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Aug. 17, 2023 - Ron Paul Liberty Report
26:30
Rising Interest Rates & Its Impacts on the Stock Market - With Financial Expert Phillip

Interest rates are rising, tune in to see how you can tip the odds in your favor in a inflated market.

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Time Text
Brics Currency Shift 00:05:21
Hello, everybody, and thank you for tuning in to the Liberty Report.
We have a special guest today, the economist from Birch Gold, Philip Patrick.
He's been with us before, but we will be able to pick his brain, and he will teach us a little bit more about monetary policy and what's going on in the economy.
He's a world traveler because I understand he's calling in from Spain.
So maybe he'll give us something very special about Spain.
But I think he's on a personal visit over there, so we won't pester him about that.
But I want to welcome Philip to the program.
Thank you so much for having me.
As always, Dr. Bull, it's an honor.
Thank you.
Wonderful.
I want to start off, Philip, with an announcement.
Monday it happened, but I think it just made it into the news today because we talk a lot on the program about de-dollarization, what the BRICS are doing, and what's going to happen to the dollar as a reserve standard.
That's a big deal.
And some people think, well, every once, you know, that there will be an announcement and there'll be a sudden change and the dollar will collapse.
Those things are conceivable, but I don't think that's what's going to happen.
I think it's going to be insidious, gradually changing, people getting angry with us, our bankruptcy affecting us, and they'll start using something that is more convenient.
And there's been a motivation with some countries to try to avoid the dollar because we get involved in the financial markets because if people don't do like we want them to do, sometimes we just put on sanctions on them and interfere and confiscate funds and this sort of thing.
But what I heard this morning and this week, Philip, is the fact that India bought a million barrels of oil from UAE and they didn't go and get some dollars to pay for it.
It was a transaction between the two countries and they paid for it in rupees.
So India got their oil and it was sort of a test run because they might be doing a lot more of that.
I've often wondered why more of that didn't happen anyway and not always have to go through another currency.
But anyway, they're upset with us.
There's reasons for financial or political reasons that there's a movement and that's why BRICS exists because they're talking about that.
But how do you see this evolving, this whole thing about switching from the power that the country has with the reserve currency and the evidence now that that may be weakening?
Yeah, I mean, it's absolutely small.
It was big news for India to buy a million barrels of oil from the UAE and use rupees is very new.
And the two countries also agreed to set up now a real-time payment link to facilitate easier cross-border money transfers.
So it looks like it's set to continue.
I agree with you.
Look, it's not going to be the case that we wake up tomorrow or next week and the dollar is no longer the global reserve.
However, the world is starting to turn away from the dollar.
And there's a couple of reasons why.
I think domestic policy has a big part to play, right?
The key to a global reserve currency, as you know well, is that it has to be a trusted store of wealth.
And the dollar is struggling to be that today.
Let's bear in mind since the start of the pandemic, since January of 2020, it's lost over 16% of its purchasing power.
Now, you put on top of that the fact that we have recently weaponized the dollar.
We used sanctions against Russia.
We froze their dollar reserves.
And it's forced our strategic enemies, namely China, to start seeking out alternatives.
I think these countries are starting to realize if they want to achieve their geopolitical aims, if China ever want to go and try and take Taiwan, you know, they have to end the hegemony of the U.S. dollar, and they're taking steps now to do it.
This new BRICS currency, I think, is the first step.
Now, will this BRICS currency overtake the dollar as the standard for trade short term?
I don't think so.
However, what's key, you know, when it comes to the strength of currency, it's always supply and demand.
If we start to see, which we are demand waning for the dollar, that alone will have a significant impact and I think set the wheels in motion for the eventual loss of global reserves.
Yes, I think there's a lot of people who agree with what we're talking about.
And they also agree that in predicting economic events when things will happen, very, very difficult.
And even Mises always said, yes, you could predict trends, but nobody knows what human action will do on when the events come about.
We might be able to cite the reasons why.
I mean, the value of the dollar is going down.
Just for instance, in 2014, when it was 2009, when we started the massive inflation with QE, and it went from less than a trillion dollars in the bank, in our reserves, and now it's over $8 billion.
Looking at Inflation Numbers 00:14:30
And you can't do that.
And they don't get that by earning it.
They do it by inflating.
And buying out bad debt doesn't necessarily be healthy.
But I think it is the antagonism and the disadvantages that country have.
I think that, yes, they can have the emotions of antagonism.
America throws their weight around and all.
But eventually it's down to the dollar value.
And they decide that we have to do something differently.
And that's why they strike back.
So I think this event is the beginning of a big event because, you know, there's been a change in the big picture of bonds because bonds have passed probably, they go in some huge cycles, like 35, 40 years.
You might have a steady decrease in the value, loss in value of the fixed bond issues.
And at the same time, interest rates stay very, very low.
But now we have seen that the interest rates are going up.
And at the same time, there's more disruption.
Higher interest rates usually does not, almost always never helps the market in general.
And I think we're seeing that.
But I did want to ask you one question.
Before it shifted a year or so ago, and the bond market really went from a bull market to starting a bear market with Jim Grant, things could last 30 or 40 years.
So it's a big deal.
But why, before that was happening, I was sort of sympathetic to those who were saying, you know, all the Fed has to do is allow that interest rates to go up just a smidgen, and the stock market is going to crash.
And so far, you know, the markets are shaky.
They're such that we are used to saying, oh, go back into the stock market.
Things are good.
But have you thought about that about why before it sounded like the stock market would go down sharply once the effort was in on the rising interest rates?
But they have gone up significantly here in the last year.
Yeah, it's a tough question to answer.
So we're bucking a lot of trends in the current climate, and the markets in general are just becoming more and more difficult to predict.
One thing is clear, though.
Like I said, the world is distancing from the dollar.
And the effect of that, I think, we will feel long term here in the United States.
And it's not a case of is it going to happen?
It's happening.
For some context, 2021, the IMF announced the dollar's share of global foreign currency exchange reserves hit a 25-year low.
We're down another 4% since then.
This becomes a problem, particularly in light of our $32 plus trillion dollar debt, which is only affordable as long as the world wants dollars.
Other countries who run export-based economies are essentially tired of losing purchasing power.
They're seeking alternatives.
And for me, this is the biggest issue.
Will we see recession?
It feels likely, but things are strange at the moment.
The cams being kicked down the road.
You know, ultimately, if we do, we'll come back from that, right?
Because things are cyclical.
Same with inflation.
We see periods of high inflation and we come back.
One thing that is almost impossible to come back from as a nation is a loss of global reserve currency status.
I feel that the wheels are in motion for that.
That is probably, and I think you know, the biggest problem that we face as a nation.
You know, people who work in economics and they're economists and others who are interested for political reasons and they're looking for economic events of what's happening.
And for that reason, most of us, including me and others that I know, and I want to see if you have any special picks.
But is there anything that you look at routinely more often than others in the markets when you wake up in the morning?
Because when I wake up in the morning, I go and look.
I want to know what interest rates are doing, what the stock market is doing, what the price of gold is doing, and whether there is any major political events going on.
Do you have any favorite things that you look to quickly that gives you a hint?
Not so much that'll help you predict next 10 years, but it might help you say, you know, this bit of information we have today, it looks like a rocky day for stocks.
Do you have any special stats that you look at each morning?
I mean, look, for me, being very focused on precious metals, I'm looking at U.S. dollar index.
I'm looking at obviously precious metals prices, gold, silver.
I'm looking at inflation numbers.
So these are the things that I tend to really focus on.
You know, my experience over the last 10, 15 years, not really focused on the stock market as much as it is the commodities and the metals market.
So those are the focus.
For me, political events, very, very important.
So I keep a very close eye on the news.
Bloomberg's a very good resource for me.
So, you know, it's the basic things, but things that we need for the industry that I'm in.
Right.
You know, the other thing that many of us and a lot of people have problems with is you get the statistics and reports, and most of the information comes from the government.
There are private sources.
But most of the things that we look at, CPI and this sort of thing.
But in this age that we live, there's less trust and confidence in the government, and they have a lot of reservation.
Oh, the CPI, you know, just did such and such.
And now the people who are dealing with investments in billions and billions of dollars, they're a little more reluctant, and they have to figure out can we always rely on the statistics that the government gives us?
Have you ever experienced that sense that, well, that is a statistic, but I'm not sure it's accurate.
Maybe there's a political reason for what they're saying.
The answer is absolutely.
And you mentioned a couple, CPI, clearly.
I mean, the government changed the way they calculate CPI back before the 1980s.
It was a much broader, more accurate metric.
With the growth in Social Security, with inflation raging 70s and 80s, the government started changing the CPI metric.
Today, they put it at around 3%.
If we calculate the CPI the same way we did in the 80s, it's about 13% today.
So the numbers are misleading.
Same thing goes with unemployment numbers, right?
You know, if somebody's unemployed for a certain amount of time and it goes beyond, they're not considered unemployed anymore.
So there's a lot of funky things that go on with the numbers.
It's not necessarily this administration, but perhaps government in general.
In the UK, they calculate or made very similar changes to the inflation metric there as well.
So, yeah, we've got to delve always deeper.
Don't take numbers at face value and delve in.
When you do, you can uncover the reality.
Look, I speak to a lot of people.
There are very few people in the U.S. that believe that inflation is at 3%.
Anybody that goes to a grocery store understands that at least our reality as consumers is very, very different for that.
You know, I think people who operate on a daily basis and move a lot of money quickly, they might hear a statistic.
I think they have two ways of looking at it because I think a lot of people understand exactly what you say because even the housewives and the people who do daily purchases know that, oh, there's no inflation.
Our president tells us there's no inflation, and they don't believe it.
But if a statistic comes out on unemployment or something like that, some people will say, well, that sounds good.
So that's going to help the stock market.
But on the long term, I think they didn't accurately measure this, and there's a different thing.
I think they hold two answers to that.
So they have that to make the difficult.
I would think this would make it really tough for those people who do these short-term investments.
That's why I think a more conservative approach, and when you think about the metals, I would put that into the category of being more conservative, looking long-term, and not thinking that, oh, they said something, there was a fire in a gold mine, and therefore gold prices will go up or down.
So I think that isn't true.
I think the metals do provide some balance there where you can think long term, but also actually defy what you think the market is going to do.
So you might be right and say the stock market thinks that's a good idea.
Maybe they will respond immediately.
And sometimes a couple hours later, they change their mind and the markets change the direction.
But long term, you know, they might say, well, we're going to have an expenditure of hundreds of billions of dollars, trillions of dollars, and it's going to help the economy.
And, you know, after COVID, during COVID, trillions of dollars were being spent.
And people say, oh, that's good.
That's good.
Yeah.
Yet in the long run, what does most people know?
That when you create trillions of dollars and the balance sheet skyrockets, then we should expect inflation.
We shouldn't be surprised.
It's just that we don't know what month the people will all of a sudden recognize what's going on.
Yeah, I mean, it's absolutely spot on.
I mean, look, you know, we should think of the money supply of dollars in very simple terms, right?
It's at the end of the day, supply and demand, right?
Since January of 2020, the M2 money supply has ridden by 36%, which means essentially one out of every $4 on Earth has been printed since the start of the pandemic.
What we have now is that huge supply of currency colliding with declining demand.
And of course, that leads to a loss of purchasing power.
So it's becoming problematic for everybody here in the United States.
And I think gold is very simple in a way, right?
You know, you look at the climate we're in, you understand longer term the issues we've created.
And gold is very conducive, right?
When currency is up in the air, when the strength of the dollar is up in the air, governments around the world turn to gold.
Why?
Because gold has an inverse relationship with currency, right?
To explain that premise, gold's buying power over time is very consistent, right?
It doesn't really fluctuate.
In biblical times, one ounce of gold would buy 400 loaves of bread, and today it does about the same thing.
What's fluctuating, and it does so on a daily basis, is the dollar's value.
So essentially, if the dollar becomes weaker, we need more weaker dollars to buy the same ounce, hence the inverse relationship.
So it's at times like this that safe haven commodities like gold and silver become very, very important.
And it's no coincidence that last year, 2022, as the world was dumping dollars, central governments were buying gold.
In fact, 2022 was the single biggest year for gold buying by central governments since records have begun.
So it's very telling.
And I always tell my customers, you can take everything I say with a pinch of salt.
You follow the smart money, and there is not much smarter money, particularly when it comes to the future of currency than central bank money.
See, I think what you are saying there, if there's a little bit of time element, it's always true.
You go back to biblical times, and we do know that the value, dollar value, or currency value of gold will be maintained, and you can be safe in this.
My day when I started looking at this in the 1960s, but the predictions that this fake dollar or gold standard that we had, the Brenton Woods Agreement, it wouldn't work.
We're printing way too much money.
We had too much power and it would break down.
So it eventually did.
But what we did was we eliminated the basic fundamental flaw was we eliminated the definition for the currency and it became arbitrary and that's why we're here where we are today.
I saw one person write this up because I think one of the statistics I look at frequently, because I think eventually it is a big problem all the time.
First, and that is the debt.
It's bad when they, and the spending, it's bad when they take the money from us, which hurts us.
But then when they spend it, they're not very smart in the way they spend it.
And then there's a lot of malinvestment, and then the government does inflate.
But this individual is predicting that every single day, the debt is going to be going up $5 billion a day for the next 10 years.
Well, I'm not buying into here, you know, and what's going to happen in 10 years.
You know, maybe instead it might go to $10 billion a day and only last four years or something like that.
But those are the kind of things that you read that in the paper, and it's not totally out of this world.
It's the people who say, oh, well, there's no inflation out there.
And they're also the definition of inflation because they say that, you know, when the government does certain things and buy bonds and manipulate things, see, they say, that's not, oh, that's inflation if they spend too much money.
No, it's when the Fed gets involved and prints money out of thin air.
That is the inflation.
And that's one thing that most politicians don't touch because Even whether they're conservatives or liberals, they either don't understand or they don't care, or they will want to protect their interests.
Because if you come from the left, you have your reasons for wanting to spend money.
If you come from a more conservative viewpoint, you say, Well, we have to have the money to fight all these wars.
Inflation's Unavoidable Consequences 00:04:15
And then they're avoiding the real problem of what we're trying to talk about here is monetary policy.
How eventually, if you don't think about the monetary policy, you're going to destroy the currency, no matter how strong it has been in the past.
I mean, it is the reality of how most empires have fallen over time from the Roman Empire up until today.
I mean, we've had 700 currencies, I think, over the last 300 years, and every single one of them has either failed or survived with significant devaluation.
So, this is something that has been played out time and time again in history with doing the spending today.
In fact, in the 70s, when Nixon took us off the gold standard, nations around the world called it.
They said, Look, what's going to prevent you, the U.S. government, from printing money, increasing the money supply, and essentially deflating or devaluing the reserve currency?
And the response, I think it was from John Connolly at the time, was look, the dollar is our currency, but it's your problem.
And the reality is, in the 70s, we had the power to do that.
But as you said earlier in the segment, people around the world now are starting to get fed up, whether it's through devaluation or weaponization, and they're actively seeking alternatives.
And like I say, of all of the things that we've discussed-the inflation, the potential recession-this for me, this slow loss or potential loss of global reserve currency status-that's the biggest issue we're facing as a nation.
One thing people don't talk about too much that we suffer with, I mean, the system we have, and you just describe why it hurts.
It is popular because on the short run, there's some benefits.
Oh, I'm going to get my check and everything will be okay.
Well, that works for a little bit, but eventually, people suffer from this, and they end up with an inflation.
But one thing they don't talk about much, and it seems to be too vague.
Yes, there's a lot of spending.
We know printing money, the value of money goes down, prices are going to go up.
And that's a pretty sound economic theory.
But one thing that they don't measure because it's more difficult, and that is malinvestment.
You know, people have artificially low interest rates, it's like it's been for the last several years.
People were borrowing money and doing things, and they overbuild, they overinvest, and that's where the bubble comes from.
But they don't want to talk about that because everybody wants everybody's dependent on the Fed and the governments to spend and have debt on the short run.
But the short run finally ends, and I think we're starting to have the long run here.
So, I'd like you to just go ahead and close, and give us a brief assessment about what you think might be going to happen to our economy if we don't change our way.
I mean, look, we have to change our ways, and we have to do it fairly swiftly.
But I think it's fairly clear: look, the Fed right now are struggling to get a handle on inflation, right?
Headline inflation is coming down.
Core inflation is proving particularly sticky, and core inflation is the one that the Fed are going to really look at, right?
Energy and food prices are volatile, and actually, food prices are up significantly.
So, the only meaningful reduction we're seeing is coming from energy prices, and I think used cars.
So, inflation, still a big problem.
I think the Fed are going to struggle to get a handle on that because I think they're going to struggle to raise rates to the level that they need to to really stamp it out.
As rates go up, and I believe that they will over time.
I mean, the Fed is suggesting at least one more rate hike this year.
That's going to put more of a squeeze potentially on the market, could stimulate a recession.
And then it's a case, I think, of what's this space.
We have the BRICS announcement coming on the 22nd.
Russian state media have already come out and said, look, it's going to be an alternative currency.
Russian state media are suggesting it'll be gold-backed.
But of course, you take anything from Russian state media with the pinch of salt.
Tough Times Ahead 00:02:09
So, you know, next couple of years, I think, are going to be very interesting.
We need a sharp change, of course.
And my concern is that it's not going to happen under this administration.
So, I think we have some tough times to weather, and I think people just need to be prepared.
Precious metals, gold and silver, as we've discussed many times on this show, a very good way to do it, to insulate.
It's why governments are buying it right now.
It's a bet against the dollar shorter term or a way to protect against a decline in the value of the dollar.
And we're feeling that as Americans every single day.
Prices are going up.
Wages are not increasing proportionally.
It's becoming more and more difficult.
So I think we've got some tough times to weather.
And I think the direction politically will really dictate how quickly.
Philip, how about telling our viewers today how they can get some free information from Birch Gold, which we've talked about before and you've mentioned it before?
Just remind them if they get in touch, they might be able to get information that would be helpful when they're sorting all this out and why we have such a strong belief in gold.
I mean, look, information is key.
It's everything, which is why I'm so fortunate to have to come on and you share your platform with me.
And it's what we really focus on at Birch.
So for any of your viewers, they can text Ron, very simple, R-O-N, to 989898.
Again, that's Ron to 989898.
And what that's going to give them access to, as you said, a free information kit.
It'll get them learning about precious metals, why they're important, how one can buy them, whether it's with a retirement account, cash.
It'll really get people sort of comfortable with the idea, I think, and knowledgeable in terms of how to proceed.
There's always people like myself here at Birch that can hold people's hands, guide them through the process step by step.
So again, just text Ron to 989898, and we'll get that information straight out.
Very good, Philip.
And I appreciate very much you being with us today.
I want to thank all our viewers today for tuning in.
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