Governments and Central Bankers have been scheming for centuries to get away from gold as money. Gold limits big government, and they want no limits to their warfare and welfare financing. Ultimately though, they're going reach into their hat to find that there are no rabbits left. Is the current QE bubble their final act?
Governments and Central Bankers have been scheming for centuries to get away from gold as money. Gold limits big government, and they want no limits to their warfare and welfare financing. Ultimately though, they're going reach into their hat to find that there are no rabbits left. Is the current QE bubble their final act?
Governments and Central Bankers have been scheming for centuries to get away from gold as money. Gold limits big government, and they want no limits to their warfare and welfare financing. Ultimately though, they're going reach into their hat to find that there are no rabbits left. Is the current QE bubble their final act?
Today, we're going to be talking about the financial markets, gold, the Federal Reserve, and what we might be anticipating for next year.
Co-host for Friday, as usual, and is with us today, Chris Rossini.
Chris, welcome to the program.
Good morning, Dr. Paul.
Good.
And Chris, this is a subject that you and I have visited about quite frequently.
And, of course, I've been visiting with many people since 1971 or even earlier, because I consider the issue of money and the honesty in money and the importance of gold, and working that into the time when I thought we had a major economic event and a monetary event of 1971 when our dollar completed the course of leaving the time when the dollar was defined as a weight of
something.
something and we got rid of the metals completely and totally by 1971.
And at the time, I believe we would be ushering in a very, very difficult time financially.
Well, for everybody, it hasn't been too tough.
There's some people who have benefited.
But then again, when you look at it, you find out that it's not fair and balanced.
You know, some people got a lot richer and other people got a lot poorer, but they have limped along.
And I think that if we look now at what has happened this past year, I imagine we still have that.
There's some people who are delighted.
Taxes are going to go down.
The stock market is very high.
The price of a bond is very high, which could be positive for some people, negative for others.
But there's a lot of enthusiasm, yet there's a lot of people who are very annoyed.
One of the things that has challenged me is the fact that I believe people vote for economic issues.
I claim they vote from their belly.
So if everything is as rosy as the president claims and the markets think, why is it that there's still a challenge as to the popularity of the president?
I think that represents the subtleness of how many people may well be very unhappy with what's happening and they have not enjoyed the benefits of the fiat currency system of the last 30 years.
And if you look at real wages, that certainly is the case.
So as this year ends, Chris, do you have any comments about how you saw what happened last year and where do you see any encouragement or where do you have some questions?
Yes, it's interesting because no matter how many bubbles the Fed creates, when you get to the next one, it's as if everything prior has been forgotten.
Over the Christmas break here that we've had, I've come across three instances of people that they're so happy about their 401ks, their investment portfolios, and they attribute it to Trump.
And they're like, well, who cares what this guy tweets about?
Look at my investment account.
And I'm thinking to myself, once or a year or two years, whenever the bubble bursts, they're going to be singing a different tune, just as it was in the NASDAQ bubble, the housing bubble.
And it just keeps repeating itself.
And that's why shows like ours here, we try to break through the illusions so that next time when this happens, if there is a next time, that you're able to not fall for it.
Yeah, and psychology enters into the complicated explanation of bubbles, but there's a basic cause.
Bubbles occur really in an economy like ours because there's excessive credit.
And that is certainly what happened The crisis hit in 2008.
And I think since 2008 and the introduction of the radical monetary policy with the QE programs, the four times they just bought bonds wholesale and still hold a lot.
And yet, correspondingly, there was no economic growth to compare to it.
For instance, all the central banks increased their holdings by over $8 trillion, and it was just about $2.5 trillion of GDP growth.
So there's a lot of excessive reserves there.
And now I think they're coming out and they're starting these bubbles.
So I think really we're witnessing right now is the consequence of the QE programs.
And there's not just a bunch of little bubbles.
I think the whole system has a bubble formation, you know, and it's involved.
And there's no shortage of money.
This is why sometimes I wonder about cutting taxes or repatriating dollars, which I'm all for, will not have as much effect as they think because just like when they created QE, the money didn't go where the Fed thought it should go, you know, creating jobs and causing economic growth.
It just sat around.
But that money coming back, you know, who knows what they're going to do with it.
Maybe their salaries will go up or buybacks occur, all these kind of things.
So I think that it's hard to tell.
An Austrian economist would say, well, it's good to lower taxes, but if you think you're going to get a computer out and start calculating exactly where this is going and will eradicate all the negative effect of the bubbles because the bubbles are associated with debt, and the correction, according to the theory of the Austrians, is that you have to cleanse the system.
You have to get rid of the deficits and the debt and get rid of the malinvestment.
And there's no talk about that.
Matter of fact, that is exactly what they don't talk about and they shy away from.
So the big question is, is what is going to come, you know, from these new policies.
Yes, and these bubbles, they're getting progressively worse.
They're getting bigger each time, and they always have to burst.
This can't go on forever.
So each time that it comes down, it's harder.
And they're expert at keeping the blame away from the actual cause because they want to keep this going.
There's a lot of people that benefit from this system, and it's easy money, literally, because they create it.
And this power should never belong to people, and especially the government.
Government wields violent force.
So for them to be able to fund their own activities of wars of welfare, that's exactly what we get.
More wars and more welfare.
But ultimately, they're going to reach into the hat and there's not going to be any more rabbits left.
Right.
And I think the debt will be the limitation.
But even today, looking at the end of the year and seeing how things ended, I think the figures and the movement in certain things are coming together.
Because sometimes you may say, well, the money supply is going up, gold should go up, and oil should go up, and interest rates should go up, and this sort of thing.
And sometimes some things go up and some things go down, so they don't march in concert, you know, because that's not the way the market works.
But at the end of the year, here, I saw that oil went over $60 a barrel.
That's a sort of a new event occurring after it had been down so low.
Gold, I find, very, very interesting because I get the question, why is gold so boring?
Why is it so much in indulgence?
You guys are worried about inflation, but what is the gold saying?
And, you know, I've talked about us being in a third bull market since I started watching this, the first being in the 80s when it went from $35 up to $800.
Then in the year 2000, it was $270.
It was gone very slowly after that.
Then it went up to $1,800.
That's a pretty big jump.
And then since 2011, it sat still for five years until 2016.
And then it was $1,000.
It went from $1,800 down to $1,000.
But in the last two years, which is something gone sort of unnoticed, is it was up $100 in 2016.
In 2017, $150.
So I think this is starting to be, you know, reflecting what's really gone on because it's understandable.
Gold goes up when they print too much money, but gold doesn't go up on the day or a month or year you think it should go up because there's a subjectivity in this when people resort to gold.
But I think that definitely we're going to see the continuation of that.
But the other thing that we have seen here in the last year, which I consider very significant and certainly a consequence of the breakdown of Bretton Woods in 1971 and the wild monetary inflation since then, especially QEs, is the dollar's down.
The dollar's down over 10% this past year.
That's a big deal.
So just to stay even, everything has to go up 10%.
But some things did and some things did not.
Certainly the stock market went up a lot more than 10%.
But that just means imbalance and vulnerability of the bubbles bursting.
But I think there's bubbles in the bonds and the stocks and just about everything out there.
Certainly the debt bubbles that exist with student loans and government loan.
I think the really big one has been created by this massive inflation has been sovereign debt.
I mean, the idea that governments can hold, you know, governments and central banks can hold trillions of dollars of bonds that have negative paying, that have no yield.
Now, any inkling about trying to think, well, how does the market work, this blows everything about the market.
And the fact that it's limping along should be a warning sign rather than somebody saying, ah, it's working out.
Those free market people don't know what they're talking about.
Everything is rosy.
And as long as my, like you said, their 401ks can go up in value, things will be okay.
Yes, and the monetary, our monetary elites, they want people to never think of gold as money.
At most, it's jewelry.
But central banks around the world, like China and Russia, they've been accumulating gold for years now.
So gold is not going away.
And there's even news that China is going to start tying it to its wand.
So governments don't trust each other any more than we trust them.
So that's why gold, no matter how much propaganda there is against it, even thinking about it as money, it's still used and accumulated and will be used most likely in the future as money once again.
Yeah, they will have to resort to something to restore confidence because what we're witnessing is a breaking down of confidence and people are stirring around looking for alternatives.
But also, the dollar figure that is monopolized by government is probably not going to disappear.
We're not going to get people to think in a new fiat currency and they're tired of doing all their calculation in the fiat currency we have today.
But the currency, and if we talk about the dollar currency, it can be renewed if it goes back to its roots because it was defined precisely at the beginning as a weight of silver.
Then, of course, gold was used as well as currency and the Constitution instructs us to use only gold and silver.
But since 1971, we have had a fiat currency.
So, anybody who says that you can't use fiat currencies because the dollar is a fiat currency, they're missing the point.
That's precisely our problem.
Since 1971, there was no definition to the dollar.
And the Fed had all this power, and Congress has ability to spend, and it's just runaway spending and bubble making.
So, this is why when I talk about monetary policy and the nature of money, you have to have a definition, and you have to have something tangible.
People get very nervous.
Well, how are you going to carry your gold to the bank in order to buy a piece of property?
And they're missing the whole point.
The currency itself, if you can define the currency that circulates as a weight of something, and it can always be challenged if you go to the bank and say, is this a Federal Reserve note, or is this a certificate, a gold certificate or silver certificate, which silver certificates were available until 1968?
You could still do this.
And this would always restrain them from printing too much.
But now there is none of that because there's no definition.
I think for money to work and for to go back to a day when we have more stability, you have to have a definition and you have to have it defined as a tangible asset.
But I'd like to think of the monetary unit as being something like the yardstick.
If you have a yardstick and you're measuring economic activity or measuring building a building and it was changing every day, it'd be very chaotic.
You couldn't build a building like that.
But if you have the measuring stick of money, you know, and be relatively stable compared to what's happening now, you know, it would function.
And some people say, and it's true, you can't make the purchasing power of gold static and precise, but you can make the definition of gold as a weight and then let the market decide its purchasing power.
And frequently I talk about the fallacy of our early people in our country took gold and silver and fixed the ratio and said that gold, an ounce of gold was worth 16 ounces of silver.
And that was chaotic.
You can't fix the purchasing power, but you can fix the definition.
And if people want to study it, they'll find out that you don't have to have unbelievable tons of gold to represent every transaction.
You just need something for two people.
If you and I were buying and selling a house, all we have to do is have an agreement on how many dollars we want to exchange as long as we know what the dollar is worth.
But if the dollar is fluctuating constantly, then this becomes very difficult.
And that is why the fiat system is wrong.
It doesn't work.
Why Fiat Money Fails00:04:32
And this one, I believe, is coming to an end.
I think this is why we have the economic distortions.
And you already mentioned some of the things that they do.
They fight wars with it.
They run the welfare state.
They distribute the money more to the rich than to the poor.
And they undermine actually the confidence in the United States.
Because if we can issue the reserve currency of the world and the purchasing power is going down 10% a year, that's not good.
And that's one of the reasons why I think as the dollar goes down and our prestige around the world and our empire weakens, this will turn out to be a very significant event.
And I tie that all back to what happened in 1971 and also the runaway inflationary policies since 2007 with the QE programs.
Yes, and if I could just sum up my thoughts, Dr. Paul, we both operate under the thought that, yes, there's going to be monetary catastrophe because the bubble was created.
There's no way out of it.
So there will have to be some kind of new monetary system at some point.
The thing is, governments are expert at taking a bad situation and making it even worse.
They've had their conferences with the fake gold standard tied to the British pound and then a fake gold standard tied to the dollar.
They're always trying to come up with a new scheme to keep it going without having the discipline of gold.
That's why it's so important for Americans and people around the world to understand the significance of sound money.
It has to be understood first because they'll just keep going with another scheme.
Gold is always an option.
And if we want it bad enough, we can have it.
We can have sound money.
It just has to begin with understanding.
Yes, and I think that's one place where we have made progress.
Before 1975, we weren't allowed to own gold, and that started in 1933.
So at least we can own the gold, and you can protect yourself.
That was one restoration of a freedom we want.
They don't talk about that because they don't want to recognize that gold is important.
But I want to finish with a little story I just read about an auctioning off of a gold coin.
And frequently we hear these stories when they recover a ship that went down 200 or 300 years ago, and they come up with the gold and silver, and they talk about, all that stuff looks brand new.
It's as good as gold.
And, of course, it protected wealth and it was still usable.
But this story was about an auctioning off of a penny.
And this was in England, and it was expected to get $700,000 for a gold penny.
Of course, there's numismatic value there.
But just think, 800 years ago, they made a gold penny, and not only did it maintain it, it maintained the integrity of the psychological value of holding something old, a numismatic value.
But what would have happened if you'd have had some fiat currency?
And of course, there has been paper money.
The Chinese used paper money way back.
And what about the other fiat currency when they dilute the metal and trim coins and do all the kind of things to steal value in the monetary system?
So I always think these are neat stories, and that's why gold is durable.
And there is an orchestrated effort to discredit gold and give up all kinds of reasons.
But the market will rule over it.
Just like the market in 1971 ruled over the government pretending that gold was $35 an ounce.
Well, we were giving up all our gold.
And people finally said, the market said, we can't keep doing this.
So it overwhelmed what the government was doing.
I think that's what's going to happen.
I think it's going to be beneficial.
But we do have a major task of educating young people about the nature and the importance of money and why fiat money, money created out of thin air, cannot suffice and why we're seeing so many problems today as a result of converting to a total fiat currency in 1971.
If we don't do the job right, then the noise will all come from Bernie Sanders and his crew on why we have to have bigger government printing more money.
Happy New Year Edition00:00:13
But anyway, Chris, thank you very much for being with us today, and Happy New Year.
Happy New Year to you.
Thank you very much, Dr. Paul.
And I want to thank our audience for tuning in today, and Happy New Year to everyone.