Podcast

Richard Duncan: The Real Risk Of A Coming Multi-Decade Global Depression

One that unwinds the past 50 years of globalization
Sunday, April 5, 2015, 11:42 AM

Richard Duncan, author of The Dollar Crisis and The New Depression: The Breakdown Of The Paper Money Economy, isn't mincing words about the risks he sees ahead for the world economy.

Essentially, he sees the past 50 years of economic prosperity fueled by globalization and easy credit in serious danger of being unwound, as the doomed monetary policies currently being pursued by the word's central banks result in a massive multi-decade depression that spans the globe.

The first version of The Dollar Crisis, the hardback, came out in 2003, so I wrote it in 2002. And at that time, the dollar against gold was $300. So the dollar has lost more than 75% of its value since The Dollar Crisis was written, and I don’t think it’s going to stop here. I expect it to continue to lose value over the years and decades ahead.

But what we’re seeing is that the real theme of The Dollar Crisis was that the post-Bretton Woods international monetary system was fundamentally flawed because it couldn’t prevent trade imbalances between countries. And the US had developed an enormous trade deficit with the rest of the world and this blew the trade surplus countries like Japan and China into bubbles. And then, the dollars boomeranged back into the United States and blew it into a bubble, as well. I didn’t know when the housing bubble was going to pop in the US but I knew it would. And I wrote in The Dollar Crisis that when it did, we would have a severe global economic recession/depression that would involve a systemic banking sector crisis in the United States and necessitate trillion-dollar budget deficits and unorthodox monetary policy to prevent a Great Depression from occurring.

And so that’s what we’ve seen. The crisis arrived in 2008 and the government responded with trillion-dollar budget deficits and quantitative easing on a multi-trillion-dollar scale. So they have managed to keep this immense global economic bubble inflated through unprecedented fiscal and monetary stimulus in combination. And so that’s where we are now. We still have a massive global economic bubble that the policymakers have continued to keep inflated. And that’s what they intend to continue to do because they believe – rightly so, I think – that if they allow it to melt down, then it’s going to result in a depression at least as bad as that of the 1930s and 1940s. And they’re going to do everything in their power to prevent that from happening for as long as possible.

I think it’s horribly regrettable that we find ourselves in a position where we are on government life support. We should’ve stayed on the gold standard in 1968. The global economy would be much smaller today than it is, but we wouldn’t now be in this position where we have to rely on money creation on a trillion-dollar scale to keep our global economy from collapsing. But now that we are here, I’m not sure that there are other alternatives other than 1) keeping the thing inflated or 2) allowing a new Great Depression to wipe away globalization. And not just the savings of the American public, but a huge part of the global economy altogether.

This is not going to be a 1921-style two-year recession that we bounce back from after a little bit of pain and unpleasantness. After a 50-year global economic boon involving what is now a $59 trillion expansion of credit in 50 years, this isn’t going to be a one or two-year hard recession. This is going to be a multi-decade global depression and I’m not sure that anyone alive today would live long enough to see the recovery. I mean, it’s like Rome: when Rome fell, there was a recovery, but it was 1,000 years later. This is the kind of depression we're looking at if we allow this $59 trillion credit bubble of ours to implode.

It's hard for Duncan not to see this great economic unwinding as inevitable, but he does hold out some hope that if central banks are going to continue to print (as they very likely will), funneling that new capital into investment in new technologies and infrastructure is our best hope of potentially creating solutions that may enable us to extricate us from this mess. An exposition on this thinking can be read here.

Click the play button below to listen to Chris' interview with Richard Duncan (58m:17s)

Transcript: 

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, of course, Chris Martenson. Well, here we are, it’s 2015, and the central banks have been doing everything they possibly can to extend, pretend, they’ve pumped, they’ve primed. They’ve given us NIRP, they’ve given us ZIRP, they’ve given us everything you possibly can from a monetary standpoint. But these high priests and priestesses of the monetary system have done their rain dances but it’s like we’re in California, no rain is falling. Economic growth remains weak, tepid, possibly even negative going forward. We’re seeing an extraordinary wealth gap between the uber wealthy and everybody else. Real incomes aren’t going anywhere. All of this is very befuddling if you happen to be one of the people running the models at the Fed, at the ECB, the Bank of England, Bank of Japan, nothing seems to be working.

So what we’re going to do today is we’re going to continue on talking in the vein that we were talking with Steve Keen last week and we’re going to be examining the role of money in debt. Because you have to understand the role of money in debt in today’s world if you want to understand where we’re going. And I can’t think of anybody better to help us talk about this today. We get to talk with Richard Duncan, author of numerous books including The Dollar Crisis: Causes, Consequences, Cures. I believe that came out in 2005. I couldn’t wait to get my hands on it. Actually turned out it was a hard book to get a hold of at the time. And more recently, The New Depression: The Breakdown of the Paper Money Economy. Richard has had all kinds of financial experience, a wide-ranging career – asset management in London and Washington DC, in Bangkok. And he has been all over the news. You’ve seen him possibly on CNBC, CNN, BBC, Bloomberg, etc., very sought after, to talk about what is going on from a macro perspective. Can’t wait. Richard, so good to be talking with you finally.

Richard Duncan: Chris, thank you for having me as a guest.

Chris Martenson: So I need to start here. You know, 2005, I read The Dollar Crisis. Like you, I was of a mind that the dollar was clearly headed towards a crisis. And as we look at it, the only crisis I can see in the dollar lately is that it shot up 20% compared to all the other currencies. How do you view what’s going on in the dollar compared to what you were writing about in 2005?

Richard Duncan: Okay, well, actually, the first version of The Dollar Crisis, the hardback, came out in 2003. So I wrote it in 2002. And at that time, the dollar against gold was $300. So the dollar’s lost more than 75% of its value since The Dollar Crisis was written and I don’t think it’s going to stop here. I expect it to continue to lose value over the years and decades ahead.

But what we’re seeing is that—the real theme of The Dollar Crisis was that the post Bretton Woods international monetary system was fundamentally flawed because it couldn’t prevent trade imbalances between countries. And the US had developed an enormous trade deficit with the rest of the world and this blew the trade surplus countries like Japan and China into bubbles. And then, the dollars boomeranged back into the United States and blew it into a bubble, as well. And I didn’t know when the housing bubble was going to pop in the US but I knew it would. And I wrote in The Dollar Crisis, when it did, then we would have a severe global economic recession-depression that would involve a systemic banking sector crisis in the United States and necessitate trillion-dollar budget deficits and unorthodox monetary policy to prevent a Great Depression from occurring.

And so that’s what we’ve seen. The crisis struck in 2008 and the government responded with trillion-dollar budget deficits and quantitative easing on a multi-trillion-dollar scale. So they have managed to keep this immense global economic bubble inflated through this unprecedented fiscal and monetary stimulus in combination. And so that’s where we are now. We still have a massive global economic bubble that the policymakers have continued to keep inflated. And that’s what they intend to continue to do because they believe – rightly so, I think – that if they allow it to melt down, then it’s going to result in a depression at least as bad as that of the 1930s and 1940s. And they’re going to do everything in their power to prevent that from happening for as long as possible.

Chris Martenson: A depression as bad as the 30s here in the US, potentially, but let’s be clear. That’s already happening in Greece, it’s already happening in some other places. What you’re saying is the natural consequence of overexpansion of credit – and I’m with you on this, Richard. Because the one chart, if somebody says, “I’ll give you one chart to explain what’s happening,” I start that chart in 1970. I look at total credit market debt and the United States was growing its credit market debt at twice the rate of GDP growth. As much as I think GDP growth is actually falsified through misuse of statistics, even with the overexpanded version of GDP that we use now, we were still growing our credit at twice the rate of the underlying economy.

In your mind, how do we – I look at that, it’s so simple. A child could understand that that’s an unsustainable model. The Fed seems thoroughly intent on ignoring that fact and just continuing that model. Is it really as simple as I’ve just laid it out? Is it truly that you can’t grow your credit faster than your economy forever and the Fed is missing that? Or how do we understand their policy moves from a – let’s call it a rational framework. How do we rationalize what they’re doing?

Richard Duncan: Well, I think you’re right to look at that total credit number. That, I think, is the most important number for all of us to be aware of. Total credit in the United States, debt and credit, are two sides of the same coin. It first went through one trillion dollars in 1964. And over the next 43 years, it expanded 50 times from one trillion to 50 trillion in 43 years. So we’ve had a 50-fold expansion of credit by the time this blew up in 2007, 2008. And the only reason that was possible for credit to expand so enormously was because we broke the link between dollars and gold. And once we stopped backing dollars with gold in 1968, that removed all the constraints on how much credit could be created. And so credit absolutely exploded. And this also allowed the United States to start running very large trade deficits with, initially, Japan and Germany but later, all of the world, primarily China. And to finance these trade deficits with paper money or treasury bonds denominated in paper money.

So this explosion of US credit in combination with a US trade deficit, they created the 800 billion dollars in 2006, that created the greatest economic boom in history. It completely transformed our world. We’re all much more prosperous materially than we would have been if we’d remained on a gold standard. But now, we’re on the verge of collapsing into a new Great Depression because all of this credit can’t be repaid and it’s resulted in massive excess capacity across all industries globally.

And of course, from the point of view of the policymakers, I think the Fed and the Treasury, now of course, these people are not the same people who are responsible for breaking the link between dollars and gold in 1968. That was effectively Lyndon Johnson. So these people have evolved over time. Most of them had no idea this global credit bubble was unsustainable. And as of 2008, suddenly they realized that we were in very great danger of collapsing into a new Great Depression. And so all of their policies have been designed to keep this global bubble inflated because they once again fear that it will be just like 1930 when the credit couldn’t be repaid. The international banking system collapsed and global trade collapsed and policymakers really didn’t know what to do and they didn’t do much of anything. And at that point, trade barriers went up around the world, globalization broke down. The unemployment rate in the United States went to 25% and we had a ten-year depression during the 30s. And at that time, Europe was taken over by fascist Germans and Asia was taken over by militaristic Japanese. And then, World War II started and killed 60 million people.

So that is the outcome that they don’t want to occur this time. So just like before, the credit couldn’t be repaid in 2007. This time, rather than letting market forces reestablish a market-determined equilibrium such as occurred in the 1930s, this time, the policymakers are doing everything in their power to prevent market forces from reestablishing a market-determined equilibrium for fear that we would once again have to live through the worst horrors of the 1930s and the 1940s. So all of their policies are directed at keeping the global bubble inflated for as long as possible.

Chris Martenson: I guess you have to break a few eggs to make an omelet. You know, Bernanke just yesterday had a quote where he said he, too, was worried about the impacts on seniors of his policies. Not enough to obviously change his policies because obviously, the Federal Reserve threw Granny under the bus with their low interest rate environment. But they did that, in your mind – and I agree, I think, with this analysis – that they looked at it and they said, “Wow, we really have two really bad options here. One is to allow all of these overinflated too-big-to-fail banks to eat their consequences of their actions and fail, and so we’ll see a big wipeout in the financial industry; it will get pared down probably in a brutal sort of a pruning process. And then, we’ll all have to pick through the rubble and it will be a long, slow climb out of that. Our other alternative is to just print and protect these big banks. They’re going to get stinking rich on the back of this, obviously. We’re going to really reward them for having probably some of the worst fiduciary responsibility on display in history but we’re going to reward that behavior.”

Really, it was that binary of an outcome. I know that’s the talking point of the Fed. It was either, you know, we’re on a knife edge. It’s either hell and damnation on one side or this less awesome, not perfect, but at least workable solution on the other side. Is it really – weren’t there other options available to us, though?

Richard Duncan: Well, let me be very clear about this. I think it’s horribly regrettable that we find ourselves in a position where we are on government life support. We should’ve stayed on the gold standard in 1968. The global economy would be much smaller today than it is but again, we wouldn’t now be in this position where we have to rely on fiat money creation on a trillion-dollar scale to keep our global economy from collapsing. But now that we are here, I’m not sure that there are other alternatives other than keeping the thing inflated or allowing a new Great Depression to wipe away globalization. And a huge part of not just the savings of the American public but a huge part of the global economy altogether.

I believe very strongly that many people who criticize the policy response in terms of the trillion-dollar budget deficits and the trillions of dollars of fiat money creation – they’re absolutely right to criticize the policies that led to this disaster. But once the disaster started in 2008, I believe that the policies have been the only ones that could’ve kept us out of a new Great Depression. And so I think that people who have criticized these policies since 2008 don’t understand the severity of the depression that would occur without them over the last six years and without them over the six years ahead of us to come, and then some. This is not going to be a 1921-style two-year recession that we bounce back from after a little bit of pain and unpleasantness. After a 50-year global economic boom involving what is now a 59-trillion-dollar expansion of credit in 50 years, this isn’t going to be a one or two-year hard recession. This is going to be a multi-decade global depression and I’m not sure that anyone alive today would live long enough to see the recovery. I mean, it’s like Rome. When Rome fell, there was a recovery but it was 1,000 years later. This is the kind of depression we're looking at if we allow this 59-trillion-dollar credit bubble of ours to implode.

Chris Martenson: Well, and that 59 trillion is just the US. The McKinsey study says there’s now 200 trillion of debt across the whole world with tens of trillions of dollars in new debt having been layered on in response to the crisis just in the last seven years.

So Richard, if we look at this then and we say – and I agree – that allowing a 50-year credit bubble to burst gives you a very, very prolonged, ugly sort of a slump. That’s if you’re interested in preserving the purchasing power of the currencies involved. Right now, it looks like the whole world has said, “We’re going to all engage in currency debasement.” I seriously would not want to – I’d feel so badly for the people in Japan who live there who are keeping their savings in yen because they have a very, very determined central bank that’s going to ruin the value of their holdings over time and they’ve done a fantastic job in the last three years with that, just fantastic. And I think they’ll continue to have great success with that.

But when you look at that whole situation of everybody being in the same boat with a 200-trillion-dollar debt overhang, I understand how the policies of the Fed and other policy responses have kept us out of this cauldron of depression. How do they go down the – tell me, paint this road. Here’s my problem. I can’t see the road that they’re on has any other ending except that same ending we just talked about. It’s just a question of when it comes and how high up the stepladder we are when it begins. And that stepladder, the rungs of that are made by additional tens of trillions of debt. We seem to be higher up that ladder to me, not lower than we were in 2008. But I’d be interested in your impression of that.

Richard Duncan: Okay. Well, so I think there’s one thing we haven’t discussed thus far. Trillions of dollars of fiat money creation that we’ve seen from the central banks, this was supposed to create very high rates of inflation or even hyperinflation a long time ago, but it hasn’t. In earlier periods, it always did, but this time it hasn’t.

So what’s different this time? Well, what’s different this time is we have globalization. And globalization is extremely deflationary. I live in Asia. I’ve lived in Asia for more than 25 years now. And the first thing an economist recognizes in Asia is that labor costs $10 a day at the most. So you no longer have to pay someone in Michigan $200 a day to build a car. Your next worker’s going to cost you $10 a day. And that means your marginal cost of labor has fallen by about 90%. Nothing like this has ever happened in history before. And so we have a complete collapse in the marginal cost of labor. This is extremely deflationary, and this deflationary pressure is completely offsetting the inflationary pressure that should be occurring as a result of all of the paper money creation.

So we’re really in a unique moment in history where what we have seen and what the last six years have shown us, for sure, is that at least for the last six years, it is possible for central banks to create trillions of new paper dollars and to finance trillions of dollars of budget deficits. And it’s stimulated the economy and kept it from collapsing into depression without causing high rates of inflation. In fact, we’re verging on deflation.

So this is a crucial variable that everyone really needs to incorporate in their thinking. It is possible to print money and finance trillion-dollar budget deficits without creating hyperinflation. So I believe this creates new opportunities that we should fully take advantage of.

Chris Martenson: Well, let me get to those opportunities in a minute. One more piece to the puzzle, hopefully, you can explain because this one’s been real puzzling for me, is the behavior of commodities beginning with the most aggressive round of quantitative easing in world history with the 85 billion a month that the Fed embarked on. Almost to a day, we saw that correlate with a long-sustained fall in the price of commodities starting in 2011 with oil recently following in that. I would think even with marginal labor costs low that still, demand for commodities – cement, copper, steel, oil, things like that – that those would have somehow responded. But they actually responded in the opposite. How do we understand deflating commodities in money printing? How do those go hand in hand?

Richard Duncan: Well, I think during the second round of quantitative easing, we did have very significant commodity price inflation. Price inflation during QE2 globally, food prices went up 60%. And this was the thing that sparked off the Arab Spring. Arab Spring was sparked off because people were hungry, not so much because they were agitating only for democracy. So I was very concerned that when the third round of quantitative easing came – which I expected that this would lead to even higher food prices and even more food riots, revolutions spreading all around the developing world – but that didn’t happen. And I think the reason it didn’t happen is because, well, it was just an old fashioned supply response. When food prices and copper prices went to very high levels, then farmers planted a whole lot more corn and wheat and copper miners dug more mines and we got a surge of new supply coming into the market. Just at a time when demand in China was weakening because China has had such an enormous bubble fueled by all of the dollars entering China because of China’s massive trade surplus with the US.

But China’s built enormous access capacity across every industry. You probably know well the Financial Times article a few months ago stating that China expanded its – was it, I think, cement capacity – more in two years recently than the United States did during the entire 20th century. So China’s expanded so much capacity for things like steel that steel prices are now collapsing because the world just doesn’t need the kind of steel supply that China alone can supply.

So those are the reasons commodity prices have gone down despite the third round of quantitative easing.

Chris Martenson: Yeah, so that’s always been just a little puzzling to me. Because even during that run from 2011 to now, China was still on an absolute commodity guzzling boom. I think China’s about to hit a hard landing here for a variety of reasons. The cement statistics are eyebrow-raising but the really – the big shockers for me with China are the overall amount of credit expansion. If you think the United States' credit expansion in the banking system was extraordinary, you will be truly shocked by what China was up to. It’s just been absolutely astonishing to me.

So I think China’s slowing down, that’s part of the explanation. But certainly, that linkage between quantitative easing and commodity prices that we saw in QE1, QE2, not so much in Operation Twist, that didn’t surprise me. But QE3 surprised me quite a bit because it seemed that was the one area out of all the asset classes that didn’t respond. Because we saw everything else respond to QE, right? We saw bonds, equities, real estate – virtually everything but commodities. Again, that, to me, was a surprising outcome.

Richard Duncan: I was surprised, as well. I thought that food prices would go higher.

Chris Martenson: All right. So before, we were talking about the possible opportunities that come out of this labor arbitrage scenario in response to QE. And you said there was something there that we need to understand but there are opportunities there. What are those?

Richard Duncan: Okay, so here’s the situation that we’re facing. We have a lot of global excess capacity across all industries but wages aren’t going up in the United States or the western world because wages are being pushed down by competition from developing countries, all the off-shoring and the factories have been relocated to places where there are $10 a day labor. So this is creating a situation now where we’re stuck. For decades, credit growth drove economic growth. And it’s interesting, Chris: Any time going back to 1950, any time the United States had less than 2% credit growth adjusted for inflation, then the US went into recession. And we didn’t come out of the recession until we had another big surge of credit expansion.

So let me repeat. There were only nine years when credit grew by less than 2% adjusted for inflation. And every time, the US went into recession. And the ratio of total credit to GDP in the US, as you hinted at earlier, rose from 150% of GDP in 1980 up to 370% of GDP in 2007, from 150 to 370. So the credit growth drove the economic growth in the United States and in the world. But since 2008, credit has not been growing in the United States by 2% because the household sector has so much debt they can’t repay the debt they have already, even at these super low interest rates. And they can’t take on more debt because their income is not going up.

So the Fed has been forced to take over and drive the economy through fiat money creation, three-and-a-half trillion dollars of paper money creation that they’ve used to buy financial assets, and push up the financial assets. And that’s driven up household sector net worth now to 83 trillion dollars. This is 27 trillion dollars more than it was at the bottom of the crisis.

So this is the kind of government life support that’s kept us from collapsing into a new depression. They have kept the global economic bubble inflated.

So here we are. What comes next? Well, we find ourselves in the position where the private sector has no growth in income so they can’t drive the economy. And they can’t take on more credit because they can’t afford more credit. But still, we’re in a world where there’s so much excess capacity that product prices are falling and profits are becoming worse and the economy’s very weak. And interest rates have fallen into negative territory on at least two trillion dollars worth of bonds around the world.

So in Germany now, the ten-year government bond yield is about 20 basis points and in Japan, it’s 30 basis points. And in the US, it’s a massive 1.9% or so. So we’ve never had lower government bond yields in history. And we have no inflation despite all of the stimulus that’s been provided on the fiscal side and on the monetary side.

So I believe this creates a once-in-history opportunity for us to have the US government – I’ll use an example of US government – I believe the US government should borrow more at very low interest rates and invest this money in new industries and new technologies to restructure the US economy. So over the next ten years, for instance, I’d like to see the US government borrow a trillion dollars and invest it in genetic engineering, another trillion investment in biotech, another trillion in nanotech, another trillion in green energy and a grid to transmit it on across the US. This kind of investment would induce a new technical revolution that would not only restructure the US economy – create new jobs and new industries, technological miracles and medical marvels – it would end all talk of a new depression and basically, improve the wellbeing of everyone on this planet.

So that’s the kind of opportunity that exists. We can – the government can borrow trillions of dollars at extremely low interest rates or even at no cost whatsoever with the Fed monetizing it without causing high rates of inflation.

Our alternatives are not to sit back and do nothing and let this 50-year global bubble implode into a 50-year depression that destroys our civilization. That’s not the only option. We can actually grow our way out of this by aggressive government borrowing and spending, but not government borrowing and spending that is wasteful, on consumption and war the way we have been doing. But rather, government borrowing and investing in new industries and technologies so that we can grow our way out of this and all live happily ever after.

Chris Martenson: Well, that’s an interesting idea. For me, that happily ever after still has a timer on it because eventually, we discover that our civilization runs on energy and energy is not infinite and we’re actually working on finite supplies. I personally, Richard, I have very large concerns about going to nine, maybe ten billion people over the same timeframe that we’re going to see peak oil firmly in the rearview mirror and we will not have made the sorts of investments you just talked about, at least judging by past experience.

So let me just pick on one of those areas because for me, this would be my personal passion. The one limiting feature of alternative energy right now – wind, solar, stuff like that – is that we can’t store it. And so if we had a concerted national program, maybe a trillion dollars of investment, to figure out the next battery technology, I would be jumping up and down doing my little happy dance saying that’s the right thing to be doing.

Richard Duncan: So let's do that. Let’s form a movement and let’s make this happen. This is the solution, let’s do it. We have a democracy. Let’s go forward and make this happen.

Chris Martenson: Well, I’d be so for that. Because that would be at least something I could point to and I would say this is a positive development. I’ll be honest. My cynic comes out when I say I notice that everything that my government is currently choosing, prioritizing to spend money on, are wasteful things. And so bailing out bankers, great. But if we could’ve gotten that money into the hands of people that would’ve spent it, we probably would’ve seen a very different macroeconomic response at this point.

So I’m of a mind that the Fed is going to discover that printing money and handing it to bankers gets you a very, very tiny pop for your buck but that they still have more policy options. And I think one of the next stages is what Jim Rickards talked about is something like a tax rebate or a tax cut or something that basically has the Fed print money, hand it to the Treasury so that it can come straight back into our pockets in one fashion or another. Do you agree that the Fed is going to have to try something more aggressive like that?

Richard Duncan: I think the Fed is going to do a fourth round of quantitative easing. You know, there’s a reason they give these things numbers – QE1, QE2, QE3 – it’s because they keep happening. And when the first round stopped, the stock market fell and the economy got weak so they started QE2 and it went back up again. The economy improved, the stock market improved. QE2 ended, the stock market got weak and the economy weak. And so they did QE3 and the stock market went up and the economy recovered. Now that QE3 is over, the stock market is flat and the economy is very weak again, as we’re seeing in all of the first quarter economic data.

So I think it’s only a matter of time before they do QE4 and when they do, it’s likely to push up asset prices further and drive down bond yields further. And this will push us ahead for another two or three years and that will give them some additional time to think about what they’re going to do next.

Chris Martenson: All right, I want to get back to that opportunity, though, because I like this. So the basic theme is that we’ve got almost – what – eight, nine years of experience that says you can print trillions, tens of trillions, and you’re not going to get inflation. There’s a variety of large structural reasons for that. Those reasons aren’t going anywhere, right? The overcapacity, the cheap labor, things like that. So this idea that if we’re going to have a QE4 instead of – I would really be excited to figure out how to agitate for something other than taking QE4, dumping it into the asset markets, watching stocks get even pricier. Because this is what most people don’t understand: The stock market doesn’t create wealth, it doesn’t do anything. It’s a secondary market. The shares are always 100% fully owned by somebody at some point. So when share prices go up, there’s still just as much money in the market as out of the market. Nothing really happens for capital formation. All you get are some secondary effects with an easier IPO market and things like that when you can raise actual capital.

But if we’re going to print money, why wouldn’t we print it and put it into things that we can identify are clearly going to help improve our collective future?

Richard Duncan: Absolutely.

Chris Martenson: Yeah, your argument is why wouldn’t we do that.

Richard Duncan: Yeah, so just think, QE3 at its peak was 85 billion dollars a month. Now just imagine the kind of results that would come from just one 85-billion-dollar investment in battery storage capacity. That was what you mentioned. Or an 85-billion-dollar investment in genetic engineering or biotech. That’s just one month of QE. This is enormous amounts of money that we have, you could say, to invest. And I don’t care if the first 80 billion dollars of that is completely wasted; if the last five billion of that gives us free, eternal, limitless energy, then of course, it’s well, well worth it. And this is an opportunity that – this is a once-in-history opportunity. We should take advantage of it.

Now, let me mention one other thing related to this. Quantitative easing effectively is debt cancellation. When the Fed buys government bonds, it effectively cancels that government bond as long as the Fed never sells that bond and keeps rolling it over when it matures. Let me explain. The Fed has something like now two trillion dollars – 2.5 trillion dollars – of government bonds. So the Treasury Department has to pay interest on those bonds to the Fed. But at the end of every year, the Fed takes all of its profits – almost all of its profits – and gives it right back to the Treasury, including the interest income the Fed earned on those Treasury bonds. So last year, the Fed gave the government 97 billion dollars, reducing the budget deficit last year by about almost 20%. And since 2008, the Fed has given the government 500 billion dollars. So the Treasury pays the Fed interest on the government bonds but then the Fed gives all of that interest back to the Treasury. So in other words, the government is paying interest to itself, which means the government is paying no interest. Which means those bonds – the QE bonds – are effectively canceled.

And that applies not only to the United States but to England and Japan, as well. The Bank of England owns 24% of all government debt in the UK. So the Bank of England – so the Treasury is paying itself interest on 24% of all the government debt, effectively canceling it.

In Japan, the government’s debt is 250% of GDP. But now, the Bank of Japan has bought up so many government bonds that it owns 50% of GDP worth. So the more government bonds the Bank of Japan accumulates and effectively cancels, the less risk there will be of a fiscal crisis in Japan. Because right now in Japan, the government debt is so high – 250% of GDP – and it only pays a bond yield of 30 basis points. So if the yields in Japan never went to 3%, that would cause a fiscal crisis unless the Bank of Japan owns a great deal of those bonds. Because in that case, the government of Japan would have to pay the higher interest to the Bank of Japan, the central bank. But then, the Bank of Japan would just repay all of that money to the government. So the larger the proportion of government bonds that the Bank of Japan owns, the less likely a fiscal deficit or a fiscal crisis in Japan will be.

So this suddenly makes sense of Japan’s very aggressive quantitative easing program – QQE as they call it. They’re buying up twice as many government bonds every month as the government is selling. And they finally figured out that QE is debt cancelation. As long as the central bank doesn’t sell those bonds and keeps rolling them over, then that debt has been canceled. And that’s what all the central banks are doing. They’re all rolling it over when it matures and not one of them has sold any of the government bonds they’ve bought yet.

So quantitative easing cancels the debt. So the more quantitative easing and debt cancellation we can do, the better. And if we can tie this in with a fiscal program of government borrowing and investing in transformative new industries and technologies, then this is not just once in a lifetime but a once-in-history opportunity that we really must take advantage of.

Chris Martenson: Richard, I have to ask. If it’s this easy, that if you can just print your way to prosperity, why aren’t we all speaking Latin? Because certainly, the Romans would’ve figured this out. People have tried to just print money for a long time and it hasn’t worked in the past.

Let me ask it this way: If you take this to its logical conclusion, you basically come up with something like the Swiss option, which is let’s just have our central bank print money and just give it to people. Why should anybody work? That’s the really, really far, illogical conclusion of all of this. But we’re halfway there with government debt monetization, aren’t we?

Richard Duncan: I don’t think we should print money and give it to people. That would just end up in more wasteful consumption and more imports from China. We need to print money and invest that money at home, creating new industries so that our economies can compete globally and not collapse to a Third World level, in which is the direction in which they’re currently heading.

Chris Martenson: My question then is this idea of debt monetization. I was really worried that we were going to go down this path ten years ago, and here we are. But what you’re saying is that when you look at how this is actually played out, there’s a rare kind of unique opportunity. Maybe not going so far as to say this time is different but to say that there’s a rare constellation of global circumstances that exist, which relate to the pace and extent to which China, industrialized labor, arbitrage, and global capital flows, all of which have come together at the moment in history to give us this strange opportunity. Which is we can print a lot of money maybe for a period of time, not forever, but there’s a window. And we can either take this window and fritter it away by sort of kicking the can down the road and continuing with typical government wasteful policies. Or you’re saying we can take this window and do something extraordinary and unusual, maybe once in history, all of history sort of unusual. Yeah, I like that idea. I do.

Richard Duncan: So let me give you an example of how things have changed. In the 1960s when President Johnson spent too much money—government deficit spending on the Vietnam War and on the Great Society Programs at home—we had a national economy. And we had the Bretton Woods system. And under that system, trade between countries had to balance. So we had balanced trade; we had a national economy. We didn’t have a trade deficit. Countries didn’t have trade deficits under the Bretton Woods system, to speak of.

And so when he spent too much money, it overstimulated the US economy and it led to full capacity across all the industries and full labor capacity. So pretty soon, there was full employment and we had wage push inflation that quickly led to double digit inflation rates in the 1970s, which then forced Volcker to high cap interest rates and crush the inflation in severe recession.

But then, in 1980, President Reagan did the same thing Johnson did but even on a bigger scale in terms of—President Reagan had massive budget deficits – 5% of GDP for five or six years in a row. But this time, instead of overstimulating the US economy and leading to very high rates of inflation, by this time, the Bretton Woods system had collapsed and the US started running very large trade deficits with the rest of the world. We started buying things from other countries.

By 1985, the trade deficit was 3.5% of GDP, something that had never occurred. So we no longer encountered domestic bottlenecks. We didn’t have a domestic economy. We could buy things from other countries, and other countries had limitless capacity to supply us with those things. So now, we’re not confined by domestic bottlenecks leading to inflation. We have a global economy and in this global economy of ours, there are two billion people who live on less than three dollars a day.

So we are never going to get to capacity constraints in labor leading to wage push inflation for decades. And that means that we can step on the stimulus accelerator – a combination of fiscal and aggressive monetary stimulus – without worrying about getting to high rates of inflation in the United States. This is something that we should take advantage of through investing in new industries and technologies to restructure the Western countries’ economy so that we have some way of competing against ultra low wage countries who are beginning to overtake us and driving down our standard of living in the West. This is an opportunity for us to invest in new industries and grow and prosper.

Chris Martenson: Now, if we look at where the Federal Reserve and the Bank of England and ECB and everybody currently is, and in the absence of taking advantage of this opportunity to invest in an appropriate way for the future, how do you see all of this playing out assuming normal politics sort of takes hold? And we conduct a few extra wars and you know, fritter it away on transfer payments and do the usual things like that? How do you see this playing out on its current trajectory?

Richard Duncan: Well, somewhat as you’ve described. The most probable outcome is that we’re going to have more of the same. So we will have a QE4 that will keep us from going back into a significant recession for the next couple of years by pushing asset prices even higher, which would allow more consumption to occur even though wages don’t increase. And this will keep the global economic bubble inflated.

But there seems to be a limit. I believe there’s probably a limit as to how long monetary policy alone can keep driving the economy. There’s a very useful ratio to look at is the ratio of household sector net worth to disposable personal income. And in other words, it’s a ratio of wealth to income. I don’t have the chart in front of me but the ratio is – the average for the last 50 years – just bear with me, these numbers are off but the idea is correct. The ratio is something like 250%, on average, for the last 50 years. Well, in 2000, that went up from 250 on average to about 350 and then it corrected back to the average. And then in 2007, it went to 370% and then it corrected back to the average. Now, it’s quite close to that all-time high again. In other words, the ratio of wealth to income is exceptionally extended, which suggests that there’s only so much higher the Fed can push asset prices before the asset prices are too expensive relative to income for the people to continue to be able to finance those assets at the inflated asset prices. And so that’s why there is a growing risk of an asset price correction, a stock market correction. Now again, the numbers I gave you are not the right numbers but the meaning is correct.

So if we don’t get more fiscal stimulus now from Congress – and it doesn’t look like we will in the next couple of years – then we may be running into limits as to how long the Fed can keep the global bubble inflated by itself. So it would be much easier if the fiscal policy and the monetary policy cooperated to keep the global bubble inflated. Right now, the budget deficit, I believe the government budget deficit as a percentage of GDP, is something like 2.6%, which is about half the level that it was during most of the Reagan administration. So the budget deficit’s very low, or quite low by historic standards. And there is certainly no reason why the US couldn’t run a significantly larger budget deficit for several more years. I mean, when Japan’s economic bubble popped 25 years ago, Japan’s government debt was 60% of GDP. Well, they had to have very large budget deficits every year afterwards to keep their bubble from collapsing into a Japanese Great Depression. And because of the very large budget deficits every year for the last 25 years, they’ve taken their government debt now up to 250% of GDP where US government debt is only 100% of GDP. So that suggests that the US government can borrow and spend another 17 trillion dollars – that’s the size of our economy – before they even got to 200% government debt to GDP and that’s assuming 0% GDP growth. Whereas, of course, if the government borrowed and spent 17 trillion dollars, the economy would grow by 10% a year and would never reach 200% government debt to GDP.

So my point is we have enormous capacity on the fiscal borrowing and spending side that we are not taking advantage of. Now traditionally – and I don’t mean this in a partisan way – but history shows that the Republicans have been very aggressive in fiscal deficit spending when the Republicans controlled the presidency. Normally, this is spending on the military and on military adventures abroad. And that stimulus – fiscal stimulus – generally provides a lot of economic support for the economy, as fiscal stimulus does.

So what I’m proposing is that rather than having another war and another massive military buildup in the United States, let’s invest in a different way. Rather than having our government invest in our military, which is what President Reagan did, accomplishing complete global military dominance through that government investment, let’s have our government invest in industry and technology and energy production and we’ll have global dominance in those areas, as well.

And there are many ways that we could do this. The government could act as a giant venture capital company. It could raise the money and then allocate this money to the most promising 1,000 American entrepreneurs across all fields and establish joint venture companies with them. And when one of these joint venture companies invents a cancer vaccine, they could list that on NASDAQ for five trillion dollars. And it would not only prevent cancer but it would be enormously profitable and pay for itself many times over.

So this is the sort of opportunity that we have, this unique moment in history combining globalization and paper money for the first time. It is, as you said, it won’t last forever. It is a window of opportunity and we should grasp it.

Chris Martenson: Now let me ask you a really big picture question because this is—my whole analytical framework says that when we say things like GDP or economy, we’re talking about goods and services. And if you chase those back to their source, you discover that it always involves a resource of some kind, right? People need to eat food to provide services so they have the energy to do that, we need electricity, which is typically sourced from fossil fuels at this point in time to run a lot of industrial processes and keep our food cool in our home fridges, and we need oil to move everything from Point A to Point B.

Now, when I wander over to the Congressional Budget Office and I look at their long-term projections to the United States, economic growth projections, and then those are used to funnel into the entitlement programs so that we can come up with NPV shortfall calculations for Social Security, Medicare, and Medicaid, right? Flows in, flows out, and at some sort of a discount rate, here’s the shortfall measure in the tens of trillions.

For all of this to really keep working, what all of the central banks are operating towards, Richard, for me, is this idea that we have to entertain the idea of endless growth. So even if you look at what the CBO has calculated, they’ve said, “Well, we’re going to look at a long-term run of about 3.5% economic growth, which means that we’re going to double our economy if we have 3.5% economic growth roughly every 20 years or so. And so you double it and it goes from 17 to 34 and then we’re going to double it one more time after that so we’re going to go from 34 to 68 trillion. And next thing you know after just a couple doublings, the United States economy is as large as the world’s economy is today. Do you see a flaw in that program somewhere along the line?

Richard Duncan: You know, it’s interesting. Since the industrial revolution started in the late 1700s, we’ve not only had something like roughly 3% real economic growth a year but we’ve also, at the same time, had an explosion of the population globally. So the population explosion and the growth of the global economy have gone hand-in-hand. And so it’s not certain that capitalism can keep growing without such a continued large expansion of the population. I don’t have the exact numbers but roughly, there were less than a billion people in 1900 and now there are more than seven billion. So this kind of explosion of the population is something that had never occurred before.

Looking ahead, it looks like demographically, while the population is still expected to grow – and I think generally, people tend to view something like 9.5 billion as the peak number – that’s a lot of new people. But the growth rate’s slowing quite significantly and if it does stop growing, then it’s going to be very interesting to see if the economy keeps growing. And if it actually does level out at 9.5 billion people, then having already gone from one billion to seven billion people over the last 115 years, I’m pretty sure we can manage another 2.5 billion over the next 40 years. What I’m not so certain about is what that means for the economic growth process and capitalism, which seems to be so heavily dependent on population growth both in terms of production and consumption.

Chris Martenson: So capitalism is – to me, it’s not so much an issue of capitalism as our money system requires growth. So before you gave the clue, which was that as long as we have credit growth over 2% – or alternatively, you said when it slipped under 2%, we went into economic recessions. So there was this correlation very tight in the series between continually expanding our money and money-like aggregate. So when you say credit growth, I think of credit as money. And my definition of the money supply that I need to look at is the change both in currency and credit. And to me, that’s one of the more valuable alignments.

I understand that those need to continually grow because of how I understand how the system of money creation works. And whether it needs to work that way or not—sort of an academic argument. The truth is that the curve fit – an exponential curve fit across our money and credit aggregates for the past 50 years has an R-squared of .99, which means that it’s a nearly perfect fit. So we have an exponential money and credit system. To me, as long as it’s growing exponentially by some percentage every year, it seems to be okay. In 2008, we saw the first contraction in that credit market series in my data series that I have and that was, of course, a very, very dicey, very awkward, bad event.

Put all this together for us, Richard. Do you think it’s possible for our money system to enter this steady state, which we might get to with 9.5 billion people if we can hold that constant? Personally, I don’t think our money system has a steady state that it operates well. I think it has two states – growing and collapsing.

Richard Duncan: Really, I think I agree with everything you’ve said. There’s no difference between money and credit. The system requires credit expansion – money and credit expansion to not just survive but to – I mean, not just to continue but to actually stay out of depression. And so I think that that’s what we’re going to have to have. But since the household sector can’t afford any more debt, that means the government sector is going to have to do the borrowing. And I believe they will, it’s just a matter – I believe they will borrow and spend. The only question is are they going to borrow and spend wastefully on too much consumption and more or are they going to borrow and spend on things that will actually create sustainable growth in the decades ahead. I would like to see them do the latter.

Now, looking out 40 or 50 years from now, honestly, we’re in the midst of such a technological revolution, I think we may be looking at an entirely different age altogether. Something that would be difficult for us to even really imagine at this stage in terms of what may have occurred, in terms of genetic science and manipulation, alteration, and all kinds of other possible scenarios involving really just a future that could be unimaginable from where we’re sitting now.

So I’m not looking out for forty or fifty years. I just would like to see us get through the next ten years and not collapse into a new Great Depression between now and then.

Chris Martenson: I agree, I couldn’t agree more. So you have a really interesting website and I know you started something called Macro Watch where you have a video coming out every couple weeks or so. Is that right?

Richard Duncan: That's right. I’m now producing something called Macro Watch, which is a video newsletter and it’s essentially me doing PowerPoint presentations. I do a new one every couple of weeks and upload it to my website. And I sell this on a subscription basis, it costs $500 a year. But I’d like to offer your listeners a discount coupon code that would give them a 50% discount. If they visit my website, RichardDuncanEconomics.com and hit the green subscribe button and use the coupon code "NOW," N-O-W, when prompted, use that coupon code and subscribe for 50% off. And right now, there are more than 14 hours of video content for them to begin watching immediately, including two video courses I’ve done – one called "The Global Economic Crisis Explained" and the other is called "How the Economy Really Works," plus the access to all the other older Macro Watch videos that have been uploaded over the last year and a half.

So I hope they’ll check it out. It’s RichardDuncanEconomics.com. The discount code is NOW.

Chris Martenson: N-O-W. Well, that sounds like a fantastic offer and I certainly know some people will go and check that out. You have a very crisp and easy-to-understand view of how the economy is actually working. And boy, I think we need a lot more clarity in this day and age. Because I’ve got to be honest, Richard, what I hear from the Federal Reserve often sets my teeth on edge and my toes curling because it’s just so flawed in terms of how I understand the world to be working. But they do have the hands of power and they are going to continue to drive things for quite a while. And so anything that you can do to help people understand where we are, I think, is just a great service.

Richard Duncan: Thanks, Chris. Well, it’s been a real pleasure talking with you. Let’s do this again.

Chris Martenson: Fantastic. I certainly would love to, and thank you so much for your time today. I know I’ve got you late from halfway around the world so thank you so much for your time today and we’ll hopefully do this again soon.

Richard Duncan: Okay, thank you.

About the guest

Richard Duncan

Richard Duncan is the author of three books on the global economic crisis. The Dollar Crisis: Causes, Consequences, Cures (John Wiley & Sons, 2003, updated 2005), predicted the current global economic disaster with extraordinary accuracy. It was an international bestseller. His second book was The Corruption of Capitalism: A strategy to rebalance the global economy and restore sustainable growth. It was published by CLSA Books in December 2009. His latest book is The New Depression: The Breakdown Of The Paper Money Economy (John Wiley & Sons, 2012).

Since beginning his career as an equities analyst in Hong Kong in 1986, Richard has served as global head of investment strategy at ABN AMRO Asset Management in London, worked as a financial sector specialist for the World Bank in Washington D.C., and headed equity research departments for James Capel Securities and Salomon Brothers in Bangkok. He also worked as a consultant for the IMF in Thailand during the Asia Crisis. He is now chief economist at Blackhorse Asset Management in Singapore.

Richard has appeared frequently on CNBC, CNN, BBC and Bloomberg Television, as well as on BBC World Service Radio. He has published articles in The Financial Times, The Far East Economic Review, FinanceAsia and CFO Asia. He is also a well-known speaker whose audiences have included The World Economic Forum’s East Asia Economic Summit in Singapore, The EuroFinance Conference in Copenhagen, The Chief Financial Officers’ Roundtable in Shanghai, and The World Knowledge Forum in Seoul.

Richard studied literature and economics at Vanderbilt University (1983) and international finance at Babson College (1986); and, between the two, spent a year travelling around the world as a backpacker.

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49 Comments

csul's picture
csul
Status: Member (Offline)
Joined: Feb 9 2011
Posts: 2
The businessman and the fisherman

There is a parable floating around the web on many many sites.  It apparently strikes a chord with many many people.  It is conversation between a village fisherman and a vacationing businessman.  Here one version. 

One day a fisherman was lying on a beautiful beach, with his fishing pole propped up in the sand and his solitary line cast out into the sparkling blue surf. He was enjoying the warmth of the afternoon sun and the prospect of catching a fish.

About that time, a businessman came walking down the beach trying to relieve some of the stress of his workday. He noticed the fisherman sitting on the beach and decided to find out why this fisherman was fishing instead of working harder to make a living for himself and his family. “You aren’t going to catch many fish that way,” said the businessman. “You should be working rather than lying on the beach!”

The fisherman looked up at the businessman, smiled and replied, “And what will my reward be?”

“Well, you can get bigger nets and catch more fish!” was the businessman’s answer.

“And then what will my reward be?” asked the fisherman, still smiling.

The businessman replied, “You will make money and you’ll be able to buy a boat, which will then result in larger catches of fish!”

“And then what will my reward be?” asked the fisherman again.

The businessman was beginning to get a little irritated with the fisherman’s questions. “You can buy a bigger boat, and hire some people to work for you!” he said.

“And then what will my reward be?” repeated the fisherman.

The businessman was getting angry. “Don’t you understand? You can build up a fleet of fishing boats, sail all over the world, and let all your employees catch fish for you!”

Once again the fisherman asked, “And then what will my reward be?”

The businessman was red with rage and shouted at the fisherman, “Don’t you understand that you can become so rich that you will never have to work for your living again! You can spend all the rest of your days sitting on this beach, looking at the sunset. You won’t have a care in the world!”

The fisherman, still smiling, looked up and said, “And what do you think I’m doing right now?”

http://www.becomingminimalist.com/recognizing-happiness/

The "99%" would be happy to live a simple life connected to local friends and family.  On the other hand Adam Smith describes the "1%" when he wrote:

All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.

According to the article at this link:

http://www.archdaily.com/390959/china-plans-to-move-250-million-into-cit...

"The Chinese government is pushing forward with a plan that will move 250 million Chinese people from rural communities into newly constructed towns and cities over the next 12 years. . . Those who live in rural communities in China are largely self-sufficient, living off of the land and requiring very little in terms of infrastructure and transportation."

Those 250 million poor, rural, but landed peasants are living much happier healthier cooperative lives than they will after they are driven from their land and villages into the cities where the plutocrats will buy their labor cheap and sell them life's necessities high.  So the "1%", in their pursuit of all for themselves, never stop in their drive to monopolize everything, including even peoples lives.

Simple, minimalist, local living is our only hope and if there is any truth in the businessman and the fisherman parable our real desire. 

 

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3125
eternal expansion,

It seems to my poorly trained eyes that Mr. Duncan expects continued exponential growth of, well, everything including population.  He did not touch on how resource limitations might affect his vision.  How we might find the infinite growth in energy that such a scenario would require.  Nor did he discuss how, with the failure of the infinite growth paradigm, we might be able to conserve our finite resources or limit our way of life to adapt to increasingly limited resources.

I also have to say that this notion of borrowing trillions, even at very low interest rates, sounds a lot like an economic perpetual motion machine.  We know they don't work in the real world.  Is it possible that continually expanded borrowing could work that way?

What happens when the Fed sits on trillions and trillions in gov't bonds?  Even if they recycle interest payments to the gov't there must be some end point.  A possible problem with that scenario is that the gov't gets to decide where that money goes.  They could invest wisely as both Chris and Mr. Duncan dream, they could hand it out to people as Chris suggests, they could just blow it on new war toys or they could spend other countries into bankruptcy trying to keep up, like Reagan did.  And, of course, there was no mention of what the infinite growth machine is doing to the environment.  To me, when all other questions are answered, that is the stopper.  We simply can't continue doing what we're doing to the earth, even with whiz bang new inventions.

aladinangel's picture
aladinangel
Status: Member (Offline)
Joined: Nov 14 2011
Posts: 11
Duncan is the opposite of Keen

Coming right after the excellent interview with Steve Keen, this Duncan character sounds exactly like a voice of the economic establishment that Steve rebelled against. I don't know if Chris actively looked for such a stark contrast of ideas in two consecutive podcasts, but the result has been remarkable.

Duncan tries to blow some life into the old tired (by now) theoretical nonsense that "we can grow our way out" of this predicament if only the FED would agree to spend more money in some carefully "targeted" fields. It's nothing new than the old Krugmanian argument of spending "more" in order to create demand. It's appalling (to me at least) to see how many economists choose to cling from a theory which has been totally discredited over the last 10 years. The total lack of imagination of the people in charge of our economy, as well as their dogmatic dedication to such a faulty theoretical contraption, does not bode well for our future. This is like listening to a new religion of "growth" preaching economic absolution to a crowd which sees its daily life being slowly but surely shredded to pieces.

Yet, despite the almost endless argumentation pro or against the "easy money which will eventually cause growth" solution of the current crisis, I failed to find some convincing answers to a few very simple (and I believe common sense) questions:

1) If increasing debt is of no real consequence for a government, why choose to borrow instead of just issuing new currency ?

2) If this debt is to be paid back (to ensure the stability of the currency), how exactly is this supposed to happen ? Is it even possible ? If so, what's the mechanism used to ensure a debt reduction and how it would affect our lives ?

3) How is this continuously increasing debt supposed to solve the deflation problem caused mainly by the payback obligations inflicted by same debt ? I see some serious logic "slippage" in this entire argument, at the very least...

4) Finally, how is this perpetual growth going to allow for an increased population AND increased (or at least constant) standard of living in a world with finite resources (our planet) ? I could see some reason to debate the issue if we would plan to expand our civilization within our Solar system (for now) in the next few decades, however nobody mentions this possibility even remotely, while the current so-called space program has became a sad joke.

If some modern economist could come up with some reasonable answers to the above questions, he would do a tremendous service to the science he professes for a living. Until then, don't expect people to take modern economics (and its brainwashed scribes) too seriously. And yes, it is terrifying to face an existential crises of such dimensions with no theoretical tool able to explain it, much less to help solving it...

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 433
Genetic Engineering

Mr. Duncan mentioned, recommended investing in genetic engineering to help our economy grow.  How can that create thousands of jobs for the masses?  And with no oversight for big business or government what kind of abomination would result from fast tracked genetic engineering?

AK GrannyWGrit

LesPhelps's picture
LesPhelps
Status: Platinum Member (Offline)
Joined: Apr 30 2009
Posts: 728
A Different Take

I had trouble listening to this podcast.

First, it's difficult to see how accumulating more global debt can have a positive impact, regardless of how it is spent.  Just because we have lucked out so far by avoiding hyper inflation and high interest rates, doesn't guarantee that we can count on continuing to dodge that bullet indefinitely.

Second, I have a hard time believing that the world governments are going to suddenly start spending newly printed money wisely.  They've never done that in the past.

Third, as Chris pointed out, there is the resource issue.  Even if we spend billions or trillions on new battery technology, or any other new tech, what is the likelihood that the technology will require resources that are still readily available in large quantities.  I remember reading that there is not enough lithium available to supply resources to all the lithium battery plants currently under construction to supply electric car batteries.

Finally, everything I see tells us we are already seriously into population overshoot with our current world population of 7,235,070,408 and climbing.  I won't bother to lists the proofs.  Virtually everyone on this site has them memorized.

I simply can't see even a miniscule probability that we can find a way out of this that doesn't include a day of reckoning.  I wish I could. 

Having said that, I truly hope I am wrong and Richard Duncan is right.

Phaedrus the younger's picture
Phaedrus the younger
Status: Bronze Member (Offline)
Joined: Aug 21 2013
Posts: 64
My personal epiphany from this podcast...

I think I'm a luddite.  I was with Richard up until he talked about continued deficit spending directed to technology.  Like cancer vaccine etc.  

First off, who's going to pay for the new wonder technology to generate the fantastic return on investment?  The people are already flat out broke (except for the top 5% or so).   The governments financing this investment have to be tapped out after the spending orgy.   Even if the gov't still thought it could continue spending even more and paid for the treatment, it becomes the shareholder and the consumer.  How does that work?

Now the moral outrage: As humans literally chew our way through our planet, do we really need more technology to make us collectively live longer?  It smacks of the same 'me, me, me' mindset of the past 30 years that has mortgaged (stolen) our children's future in order to keep the party going even longer.  Really?!?

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Thimbles, peas and the wailing wall.

Goodness, but I a boring. And frustrated.  

Here I stand before the wailing wall watching economists ply their trade with thimbles and peas.

Please Mr really important and serious Economist,  forget the mind games. We need results. 

Professor Hagelstein and his friends could do with a few pennies, a few crumbs from your august table, to try and save your ungrateful derriere. 

http://coldfusionnow.org/tag/mit/

Or not.

Yes I know that solving the energy crisis wont guarantee our happiness any more than money will make the destitute happy in the long run. But it will sure help in the short run.

After we have excess energy, I will tell you what our next problem is and how we are going to solve it.

But you already know, don't you? God but I am boring.

Back to the wall.

aggrivated's picture
aggrivated
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 527
The awakening of Mr Duncan

Mr. Duncan has a hope for a better future based on continued returns similar to past returns.  He even stated that his plan has a short term window -20 years or so I think he said. (Even a stock prospectus is required by law to state that such an assumption is guarded-past performance is no guarantee..etc.) Anyway after 20 years or so we reach the end of our window of opportunity and that is assuming  omniscient investment by the governments of the western world.  If the new technologies are not in place by then our civilization is doomed.  The people of the future may well not speak English.

China just got through with a similar plan and ended up over investing in a bunch of stuff that will be crumbling into dust and out of date technologically when it is actually needed---if the world demand were to continue to grow--which it probably won't much longer if at all. Their family restriction plan is a real blind spot in that thinking.

As I said at the beginning, Mr Duncan has a hope.  This hope is based on a hysteria of sorts stemming from terror of a different and bleak future. I have come from such a place myself. It is hard to accept a distinctly different future. It takes time.

So, Chris's conversation reminded me of some I have had with friends about the limits of growth.. only Chris is much more patient than I and so it went on longer than my talks have done.  Maybe, Chris should have asked if Mr Duncan had read his book yet.  I hope Mr Duncan has or will read or listen to  the Crash Course.  It is possible that this conversation planted enough doubt in his mind that he will change his views.  Unlike Mr Duncan I have never published my views, nor been interviewed so I have very little prestige on the line if I were to have a 'flip-flop' event in my thinking.

I don't plan to invest even $250 in hearing his views, but it would be interesting to hear what he thinks when we reach April 2016.  Maybe he will have awakened to a different hope by then.  His very long term view seemed very similar to most of those on this site, but he's still banking on his plan for the next 20 years to enable us to escape or catapult over the limitations of energy and environment. There is still a failure to engage with the facts.

Like the realization of any of us who have disassembled the household of a deceased relative; "The time has come to down size our stuff and clutter". Joy is not dependent on using more fuel.  My hope is for the awakening of Mr Duncan.

Please leave no wake.

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Genetic Engineering for Beginners

Our bodies are not pristine, they are a riotous swamp of sexual excess. Genes are jumping in your gut as you read this. Shame and scandal in the family.

Besides, the chromosomes are not the "blueprint of life". They are the blueprint of amino acids, which may or may not fold correctly to form micro machines depending on their habits (Morphic fields).Genetic Engineering is a tool, but it has it's limitations.

Again, inaction will have consequences. We have nominated ourselves as the stewards of this planet, so we had better get good at it.

animation of human cell world:

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Surreal

Wow, this podcast was surreal.

We have a global economy and in this global economy of ours, there are two billion people who live on less than three dollars a day. So we are never going to get to capacity constraints in labor leading to wage push inflation for decades. And that means that we can step on the stimulus accelerator – a combination of fiscal and aggressive monetary stimulus – without worrying about getting to high rates of inflation in the United States.

So...let's take advantage of the two billion people living on less than three dollars a day so the US can dominate energy and technology (and yes, ehem, the military of course)? Wow, what a concept...such a new and creative idea.

The government could act as a giant venture capital company. It could raise the money and then allocate this money to the most promising 1,000 American entrepreneurs across all fields and establish joint venture companies with them. And when one of these joint venture companies invents a cancer vaccine, they could list that on NASDAQ for five trillion dollars. And it would not only prevent cancer but it would be enormously profitable and pay for itself many times over.

My plan is to take up smoking when I'm 80 if I make it that long...that way my daughter won't have to give up all her income to take care of me into 90s and 100s. Of course, she might be one of those living on three dollars a day, so all bets may be off.

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Ayn Rand saw this coming.

The first thing that came to mind when he started talking about the government funding technology research is Dr. Stadler and his State Science Institute in Atlas Shrugged.  It is a recipe for disaster.  More and more I am seeing the brilliance of Ayn Rand.

My second thought was of Hayek in the The Road To Serfdom. 

"While it is true, of course, that inventions have given us tremendous power, it is absurd to suggest that we must use this power to destroy our most precious inheritance: liberty.  It does mean, however, that if we want to preserve it, we must guard it more jealously than ever and that we must be prepared to make sacrifices for it. While there is nothing in modern technological developments which forces us toward comprehensive economic planning, there is a great deal in them which makes infinitely more dangerous the power a planning authority would possess."

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A interview with the Incoherent

I won't be bothering to go to Mr Duncan's website, his story was at best totally incoherent.

These "Republican" business as usualers years ago denounced "Keynesian stimulus", are now embracing it as their own as they did with Reaganism which was no more than spending money you don't have on stuff that's not needed.

There is no such thing as "Keynesian stimulus", spending printed money is always spending printed money, spending borrowed money is always spending borrowed money. 

The problem with grand Government directed "Apollo" schemes (coming from people that oppose big Government schemes like "Star Wars") is the money ends up being directed into political pet projects like "genetic engineering", "carbon capture"and "drill baby drill". It's about the People running governments buying political popularity to keep themselves office by a promise that tomorrow will be the same as today only better, their vision only extends to the next election. We no longer have "leaders" we have followers.

At first sight of Mr Duncan wanting to spend bucket loads of printed cash on "genetic engineering", one immediately get the drift of a wannabe politician.

If we are going to enter the fantasy world of money pulled from thin air and thrown out windows it doesn't matter if the recipients are bankers or genetic engineers. Attempting sell it as being as good as earning real money by hard work in creating something of value is simply fraud.

Money only ever represents the goods/assets in the economy, if the volume of money created is not matched by the value of goods/assets in existence then the value of money must fall. Whilst it is true that the size of the global economy and the deflationary trend with globalized labor costs and the decline of interest rates to near zero are to an extent masking the problems with economies and are allowing short term money printing to occur without "hyper inflation". It can't last forever, the day of failure can't be predicted it's like quantum mechanics. There are no survival strategies other than not needing very much. Gold is only worth something if people are prepared to exchange it for something else. I have the view that day the collapse comes gold won't be worth much, a good pair of boots, a sack of wheat or a gallon of gas might be a lot better.

Ponzi schemes look like super investments until the day they fail, then everybody's broke.

What Governments have to be doing is working out how to structure managed decline, the banks must fail interest payments are not mathematically possible in either a steady state or a declining economy. The whole "borrowing and lending" structures will have to be altered with consumer finance largely curtailled.

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Watch "QE Is Debt Cancelation", Richard Duncan's video

Chris,

Thank you for inviting me to be your guest and for conducting such a great interview.

One of the things we discussed is "QE Is Debt Cancelation".  The central  banks don't want the public to understand this, but it is true.  When a central bank prints money and buys a government bond, it effectively cancels that  government debt.

I have recently made a Macro Watch video that explains how this works in considerable detail.  This is an enormously important subject.  It is impossible to understand the true state of the global economy, central bank strategy or the policy options available to us until this fact is understood.

I would like to share this video with the Peak Prosperity community.  Please click on the following link to watch "QE Is Debt Cancelation":

http://www.richardduncaneconomics.com/qe-is-debt-cancellation-free-video/

Richard Duncan

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The Kiss of Death,Mr. Duncan.

I for one appreciated you effort to explain how debts are canceled with that thimble and pea trick. (My imprimatur is probably the kiss of death).

Your views are in line with the ideas of Nichole Foss who says that there are too many claims on underlying assets, and that these will have to be annulled by some mechanism.  Are you implying that there will be losers in this current arrangement? 

Is my assumption correct that the big losers will be the buyers of bonds ? (Code for pension funds).

I am all for a bit of planning. Look where laissez faire has got us to.

If we followed the script laid out by either The Club of Rome and diverted our capital from industry to agriculture (and some other medicine) by 1982 we would have stabilized the economy to a level enjoyed in 1890. Not very good, but a lot better than what we have coming down the turnpike. 

Gerard K O'Neil's pleas also fell on deaf ears. 

Well here we are now, looking at each other.

 

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some flaws in thinking

Mr Duncan has a good grasp of how a lot of the pieces fit together.  A lot of what he said was right.  But there were some flaws in his thinking that I feel are important to mention:

"QE is debt cancellation - the more we do, the better"

QE is temporary debt neutralization, but at a price.  What's the price?  Injection of vast quantities of base money into the economy.  This depresses rates, as base money rushes around looking for yield, a hot-potato that is transferred from asset-holder to asset-holder, and once rates are depressed, capital allocation stops working properly, a whole bunch of capital misallocations occur, and savers are punished as a side effect.

As long as huge amounts of base money is floating around, short rates will not normalize.  Unlike forgiven debt, "temporarily neutralized debt" carries with it an ongoing price - it also neutralizes our centuries-old capital allocation mechanism.  Every investment opportunity looks good when short rates are at 0%.

Is there a limit to how much base money we can have floating around out there before an unfortunate and surprising new effect appears?  That I don't know.  It worries me, but I have no specific evidence on that score.

"We don't have inflation" - and the implication is, we won't get inflation because we're in such a special time because globalization inoculates us from such things.

My observations:

QE injects money into the asset markets.

Government deficit spending injects new money into the real economy.  Massive government research projects will be classically inflationary.  Last time we ran multi-trillion-dollar deficits, we definitely did have inflation.  Anyone remember the inflationary spike from 2010-2012?  It followed the 2.5 trillion dollar deficit spending binge from the US government.  That's what the evidence shows.

Since short rates (probably?) cannot rise given all that base money out there chasing yield, then the safety-valve will probably be the currency.  Namely, money will flee the USD as a result of the inflation, adding commodity inflation to government-spending inflation.  Long rates would probably rise.  We might even get a bond market correction as foreigners decide to bail out of some of their USD treasury holdings.  That correction could get out of hand.  Or not.

If the Fed ramped up buying in response, they would end up owning the bond market.  The amount of base money out there would be immense.  The dollar would likely suffer.

For the Fed to slow the situation down via raising short rates, it would need to pay interest on Excess Reserves.  Likely, those Excess Reserves (where base money goes to rest that isn't needed for economic liquidity) would be growing at right around the rate of monetization - more than a trillion or so per year.  It would be progressively more expensive for the Fed to actually raise rates as time passed.

I'm not sure there would be an easy way out for the Fed.

Good news is, it would likely be good for gold.

"No capacity constraints in labor" / globalization

This implies poor garment workers in Bangladesh are functionally equivalent to a class of MIT graduates.  This is a research project.  Can we just farm out our massive crash-project research effort to India and China?  Do we even want to?

There will be wage-push inflation, it will just be focused in narrower areas where we will have labor shortages - the gang necessary to do the R&D, along with the communities that support them.

So let's not kid ourselves.  We're signing up for continued capital mis-allocation, more base money dumped into the economy, and based on our recent historical experience with government deficit spending, we will definitely get inflation.  Its not free.

The only question I have - is it better than another dose of "something that didn't work" - standard QE?  I think we'd end up with more at the end of the day, so there's that.

If we got those fancy new batteries, it probably would be worth the price, in the long run.

But it certainly wouldn't be free.

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Richard Duncan - status quo shill

This is the first Chris Martenson podcast I have ever had to turn off. I simply couldn't listen to the status quo financialization lies this guest was spewing out of his pie hole.

 

Sure, the government should add another few trillion dollars on top of the heap and "invest". The words "government" and "investing" when spoken together are an oxymoron. The 787 billion dollars (TARP) the feds handed over to Hank and his buddies when they were blackmailed demonstrates this perfectly.

 

 

Chris, I know you are extraordinarily tolerant and broad-minded however you should really have reconsidered this guys interview and perhaps tossed it in the trash bin before publishing it. The podcast can be misconstrued as an endorsement of your guests ideas - which I strongly believe is NOT your intention in this case.

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17 more years please.

From reading the comments we're all singing from the same hymn sheet more or less. Earth - finite. Net fossil energy - peaking.  Growth - heading negative.  Population - increasing .  Economists - clueless.  Politicians - paid off.  Msm - looking the other way.  People - eating.  Outcome - very very bad.   Have I missed anything?   Got to keep the Ponzi scheme going.  17 more years, please.  (I'll be 70 then) Anything more will be a bonus.

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If QE is debt cancellation what about bond holders?

I really don't get that. Please explain. What happens to pension funds etc that held those bonds?

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Thanks Dave

for addressing the details of certain assumptions Mr. Duncan has in his thesis that didn't quite add up. There was no reference to actual resources (in the video that was referenced) to explain how this "free money" actually adds anything of value to the economy.
I did understand how the parlor tricks work to make it appear to be "free money", but I'm more inclined to take my daddy's simple advice, "If it sounds too good to be true it probably is."
The one example that Mr. Duncan used to prove that government could do a good job at something "the internet" is debunked here.

http://tomwoods.com/podcast/ep-333-could-there-have-been-an-internet-wit...

Apparently there were better options than our current internet that were not followed, that would have been better.

SS
 

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The bonds keep getting paid...

Jennifer.. the bond holders, all bond holders, keep getting paid in this scenario.. The idea that Duncan calls, "debt cancelation" really is just another way of saying something many of us believe anyway.. i.e. that the FED's balance sheet will effectively become an everlasting roach motel for some fraction of the debt., and that it will probably grow even larger in the future when the next downturn happens.  The FED will never admit this though because it would a clear admission that the monetary system is merely a Ponzi scheme (which it is).  Their last threads of credibility lie in the idea that they could both increase interest rates and someday unwind (sell back into the market) some of the debt on their balance sheet.  

As DaveF says above.. there is no free lunch.. at some point;

    The dollar would likely suffer.

 

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I found this interview

I found this interview extremely interesting as it provided  a view of the economic world that challenged my views and thus caused  some introspection of these views.

I have long been an opponent of genetic engineering, perhaps I am a Luddite like a previous commentor,  but  I do not see anything good coming from this branch of science. In agriculture it overlooks the adaptive nature of nature and we get weeds that are super resistant to herbicide necessitating even more use of Roundup on food crops or similarly pests that become resistant to bt. A better approach is to work with nature, allow for a not quite perfect result, and produce food or other products that are  healthy for the people and animals that eat them and the environment in which they are grown. The extra money a farmer may make becomes a short term benefit anyway as others match his production and the price drops. The consumer benefits from a cheaper product but not from eating something of dubious effect healthwise. Medical genetic engineering is also unwise in my opinion. We all have to die sometime and the ethics of disrupting nature at the level of gene manipulation are suspect. Why do we value life so highly in this regard yet treat it so cheaply with regard to making money and making war? Easy to say I know when one is personally not directly affected by some affliction.

Richard Duncan did not mention the other important things that should have been done having got into the position of having to bail out the economy/banks and that includes the reinstatement of Glass Steagall and the breaking up of the 'too big to fail banks.' Maybe if the gold standard was still in force the banks would never have grown and gained so much lobbying power that they were able to remove Glass Steagall? Would his recipe for future economic success really work for the man in the street with a political system that is a democratic charade. 

The development of better energy storage would be very positive in my view as it would enhance the desirable societal move to smaller local resilient communities.

Thanks for a very interesting discussion.

 

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Quote:So I believe this

Sorry, mistakenly saved

 

 

 

 

 

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Just because you don't like the croutons...

... doesn't mean you have to throw away the whole salad bar.

 I confess I'm feeling quite skeptical about some of the things he's said, and the possible long-term implications of some such policies (that others have already brought up here) are worrisome.  But at the same time, I'm not going to let the parts I disagree with make me discard or write off everything he says. 

For example I can see the merits of funneling QE money into certain areas and research projects IF THE MONEY IS GOING TO BE PRINTED ANYWAY.  Perhaps my focus would be a little different than his in some areas; I would focus much more on things that contribute to better quality of life and ways to build better efficiency into our infrastructure and systems of support, and a lot less on technologies and areas mostly geared towards maintaining growth and keeping the status quo going.  I too would much rather we not continue the QE game and mindset of never ending growth at all costs and go about things more honestly and sustainably.  But I know myself and people like me don't control monetary policy and LIKELY NEVER WILL ANYTIME SOON... the status quo is just not inclined to allow that extreme level of change, not until the system has already been seriously disrupted or outright collapsed (and by then controlling monetary policy is largely a moot point).  But the chances are more favorable if instead of trying to fight the system and stop the QE money flow, there is a focused effort in redirecting that money into more useful areas.  I personally favor the 'X-prize' model where very significant cash awards are granted to those individuals or companies large & small who achieve some predetermined stated objectives within certain fields of science, engineering, and medicine.  I know Chris proposed something similar in his last report.

That being said I don't think the odds of this happening are very high either.... even less drastic changes like this are going to face some opposition from the status quo.  But IF one still is committed to trying to work and change the system by working within it (I'm past that point myself but I know many people who care that still try to work within the system), the odds of pulling this off are still far better this way than fighting the status quo head on.  Just because one tries for the little or partial victories doesn't mean one gives up on the bigger dream...

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17 more years?

"Got to keep the Ponzi scheme going.  17 more years, please.  (I'll be 70 then) Anything more will be a bonus."

I'm 29.....do I get a vote?  ;-)

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So, are you saying that the

So, are you saying that the government borrowing money to drop bombs on brown people in Afghanistan, Iraq, Yemen, and Libya; to militarize every police force in the US, and to spy on Americans in every conceivable way is OK because it "preserves our most precious inheritance: liberty", while spending on R&D that could result in a better future for us and all of humanity is off limits because it counters Ayn Rand's ideology?

I believe this is the distinction between wasteful and purposeful spending is what Mr. Duncan was talking about, given that deficit spending is going to happen regardless.

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Again, the limits to growth

Mr. Duncan is apparently of the 'they'll think of something' school of caring for the only real store of wealth, the earth.  Les Phelps helpfully linked an article on today's Daily Digest (http://www.abc.net.au/radionational/programs/ockhamsrazor/whats-the-limi...) that is a reminder and update of The Limits to Growth, published around 1972.  Last year I was fortunate enough to attend a presentation by Dr. Dennis Meadows, one of the authors of The Limits to Growth, in which he acknowledged that what they wrote more than 40 years ago has turned out to be largely right and the projections still accurate.  Another attendee of the presentation, John Michael Greer, recently wrote:

Quote:

It probably needs to be said that very few of us are in a position to go whole hog with LESS (an acronym he came up with that stands for Less Energy, Stuff, and Stimulation)-though it's also relevant that some of us, and quite possibly a great many of us, will end up doing so willy-nilly if the economic contraction at the end of the fracking bubble turns out to be as serious as some current figures suggest.  Outside of that grim possibility, "less" doesn't have to mean "none at all"-certainly not at first; for those who aren't caught in the crash, at least, there may yet be time to make a gradual transition toward a future of scarce energy and scarce resources.  Still, I'd like to suggest that any proposed response to the crisis of our time that doesn't start with LESS simply isn't serious.

(bold mine)

This article may be posted on Greer's blog, thearchdruidreport.blogspot.com but I read it in that rarest of entities, a paper publication that doesn't appear online.  The Wheel of the Year 2015, published by Four Quarter Interfaith Sanctuary.  (4qf.org)

My point here is that until Mr. Duncan at least attempts to understand the natural energy and resource limitations to growth, their environmental effects and incorporate them in his thinking, he will probably not find an appreciative audience here where all three E's are the basis of our deliberations.

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Interview With Mr. Duncan

Mr. Duncan is from the Krugman school of economics and believes in Keynesian economics.  A couple of issues with his world view. Complex system such as our global financial game are inherently unstable.  More QE will eventually tip this over the edge and then when a lost of faith in all currencies happens there is the need to carry one's savings into the post $IMF system.  Gold is the only medium that will serve this  role.

The future is clearly broken into 3 periods.

1.) Current one (Time to prepare)

2.) Hyperinflation.  Deflation is impossible in a world of printing presses. When push comes to shove all liabilities can be preserved in nominal terms just not in real terms, Very simple concept.  Gold will not be valuable. Shelter, food, water and energy.  Individuals whom have capabilities in theses areas will be fine because of their ability to barter.  I have the ability to purify almost any water source in large quantities no matter it;s quality.  I will also be constructing a wood gasifier to produce a gas to run my generator.

3.) New world.  Gold will be become separate from currencies as a way to store ones excess production in this new monetary world.

 

That is how I see it.

 

 

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Away with the Fairies.

That's it. All too hard. I'm away with the fairies.

What if we just have the whole story wrong? 

Reality ends here. Please mind the gap. 

Imagine this. All the wealth of the planet is being siphoned off according to plan. Someone else's plan. These wars, alarms and excursions are all a charade to distract us from the main show.

But what is the main show? Let us amuse ourselves with the thought that someone actually understands gravity. And the Main Show is not even on this planet. And that is where all your money is going.

My understanding is that is what Catherine Austin Fitts argues. Maybe she just likes the attention. Or maybe it is not healthy for the inmates of death row  to dwell too long on the future.

PS. I can think of a few genetic improvements for humans.  Ovulation as an act of volition anyone?

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Richard Duncan Interview

Richard is such a breath of fresh air!  The intellectual cul de sac most market commentators have been stuck in since '08, has been frustrating and mind numbing.  Anyone with a shred of intellectual honesty, would have to admit that the economic models they've been using have NOT been useful in either understanding our economic situation, or predicting outcomes.  Yet, despite those failures, most persist. We need more people like Richard, who can think outside the box.  Although he wasn't specific, Richard hinted at revolutionary changes that might well await us in the future.  Catherine Austin-Fitts has been talking about this very thing for quite awhile. Her views on the technological advances that have been made within black budgets since WWII would be a nice adjunct to Richard's interview.  Such advancements once revealed, may solve many seemingly intractable problems, e.g., energy.  For some reason, most commentators do not want to look at the role that axis loot from WWII, money laundering and other off balance sheet shenanigans play in the larger economy.  I would like to see Peak Prosperity continue to step out of the box with regard to this issue.  An interview with Catherine Austin-Fiits would be a great start!

 

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Mr. Duncans analysis is

Mr. Duncans analysis is painfully academic.

Not only is it a fantasy but it also presumes a structurally stable economic environment that is devoid of any black swan events in an unlimited time frame.

It also presumes that trillions of dollars of printed money will lead to these remarkable scientific discoveries as if money is the only obstacle.

This is simply an academic musing.

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Richard Duncan Interview

I would never presume to speak for Mr. Duncan, but I don't think that he believes deficit spending is a good idea, but merely the best of worse alternatives. Particularly, since it appears that deficit spending is going to continue to be the course we take, what we spend money on could make some difference in terms of eventual outcomes.  I understood his deficit spending solution as a stop gap only.  That  is, spend the money on things that are actually needed, with the possibility of mitigating some of the eventual consequences of current and previous deficit spending.

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"It's the Paradigm, stupid"

The paradigm is broken, pure and simple.  What is the paradigm?  Capitalism, fractional reserve banking, and the need for constant economic growth to support it.  The paradigm was conceived and gradually implemented beginning several hundred years ago, when planetary resources were perceived as infinite.  In my view, it's brilliantly conceived, and has served us extremely well since its inception.  Unfortunately, the paradigm is intrinsically unsustainable on a finite planet, and we've reached a point where it's beginning to fail at an accelerating pace.  The party was great while it lasted, and I'm grateful to have been able to participate in what I regard as the best time ever in human history to have existed.  I consider myself eternally hopeful for the future - but, shall we say, very cautious.

I believe people like Steve Keen and Richard Duncan are well aware of this failed paradigm.  Essentially, our civilization has a tiger by the tail, and can't let go.  Letting go (of the paradigm) would cause a repeat of the financial collapse, economic depression, and ultimately, war - just like the last time around, in the 1930's and '40's.  Of course, this is unthinkable.  So, as the responsible thought leaders that they are, Steve and Richard are proposing possible solutions: Steve with his 'debt jubilee', and Richard with his advocacy of massively increased government borrowing directed toward R&D projects which might help mankind extract itself from this morass.  I believe both of them are taking their responsibilities seriously, and admire their efforts in this regard.

Personally, I have never trusted authority, even when I was benefitting from it.  And unfortunately, the powerful interests which are vested in the current paradigm continue to profit from its continued existence, so I think it's extremely unlikely that any meaningful change will be allowed.  Consequently, my faith in our global leadership to enact Steve's or Richard's proposals (or anything else significant) is minimal.

I believe we will (maybe soon) reach a point where, in order to purchase the goods or services we need, we'll be met with the question, "Whadaya got?".  At that point, what will your answer be?

We've reached a point where the powers-that-be have no alternative but to undermine the value of global currencies, and this is what's happening.  In my view, precious metals (in bullion form, not financial) will become a more and more acceptable medium of exchange in black markets which I believe will form, even in developed countries, as artificial prices which are increasingly fixed by desperate governments are ignored by the population at large.

Of course, as more and more people opt for currency in precious metal bullion (rather than paper or fiat) form, this removes value from the global economy, which will accelerate its collapse.  So the act of purchasing and holding precious metals becomes self-fulfilling.

Ultimately, on a sinking ship, the question becomes whether to man the pumps, or to get into a lifeboat.  Steve and Richard are advocating continuing to man the pumps - which is admirable.  I would expect nothing less from them.  However, I consider myself as sovereign and autonomous, not possessing the duties and responsibilities of a national or global thought leader.  Unsurprisingly, I've opted for the lifeboat.

Is this selfish of me?  Yes, most likely.  Is it a rational act of self-preservation?  Yes, most likely.

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Arthur Robey
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For All That.

Aye, and a Mans a Man for all that, for all that.And all that.

Robert Burns. ( for Sasanacht, and other strange folk.)

A Man's A Man For A' That (Opening of Scottish Pa…:

 

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QQQBall
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Just think - $85 billion is

Just think - $85 billion is say Solyndra, or Fisker/Fiskar. Mr. Duncan assumes a positive yield from government borrowing and picking winners. Go back to the beginning. Over-leveraged, over indebted investors/investments fail. The bad loans sink some banks and wipe-out equity investors. Some creditors are shifted to equity stakes in companies that are not totally w/o value. What is completely being overlooked is that the reset in asset values allows for adequate reward for the risks taken, which are lower at lower prices/values. The bubbles were overblown by the Great Satan Alan Greenspan,  So now you have a situation where asset prices are overly high due to artificially low rates... On the way up yields were increased, but now at higher asset price/value levels, there is again poor risk/reward. so cash is a viable option, even with diminishing purchasing power. 

AND I will answer Mr. Duncan's question... What comes after QE4 - why QE5 of course!  Well maybe not - at some point, something has to give and the Fed does not control the entire world and all possible black swans.  

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I had this nagging feeling, that all he was saying was

"This time, it's different."

This pic (from my back yard, under a month ago) does a good job of summarizing where I feel we are right now.  We don't have ten or twenty years to grow our way out of this mess. Something's gonna give.

 

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I had this nagging feeling, that all he was saying was

"This time, it's different."

This pic (from my back yard, under a month ago) does a good job of summarizing where I feel we are right now.  We don't have ten or twenty years to grow our way out of this mess. Something's gonna give.

 

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Richard Duncan Interview

Globalnomad~

Excellent points I couldn't agree more.

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foggygoggles
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Richard Duncan Interview

Globalnomad,

I share your point of view--completely!

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Broken Window Fallacy

Looks like Duncun fell for the Broken Window Fallacy (aka The Seen and Unseen).   The FED has essentially stolen vast quantities of money from productive savers then levered that up with vast printed money.   Sound familiar?   The USA having the world's reserve currency has twin interrelated threats of foreigners bailing to AIIS and native inflation at home as citizens spend unwanted money.   

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Confusing

I agree with the explanation of why we are where we are but the suggestions seem unbelievable naiive.

Because interest rates are zero does not mean borrowing newly printed money to invest has no cost. The money spent will not represent money saved, and so when spent will affect the value of money in the economy compared to what it otherwise would have been. I think there is this faulty premise that as long as inflation is near zero, printing money has no cost but of course it does as it affects the value of money from what it otherwise would have been. 

The idea that the Fed shouldnt spend 85bn a month and instead give it to the government to invest in clever ideas that will become enormously profitable implies that the government can spot a way to invest that the private sector cant. Does anyone believe that? I hear the rebuttal that the Americans sent a man to the moon when they put their mind to it which is supposed to be proof that government can allocate capital well but that wasnt a business or invention. If you gave me a direct draw on the US taxpayer and asked me to build a 1000 storey building I suspect that in the end Id be able to but to think that means that with enough money you could discover profitable energy supply is not an iterative engineering project. If it was that easy, rather than spending 10s of billions on daft apps wouldnt Elon Musk characters have done this already?

 

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Invest in Genetic Engineering?

I got the strong impression that Mr. Dincan has something to gain in the biotech industries. He was just pushing that too hard.

A cure for cancer?  Fat chance!  There's no money in curing cancer!

Borrow more money so government can spend it wisely?  We all know that government does not pick winners, it picks friends!

Has Mr. Duncan watched the Crash Course?  I don't think so.

 

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Moon Landing a Hoax

Prax:  that's if you still believe we went to the moon!

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Chris, Please schedule Mr.

Chris,

Please schedule Mr. Krugman for an interview.  This way the true solution to exponential problem can be identified.

Spend more money, tax only the rich people, pretend and pray to push the problem to the next election cycle, while printing infinite amount of money.

I was on a long drive, I could have arrived calmed and relaxed listening to music instead of wanting to smash my phone to pieces...

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timeandtide
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The ideas are becoming even crazier

Spending up big on research is not going to get results any faster. The present system of venture capital distribution works well because the venture capitalists have very tough hurdles to negotiate. Many research scientists spend a month of every year applying for research grants, mostly from government. Open the spigots and what do you think will happen? There will be a lot more "scientists" applying for research grants, including the apocryphal rickshaw driver with a university degree. Perhaps that is an exaggeration but the sort of money that Chris and Richard are talking about would require way more laboratory infrastructure and research scientists. When that sort of demand is there sense generally goes out the window. The cost of facilities and labour would escalate. They spend more and so even more of this "money" from thin air ends up buying endless heaps of  consumer crap as it spreads through the economy..

Even worse, these huge injections of "money" from nothing completely distort our ability to put a value on anything. The process of discovery that a well functioning market implies no longer exists.

I am surprised by Chris supporting these crazy ideas. He has done so much good over the last few years with Crash Course and bringing some amazing minds to the microphone. I am just flabbergasted that he could be seriously suggesting such proposals. Or is he playing Devil's advocate?

The idea that a depression would be the best (or least worst) solution does not seem to be up for discussion. Looking back over history there has never been a time when the boom was not followed by the bust. The idea that there is a way out of the financial and cultural cul-de-sac that we are in is just another example of the hubris that a ruling elite displays towards the end of a period when much has been achieved. We humans may be brilliantly rational in the lab but socially we herd. The signs of rampant optimism are everywhere. The suggestions in the interview between Chris and Richard are an example. We can have our cake and eat it.

Despite the bravado, I sense a huge underlying unease. On the one hand you have normally sensible commentators refusing to even discuss how a depression could be managed in a way that spread the burden and the hardship. On the other hand, you have those who are mainly responsible for the trap we are in, the Fed and other central banks, beginning to show clear signs of doubt about the benefits of their largesse.

It may be taking longer than the course of events in the 1930s but the same social wave is taking place. The "mistake" that the Fed made when it turned off the taps was not a mistake but something that could not be avoided. It was simply that fear took over - not just at the Fed but across the nation and the world. It is so easy to rationalize what happened afterwards and blame the Fed but it was actually people across all social strata who stopped spending, employing, investing, taking risks and enjoying themselves. It was primarily a social phenomenon rather than a financial one - as was the preceding decade of the 1920s.

This is the mistake that most economists make because they see the world in terms of numbers rather than humans and human behaviour. The work being done by Robert Prechter and his associates in the field of Socionomics (a Prechter term) is an area that Chris should be looking at. Why has he never interviewed Bob Prechter?

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Joseph E Fasciani
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  "Simple, minimalist, local

   "Simple, minimalist, local living is our only hope and if there is any truth in the businessman and the fisherman parable...."

  Indeed, it is, but it will take an unimaginable amount of time & energy to convince the elite 10% of this fact. 

The one absolute I've learned in more than fifty years' reading history is that we haven't a single example of a social class giving up even one privilege to save themselves.  Better to go down w/the ship than admit we were wrong in anything!

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I enjoy Richard's way of

I enjoy Richard's way of thinking about things and his views on "creditism".  However, as a long-time financial engineer and lawyer, I have to disagree about QE being debt cancellation.  It is true that INTEREST is recycled in the way discussed from the Treasury to the Fed and back so long as the Fed holds the debt on its balance sheet.  However, the principal of the debt remains and is not cancelled.  The average maturity of U.S. debt is about 5 years last I checked.  When the debt on the Fed's balance sheet comes due, then either the Treasury has to issue debt into the market at that time or the Fed has to monetize again.  Either way, the U.S. is stuck with the principal of the debt, faces unknown future market conditions to roll over that debt, or the Fed must continue to monetize that debt on rollover.  Also, Richard's analysis ignores political and economic effects that result from the Fed's monetization, namely the political opportunity to avoid making hard political decisions that need making and the ability to issue debt for useless things like war, arms for Ukraine, and both consumption and fraud driven by government programs.  Finally, his analysis seems to gloss over the currency destructive effects of QE, a serious cost not considered in his "debt cancellation = QE" paradigm.

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TECHNOCRACY RISING

I must compliment commenter csul, Apr.5, thank you. Not only the parable of the fisherman, but the news item about urbanization in China. This is, I believe a precursor to a world wide compulsory urbanization that is in the works, under the bland names of "Agenda 21" and "Rewilding". A multi decade depression is not a necessary consequence of the decades of overspending. I believe those decades were not a peculiarity of all the nations to devalue their money, as if due to some quirk of human nature. I believe it was PLANNED. Some elite thinkers, working on a Fabian evolution timescale decided to eliminate money based economies and replace them with so called resource based economies, with particular emphasis on the energy resources. This plan was likely born in the TECHNOCRACY movement, which has been co-opted by the Trilateral Commission, which is actively transforming the world to this new international economic order. So far it has been promoted clandestinely (like a Trojan Horse) within business, political, and religious institutions, per investigating author Patrick Wood. So instead of a long depression like an uber 30's setback, we could see a quick shift to a military controlled police state, with new technologies and social arrangements implemented by force. The new scenario is intended to give the elites absolute power over the masses, a return to ye olde regime of royal and noble classes over the mass rabble of hard-scrabble serfs. The new priesthood will be the techno-engineers, who will run the show, via computers, pervasive surveillance, robots, and BIG DATA. Money (including gold) will be obsolete (except on the black markets), and probably outlawed.
Here is another unpalatable item the elites want silenced ... they want you to believe there is a danger of overpopulation. It's only a danger to the elites, not to the commoners. 


The argument that energy will hit a peak is another myth.  http://en.wikipedia.org/wiki/Thorium-based_nuclear_power  (+ many more)
another widely hyped myth, search for                      global warming hoax
see also       https://www.thevenusproject.com/en/            a sales pitch for resource based society
http://ericpetersautos.com/2015/03/11/tax-per-mile-cometh/   a warning about master control
The Internet of Things is a featured component of the Technetronic NWO. With central control of all electronic devices, the access to our things will be in the control of the elites... puppet strings on everything electronic, including your debit card, maybe even the key to your door.
These are not mere idle speculations on the future. This is coming, like it or not. (I don't.)

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Essentially, the Fed might at

Essentially, the Fed might at some point own 100% of the Treasury bonds, which in its consequence is nothing more than the Treasury printing currency directly. If Richard can't see how this could go wrong, I'm not sure I can offer any help.

The dream of inventing ourselves out of the debt hole we have dug is nice, but doesn't have a great chance of happening. If governments were good at using printed currency to increase standards of living and productivity, we wouldn't have seen the repeated runaway inflation episodes in history.

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pgp
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Good points but what about quality of life.

Some good points in that presentation and yes I accept that population is in decline and the reasons for it; that the world could theoretically sustain even more people than it does now.  The documentary begs the question: should we really be worried about over population? 

I think the answer is still yes.   Because the point missed by the "documentary" is that currently quality of life is declining.  It is the quality that is unsustainable by the addition of more people or maintaining the current numbers.

And by quality I mean things like: ocean acidification, pollution, plastic poisoning, land destruction, over farming, pesticide poisoning, energy waste, nutrition, carcinogens, transportation snarls, lack of space, reduced peace-and-quiet, lack of money, wealth disparity and crony capitalism.  These are all on the rise and therefore reduce the quality of life. 

A reduction in the quality of life therefore means more people will only make it worse and less people is more likely to make it better by reversing many of the side-effects in that list above.  Trying to micro-manage the thousand interrelated reasons for the declining quality of life is just not practical.

I don't think it is realistic to think we can change human behavior and culture enough to make the arguments for continued population growth work.  Making everyone share more efficiently and play better together is simply not realistic and defies human nature. 

So the argument for population control goes like this.  What one thing can we change of our errant human behavior that might save the planet from self-destruction and the answer is birth-control.  There really is a balance point where humans can continue to mine oil and farm the land and seas that doesn't require fracking, pesticides, industrial fertilizers, GMO's and super-trawlers.  Sadly we appear to have passed that point a long time ago.   We've been polluting the seas and destroying species for decades, even centuries. 

We really should have waited for the sustainable technology or behavior first then grown the population not the other way round.

Either argument however (for or against population growth) expects that we can change human behavior and culture in order to preserve or improve the quality of life.  I personally think focusing on population control is the easier self-correcting option.  Expecting companies, governments and whole populations to go green, conserve and preserve so that some of us can produce 8 children but all of us has 5 acres of land, an electric car, heat in the winter, cheap medicine and organic food on the table is never going to work out.  People just aren't that sophisticated and there will always be poor and rich, cheats and saints. 

The average behavior will always be that men shit on their food unless you give them an enormous amount of space.  So increase the space, don't bother trying to reprogram the man.

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