anything to prepare myself mentally, physically, financially. I’m not going to bulletproof my portfolio.
I’m not going to take steps to take a few chips off the table, because I can't figure out who the sucker is at the table. Whatever the story is, I think this is a time for people to get educated and to take action, as well. Because I think education without action, heck it’s just useless. So what I love is, everything you’re doing to educate people as well and Real Vision TV has just been a phenomenal source of information. I’ve watched that start from its infancy to what it is. It's just been a spectacular story and of course you’ve done it brilliantly well. Tell people about that and anybody you got coming on that you’re really excited about?
Grant Williams: Sure. I have to give a lot of the credit to my partner in crime Raoul Pal. He’s done a phenomenal job in being the CEO of the company and building this enormous machine. I’ve been doing all the interviews and running around the world talking to people and Raoul’s done just a fantastic job. We started out just like you did, Chris. Just trying to give a chance to listen to people talk about how they see the world. How they see finance. What their thoughts are on what’s going on. But do it in a way that is honest and open. It's not a sales pitch. It's not anything like that. It's two financial professional peers, talking about how they see the world.
Whether it’s Bitcoin, or gold, or the bun market, or politics. Amidst all this conflict that you and I’ve talked about, the necessity to make sure that we’re still capable of having a dialogue between people and airing opinions and respectfully disagreeing with them, that to me is the biggest sadness I have is that ability is being chipped away at by the day. I was in Las Vegas a few weeks ago and I had dinner with four or five friends of mine, and we ended up, as you do these days talking about politics. We had two ardent Trump supporters and two people who said that they would vote for anybody but Trump on a matter of principal.
It was a fantastic conversation between four people who disagreed absolutely fundamentally with everything the other person said. But it was respectful. Did we solve anything? No. But did both groups get to hear the other side's arguments? Yes. Did they change their views? No. But it was respectful, and I think that is the biggest thing that we've lost as a society in recent years is the ability to try not to win a conversation but hear out the other side. So, that's a big part of Real Vision is just let people talk. We don’t choose them for their views.
We don’t choose them for their bullishness, or bearishness, or their political stance. We just find smart people and we let them talk. I think that's what we should all be doing now is listening to as many smart people as we can. You have a lot of them on your show. Listen to them, process what they have to say and then decide for yourself whether you agree with them or not. But you have to listen.
Chris Martenson: Indeed. That brings to mind a very recent podcast with Peter Boghossian who wrote a book, How to Have Impossible Conversations. He’s a Portland State University professor and he’s in the belly of the beast where all conversations seem impossible. People now can't have conversation anymore, but it’s so critical to be able to have that flexibility of mind to at least step into the other argument and hold it and entertain it even if you step back out and say, I still don't agree with it. That is a lost art and I share your sense that it's got…that divide has gotten wider and it's why I believe we have an intellectual civil war at this point in time. People don’t know how to cross the divide. It's north versus south and here we are. I worry that that goes further.
But maybe I just have the wrong point of view, but it feels to me like it's getting wider at this stage. So, it's a concern I have. So, it's really important to open your mind, listen to people who have other differing points of view. Ask yourself why they hold those points of view and see if you can find the common value system. Because we all have it. My belief is this next period of time is not us versus them, all these gaps and divides, and all the schisms. We’re all in this together. We’ve got one planet. It’s getting pretty serious. We know we have to make some fundamental changes. We’re going to have to really be more flexible than I think we've ever been to really meet this. So, thank you so much for your time today and it's just an absolute pleasure I knew it would be to sit down and talk with you. I’m wondering if you have any final words.
Grant Williams: I just thank you and Adam. I think you guys do a fantastic job with Peak Prosperity. It's always great, as you do, to give people a chance to listen to all these diverse opinions. I would just reiterate what I said earlier. You can never read enough history. You can never listen to too many opinions. But ultimately, we’re all on our own to sift through what we read and we hear and you have to take responsibility for your decisions. The only way to make them effectively is to take the time to think them through properly. That's what I think is the most important thing everybody should be doing right now.
Chris Martenson: Well, Grant, thank you so much for your time today. We’ve been talking with Grant Williams. You can find him on twitter @grantwilliams. Oh, @TTMYGH. I should know that. I know that. Of course, Raoul Pal I believe is @raoulpal [actually @RaoulGMI] and he is a great twitter feed. I get so much off of his. And as well, Real Vision TV and that would be the place to go and find these diverse points of view. Grant, thank you so much for your time today.
Grant Williams: Oh, great pleasure. Thanks for having me on.