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Mike Maloney: The Dollar As We Know It Will Be Gone Within 6 Years

The coming seismic monetary shift
Sunday, July 6, 2014, 9:42 AM

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):

Transcript: 

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.

About the guest

Mike Maloney

Mike Maloney is the author of Guide to Investing in Gold and Silver, part of Robert Kiyosaki's "Rich Dad's Advisors" series of books.

Mike is the precious metals investment advisor to Robert Kiyosaki, author of the most successful financial book in history, Rich Dad, Poor Dad. Their partnership began in 2005, and since then they have been educating the public on the merits of precious metals investing as a means to wealth generation.

Since 2002, Mike has specialized in education on monetary history, economics, and financial literacy. He is widely regarded as an expert on economic cycles and has demonstrated to audiences throughout the United States that economic cycles are real, and that investing correctly for each phase of the economic cycle is a road to true wealth.

Mike is the owner and founder of GoldSilver.com, an online precious metals dealership that specializes in delivery of gold and silver to a customer's doorstep, arranges for special secured storage, or for placement in one's IRA account. Additionally, GoldSilver.com provides invaluable research and commentary for its clients, assisting them in their wealth-building endeavors.

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31 Comments

DennisC's picture
DennisC
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Great Perspective

Another excellent interview, IMO.  Thank you Chris, Adam, and Mike.  One of my favorite take-aways from the podcast, and a "keeper" for me, was this: "...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. They don't' want to know about this stuff. I think that is the way, actually, that a lot of the public is."  I'm not anti-sports, particularly if it gets kids active, off the sofa, and the game controller out of their hands; however, many of us have adult friends that fall into this camp.  Happy grilling!

treebeard's picture
treebeard
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Money

I like the more fundamental take on money, thinking about the dollar being gone by the end of the decade, that's something to contemplate about for sure.  Not that any of us has a crystal ball, but get a feeling that things will be very different this time around.

I understand the advice on the accumulation of productive assets, precious metals being deemed the simplest of those.  But I would posit there yet a simpler productive asset that anyone, regardless of means, can invest in, oneself.

Certainly it is sound advice to accumulate assets, sound money, or claims on future labor and avoid debt, responsibility for past labor.  But the question that nags at me is who is going to take responsibility for the excess CO2 in the atmosphere, degraded or destroyed farmlands, polluted waterways, depleted or polluted aquifers, and decaying social structure?  Who?

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RoseHip
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(No subject)


LesPhelps's picture
LesPhelps
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DennisC wrote:One of my

DennisC wrote:

One of my favorite take-aways from the podcast, and a "keeper" for me, was this: "...And there are so many people whose lives are just completely wrapped up in sports.

Recently, I ran into the description "somnolent-television watchers."  I believe it was in Richard Heinburg's book: "Snake Oil: How Fracking's False Promise of Plenty Imperils Our Future."

I don't have to mentally visualize "somnolent-television watchers," all I have to do is look around the room, wherever I am sitting at the moment.

I gladly give a guarded recommendation to Richard's book.  I believe Richard does an excellent job covering the reality of fracking.  

It's his vision of the alternative that I can't see as practical.  His energy vision is pretty much wind and solar.  I don't see us maintaining any sort of advanced industrial/technological society without a more concentrated energy source.  Based on what I've read, I don't believe we have the capital or resources available to implement a global energy system based largely on wind/solar.  

Thorium nuclear reactors come to mind as a more viable alternative for the core component of an energy system.

robie robinson's picture
robie robinson
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Who? Treebeard?

we are, those who farm in a fashion to sequester C02 in our soils over which we steward. we are, those who spend their sweat and  fiat dollars on responsibly grown foods. we are, those who walk,ride...

robie, husband to a life partner and a farm,father,farmer,optometrist and feeling as though there are not enough "we are's"

davefairtex's picture
davefairtex
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not exponentially expansionary

Chris-

First, I agreed with the vast majority of the interview.  Central Banks love credit growth, as do banks in general, staying focused on real assets, currency crises, foreigners buying US assets, etc.  The usual.

However, I was suprised when I heard you quote Steve Keen on your interview.  You said of him, "...there is this economist out of Australia, Steve Keen, and he talks about how it is possible that our money system isn't necessarily exponentially expansionary."  And then you went on to describe how exponentially expansionary our money system clearly is.

From my reading and listening to Keen, he agrees completely that our money system is exponentially expansionary.  All his charts say this as well.  As a result, it just seemed unfair for you to drop Keen (by context) into the bucket of people who do not see an exponential problem.

The only place I see you two disagreeing is on the systemic ability of participants in aggregate to make interest payments on our stock of credit money without a constantly growing source of credit money - the whole stocks/flows issue.

Keen believes our system is doomed to cycles of private debt bubble creation not because of a systemic inability in aggregate to pay credit money interest, but because bankers are by nature driven to lend as much as possible (because they profit dramatically thereby - and end up eventually capturing government through their profits), and borrowers are by nature driven to participate in every ponzi-financed asset bubble that comes along.  According to Keen, it is a long cycle of mini-Minsky credit bubbles + a ratchet effect and we end up generating debt that grows at an exponential rate.  Zoomed in, credit growth is actually an oscillating wave centered around a more or less fixed percentage growth per year - right up until the big pop happens.  We see this in both his model, and in actual credit data - FRED timeseries LOANINV run through a MA(12) to make it smooth, change y/o/y.

But at the core, Keen is suggesting it's not the fault of our current credit money system - its the inner nature of the participants that is the root cause of the problem.  That, and the fact each "mini-bust" doesn't clear away enough of the malinvestment to result in a reset back to long term sustainable debt levels.

I say all of this with some trepidation, because I know this seemingly wonky issue can generate a strong emotional reaction from many people here at PP.  But I think its a discussion worth having.  We can't in good conscience prescribe the right remedy unless we clearly understand the cause.

davefairtex's picture
davefairtex
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gold ounces per US Home

Anyone have any idea how many ounces it takes to buy the median home in the US?  I make tons of charts every single day, and I didn't have a clue.

Maloney sure was right from 2000-2012.  Homes were not the place to be, gold was - and I didn't hear a peep about this from MSM.  Anyone see someone a Time Magazine photo of someone hugging a gold bar in 2011?  A sixbagger is nothing to sneeze at.

But the flipside was true in 1980 - 2001.  Sell gold, buy homes, you'd have multiplied your money by 7x.

So my question is, where are we in the gold/home cycle?

And here's an uber-long-term chart, using Shiller's home price index dating back to 1890, alongside the USGS average gold price data dating back to 1900.  The shiller data is an index - not actual dollars, but compare the curves and they still effectively show the ratio and the changes over time.

This stuff is really fascinating to me.  I learn something new almost every day.

I'm still struggling with this cycle and looking for a cause.

Mark_BC's picture
Mark_BC
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Posts: 391
Thanks for this great
Thanks for this great interview. I just have a comment regarding the point made about how the wealth destruction that's coming is actually a wealth transfer. To a great extent I think this is true but the world at large will also be experiencing a major wealth "destruction" as well. The problem is that most of the world's wealth today is illusory; it is manufactured by the Fed through its interest rate manipulation and money printing. There is a bubble in finance, and finance is basically just about confidence in the future. The Fed has been fighting the laws of nature for 40 years to keep everyone believing that we can continue growing and that resources aren't scarce, and for the most part, people believe them. When that comes crashing down it will indeed seem like a major wealth destruction event, in addition to wealth transfer, because there just isn't anywhere near the amount of real wealth (defined as energy, water, ecological and mineral resources) available that the financial indicators have led us to believe. The trick will be ensuring that any gains you receive via the wealth transfer exceed losses from the generalized wealth destruction, so that you can do your part in maintaining the middle class.
 
I heard a statistic a while ago that the largest component of Canada's GDP is finance. I can't verify this but it's probably true, and I'm sure it's even more true for the US. The thing is, when the financial system implodes and this wealth transfer / destruction event takes place, and confidence in the future (i.e. debt bonds which form the basis of the finance industry) is lost, then there will be no more jobs for almost all of those people working in finance. I think it can be argued that the combination of automation efficiency, job offshoring, and economic stagnation which have created so many problems for labour in N America have seen those jobs be absorbed in two places: welfare, and financial services. Neither of those categories does much useful or valuable. It's kind of funny how this loss of demand for labour has resulted in a whole sector of the economy coming to prominence in which people get paid for basically doing nothing except perpetuating a ponzi scheme... yet the people working in finance all believe that they are very important and necessary for "wealth creation". So I see a huge additional chunk of unemployment stress coming after the system crashes.
 
Furthermore, commodity prices will rise, which will stifle consumption and result in even more job losses on the "production" side. I don't see any reasonable way forward which will be able to deal with this unemployment problem, at least not politically acceptably. The one saving grace we may have is that human labour in sectors like agriculture may become competitive again when wages drop, and also machines will become expensive because it's all manufactured overseas, so we may see people returning to using their hands. So it turns out that we will have completed our journey back into the Middle Ages -- the majority will be serfs working with their hands on property owned by the wealthy, the likes of Cargill, etc. I guess that's another multi-century cycle repeating. Unfortunately I don't think we're going to get another "Serfdom Cycle" to try to avoid next time, as we have peaked in energy and it's now all downhill.
Thetallestmanonearth's picture
Thetallestmanonearth
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re: Mark_BC

I had a similar thought.  The statement that wealth doesn't get destroyed, but merely changes hands assumes two things that I don't think are true in the present situation.  First it assumes that demand will still exist and second it assumes that energy and inputs will still be affordable.  If you manage to get your hands on a plant that makes shoes during a "wealth transfer" you could very well come out the other side and find that a.) people are making due with what they have and demand is a fraction of what it was, b.) supply chains for raw materials may no longer be viable, c.) electricity, if available, might be too expensive to cost effectively operate the plant.  I agree that primary assets like farm land, mineral rights, possibly PM's, and other basic necessities with locally available inputs will likely be transferred but I suspect that large parts of the industrial infrastructure and it's derivative industries will no longer be viable (at least for a time) which I would consider wealth destruction.  Thoughts?

davefairtex's picture
davefairtex
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wealth transfer vs destruction; Spain bank deposit tax

Mark-

I tend to agree, there will be both wealth transfer and destruction.

I recall reading an analyst that said wealth destruction came to visit every single asset class during the Great Depression, at one time or another.  There was no one place to hide safely throughout the period.

I also agree with TallestMan, certain sectors of the economy will see their capital goods value get stomped harder than others.  When there is great disruption, the basics will probably retain more value than the luxury goods.  "Probably."

So your choice is, be nimble and prepared to trade (in a wide variety of ways) as we move through the turbulence, or reduce debt and gather around you as many essentials of your life as you can.  Just from a "peace of mind" standpoint, move out of stored value in units of the money system, and buy real things, simply accepting that the dollar value of these things may plummet or rise - and the outcome is thorougly out of your control at any moment in time.

If your wealth effectively supports you and your family, I'd call that success, regardless of the dollar sign attached to it at any point in time.  And - the more value you have in stuff that's impossible to tax, likely, the better.  Armstrong thinks we'll drop into a tax-crazy situation where the bureaucrats fight like crazy to keep their chunk of the pie (salary, pensions, etc), all at our expense.

At one point I thought treasury bills might be a safe place to hide.  Now I'm not sure at all.  IMF is now talking about "reprofiling" as general policy - when a country loses access to the debt markets, it extends the maturity of its debt instruments.  30 day t-bills become 10 year bonds.  Same coupon, of course.  Massive loss in NPV (i.e. if you wanted to liquidate today, you take a big hit).  And who knows what sort of inflationary event happens in the next 10 years while your (supposedly 30 day) money is frozen.

Slowly I'm being convinced that any cash in the monetary system in whatever form (unless its a modest amount of FRNs) is a bad idea.

Mish pointed out Spain just enacted a small retroactive tax on bank deposits.  0.03%.  Retroactive to Jan 1 2014, for those who imagine they could escape.  30 cents/1000 euro.  But its not the amount, its the principle.  "Its where the money is."

A 0.03% tax on Spain's 2.03 trillion euro bank deposits will raise 609 million euro.  That's Real Money.

Next time they have a money problem - perhaps its a 0.1% tax.  Wow, 2 billion euro.  That was easy.

Is taxing bank deposits inflationary or deflationary?  Monetarily: DEFLATION!  But - for other asset classes?  Likely, quite inflationary, as Spanish bank deposit money flees in advance to places where the money hopes it won't be (retroactively!) taxed.  Armstrong says money moves in anticipation of events.  Maybe London will see another spike in property prices from those wealthy Spaniards taking those deposits out of Spanish banks in anticipation of another retroactive tax next year.

Total US bank deposits: 11.5 trillion.  Just FYI.

Arthur Robey's picture
Arthur Robey
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Almost agree.

Wrong tense, Dave. Use the past or present tense. The wealth has been destroyed. The oil in the ground, fish in the sea, virgin land are all either depleted or on the cusp.

I believe that the garden of Eden was somewhere between the Tigris and the Euphrates. Look what 4000 years of civilization hath wrought. Can you envision what it must have looked like to the first settlers?

Jim H's picture
Jim H
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Thanks Dave...

DaveF said, 

At one point I thought treasury bills might be a safe place to hide.  Now I'm not sure at all.  IMF is now talking about "reprofiling" as general policy - when a country loses access to the debt markets, it extends the maturity of its debt instruments.  30 day t-bills become 10 year bonds.  Same coupon, of course.  Massive loss in NPV (i.e. if you wanted to liquidate today, you take a big hit).  And who knows what sort of inflationary event happens in the next 10 years while your (supposedly 30 day) money is frozen.

Slowly I'm being convinced that any cash in the monetary system in whatever form (unless its a modest amount of FRNs) is a bad idea.

I never thought I would hear you say that.  You were the original, "strong dollar", "best of the worst currency" guy.  I appreciate your ability to reappraise.    

treebeard's picture
treebeard
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Posts: 577
Thanks for picking up on that one

True wealth is a healthy mind, body, community, and environment.  If you haven't got that, all the gold in the world not worth much of anything.  Accumulating gold to those ends makes sense.  Hope we can avoid being absorbed by the central banker borgs, this podcast has a lot of good advice to that end.  Hats off to all those folks, who without a thought of themselves, have picked up what needs to be done to make this world a better place, without fanfare, or the desire to be noticed or praised.

I am very much in favor of plowing paper in productive assets of any kind, I guess gold is just a little further down on my list.  Basic hand tools and the equipment to keep them in good order, than more complex and fragile equipment from there on up.  The true miracle of our current technological innovation is communication and the availability of information.  You can run that without thorium reactors.  The information about reforming our relationship with the planet that has been just about lost in recent generations is  coming back in spades.  Complexity and specialization can be maintained at a much lower energy lever if the information level is high enough.  The lower the information density, the higher the energy intensity that is needed to maintain complexity.

I would like to see someone try to graph that correlation.

Jim H's picture
Jim H
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Treebeard's ideas

You said,

The true miracle of our current technological innovation is communication and the availability of information.  You can run that without thorium reactors.  The information about reforming our relationship with the planet that has been just about lost in recent generations is  coming back in spades.  Complexity and specialization can be maintained at a much lower energy lever if the information level is high enough.  The lower the information density, the higher the energy intensity that is needed to maintain complexity.

The ideas you are espousing are very attractive... but I am not sure I fully understand.  Can you give some examples of how better, or higher level information could bring this benefit?

I have been leaning of late toward reading those thinkers who try to imagine a reformed world.  How might money work?  How might we reconnect with each other and the world.  How might we break down the separation that Eisenstein speaks of?

One thinker who I have recently been introduced to is Robert David Steele.  He also speaks of our increasing access to information.

http://www.theguardian.com/environment/earth-insight/2014/jun/19/open-so...

Today's capitalism, he argues, is inherently predatory and destructive:

"Over the course of the last centuries, the commons was fenced, and everything from agriculture to water was commoditised without regard to the true cost in non-renewable resources. Human beings, who had spent centuries evolving away from slavery, were re-commoditised by the Industrial Era."

Open source everything, in this context, offers us the chance to build on what we've learned through industrialisation, to learn from our mistakes, and catalyse the re-opening of the commons, in the process breaking the grip of defunct power structures and enabling the possibility of prosperity for all.

"Sharing, not secrecy, is the means by which we realise such a lofty destiny as well as create infinite wealth. The wealth of networks, the wealth of knowledge, revolutionary wealth - all can create a nonzero win-win Earth that works for one hundred percent of humanity. This is the 'utopia' that Buckminster Fuller foresaw, now within our reach."

The goal, he concludes, is to reject:

"... concentrated illicitly aggregated and largely phantom wealth in favor of community wealth defined by community knowledge, community sharing of information, and community definition of truth derived in transparency and authenticity, the latter being the ultimate arbiter of shared wealth."

Are you and Steele on the same wavelength here?  Thanks, Jim

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looking towards the endgame

JimH-

It was a journey; gaining a clearer understanding of what money is and how it works: bank credit vs debt, sovereign debt vs private debt, effects of sovereign defaults on bank balance sheets, the couple of IMF papers on policy, as well as some recent actions in the eurozone.

We are still the best of the worst, and the core economy will die last.  I still believe that.  But I have a clearer view of the future now - at least I think I do.

I believe in the near future, we will get to see several sovereigns lose access to debt markets.  This happened briefly in 2012, but it will happen more seriously in the future.  Then we'll see what the various governments do in response.  Big Money will see this too.  The government choices are: reprofile & seize, or monetize the debt wholesale.  I believe sovereign default is not an option, because it ends in the destruction of the core economy banking systems, and the core will do anything to avoid that outcome.  [Bankers always win, we know that by now.]

My guess: Europe will reprofile and seize and avoid default as much as possible, to avoid a banking collapse in the core, and direct losses to pension funds and Big Money.  Japan will monetize, to avoid another 20 years of deflation.  Its a simplistic answer, but it is just extrapolating along an existing trajectory.

Problem is, either path ends in disaster for Big Money.  Big Money neither wants its bank deposits seized, nor its 30 day treasury bonds turned into 10 year notes with a lame coupon.   And it certainly doesn't want massive money printing crashing the underlying currency its paper assets are held in.

But underlying all this is the reality that most of those excess claims need to be destroyed - and Big Money is comprised right now mostly of excess claims to real wealth.  All those claims are the side effect of 60 years of un-deflated Minsky Speculative and Ponzi finance.  The paper is going away - inflated through a currency collapse, deflated via default and seizure, or imprisoned via reprofiling.  The only question is, who will be holding the paper?

As Big Money loses confidence in paper - bank deposits, sovereign paper, and probably junk too - it will start trying to exchange its paper for something that (it hopes) won't either be seized by the government, reprofiled, defaulted on by a counterparty, or monetized into a currency loss.  Bagholders will get the paper, and Big Money will get the assets.  Then the paper will be seized, reprofiled, printed, or defaulted on.  The paper bagholders will lose.

Probably best not to be too deeply in paper at that time.

But that's not the end of the story.  As a side effect of Big Money's flight into assets, this will drive asset price bubbles which must eventually pop.  Once the paper bagholders lose - once the excess claims are destroyed - the global economy will eventually be hit by deflation as capital simply hides rather than take risk, velocity drops, and that will pop the valuation on those asset price bubbles.  There will be no more Big Money capital flight to support the high prices on those now-dreadfully-expensive London homes, art collections, and so-on - the valuations are supported only by a constant flow of Big Money fleeing paper.  I think at the end of the day, Big Money "hiding" in those assets will find their refuge ends up losing value.  Sure they'll have a London property, but it will be worth only half of what they paid for it.  They will be bagholders too, much to their surprise.

And by that point, Big Money will be quite shy of any sovereign paper assets.  At some point, the US government will lose access to the debt markets, and we'll have the same choice: reprofile & seize, or print money.  I'm honestly not sure what we'll pick; I'm leaning more towards reprofile & seize, only because wholesale printing would be terrible for the bankers and bureaucrat pensions, but its a close race.  Who knows, maybe we'll do both.

I'm coming to the conclusion that I'm not sure there IS a hiding place.  There may not be an answer.  Having the basics to live on, debt-free shelter, food, transportation, energy - and perhaps becoming mentally and emotionally prepared for a lot of turbulence could put us all a massive step ahead all on its own.  Tossing the booze, picking a leader, coming up with a plan - any plan! - it all seems to make more sense to me now than trying to find the magic wealth storage box that will insulate me from the coming storm.  I still like a stack of FRNs "just in case" but that too could be made illegal.  Retroactively, of course.

Look at the gold/house ratio.  It says "gold is overpriced, relative to houses."  Do I feel like buying a house?  NO!  But I have one now.  Should I sell it?  What on earth would I buy?  Paper just seems unattractive, knowing what I know.  Nor can I see buying a ton more gold, knowing that the house/gold ratio is so low.  I have enough gold in relation to my other holdings.

A house, gold, energy production, no debt - it just seems better than trying to guess.  And that's where I am now.  Likely I won't bail out of paper wholesale, but I think I'll focus on private assets, not public ones.  And I'll be mentally prepared to get hit with some sort of wealth tax and/or seizure of the paper I do have.  And I don't like either bank deposits, or treasurys anymore as a safe haven.  They are too subject to seizure by a desperate sovereign who has lost access to the credit markets.  And I also don't favor flight into "real things" just as a hiding place.  They'll suffer a decline in value too, once all the paper claims are extinguished.  Paper bagholders will have their revenge!  Now I'm thinking, only flee into "real stuff" you actually want to own as a help to your own lifestyle.  That way if you're wrong on the timing, at least you will get real value from the asset you bought.

Perhaps it was the retroactive nature of the Spanish bank deposit tax that rattled me the most in recent days.  It was almost like the Spanish government said: "We see your pathetic attempts at capital flight, and we raise you a retroactive tax!  Oh yeah!!"  It was my glimpse into the future, and the future was saying to me: Life Will Not Be Fair.

At the end of the day, the goal really is to be happy anyway.  So - get the stuff you need, the stuff you really would find useful to have around to keep you in the style to which you've become accustomed, and then emotionally get set for just about anything to happen.  Make a plan, and if that one doesn't work out, make another!

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Rifles and Unemployment

A couple of thoughts.

If tertiary wealth is predicated on a claim to primary and secondary wealth, and you go to foreclose on a house and you are met by a group of people with serious expressions on their faces, and guns, who say "You have no further claim to this families home and we will kill you if you pursue this any further", so you go to the Sheriff to demand assistance enforcing your claim and he shrugs and says, "The people in and around the house are my constituents and neighbors, you are a shiny suit from the big city, and I don't want to get shot either", isn't that a transfer of wealth?  I follow this site and these conversations closely, but to this hill billy much of it begins to sound like "blah, blah, blah, blah, blah".  I can't help but think that at the end of the day, the person with the tertiary paper may have a difficult time making good their claim on primary wealth when confronted by a desperate man with a gun.

In either an inflationary or deflationary economic death spiral I suspect that the unemployment rate will quickly drop to nearly zero as people will begin to get very busy doing something, or starve.

John G.

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good point

It all depends on how far the rule of law has devolved.  Certainly, history makes it clear that the upper hand lies with the party most willing and able to do violence.  Currently, that would be your county sheriff.  At present, most sheriff departments back whatever play the state/federal government lays out.  But what if that should change?  Organizations like Oath Keepers make it clear that the Fed's grip on local law enforcement is far from omnipotent.

Assets held within the financial system are easily taxed/seized from any central location.  Physical asset seizure, however, requires the cooperation of local authorities, which may (probably will) suffer under the duress of a "global reset".

I believe that under such conditions, location will matter quite a bit.  Areas that favor involuntary socialism (i.e. Marxism) will be less comfortable for those with assets than areas that have historically been more individualistic.

Robert Steele (get it, rob steal?) is a chump.  He thinks capitalism is inherently predatory.  It is not, it is HUMANS that are inherently predatory, hence, the systems they contrive will always be workable to that end.  All the political systems in the world have failed in this regard, and will continue to fail: they cannot change the nature of man.

He states: "Predatory capitalism is based on the privatisation of profit and the externalisation of cost."  That's not capitalism, that's fascism.  Under only capitalism, it is not possible to "externalize" costs.  Only through government coercion is it possible to shift costs on to others not party to contract, so you must have governments and corporations working together, what Mussolini called "corporatism".

He also says:  "What we need is a system that fully accounts for all costs."  I completely agree.  That should start with the elimination of limited liability.  The idea that we are not 100% responsible for our actions is ludicrous.  To make a portion of society immune to the consequences of their actions is evil, plain and simple.

"The end result of a limited liability economy is socialism or communism... So what you ultimately do with limited liability is to destroy the entire economy, because you’ve destroyed the idea of responsibility."  -RJ Rushdoony

"Limited liability encourages people to take chances with limited risks, and to sin economically without paying the price. Limited liability laws rest on the fallacy that payment for economic sins need not be made. In actuality, payment is simply transferred to others."  -CS Lewis

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treebeard
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Short hand

The perceived difficulty with communication in periods of transition is that rapid change renders our traditional road maps and sign posts obsolete.  A few common references used to allow us to cover a lot of ground, no more.  But in this supposed difficulty there is also great opportunity.  It forces us to stop skimming across the surface of life and dig a little deeper.  Pull back the curtain and look at who is saying what and why, perhaps do a little primary research of our own.  Traditional world views are on the table for discussion, finally! I buy Fords, vote Democratic, am (insert the religion of your choice), a Yankees fan, a vegetarian, a liberal, conservative, a nature lover, gear head, redneck, capitalist, carnivore, omnivore, localvore, communist, socialist, hipster, geek, jock, anarchist, atheist,  American (insert the nationalist flag of your choice), deer hunter, bird watcher, freak.  Do we really know what any of it means, were any of those choices conscious? Was it just a reaction for or against something or someone, perhaps a desire to return to a time when we were more comfortable or happy?  Can we unpack those boxes while we are awake and see what is inside?

The answer to the unrelenting drive of entropy is consciousness.  We hold onto our hatred, whoever it is that we blame in the world, so refuse to believe that evil, by its nature is always unconscious. How empty would our world be if we had to give up our hatred of the Fed, Government, Rich, Poor, climate deniers, climate change believers, etc..  We believe we are conscious and have free will and have the power to do conscious evil because we have set the bar way to low.  We are aware only of our most basic impulses, but not those that create evil at a grander scale.  Ron Paul summed it up this most basic awareness when he said he said, "is the only reason we don't take drugs because it's illegal?"  He speaks to the information density or awareness that talks to our capacity and necessity of of preserving complexity.  The paranoid power centric police state that we currently live in reinforces the idea that without centralized controls, chaos will ensue.  Quite to the contrary, the current system has stripped away the deeper and more complex relationships between the normally functioning parts our society and natural systems. We have confused command and control systems for the much deeper organic connections that allow healthy systems to grow and thrive.  This command and control system has created a barren wasteland which has engendered all manner of unconscious evil that has now been allowed to thrive.  When the current system breaks down, order will return.

The battle we are in now is for our collective survival.  The wages of self centeredness is fear, the two are inextricably connected, they cannot be separated.  One feeds the other.  Fear is the one thing that we must root out most diligently.  Pursuit of individual survival at he expense of the whole is to give into fear and feed the monster and destroy the self.  The reason the nature of the current threats is global is because it is time that we as humanity need to wake up.  There simply is no other option. Things will continue to decay until we develop the consciousness to turn them around. True freedom born of our awareness of our collective responsibility for each other is the only way out. 

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Adam Taggart
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100k ACC plays

An update to the transcript of this interview:

When Chris and Mike recorded this 2 weeks ago, the Accelerated Crash Course (ACC) had only been live for ~ 1 week. Chris correctly mentioned that, at that time, it had received 40,000 plays.

I'm happy to provide the update that, a little less than 3 weeks since its launch, we've just crossed the 100,000 plays milestone for the ACC.

Chris and I are quite happy with these early results. They show that this new material is resonating and becoming widely distributed -- and that's due in large part to this community sharing it so enthusiastically with family, friends and colleagues. THANK YOU for helping us spread this critical information.

We are continuing to leverage the media and our various partners to introduce new eyes to the ACC. Hopefully, between our efforts and yours, we'll cross the million+ plays milestone sometime this year.

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Bankers Slave
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As usual

Treebeard knocks it out of the park and beyond sight! 

Many thanks for your invaluable input.

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Yes, way to go Treebeard!

Bankers Slave wrote:

Treebeard knocks it out of the park and beyond sight! 

Many thanks for your invaluable input.

Yes, I agree Bankers Slave.  Treebeard, I'd love to see all of your thoughts in one place connected together in one grand landscape/ecosystem.  Have you ever thought of writing a book?

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Oliveoilguy
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One step further

Treebeard......I could not agree with you more. I chuckle at the way people categorize themselves, and seek identity. The only comment I would cautiously add to your final thought "True freedom born of our awareness of our collective responsibility for each other is the only way out. " is that a humble recognition of a higher power might enhance the collective responsibility. When our founding fathers invoked a higher power (God) in the Constitution, I think they were on to something.

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Jim H
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A most excellent post Dave...

One of the thumbs up is from me   : )

There is much to think about... I agree that Europe's banking system seems like it may be the detonation point.. but I don't think any detonation will be contained for long because of something you didn't mention;  Derivatives, CDS', and the like.  I would say I am generally more positive on having a larger percentage in Gold/Silver/Miners than you suggest above, although with the stipulation that some of it be vaulted outside the banking system, outside of the US (or your home country) AND outside of entities like IRA's.  Regardless of the recent past history of the Gold vs house ratio.. I expect that I will be able to buy much more house for my Gold/Silver in the future than I can now.   

Regarding the effect of derivatives on the credit, I have been taking heed of Dave Kranzler's recent red alert;

http://investmentresearchdynamics.com/were-on-cusp-of-a-nuclear-meltdown...

The Bloomberg article mentions credit default swaps but doesn’t explain the implications.  The implications are that somewhere, some bank or asset manager is on the hook for any “insurance payments” that will need to be made as part of the bet that was made when institutional investors and Wall Street banks placed their bets on Portuguese banks using OTC derivatives.  Eventually someone on the hook for the payment won’t be able to make it and the fun begins.  This is exactly what happened with AIG/Goldman Sachs.

It is THIS risk that is hidden away and deeply embedded in the bond market.  It is hidden in your bond funds that your “trusty” registered financial adviser with fancy initials after his/her name put you into.  You are exposed to this catastrophic risk.  In just five minutes of using Google, I found several Black Rock bond funds that are exposed to Portuguese debt.  Your genius adviser probably has you in one of these funds.

The bottom line is that you need to get out of your bond funds now before your money gets trapped and destroyed.   My co-producer and I did a video explaining why your money will get trapped in bond funds:   Get Out Of Your Bond Funds Now.

So, I looked at the prospectus info behind my, "safe" interest incoming fund within my Corp. 401K choices.. one I happen to have most of my life's savings in today.  Here's what I found - the thing is packed full of counterparty risk by way of the wrap agreements.  It's like a juice that is only 5% real fruit juice... this fund is only 5% real bonds.. the rest is fluff.  Needless to say I am getting out of this fund... but like you say.. there will probably come a day when there is no place safe in paperland.  I hope to have the 401K extinguished by then if all goes according to plan and the world does not blow in the next few months.  

  

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treebeard
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Mostly

Though I try to avoid loaded words like capitalism.  To some it represents freedom and a meritocracy, to others a predatory monster.  In the end I don't think that any ism will either save us or destroy us.  It is the diffusion of knowledge and power and our connection to the consequences of how we use those gifts that in the end will save us.  I am a great believer in the open source movement and have similar feelings about the closure of the commons.  But it is the combination of our individual and collective evolution that in the end will triumph.

For too long we have been the victims of cold evil, acting without the knowledge or understanding of the consequences of our own actions. We have been blinded by the promise of a technological nirvana.  For too long our heads and our hands have been severed from our hearts.  Technology had promised to transform the world in our own image.  But we had not the wisdom or the capacity to do so.  In the end it was ourselves that needed transformation, and I do believe that is what technology is now doing.  Our access to information and each other is transforming us and our world.  Resource depletion and global climate chaos are the midwives that are transforming centralized energy and control centric systems to the diffuse information intense systems that now thriving.

David Korten has put forth a similar vision, Agenda for a new economy, from phantom wealth to real wealth. The same ideas are now everywhere. When the time for a new way of thinking arrives, there simply no way of going back.

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eurozone banks & sovereign debt

JimH-

First - glad you liked my post.  :-)

Next - I really agree with you, its important to dig down and understand what is behind your paper products.  Some of these ETFs are nothing but a collection of swap agreements with a bank.  Most of the "short" ETFs are like that.  They aren't actual shorts, but rather just a swap agreement with one of the big guys.

And Kranzler has an excellent point about the whole "exit charge" on mutual funds, and about it being something that gets imposed ex post facto.  I see that with money market funds too, potentially - "for the good of the system."  It is possible that bond ETFs will be more liquid than bond mutual funds.  (It might also be that they'll be trading at a nice discount to NAV too - after a big selloff).  I also like the theory he describes: roughly paraphrased - the elites always give you fair warning before dropping something on your head.  Its up to you to pay attention.

If you are in paper, try and pick the highest quality paper you can find.  All paper was not created equal.  Caveat emptor, there's a lot of really junky stuff out there.

Last - a chunk of the derivatives won't be a problem because of bail-ins and sovereign reprofiling.  The whole point of reprofiling is so that bank balance sheets won't be hit and taken down by a sovereign restructuring.  In turn, this says few if any of the bank-oriented CDs will trigger, unless the bank was in bad shape already.  And even then, bail-ins could end up with depositors taking losses but the banks themselves remaining in place.  Depending on the ruling and how afraid everyone is of "contagion" - that magical phrase bankers use to terrify regulators into saving them at taxpayer expense.

On a sovereign reprofiling, the sovereign CDS might trigger, depending on the ruling from the ISDA - which likely depends on who is long and who is short those sovereign CDS and who has more pull with the organization.  (My feeling, anyway - there was a whole lot of iffy talk last time around from ISDA about what was, and what wasn't a default)

If the fire gets bad enough, of course, you're right - derivatives will be an issue.  All those derivatives are backed by the deposit-taking arm of the various banks, and the derivatives are first in line to get paid back when trouble strikes.  We saw that at AIG.  Derivative holders are a plague of locusts - they come in, devour the assets to pay off their claims, leaving very little left for depositors and other unsecured creditors/bagholders on the wrong side of the derivative-writing bank's balance sheet.

Which is a reason not to be an unsecured creditor of a derivative-playing bank. There are a whole lot of claims on that bank's underlying assets.  As you put it - 5% real juice.

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Thanks treebeard

 True freedom born of our awareness of our collective responsibility for each other is the only way out. 

Wow. Very well said. You are a prophet. Maybe there is hope if these words start to resonate widely. 

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Jim H
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Second that thanks to Treebeard...

It is up to us to be the change... to imagine the change and get out of the fear-based, victim mentality.  Most people are so afraid they don't even want to understand what is going on... can't on some subconscious level deal with what is going on.   

This sentence from Treebeard gets a spot in my top 10 of all time in terms of using words to paint an expansive, meaningful, beautiful (artistic) picture - reminds me of something Buckminster Fuller might have written;

Resource depletion and global climate chaos are the midwives that are transforming centralized energy and control centric systems to the diffuse information intense systems that now thriving.

This conscious awakening is happening... here is one person talking about their own progressing awakening - I found it inspiring;

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Thetallestmanonearth
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Treebeard for president

Treebeard, I'm going to need your real name so I can submit you as a write-in candidate for the 2016 elections.  Don't worry, I won't expect you to fix anything.  We're past that now.  I'm just hoping you can make our reckoning with reality suck a little less by virtue of actually representing the people and setting a good example of moral character.  (That OR....maybe once you're president you can help me push through a couple of my pet projects as a thank you for my early support.)

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Hrunner's picture
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Wealth Analyzed

First, thank you Mike Maloney, for your relentless and selfless commitment to education about money and wealth.  Your documentaries are beautifully done and clearly well written.  You show true agape to your fellow man with this effort and you will be rewarded.

Chris, this was one of the most important Voices this year, and should be a reference point for newbies that are awakening and wanting to learn more.

Is there a way to nominate a "Best PP Voices" of the year award?

I agree with Mr. Maloney's and your core construct of wealth, wealth transfer, et al.  However, there are additional factors that change the game from a simple "it's going to simply be a wealth transfer" construct.

I also agree that the core and best concept is to look at hard assets as where the "wealth" is.  So let's put houses, land, PM's, oil, food stocks, cattle, firearms, furniture and many hard assets in that bucket.  We should think of it at as "before the currency collapse I had a house, two tables, six chairs, two radios, a shovel, and 1 years worth of food, and after the currency collapse I had a house, two tables, six chairs, two radios, a shovel and 1 years worth of food."  That's easy to calculate.

We need to recognized that we cannot say the same for "I had $100,000 of UST, $100,000 of money market funds, $50,000 of stocks, $50,000 of cash before the currency collapse and now I have $100,000 of UST, $100,000 of money market funds, $50,000 of stocks, $50,000 of cash after the currency collapse."  Clearly, in a simple 50% devaluation of USD, will have "$50,000 of UST, $50,000 of money market funds, $25,000 of stocks, $25,000 of cash" in actually purchasing power, assuming housing prices and prices of things you care to buy don't equally deflate by 50%. 

 

Which is not the best assumption, since I agree with Mike that some necessities will go up in price, notably food and energy, defying deflation.  I've said many times, I don't care for terms like inflation and deflation since they are such "averaging" terms by definition.  Reminds one of the saying "did you hear about the man who drowned in the lake of average depth 6 inches".   I want to know the depth of the lake in the next 6 feet that I am walking toward.  I could not care less about the other 316 acres of lake.

I expect that the things I want to buy (since I am like a lot of other people) will be the things that go up in price, i.e. gold, silver, gasoline, food, water, housing, toilet paper, beer, etc.  Maybe strip malls and nerf guns will deflate in price, but why do I care?  I won't be in the market for a strip mall.

As a side bar, the more I think about it, the most valuable hard assets, besides the monetary metals, will be tools needed to make the high-priced and highly-valued assets, such as food, since tools are like "wealth force multipliers".  So trucks, tractors, chainsaws, foundries, pharmaceutical manufacturing facilities, energy facilities, oil drilling rigs, railroads and tank cars, sawmills, etc will be very valuable.  Tools are so valuable because they have intrinsic resale value themselves and they can be used, provided you have access to raw materials, to make wealth.

Tools also build on Ethan Rowland 8 Forms of Capital.  So we need the knowledge and experience to use the tools, so consider that as intellectual capital (wealth), and we also need social capital (social wealth) to get access to raw materials and labor.  Also experiential capital and others.  These types of capital will not be transferred or destroyed.

Please note that personal intellectual capital and social capital is non-transferrable, though you might argue that it can be purchased.

I agree with Mark BC that their will be a great deal of wealth destruction alongside wealth transfer. 

One thing I think Mike and yourself may be a bit too rose-colored glassed about is that this will all be orderly, though to be fair, you did caveat that it might not.

Take ghost cities and infrastructure in China.  Mike talks about them as wealth.  Fair enough.  However, anyone who knows anything about buildings knows that a) they require continuous maintenance to hold their value, and b) unoccupied buildings decay much faster.  So we should understand that all this fabulous infrastructure and ghost cities in China could be reduced relatively quickly to the value of the typical inner city Detroit single family home.  I.e., not much, and closing in on zero.

I agree with Mark BC's analysis of the false notion of "financial wealth" and we should extend it further.  There are a lot of folks who make money, i.e. generate "wealth" based on their relationships with financial PTBs and government PTBs, both of  these types of PTBs can have greatly diminished value if their institutions have failed, they are discredited and gone, and especially as they are replaced by either an orderly societal transition or a disorderly one.  Consider Tsar Nicholas II of Russia.  Post Revolution, it would be far more valuable from a social capital perspective to have relationships with Lenin than with Nicholas (who was dead, of course).  So your "Nicholas capital" would have been destroyed instantly in that room in the Ipatiev house on July 1918.

And finally, speaking of disorderly transition, the potential for man-caused wealth destruction is much higher than you discuss.  Perhaps it was too dark a discussion, but again, we need to have adult conversation, so again, I will advance one.

I have noticed a fundamental response in humans to anger and anxiety, whether it is Rodney King verdicts, or Greek government pension reductions and austerity.  People burn stuff down.  I can't explain it, I simply observe it.  People burn things down over relatively small events that are surmountable.  Speaking of sports, for example, losing a basketball championship. 

If the currency reset is as great as it appears to be heading, I predict a lot of people will be burning a whole lot of things down.  Houses, stores and factories.  I hope it doesn't happen, but I simply observe and report history. 

I'm sure you agree that burning something down to the ground destroys wealth.

A less talked about issue that is related to burning things down is incapacitating or killing people with intellectual capital who have the ability to create more wealth, such as farmers.

Both Mao's China and Stalin's Russia destroyed wealth (and potential wealth) by removing farmers from their farms in their glorious central planning wisdom, and installed people on these farms who had no idea what they were doing.  Thus no wheat, and millions of death due to famine.  So in these ways, other forms of capital can be damaged or destroyed.

Not to be negative, but we need to face to possibilities of this very consequential destruction of wealth.

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Posts: 25
Just a thought

This site as well as many others now show how we as a species constantly hamstring ourselves with shortsightedness. We obviously have the ability to forget what has happened even a decade ago and if you work that into the exponential function which is a key concept of the site as well you find that we like to forget just how fast things happen. We clearly see denial written throughout history as we see today. That all being said these crashes and bubbles are happening faster and faster.

  Now the Vatican Library which is largely closed off to the public has knowledge in it that no one in the common folk has seen for centuries. If this knowledge was known before and kept secret then a small amout of  connected people obviously have a better idea of how fast it will happen again. So point being when I hear things like "they really have no idea what they're talking about or doing " (The Fed) really makes me think that we're not being an adult about this and facing problems face first. I think that's the largest reason of why we find ourselves in the current state of affairs that were in. As you start to see things in history as Kennedy getting shot for whatever reason that may have been he clearly spoke out against and being opposed by, a ruthless and secret conspiracy. I guess what I'm trying to say is if there's any advancement for the human race we need to start connecting dots faster and faster and sharing those connections faster and faster or the people in "the know" will continue to take over and restrict us into the small, poorly described "Utopia" that is the buzz on the Internet today. We are waking up but sometimes it sure feels like we need a cup of  coffee. 

Cheers. ~ Roan

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