This week's podcast sees the return of Mike Maloney, monetary historian and founder of precious metals broker GoldSilver.com.
Based on historical patterns and the alarming state of our current monetary system, Mike believes the fiat US dollar is in its last years as a viable currency. He sees its replacement as inevitable in the near term — as in by or before the end of the decade:
All of this is converging with the crazy experiments the Federal Reserve has done.
I absolutely believe that there are economic consequences to this that are inescapable. The Fed is not just in a box; a trap has been set. And before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system.
The last three shifts in our monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. Then the Bretton Woods system didn't have a reserve ratio specified, but I believe the dollar was about 8% backed by gold by the time Nixon took us off of gold in '71. Now, the only backing that the US Dollar has is the promise to tax us all in the future: it is US Treasury bonds, or the Fed doing its quantitative easing and buying mortgage-backed securities.
And how corrupt is the notion that you can give some entity the power to have a check book that has a $0 balance and they can go out and buy anything they want with that and it just creates currency? That is corrupt in itself.
Think about how immoral this is. First of all, the Fed whipped up that currency not out of thin air but by indebting the public. They buy a Treasury bond or a mortgage-backed security, and now they own the mortgage on your house or they own a Treasury bond that you are going to work for in the future and pay taxes to pay off. And so they give all of this currency to the banks, and then they pay them interest to not loan it out or otherwise stimulate the economy. So they are giving them the gift of interest.
By the way, any profits that the Fed has at the end of the year are supposed to get turned over to the Treasury. Well, they are paying the banks interest that reduces the amount that they give to the Treasury by exactly that amount. So in other words, the public is paying those banks interest. That's where all of the interest comes from. We're not seeing those profits passed on to the Treasury anymore.
Anyway, I do think that this system is coming to an end before the decade is out. The other shifts in our monetary system were baby steps off of gold. Now we have to go from nothing most likely back to something. And it's going to be a financial, economic convulsion the likes of which the world has never seen. It is going to affect everybody on the planet. During the last three monetary shifts, it was only the world's central banks and big international banks that were affected and were worried. The common man didn't even know what was going on. With this one, everybody is going to feel it. Everybody is going to know it. You will either be a winner or a loser, but everybody is playing this game.
Click the play button below to listen to Chris' interview with Mike Maloney (51m:18s):
Chris Martenson: Welcome to this Peak Prosperity Podcast. I'm your host, Chris Martenson and today we are talking with the host of The Hidden Secrets of Money, noted speaker, best-selling author on monetary history and gold and silver investing, the CEO of GoldSilver.com—we are talking with Mike Maloney. Somebody who I consider to be both a fellow educator and a friend in this business. Welcome, Mike.
Mike Maloney: It's great to be here, Chris.
Chris Martenson: I don't have many regrets but one of them is that after we took that absolutely brilliant ride in your Tesla Model S, which completely opened my eyes to what a 21st Century automobile would be like, my regret is that I didn't buy Tesla stock that afternoon.
Mike Maloney: [Laughs] Yeah, you know—I don't own any Tesla stock. My only investment is gold and silver. And I don't regret—I mean I could have bought it at the IPO because I owned a Tesla. And Tesla owners, the people that bought Roadsters and supported Tesla, were sort of offered first shot at this during the IPO. I think it was like I don't know what it was $18 or something like that back then. But I didn't. I've just stuck to my guns and I accumulate gold and silver. And so far, that's it. But I tell you I have been so tempted lately to open up a trading account again and buy some long-term—some LEAPS, some puts on the S&P or the Dow because I think that we are nearing a tipping point here very shortly.
Chris Martenson: Well, let's talk about that. You have studied money, monetary history, and I think both you and I if we were honest we would say we are surprised by the absolute A.) willingness of the population to buy back into a third bubble and B.) the power of printing to actually get people to suspend all disbelief to the point that we have somebody like Janet Yellen—people hanging on her words when she says "oh, I am complacent about complacency. I don't see anything here to worry about." And from my perspective if you are not worried about this historic level of complacency at this juncture with all the geo-political things going on you are absolutely nuts.
Mike Maloney: I believe so, but what it does is it offers an opportunity for the people that are awake. This is the time—I mean right now the volatility index is very, very low. Margin debt is at extreme highs again. They are both in the range where a crisis happens. And gold prices have been beaten to death. So gold and silver for me, I mean I just—I've got a monthly accumulation plan. Every once in a while I buy more than that, and last week I placed a purchase once—the $50 up day for gold, the moving averages were blown through and resistance was blown through. I figured I didn't care if it fell right afterwards; it changed the conditions. And the gold silver ratio: Silver was outperforming gold and that suggests that this is probably—that the bare market in precious metals has probably ended and we have seen the bottoms.
Chris Martenson: Well, there is certainly some confirmation of that in say the leveraged junior minor ETFs and other sort of very volatile and sensitive indicators like that saying that the stock prices particularly the most sensitive ones have certainly rallied quite a bit in the last few weeks here. So that is always possible.
As I look at the daily trading markets, that $50 up day, that did pop in the US markets, but I think today is a more typical example where gold was up in the overnight markets pretty good, 8:00 rolls around and mysterious selling of gold comes along and it's just really contained and compressed. Is this just normal market behavior? Do you think this is just a lot of people with a lot of money saying, all things being equal, I would rather be in high beta stocks than gold?
Mike Maloney: Absolutely not. Gold and silver are a manipulated market. The evidence is absolutely overwhelming. But thank God for the manipulation because without it we never would have seen $250 gold. And gold right now would probably be $3,000 an ounce and there would be no opportunity. The opportunity comes because of the manipulation. I know that that is counter to all the other people that you have talked about that want to try and end the manipulation, but the longer it goes on, the more people are offered the opportunity to get in at just unrealistic, unreasonable—these prices are just stupid low. So people can get in at these prices and the longer they suppress it, the more pressure is built up and the higher it will ultimately go—is my feeling.
Chris Martenson: We have been building several years of pressure, then, and it should be interesting when she lets go. I am really interested in how your Hidden Secrets of Money has been received and what sort of feedback you are getting from that and what sort of opportunities are opening up. Because it is, hands down, the highest quality and most complete tour through money that exists in the world today. What do you have—do you have five of those episodes out now?
Mike Maloney: There are five official episodes of Hidden Secrets of Money. Then we release at least a video a week. But a few of the—I recently did an update to my presentation that is entitled "Death of the Dollar." And that update was extremely well-received. The numbers of Likes versus Dislikes—I haven't' seen a ratio that high before. The whole thing is rewarding. I actually would—this is what I like doing and what I want to do, is to create really high quality information and educate people. My precious metals business just funds that activity. The Hidden Secrets of Money is shot in 18 countries and we have two full-time animators. It is produced like a production that would be for public broadcasting or something like that.
Chris Martenson: So tell me about the reception from it. Are you getting—certainly what we are experiencing at Peak Prosperity is that as the markets keep getting jammed higher we don't feel like we have the full attention of people and that a more robust attention will be coming when things inevitably—this volatility and lack thereof bites us again, as it will. We feel like we will get more attention at that point. Are you getting a solid response from this that feels right to you?
Mike Maloney: It all depends on the episode. I know that we have been in this pull back in gold and silver so when it comes to stuff that is about gold and silver it hasn't been popular lately. The public tends to chase whatever is hot. A lot of times what is hot happens to be yesterday's news. I'm a very counter cyclical person. I go the opposite direction of the crowd most of the time. During this whole pull back I have had—there has been no question in my mind that this bull market in precious metals was not over with. In fact, it really has not gotten going yet. But when it comes to the interest in Hidden Secrets of Money, our fourth episode, which is how the world monetary system works, how we borrow currency into existence. And it basically enslaves us by—it's borrowed on the back of a treasury bond. And the treasury bond has to be paid for through future taxation. But most of the currency supply is borrowed into existence when you buy a house or a car or charge something on a credit card. When you borrow that currency into existence you have to pay it back, but you also owe interest on it. And so whatever prosperity we enjoy as a society today, even if you only use cash, we have to pay for it in the future through future taxation or mortgage payments or car payments. So, as a society it is a pretty weird situation. We owe all of our prosperity back, plus interest [laughter]. It is an insane situation is what it is.
Chris Martenson: There is this economist out of Australia, Steve Keene, and he talks about how it is possible our money system is not necessarily exponentially expansionary, but I don't really have much to talk about in that regard. When we look at real world data what we see are perfectly exponential growth charts for both debt and its associated product, currency. And so those two things have been growing nearly perfectly exponentially. Everything that the governments and their central bank hand maidens are attempting to do is get us back on that path. They have been printing like crazy and Mike, here we are what? Six and a half years into this whole recovery idea of printing like crazy. And when I look at the economic numbers, only at the very headline can you say "oh GDP is sort of advancing." But when you get under the covers and you talk to real people you discover it is getting hard out there. Inflation for ordinary people is much higher than the official statistics would suggest; 1% higher, 2% higher, 5%, pick a number, but it is much higher. And we can detect that in the stresses of people. There are lots of signs of stress out there. But you don't see it everywhere. You are in Southern California—
Mike Maloney: I am in Southern California near the coast. I live very close to the ocean. And my business is located in Santa Monica. And when you talk about inflation, they don't' include housing. Because real estate has been pushed up in this enormous bubble again through quantitative easing or, why don't we just call it what it is, currency printing. Because it has been pushed up so high, rents are insane. It is very difficult around here. I mean I have got a number of employees and it is getting difficult for the employees to make a living these days because rents—it is hard to find a place to live that is less than $3,000 a month.
Chris Martenson: Ouch. And that's just an ordinary place, I assume. We are not talking a castle?
Mike Maloney: No. I am just talking about a one or a two bedroom place. In Santa Monica that is the cost of a little one bedroom apartment.
Chris Martenson: Wow.
Mike Maloney: I'm talking about the places that my employees would be looking for. You go inland a little where it is a little bit hotter and a little smoggier and it starts getting a little cheaper. It is because the average home here—like a three bedroom home—most of those are above a half a million. For every million dollars of home value a mortgage payment would be about $5,000 a month. And there is a level of insanity to it also. I live in the Santa Monica Mountains and there are places for rent there during the summer months that are $100,000 a month.
Chris Martenson: Yikes [laughter]. I'd rather have a—
Mike Maloney: By the way, that fourth episode that describes why it always has to grow exponentially, the fourth episode of Hidden Secrets of Money just went 2 million views a couple of weeks ago. Reception on those types of things has been very, very good.
Chris Martenson: That is really robust.
Mike Maloney: Yeah, thanks. And how is the Accelerated Crash Course doing?
Chris Martenson: Well, it is just out of the gate, we have almost a weekend and a day's worth of information under our belts. We are a little over 40,000 views on the weekend, so we feel good about that. We will see how it does. What we like is that a lot of people, particularly in our faithful have said "Thank you. We have been waiting for something a little shorter and a little updated and a little glitzier." We hope that will help people wake up. And what is interesting, Mike, I have been on Fox news recently and the Glen Beck Show and some other sort of media appearances where people in the media are starting to wake up to the idea that there is something kind of off in the whole resource story. Particularly around the Iraq story. I have just been continually on this idea that there is not as much oil as we thought. And the stuff that is left is just more expensive than the old stuff. And everybody looks at the dollars, but it is not the dollars that matters. What matters is the extra energy from those activities because we run all of Santa Monica and Montague where I live we run that on surplus energy. I don't care if North Dakota is busy churning, fracking, creating a lot of energy but it is using almost all of that to create more energy. So North Dakota is booming like crazy, but they don't have any extra to send. That is what we are talking about in this story. The cheap oil is gone. What is left of it is hard to come by. And guess what? The last best hope, the last best cheap oil reservoirs in the world were where? Oh, Iraq. Where a number of let's call them policy blunders, if we want to be kind, are coming home to roost on that front in terms of world oil supplies. So there is a really, really big story there.
The good news, such as it is, is I think the Iraq crisis is giving the media a little bit of an opportunity to wake up and say "hey, I thought this whole oil thing was behind us, why is it still in front of us?" So we have some opportunities to get that out.
Here is my main summary: if you can't grow oil exponentially, why are you trying to grow your money and credit—or your currency and your credit—exponentially? That is just a really bad mismatch. And it seems like nobody at the Fed has the first inkling that something like reality actually exists.
Mike Maloney: Right. In order for the currency supply—the currency supply has to grow at a certain rate. That means the economy has to grow to match it or something is out of whack. The problem is you can't grow the economy without energy, right?
Chris Martenson: That's it.
Mike Maloney: That's it. Okay.
Chris Martenson: It's really that simple. And what is interesting: more and more people are catching onto the idea this isn't quite right. And this is where I think that the golden age of educating is just about to kick off. One of the things I love is that a lot of things seem to be slipping out of the hands of what I will call the system, the status quo. And one of them is information. Really the number of people, like when you look at CNBC's viewership, I would be just aghast if those were my numbers. It is just a steady erosion. You look at CNN, just a steady erosion. Because frankly, they are putting out a really bad product that doesn't offer appropriate context. It is just a sales job for whatever narrative they want to sell. And guess what? People are not tuning into that. Instead of saying "wow, our product stinks, maybe we should do this differently," they just keep doing it. Grinding those businesses into the dirt. And meanwhile, the internet is over here quietly taking all of that mind share and eyeballs gladly from them. And that is the interesting part to me, Mike, is the system doesn't seem to be self-aware enough to know how to change its behavior or something. I don't quite understand it yet.
Mike Maloney: Yeah, you know, changing the behavior would require shifts in power and taking away power from some entities. And these entities have a vested interest in staying right where they are at. The way the government works and the way central banking works, and the way the big banks work—they don't want that to change. And all of that would have to change in order for the economy and the currency supply to be in alignment with one another and to be in alignment with energy supplies. So this is a big threat to them. I think what is happening is that they are just pushing this thing and will keep on pushing it out to the limit until one day the whole thing sort of implodes.
Chris Martenson: Let's talk about that implosion. I don't know anybody better to talk to about this, and that is the idea that the implosion will be talked about and experienced by many people as a wealth destruction. You have always described it as a wealth transfer, why is that?
Mike Maloney: Well, the true wealth isn't destroyed. It is just transferred. People think that the currency is the wealth. And the currency just stores economic energy, temporarily. I mean you create something, you work for something and you trade that for currency. And basically, the energy that you put into the thing that you created or the product or service is now in that currency and it is economic energy. And the currency is just used to divide it up, store it over a period of time, and you can deploy the purchasing power when and where you need it in the amount that you need. So that is all currency is for. People mistake that for wealth. The wealth is all the stuff in society that currency is used to buy. The wealth is apartment buildings and cars and oil wells and power plants and factories and office buildings. Especially the things that can generate an income for somebody, things that cash flow. So that is the true wealth. And in an economic collapse, that stuff does not get destroyed, it just changes hands. The people that are out on debt especially end up—like, during the Great Depression there was a huge wealth transfer. Anybody that was way out on debt lost their farms, they lost everything.
I am expecting a short-term deflation that the Fed can't control. People think that the Fed can really control things. All they can do is influence the economy with what they do. They can increase the quantity of base money, which is the paper currency that exists, basically, and the reserves that the banks hold on deposit at the Federal Reserve. And then when the banks' balance sheets are too cash heavy they want to go out and loan that currency. They can also take cash off of the banks' balance sheets and put more bonds on the balance sheets and that causes the banks to raise interest rates, thereby slowing down lending and cooling the economy off.
But the fed does not have a direct link to the economy where they can instantly control it. And most of the currency supply comes from us borrowing currency into existence when we buy a car or a house or sign a credit card, and if the public gets scared and they start paying down more debt—when you pay down debt, the currency used to pay that debt down is extinguished. When the currency meets the debt on the books at the banks, they cancel each other. If the public gets scared and stops borrowing more into existence each month than they pay off by paying down debt, then the whole currency supply starts to collapse—it starts to go into a deflationary collapse.
And I think, and this is what I wrote back in my book back when the book was released in 2008— I was writing this in 2006 and 2007—is that there would be this short-term deflation and all central banks are scared to death of deflation. They do not want deflation. And so the reaction by the world central banks would be to print until deflation gives way. Potentially causing hyper inflations.
And the deflation I am talking about is a contraction of the currency. Not all prices will be falling. The stuff that people need to survive will probably continue getting more expensive. You live in a situation where if things go bad you will be okay. I have a bunch of emergency food and I got a Berkey water filter and I live on a property that has a year round stream that runs through it. I've got water and food and I feel okay. So yeah.
Chris Martenson: It's interesting that the central banks do fear deflation and the press goes out of its way to dutifully report that things like inflation is dangerously low and to really talk about deflation as if it is a bad thing, but then can inflate it with the idea that that is the same thing as prices falling. And so that is how we know that there is dangerously low inflation because prices are low. The truth of the matter is you and I and everybody else in the world loves low prices. Why wouldn't we want low prices? We want prices to be falling. In fact, they should be falling given technology gains, process efficiency improvements, increased manufacturing capacity—all of those things are good reasons for prices to fall. Yet the Fed and other central banks pretend they are looking at those prices. I don't think they are dumb. They know better. They don't care about prices. Honestly, Mike, I don't think they care if your tomato sauce costs $100 million next year or a penny. They don't really care. But they do care if credit and currency are growing in the banking system. I think that is the whole game. It is literally that simple. Either those things grow or they don't. And if they don't it's bad.
Mike Maloney: Well, in a deflation, debtors are punished and savers are rewarded. Since the government is the largest debtor, that is something that they don't want.
Chris Martenson: Hmm, conflict of interest.
Mike Maloney: They don't want the government punished for its irresponsibility. It becomes much harder—in a deflation tax revenues will go down, but the amount that the government owes on all the bonds that it issued isn't going to go down. That is a fixed number and they are going to have a lot harder time paying it without basically repudiating its debt and basically declaring bankruptcy.
Chris Martenson: I know this has been going on for a long time. We are in our fifth year of jamming, the stock market has been on a ruler-straight upslope for about three years now and—
Mike Maloney: Doesn't that ruler-straight thing—which, by the way, it is sort of like a wedge pattern that is coming to a peak right now. The look of that thing is very suspicious.
Chris Martenson: You think? [laughter]
Mike Maloney: Go ahead and finish your thought.
Chris Martenson: That is kind of my thought, but what I see is that the Fed is really in a box. You have mentioned one of their mechanisms for getting out of this box is to take the things on their balance sheet, which are the assets, which are frankly just treasuries and mortgage backed securities. Let's call them securities. They can take these debt securities and move them off of their balance sheet, push them back out into the market and force people or banks to take them and thereby remove some of the currency from the system. Theoretically that causes rates to rise and banks would lend less. That is their typical leaver to control things once things begin to overheat. I don't think they can do that anymore. I don't think they have the capability.
Mike Maloney: No they can't. They've trapped themselves.
Chris Martenson: So if they can't do that—I was talking with Axel Merk recently and he agreed with that and he has got William Poole, former CEO of the St. Louis Fed and FOMC member, former. He is looking at this whole thing, kind of a hawkish guy anyway, but he is saying there is absolutely no way they can do that, and their only option at this point would be to start raising interest rates on those excess reserves that are held at the central bank. And that is really their only tool. But even that is a tricky thing because, optically, once they start giving banks more of an incentive to keep the money with them rather than lend it out by raising interest rates, they are just handing tens and hundreds of billions to the banks for money they just printed out of thin air.
Mike Maloney: Think about how immoral this is. First of all, the Fed whipped up that currency, not out of thin air, but by indebting the public. They buy a treasury bond or a mortgage backed security and now they own the mortgage on your house or they own this Treasury bond that you are going to work for in the future and pay taxes to pay off that Treasury bond. And so they give all of this currency to the banks and then they pay them interest to not loan it out and stimulate the economy. So they are giving them this gift of interest. And the Fed is supposed to turn over any profits that it has at the end of the year—supposed to get turned over to the treasury. Well, if they are paying them interest, that reduces the amount that they give to the treasury by exactly that amount. So in other words, the public is paying those banks interest. That is where all of the interest comes from. We are not going to see those profits passed on to the Treasury anymore.
Chris Martenson: This is deeply unfair, it is unjust and it angers me because one of the things that happened in—
Mike Maloney: It is evil.
Chris Martenson: Yeah! Well, one of the things that happened recently, legislatively—Congress in its infinite financial wisdom decided to allow a relaxation of the rules around the certain things that banks can get involved in and the language pretty much specifically reads as long as it is directly related to the banking industry they can invest in it. Banks are now some of the biggest owners and players in things like the full cycle chain of commodities. They own the warehouses, they own the mining production, they own the sales end of the whole thing. And how did the banks come to be the owners of those really monstrously valuable, tangible assets? They took advantage of free money that was handed to them that was printed out of thin air. That is a very different dynamic than how you might become an owner of a mine and a warehouse and a distribution mechanism for a solid substance like copper or something.
Mike Maloney: Yeah. You and I would have to work [laughs].
Chris Martenson: Yeah. We would have to work. It is extraordinary. If the Fed has—they got them self in a box though. They are in this box and I don't think they know how to get out of it. I truly think that they are just making ad hoc decisions. I think they look at whatever was on the tape yesterday and they make a decision about whether they are going to taper or not, or something. I don't have a sense they have a real master game plan. What is your take?
Mike Maloney: I don't believe they do either. This was all an experiment, and all of these quantitative easings and currency creation—and the quantitative easing, you know, they have tapered, but they are still doing it. They might taper down to zero, but the point is: this is an extreme emergency maneuver to create all of this currency. And they did it on a scale that has never before been done. And the fact that here we are, five years down the road from the crisis, and they are still doing it? So what is—if the emergency is supposed to be over with, why are they doing these emergency maneuvers? There is something still sick behind the curtain that the public can't see.
You know, when I was writing my book—I am a believer in cycles. And I started loading every crisis and stock market crash and so on that the US has experienced into a spreadsheet looking for some sort of regularity, some sort of repeating cycle. And something really stuck out at me, and that was that there was a shift in monetary system every 30 to 40 years. And at that time when I did that back in 2005 or 2006, nobody had written about it yet. Now people are writing about this shift in monetary system.
And I just did an update to a presentation that I have been giving for four years called "The Death of the Dollar Standard." We had the classical gold standard before World War I, a gold exchange standard between the wars, the Bretton Woods System from 1944 to '71, and then the Accidental Default when Nixon took us off of gold in August of '71 was the US Dollar Standard. There were some emergency meetings just like there had been in 1922 in the Genoa Conference and the Bretton Woods meetings in 1944. There was emergency meetings called the Washington Accord in '71. But nothing really came of it. As soon as the tie was severed between gold and the US dollar, foreign currency exchange markets sprang up and the default was the dollar standard. Because countries—because a fortunate chain of events for the US Dollar had caused the rest of the world to have to hold dollars, because of the two world wars. This system wasn't designed. If it was designed it is a very, very poor design. The worst of all of them. And it is the longest lived. And it is building up pressures inside of it right now to where it seems like every week there is another nail in the coffin of the dollar standard. And all of these countries making bilateral trade agreements, and Russia and China with all of these deals they just put together that are not going to require the US Dollar any longer. The world is turning its back on US Dollars. And all of this is converging with all of these crazy experiments the Federal Reserve has done.
And I absolutely believe that there are economic consequences to this that are inescapable. They are not just in a box, but a trap has been set and I don't—you are not going to see—before the end of this decade, if there is still a US Dollar around it will not be this US Dollar. It will be a dollar that is tied to a very different monetary system. And the last three shifts in monetary system were little baby steps off of the classical gold standard where it was fully backed. We went down to a 40% reserve ratio with the Federal Reserve in the United States during the Gold Exchange Standard. And then the Bretton Woods system didn't have a reserve ratio specified, and I believe that there was about— the dollar was about 8% backed by the time Nixon took us off of gold in '71. Now the only backing that the US Dollar has is the promise to tax us all in the future. It is US Treasury bonds. Or, theFed during its quantitative easing was also buying mortgage backed securities.
And how corrupt is the notion that you can give some entity the power to have a check book that has a zero balance and they can go out and buy anything they want with that and it just creates currency? [Laughs] That is corrupt in itself.
Anyway, I do think that this system is coming to an end before the decade is out. This one will affect the lives of every—this shift in monetary system—the other ones were these baby steps off of gold. Now we have to go from nothing, most likely back to something. And it is going to be a financial, economic convulsion the likes of which the world has never seen. It is going to affect everybody on the planet. The last three monetary shifts—it was only the world's central banks and big international banks that were affected and were worried. The common man didn't even know what was going on. This one: everybody is going to feel it, everybody is going to know it. You will either be a winner or a loser, but everybody is playing this game.
Chris Martenson: Well, it is interesting then to note that it was just a few days ago I read that Putin's advisor proposed an anti-dollar alliance to halt US aggression, thinking of that as a way to begin to hamstring the US. I don't think many people in the State Department really appreciate the extraordinary degree of benevolence that has been granted to them by this fact that we get to export trillions of dollars and they never come home. And that is just an extraordinary gift to be able to do that. But if the US really had to start paying its own way, with its trade deficit every month being, what, $30, $40, $50 billion depending on the month—
Mike Maloney: Right. Our economy would be vastly different.
Chris Martenson: Vastly different. But, like, poor Greece they are over there like "gosh, we either have money or we don't." They are like the ordinary person of nation states. They have to live with the reality of money. But when you can print your own there is less reality. That is distorting all on its own. So nowadays when I am asked "is the US going to lose its reserve currency status?" The answer is: It is already happening. But it is happening by increments right now. Right? We are seeing people shift and diversify—
Mike Maloney: Yeah, but things are accelerating and there is going to come a day—it seems like some things happen very slowly until the day that it doesn't happen slowly any longer and it happens very, very fast. I think this is going to be something like that where it is going to unfold slowly, like it is, but you can really see it speeding up. I released a video on this—about the beginning of this month I was speaking up in Canada and my presentation was on the nails in the dollar's coffin. We released that video. It has been very popular. But the reason I had to do that video is because they are just speeding up so much, all of these different countries trying to bypass the US Dollar. And all of those excess dollars that are overseas are going to come home. And the way they come home—you remember back in the late '80s when Japan was having the Nikkei stock market boom, the Japanese came over to the United States and they bought up Rockefeller Center and most of downtown Los Angeles and a bunch of—Chicago. Yeah, every place that was Class A property experienced this enormous inflation where the cost of properties doubled in just a few years.
The same thing will be happening when all of these dollars that—when people that have dollars overseas do not need them anymore, what do they do with them? Well, they come over here and they buy something. Those dollars come home and once they are in circulation, of course, we will start seeing much more massive inflation. So we are on a very weird, wild roller coaster of a ride right now and the Fed has made things infinitely worse with their interventions and distortions. I expect, you know—I read a book that was published in '98 called The Great Economic Disorder by Larry Bates and in it he said that wealth is never destroyed it is merely transferred. And when I read that I went "Wow! That means that this is going to be the greatest wealth transfer in the history of mankind." And then Robert Kiasaki started saying it when he was on the news media and now you are hearing it sometimes on the news media. The thing is, it will be. This is going to be an amazing event and all you can do is do your best. It is a pretty scary thing coming at us down the track. There is a possibility that there is light on the other side of this dark tunnel. But, you position yourself right, maybe it is going to be the best thing that ever happened to you, I don't know. It also might be just a catastrophe for the entire world, especially the West. Any country that has a very large and well-developed credit system is going to experience great pain, I believe.
Chris Martenson: You know, there is a really interesting set of studies out there in psychology where they will put two male rats in the cage and they are fine. And then they started administering painful shocks—electric shocks to their feet—in a way that they can't avoid, them right? That they can't get up on a food container or something. All of a sudden they are being shocked and these two formerly friendly male rats will start fighting. And if you keep the shocks up they will really injure and even kill each other. And the reason for that is that they lack the ability to understand what is administering the pain. They look around for something that makes sense and they go "it is you. It is you, Mr. Other Rat." And so they fight. And really when I am looking around the world I am looking at what is going on like in the Ukraine or in Iraq or something like that—really these are people who have been administered some pretty hefty economic shocks over time. They don't have a lot of opportunities left. And they don't really understand who has been administering the shocks and why they have been coming, and so they look at each other and they fight.
Not to say people are rats and we are better than them or anything. It is just that this is a normal behavior in animals and I truly believe that if people don't have the education to understand why what is happening is happening, that this was all put in motion a very long time ago, this was a series of regrettable and unfortunate decisions but they are understandable and we can figure out why they happened—if we don't have that context, the context that you are providing and that I am trying to provide—I worry that what we are going to do as a nation is decide that it was some other rat's fault, right? And we will have to fight that. We will convince our people that it was China that ruined us or Russia or somebody. It won't matter. And we will go down that route again and it is just very unfortunate because this is all completely not mysterious. It is completely understandable what is happening. This is by design, if you will. The people consciously chose to put in place a system that is going to end like this.
Mike Maloney: It also keeps the average person from blaming the true cause.
Chris Martenson: Right. Right.
Mike Maloney: The true cause is our own government and our own central bank that is causing this problem. A lot of cycle believers believe in the war cycle. We have experienced this relative calm and now it is sort of time for a storm, when it comes to the war cycle. If everybody's lives, economically, suddenly take an enormous down turn and the politician responsible can say "oh, it is China's fault," then the politician gets a pass, basically. They don't have to take the consequences. The public—it is a shame that the general public doesn't—your listeners are people that are digging deeper and it is really up to your listeners to try and inform neighbors and get people more involved in what is happening to them, the economy, watching things like the Accelerated Crash Course, watching things like my fourth episode on Hidden Secrets of Money. When people understand how the world works and what is happening around them, they are a lot more likely to attribute consequences to the proper cause.
Chris Martenson: Indeed, indeed. And so I applaud you for the work you are doing there. In the interest of helping people get on the right side of the line, if it is possible, for the coming wealth transfer—I have always thought it is real assets. You have to own real assets. And gold and silver I think are the most accessible for the most people. That is probably the easiest thing you can do. Slightly harder is to understand what a true asset really is that cash flows—and by cash flows I don't mean currency but it has value that has some sort of flow to it at some point in the future whatever we are using whether that is Bitcoins or gold or carrots it doesn't really matter. But understanding what real assets are and owning those. It that sort of the context on why you have a monthly gold and silver purchase plan?
Mike Maloney: Yeah. Looking back through history, during a currency crisis, the absolute number one asset by a long shot is the precious metals, gold and silver. Those are the things that perform better than anything else. If they are giving you performance that is double, triple, quadruple, whatever the second best performer is, well that means if you are invested in the best performer you can buy double, triple or quadruple of as much of the second best performer. And then the things that are going down—in the 1970's, if you had sold a home in 1971 when gold became free trading, and if you bought silver, by 1980—just eight and a half years later—you could buy 19 homes that were identical to it, I believe—18 or 19. In just that short period of time. Real estate went up during that time. So anybody invested in real estate believed that they were making gains. But, against gold, they lost a tremendous amount of value, over 90%. If it was 20 homes, that would be 95% that the real estate lost against gold.
I try and look at the values of different asset classes instead of the price. If you take a single family home divided by the price of a barrel of oil you find out how many barrels of oil it is worth. Same thing with a bushel of wheat, a ton of iron, an ounce of gold, a share of the DOW. And you measure all of these different assets against each other and then you start to develop a clear picture of what is overvalued and what is undervalued, and that is the only way you can develop a clear picture, simply because currency they keep on creating more of and it gives this illusion that everything is going up. And nothing actually goes up. If you divide stuff against stuff the true value—how much you can get if you sell your house or your car or your share of the DOW or an ounce of gold is relatively the same over a century. It just bounces up and down in this range I call a valuation channel. It is part of what I call wealth cycles. I have got a website called WealthCycles.com.
Chris Martenson: That is absolutely worth checking out. With that, I see I have kept you past the promised time. I do want to direct people to GoldSilver.com where you can find all of the Hidden Secrets of Money episodes are sitting right there. And episode four sitting right in the middle of that. Do you have more episodes coming out?
Mike Maloney: Yes, we have some episodes coming out. Like I said, it was shot in 18 countries. The first episode opens up in Egypt. The second episode is about ancient Athens, so we are on the Acropolis. And then the fifth episode here is going to be about Rome because there are lots of lessons and parallels that we can draw between our modern economy today and ancient Rome. The lessons to be learned are showing us that we, once again, are just blindly going down the same stupid path that society has been down dozens of times and it always has the same consequences and the consequences are negative. But, the person that gets prepared can actually benefit from these things. That is what you specialize in with Peak Prosperity and Resiliant Life.
Chris Martenson: Absolutely. A little preparation can go a long way and the most important thing is just having the context. It is just knowing where you are in the story so that you are properly oriented. Most people don't have the proper orientation. They don't know where the shocks are coming from or why and it just doesn't make sense. And I see this all the time. I get in these mini debates. People say "oh you know there is more oil coming out of the ground than ever." I say "listen there is some context there. It is really important to understand the expense of that oil and the fact that—" there is just simple things, simple clues that people should be able to look at like the fact that you can look at—I don't want to name names right now, but you can pick the top four shale operators and you might ask yourself the question: "Why is it that when you go to their cash flow statement for the past four years running, all of them have negative free cash flow?" Their capital expenditures are more than eating all of their operating income. And when you look at that and you say "well, they have been doing this four years, the wells deplete in only three years so, somewhere in this band—" If they aren't making money on it right now, we have to ask the question, "When?" You know? And the answer to that is: I don't think they are really spitting out cash at these prices, which means that even as expensive as oil is, they aren't quite getting there. This is context that people need. Most people aren't willing to dig there, I guess. My audience certainly is. Your audience certainly is and that's what I love about being in this business is getting to be around curious people. It is life. Why aren't you curious? You know? Come on. This is an incredible—
Mike Maloney: What amazes me is so many people are—recently, the hotel and the restaurant I was just at a conference and the hotel was closed for lunch so we had to eat at the sports bar. And there are so many people whose lives are just completely wrapped up in sports. And the outcome of the sports do not impact their lives, but that is what they care about. They purposely avoid contact with anything that actually does have an effect on their lives [laughter]. They don't' want to know about this stuff. I think that is the way, actually, that a lot of the public is. Anybody listening to this podcast: Congratulations. You are one of the people that is paying attention and learning how you can get ahead of this game and change your life.
Chris Martenson: Well said. It is sort of another area where we see an opportunity. It is easy to bemoan the idea that there are a lot of people who are checked out and not paying attention, but obviously that just makes more of an opportunity for those who are. Some day this will all be completely self evident and totally obvious and all of that. But we are still sort of on the front side of this bubble, is the way I feel it. When it bursts we will be on the other side. Everything is different on the upside versus the downside of a bubble. But when it comes boy, it is fast. And most people get paralyzed because they don't have a plan, they don't understand what is happening, there is just shocks coming they don't know what to do, and so—
Mike Maloney: I have often said that 2008 was just a speed bump on the way to the main event. We are getting pretty close now to that main event, I think.
Chris Martenson: With that, I am going to let you go here. Thank you so much for your time. We will have links so that people can find your just amazing, amazing videos. And of course always looking out for the next ones when they come out.
Mike Maloney: Okay. Thanks, Chris. I look forward to the rest of the episodes of the Accelerated Crash Course.
Chris Martenson: Alright. Well, thanks so much and let me know where I can—how much I should be putting into my monthly gold and silver.
Mike Maloney: [Laughter] Okay. I'll talk with you later then, thanks. Bye.