Feb. 15, 2010 - Freedomain Radio - Stefan Molyneux
43:39
1584 The Economics of the Coming Crash - Freedomain Radio Interviews Dr Marc Faber
Dr Faber writes the monthly investment newsletter The Gloom Boom and Doom Report. He has also authored several books. Dr Faber funds philanthropic endeavors using some profits from newsletter subscriptions to educate Thai children. Dr. Faber has been a regular contributor to several leading publications around the world in the past, among them Forbes and International Wealth which is a sister publication of the Financial Times. He has contributed regularly to several websites such as Financial Intelligence, Asian Bond Portal, Die Welt, Finanzen, Boerse, AME Info, Swiss Radio, Apple Hong Kong and Taiwan, Quamnet, Winners, Wealth and Oriental Daily. He has also written occasionally for the International Herald Tribune, Wall Street Journal, and Borsa e Finanza.
Hello, everybody. This is Stefan Molyneux from Free Domain Radio.
I am on the line with Mark Faber, who is editor and publisher of the Gloom, Boom, and Doom report at gloomboomdoom.com.
Thank you so much, Dr. Faber, for taking the time to have a chat.
My pleasure.
Now, I was wondering, just before we get into some of the details of your economic predictions and perspectives around the present, I would like, if you could, if you could tell me a little bit about who were your major formative or influential economic influences in your life.
Most of my listeners are fairly familiar with the Austrian School of Economics, and it seems to me that you would fall somewhere in that camp.
But I was wondering if you could tell me a little bit about your development as an economic thinker.
Well, basically, yes, I have a leaning towards the Austrian School, and I have spent time analyzing business cycles and, in particular, credit cycles.
And I've written two books and kind of emphasized the events that led to the crash in 29 and the depression.
And of course, also when studying, I had my kind of specialization was fiscal and monetary policies.
And my thesis for my PhD was about the financial reform of Robert Peel, who in 1842 As a British Prime Minister introduced the income tax as a permanent measure and repealed the corn laws and abolished excise duties and reduced strongly the import duties on goods under the influence of the free traders.
So this is basically my economic background.
Fascinating. And is there any particular economist who influenced you more than any others when you were studying, or was it more of an aggregation?
Well, I think it was an aggregation of several economists.
I mean, I'm not saying that Keynes is totally wrong in his views.
I think Keynesian economics has some merit, but they are never applied properly because If you think it through, basically what Keynes advocates is that occasionally the economy moves from an expedition into prosperity into an expedition of depression or recession.
And so what he tries to do to elevate the aggregate demand when the aggregate demand is insufficient In other words, you create fiscal deficits at that time.
That is okay. But then that should be offset by surpluses in the prosperity times, in the good times.
And so your debt to GDP ratio doesn't get out of hand.
And that's where the Keynesian economics run into problems because they're handled by politicians.
So when something goes bad, the deficits go up.
And when things go well, no reserves are put aside.
Well, yeah, I certainly agree with that.
I think he was on the communist sphere when it came to his understanding of human nature, and particularly that of political power.
Now, one thing that you have talked about recently that is not controversial to me, and I don't think will be very controversial to most of my listeners, but which I think is controversial to a lot of people, is that you've referred to Bernanke as a criminal.
And I was wondering if you could explain a little bit more about your reasoning behind that statement.
Well basically paper money is in an economic system essentially the medium of exchange of goods and it is a store of value and a unit of account and when you print money then obviously the function to be a store of value disappears and it is no longer a store of value.
In other words Say today you have money, you put it on deposit, you don't get any interest and you have inflation in the system then obviously the interest will not cover the rate of cost of living increases and so your purchasing power goes down and money is no longer a store of value nor is the dollar a very good unit of account because as you know the US dollar has been very weak until just recently.
So, by and large, I think that it's very important to handle money carefully.
And I'm not saying that Greenspan was much better.
Greenspan was also a money printer.
And most of the Federal Reserve members, probably with the exception of Paul Volcker, were essentially money printers during which the purchasing power of the US dollar went down very strongly.
And so, I believe that this function of money should not be handled by someone who is highly influenced by politicians and also appointed by the president, incidentally, and politicians, and also has very close ties to a special interest group, namely Wall Street and the banks.
Right. And again, to subordinate currency to politics is to create a situation where the most regressive of taxes, which is inflation, is inflicted upon the most vulnerable members of society.
And we can really see that in the latest figures on joblessness, which is that it is really striking the very poorest and most vulnerable in society, which is exactly what inflation does, is it robs from the weakest.
So I would certainly agree with your assessment that there is a criminality, a counterfeiting, and a theft that is occurring In the halls of government these days.
Now, one thing that you are talking, and I think pounding the drum regularly, and I certainly appreciate you doing that, is the basic fact that governments, Western governments almost universally, are mathematically unable to pay back their debts.
When you have unfunded liabilities in the US that are 800% of GDP, it's easy to understand that governments are simply not going to be able to pay off their debts.
It is something that the mainstream media seems to have a great deal of problem wrapping their head around.
Like when I see you get interviewed on shows, people like smile and say, ha ha ha, well, isn't it strange?
But it is a very real fact.
And in history, of course, governments have regularly defaulted on their debts before they've even reached these kinds of leveraged ratios.
So why do you think it's so hard for people to understand that this mathematically simply cannot continue?
And we're very near the end of that process.
Actually, I'm also surprised.
And I mean, I was recently on CNBC... And when I mentioned that essentially the US is bust and belongs into the same kind of basket as Greece, they right away shut me off.
I mean, I think we have to face the reality.
It does not only apply to the US but also other Western governments in Western Europe.
They have these huge liabilities coming up and they already have today very elevated debt to GDP. Ratios.
And so I find it very difficult to see how they will come out of this debt trap unless they could do two things.
They could essentially increase retirement age very significantly.
A little bit would not be helpful.
It would have to be significant.
So you're essentially breaking a promise anyway.
So it's also kind of a default.
Or What you could do is cut government spending massively, but you would have to cut it massively.
And that, I think, is unlikely.
I don't think the political will is there.
And the government today is like a state within a state where they protect each other.
They're not looking after your interests.
They're looking after their own interests.
And therefore, I find it difficult how they would cut Expenditures meaningfully, in addition to which a lot of expenditures by the government are mandatory.
In other words, they will come due regardless, mainly for Medicare, Medicaid and Social Security.
So I think the US and also other countries are really in a very difficult position and before they default on their debts, and this is my point, They will print money.
They have no other option.
They will have to print money.
They could default.
Or as I said, change some expenditures or increase retirement age.
But that I see less likely.
In the case which we have today, most governments throughout history have reacted by printing money.
And then you get inflation, and that is also some kind of default.
It's like As I just explained, if you put your money on deposit and you have zero interest rate and there is a cost of living increase, then obviously your money is worth less in a year's time than it is today.
So it's also a form of expropriation.
It just touches, as you say, essentially the lower class of society and the middle class, whereas the rich in these times, and especially the Wall Street establishment, they can shift their money in and out of the country Right.
I think a strong argument could be made that America is in a more vulnerable position, though the debt to GDP ratio is very high, even relative to a country like Greece, because Greece doesn't have the overhead of an empire and a military-industrial complex.
So in many ways they have more flexibility When it comes to cutting spending than America does because of America's obligations overseas makes it all the more vulnerable when it comes to this kind of debt.
That makes America extremely vulnerable and it makes it also military very vulnerable because don't forget when the US went into World War II the debt to GDP ratio was 140% and we didn't have these huge unfunded liabilities of Medicare, Medicaid and so forth.
So if there was ever again a major commitment to, say, an overseas military engagement, the US wouldn't have the money to do it.
Of course, they could print money.
But again, as I said, it would essentially depreciate the purchasing power of the dollar and that would then be reflected in a dollar collapse.
Do you think that the printing of money is going to work?
It seems that that's a scam that is so well exposed by the Austrian school that I would think that all foreign investors or domestic investors who would be interested in U.S. bonds would look at the printing of money and really recognize what was going on and it would not work in the same way that it used to in the past.
Do you think that's a fair assessment?
Yes, I think that is a fair assessment.
But I mean, it's remarkable that, say, Investors overseas, let's start, say, December 18th, 2008, the 10-year Treasury note yield was at 2.08%.
We're now slightly over 3.6%.
I mean, who on earth would buy a Treasury for 10 years at 3.6%?
But the foreigners, the central banks, the overseas foreigners, the dollar holders, they do that.
And that is a little bit of mystery for me because I don't believe that the US dollar for the next 10 years will be a stable currency.
My view is or was that it could rally starting around November, December of last year and maybe the current rally against the euro will continue for a while.
But let's say against gold, silver, platinum and other commodities, I don't think that the dollar will be stable.
So I don't think that to buy a 10 or 30-year Treasury bond is a desirable investment, but it's still being done.
And one of the reasons it's done is, as Mr.
Stiglitz said, who won the Nobel Prize in Economics, the US will never default because they can print money.
That is correct to the extent that they will repay essentially your bond and they'll pay the interest on the bond, certainly for the next few years.
Because they have the ability to print money.
But as a foreigner, say you buy US dollars with, I don't know, a foreign currency, you may end up getting much less than what you invested in in the United States.
That is the issue. Right.
Well, it could also be that, I mean, Treasury bonds, in my view, like Social Security, is just a Ponzi scheme in that it's the people who are buying new bonds whose money is being used to pay off the people with existing bonds.
So it could be that foreign investment firms Are protecting their original sort of recommendation for their clients to buy these bonds by paying into the system so that the interest can be paid out.
And of course, we also don't know what threats are occurring behind the scenes.
It's already a bond scheme. And it will become more so because let's say we had a 27-year bull market in bonds, 1981 to 2008.
And from here onwards, it is likely that interest rates over time will go up.
And so the interest payments on the government's debt will go up.
Of course, because of these rising interest payments on the government's debt, the Fed will keep interest rates artificially low so they can finance the deficit at very low rates.
But that is, again, leading to more inflation.
In other words, when the Federal Reserve would have to increase interest rates to tighten monetary conditions, they'll be reluctant to do that because at that point, The interest payments on the government debt would soar.
Right, right. And now this, I think, leads to another interesting position that you've taken that most people would look at a defensive position in investment to keep their money in cash and government bonds, which I think, relative to your perspective on inflation versus interest rates, is a really bad idea.
I'm wondering if you could explain a little bit about that.
Well, basically, if you look at the performance of different asset classes in countries that have high inflation rates, Where it was Germany, 1918-23, the so-called Weimar hyperinflation.
And closer to home, essentially, the entire 1980s in Latin America, which were brought about by the petrodollar crisis and then the governments in Latin America, including Mexico, reacted by having large fiscal deficits and by printing money.
And this then led to very high inflation rates, in some cases of up to 800% per annum.
So what then happened is that the currencies collapsed, but in these countries, because of the high inflation and the collapse in the currency, equities performed in local currencies.
In other words, in nominal terms, very well.
Now in dollar terms, which was compared to the Latin American currencies in the 1980s, the strong currency, they didn't perform particularly well and in some cases they didn't go up at all.
But at least in local currency, you were better off in equities than if you had your money in long-term bonds and in cash, because that was continuously below the rate of inflation, where I say equities at least protected you somewhat.
Right. And you've also had a recommendation, which may seem counterintuitive to many people who follow the mortgage crisis, that real estate is a good investment in a time of inflation relative to lower interest rates.
I was wondering if you could explain that, because that may strike people as not a good idea.
What kind of real estate?
But let's say, if you own a house in a hyperinflating country, then the house price will adjust somewhat upwards.
And it will beat cash returns.
But the problem with, say, if you own an office building or especially if you own, say, a building with rentals, in other words, you have a building and you have 20 apartments that are let out to people.
The problem with this ownership is that in very high inflationary periods, rent controls are introduced and you, as the homeowner, Who lets out the house or 20 apartments, you get insufficiently compensated for your investment and you won't be able to carry out reparations and maintenance and so forth.
So that is the drawback.
But I just look at all asset classes, say cash, bonds, real estate, equities and commodities and then foreign currencies.
In a high inflationary country, the best is not to be invested in that country but overseas, in other words, in another currency.
If you're smart, what you can do is shift from time to time your money from the local economy into foreign currencies and then at the appropriate time back into the local currency and eventually back into the foreign currency.
In other words, you have to trade frequently Of course, normal people or simple people or say the working class and the middle class doesn't have that ability and frequently their government will make it difficult to execute because they introduce foreign exchange controls and so forth and so on.
Well, to Wall Street people, they can do that quite easily.
That's why highly inflationary times are from a society and social point of view a complete disaster because it bankrupts the middle class and the working class and it enriches a few smart speculators.
Right, right. I remember a story that I read about the Weimar hyperinflation about a fellow who was writing about his father.
He said his father had paid his whole life into an annuity which was supposed to protect him in his retirement.
When he went to cash in the annuity, he had actually the price for a cup of coffee across the street and that's all that it was worth because that was fixed income.
That is precisely the problem.
What then happens, usually they index some of these annuities or some of the social payments that the governments will undertake, but they don't index them sufficiently because the government is not able to pay it anyway.
They index it, and then the payments are inferior to the true cost of living increases, like the US government said inflation is this.
I just read today articles about how insurance premium costs went up.
I mean, it's dramatic.
For most people, it's around 10% per annum, but for some people, it's 30 to 40%.
And then I read about educational costs.
I read about bus fares.
I read about local taxes and how much you have to pay for government services.
And they're all going up more than, say, 2-3% per annum.
But the government maintains that inflation is essentially non-existent because they look at the price of a mobile phone.
And because the price of a mobile phone goes down, they say, okay, there is no inflation.
There's deflation. So, of course, nonsense.
With every technological innovation, the first price, like the first pocket calculator, was very expensive.
After the airlines gave it away to you as a gift, because through technological progress and productivity improvement, the production cost collapses.
But that is not deflation.
Deflation gives across the board a price decline for wages, for salaries, for commodities, And for goods and services across the board.
Right, right. Now, one really striking graph that I saw in a presentation that you gave on television was the degree to which the GDP return on every dollar of debt is significantly falling and has, I guess, since the post-war period.
Can you explain a little bit about why that is occurring?
Well, basically, if you start with an economy or a corporation that has no debt And with the additional borrowings, you go and buy, say, an additional machine or you build an additional factory building and so forth.
That may be useful and boost, say, the return on your equity and enable you to grow for a period of time.
But I suppose there comes a limit to how much borrowings you can have and when the borrowings become burdensome, In particular, if the additional borrowings are not used for capital formation.
Capital formation is essentially when you have a company and you borrow money to build another factory or to buy a machinery or to send your staff to higher education or to some courses where they learn something as a specialization or you carry out research and development.
So that, essentially, is growth enhancing.
If you have a company and you borrow money to go drinking every night, then it's not very growth enhancing for your corporation, maybe for your well-being, but not for the corporation.
And so the U.S., the problem is that the entire government's policies have been targeting the stimulation of consumption when the government should, essentially, target Stimulating cross-capital formation, in other words, infrastructure, education, research and development, and, of course, the building of factories and the acquisition of machinery.
I mean, it's remarkable if you fly around the world that US airlines have one of the worst airline fleets, and the airports are inadequate, and the whole infrastructure in America It's not entirely the thought of the US that New York built its subway system more than a hundred years ago and that the bridges are more than a hundred years ago.
But the problem is they were badly maintained and they never did anything to add and renovate and redo it.
It's like the rail system in America compared to rail systems in Europe and in Asia now, particularly in China, it's a catastrophe.
Right. And of course, politicians love to cut ribbons and there's not much political capital in maintenance as opposed to building new things or satisfying interest groups with new payments.
And so the misallocation of resources in that sort of invisible maintenance factor tends to be pretty catastrophic and the bill really accumulates.
And that's something that, again, doesn't really show up as much on the balance sheet as it should.
But I think these things will likely all hit at once.
Yeah, yeah, sure. Of course.
Now, I have a sort of vague theory that you can probably give some more, well, I'm sure you can give more intelligent thoughts about, but it has struck me that particularly over the last 10 years in the massive eruption of capital opportunities in emerging markets, and of course, particularly in places like Thailand and India,
who has a very good central bank, and to some degree in China, Do you think that it's having a big effect in terms of drawing capital away from productive investments in the Western countries, the fact that there are greater returns on investment that are available for sophisticated and well-traveled investors in emerging markets?
Well, let's put it this way.
When I moved to Asia in 1973, I worked for a company called White Weld.
It was later on acquired by Merrill Lynch, and then I opened the offices of Drexel Burnham.
And at that time, 99% of our business in Asia was to channel capital from Asian high net worth individuals, well-to-do people and financial institutions into US equities and US bonds and money market instruments.
And today, the well-to-do people in Asia, basically they have plenty of opportunities to invest in Asia.
They still have some U.S. portfolios and so forth, but it's no longer a priority.
And in the meantime, what has happened is where practically no American and European capital would flow to Asia in the 70s and early 80s, except some British institutions.
They bought some Japanese shares and some Malaysian, Hong Kong, Singapore shares.
But now, of course, American capital and European capital Understand this huge shift in the balance of economic power in the world towards emerging economies and basically the emerging economic block today is larger than the developed world and so I think that over time people will have roughly 50% of their money in emerging economies.
Right. I mean, I think that one of the reasons that the oil prices jumped so much over the recent few years is partly out of demand from these emerging economies.
And the one sad thing that occurs, and it also occurred after the Second World War, when America was the predominant economic power, largely because of the destruction of most of the other European economies, that you kind of get into a sort of set idea of wealth acquisition That changes over time as, you know, debts grow in Western countries and opportunities grow in developing countries.
Capital shifts and people then have a tough time getting used to the sort of new environment.
I mean, one of the things that I find quite childish is the degree to which most commentators, even economic commentators, will look at the debt levels of American households and ascribe it to greed or immaturity or something like that.
And it seems to me that human nature doesn't change that much over the course of 5 or 10 or 15 years.
But what has happened is that households are facing lower or stagnant incomes, rising costs, and they're sort of locked into.
They're not going to move house.
They're going to go into debt in the hope that it's a temporary condition without realizing that things are not going to turn around, in my view at least, without a significant crash.
And it's my hope, of course, that people will understand the causes of that in real terms, that it is, I think, an excess of statism that is the problem.
But I think it's very childish for people to ascribe silly human motivations like greed as if people get more greedy over the last five years and not recognize that people are just trying to stay afloat in a rising sea.
Yes, absolutely. And I think, again, government policies, because of the tax deductibility of interest payments on mortgages and so forth, favored actually the people that took on debt.
In other words, If you have money on deposits, then you pay tax on the interest income, but if you borrow money, then you can deduct the interest payments from your taxation.
And so it encourages actually to go deeper and deeper into debt.
But I mean, I think equally, the household sector in America Became complacent because after 1950 home prices essentially never went down.
There wasn't a single year when across the board nation-wise they went down until the latest downturn and so people thought, oh real estate will always go up and there's not much risk on the downside and the Federal Reserve actually encouraged the whole subprime exercise and leveraging up of Financial institutions and the securitization of mortgages and so forth.
And therefore, I mean, I think greed, everybody in the world is the same greedy.
I mean, I don't know any people who aren't greedy.
But if governments have policies that encourage the increase in debt and create Through inflation, and inflation is not just an increase in consumer prices, it's also an increase in equity prices and in art prices and in real estate prices.
If they create through inflation and environment, we essentially force people to abandon cash and to go into assets because if you don't do that, you're left behind, then you eventually end up with the problem we have today.
Right, right. Now again, I don't want to take you up your whole day or evening or wherever it is, but I would appreciate it if a question or two more.
You said something very interesting about Greece and about what is going on in the completely catastrophic and frankly entirely made up financial statements of Greece that allowed them to get into the EU and which were to some degree facilitated by the same American financial institutions that were behind the creation of these sort of toxic assets that brought down some of the US economy.
You said that it's kind of a domino effect, or I guess a house of cards, that if one government stops, defaults on its debt, that it really will have a sort of snowball effect on the other governments who will look over and say, well, why am I paying all of this interest if I can just default?
I was wondering if you could talk a little bit about how you think that might play out.
Well, I think eventually Greece will be bailed out with some kind of fixed conditions.
Whereby I'm not sure that they will kind of comply with the restrictions imposed on them.
I mean, basically, Greece is a microcosm of what is plaguing the Western world.
A bloated government sector, an overpaid government sector, and Over-in-debtness.
In other words, debt to GDP in Greece with the unfunded liabilities is something like 800%.
And it is true that some investment banks help Greece kind of hide the true state of their affairs.
But you have to understand, the investment banks basically go after their own money.
In other words, they are there to make a profit.
They're not the policemen of the world.
It is Greece that committed the abuse, and in this particular case, not Goldman Sachs.
I mean, I don't think one can blame Goldman Sachs for everything that goes around.
But as I've said before, when things go bad, the people of America and the world will turn against essentially the Monarch people, the Wall Street establishment, and then they will Reluctantly,
they can't say these are the Jews, but the fact is simply that there are lots of Jews on Wall Street, and so they turn automatically against Goldman Sachs without naming the Jews, but it's a form of anti-Semitism.
I do not subscribe to it because JP Morgan and Citigroup and Morgan Stanley and all the others Did exactly the same and had Goldman Sachs not done it, the others, including UBS and CreditSys, would have done the same.
So I'm not targeting Goldman Sachs at all.
I'm just saying it leads to social tensions when you have this kind of environment of inflating the supply of money and credit because it shifts the country's wealth into the hands of a few.
At the expense of the majority and it creates, of course, a lot of dissatisfaction among, let's say, the population.
Yeah, I think it's an excellent point.
The anti-Semitism is certainly part of it and it had a lot to do with what happened in Germany throughout the 1920s and 1930s.
The governments who are preying upon the citizens with bad economic policies and currency overprinting very desperately need a sort of Mercantilist, capitalist, financial class that the people can get angry at instead of getting angry at the political leaders who are actually causing the problem.
And I think that's really tragic.
The government will, of course, always distract the attention from the real culprit.
In other words, they will distract the attention of people from their own shortcomings.
And when nothing works, they'll go to war.
Right. Which, of course, is not really an option that the US has at the moment being embroiled.
Well, I mean, they are already at war, but they can escalate it, and they'll find some new enemies and so forth, and they can go to the people and say, we have to do this, and it will cost this much, and so they'll print even more money, and you have to tighten your belts for the national security, and, and, and, and. But, I mean, I think the end result is not going to be very desirable.
I think that's an understatement, but I certainly agree with you.
Now, the last question that I'd like to ask, and I really do appreciate your time.
The last question I'd like to ask is that I get a lot of messages, and I asked this of Peter Schiff recently, and I'd really like to get your perspective.
I get a lot of questions from my listeners who themselves are far from being financial titans of Wall Street or having, say, the economic opportunities for saving an investment that you have, who are sort of in the lower classes or the middle classes, and they're economically aware enough to know that things are going to get significantly problematic, to say the least. And they don't have the excess capital to, as you say, move money into other currencies and back.
And sometimes it's really difficult.
I live in Canada and I tried to buy gold and it was as if I went to the bank and asked for a big bag of crack cocaine.
It's really, really hard to get your hands on it and to store it.
What would you suggest for people who don't have a lot of excess income?
What would you suggest that they do to prepare for the worst case scenario, which I think you and I would probably both agree is on its way?
Well, I mean, I think that in the worst case scenario, Obviously you need an accumulated pool of savings so if you lose your job or if economic conditions become very tough you have a nest egg where you could live for two or three years without suffering too badly.
The question is obviously how do you invest that money?
I think we really don't know how this great reflation will play out.
That we don't know for sure.
But I would suggest that people have some physical gold.
In other words, gold coins.
And you can buy gold coins also in the United States.
There are shops and there are organizations that sell it.
Or you could buy a gold ETF. In my opinion, not an ideal vehicle, but let's say it's an adequate vehicle.
I would rather buy a gold ETF in Canada.
And you could also buy some gold miners.
I don't think that the gold mining companies are terribly expensive.
But whatever you do, and this is where individuals frequently go totally wrong.
They get suddenly an attack with an idea one morning or one evening and they put all their money into something at the same time without any diversification.
I can assure you, having been in this business since 1970, nobody gets his timing perfectly right.
You can get your timing right for 10 years or 12 years or possibly even in over 100 years, but very few people do that.
And so I would argue that whatever you do, say, we decide to buy some gold.
It's not a question to buy the gold today or tomorrow or in one month's time.
It's a question that you should buy every month a little bit for the next few years.
And if it goes down, you should be actually happy because a declining gold price would signal that the monetary system is healing.
I mean, people don't realize that.
They always want gold to go up, but basically gold is an insurance.
If it goes up, it signals that something is not right.
Right. We're better off with sound fiat currency and lower gold prices than we would be with higher gold prices and an unsound fiat currency.
Yes, absolutely, unless you have 100% of your money in gold.
I don't know anyone who really has...
I know some people, they may have 30% of their money in gold.
But I mean, very few.
I go to a lot of seminars, And I give presentations and then usually I ask the audience, how many of you own gold or gold shares?
I mean, physical gold, maybe if there's an audience of, I don't know, 2, 3, 500 people, maybe 3% will own physical gold.
And with the gold shares, it's usually about 5%.
It's not widely owned.
Right. Right.
Well, it can be tough to own, and my particular strategy has been to go into the mining shares for precious metals, which I consider, as the price goes up, will become more valuable, and they will be able to access more gold because it becomes economically attractive at that point, and that's something that can work within the tax structure of Canada.
If gold goes up very substantially, what could happen is that, and that would also apply to oil, and it happened before to oil in the 70s, that there are excess profit taxes.
Right, right. Yeah, well, the government, every time they see a green chute, they want to trim it for their own survival.
And I think the government is becoming a very panicked entity at the moment in that it is really, it recognizes that it's up against the wall and the game can't continue.
Certainly it won't continue for another generation.
I think that you're sort of...
Well, it's not that Mr. Bernanke realizes that, because I think he calls himself an expert on the depression, which is, except he never analyzed what caused the depression in the first place.
So that is the problem.
And he gave a speech on January 3rd in Atlanta at the American Economic Association.
And in his 8,000 word speech, the word or the sentence of excess leverage or excessive debt growth never comes up.
So I'm not sure that he would understand That the US is up against the wall.
But that's the fact.
That is the fact. I appreciate that.
Now, the last question I'd like to ask you, Dr.
Faber, is this. Certain classes of experts throughout human history have waged war against a particular evil.
And you can think of many of them, of course, you could think of, as you talked about, the Corn Laws, and lots of people got very involved in trying to reduce trade barriers between England and Europe.
If you look at something like tobacco, doctors got really behind the demonization of tobacco and the dangers of smoking and so on, that there are expert classes that will rise up and wage war against evils that they can identify within society.
It really is frustrating from the outside to look at the degree to which the economists seem to be quite inert in criticizing the catastrophes of government spending deficits and debt.
It would do a huge amount to help the world if economists were to rise up and do this.
I mean, even with climate change, you get climatologists who are all going to sign papers and go on speaking tours and talk about it.
But economists just aren't doing that.
It's really, really frustrating because it makes the job of outsiders like myself who are trying to communicate about the dangers of these things that much harder.
Because people look and say, well, the economists don't seem to be that worried and you're not an economist, so why should I listen to you?
Why do you think the economists are so enough in this area?
We hate economists. And who do they work for?
Most of them, they have to kind of put a friendly face on a dire situation because they work for banks and Wall Street firms and so forth.
So they can't really tell the truth.
And then a lot of economists work at universities and they're paid by the universities and so forth.
So they also are self-diluting themselves to some extent.
But there are economists that have been worrying about this.
Ken Rogoff has been certainly a voice.
And also among private economists, there have been voices to this extent.
Henry Kaufman and Al Wachnilower and several others, like David Tyson, of course.
They all pointed out to the excessive tech growth.
And also the late Kurt Rickenbacker.
So, I mean, there are people who have been warning, but as you say, they basically are shut up and have a limited exposure because it's not in the interest of the establishment to have them come out and tell the truth and that the people realize how basically ugly the situation is.
Thank you so much. I really do appreciate your time and I will send you a link to this.
