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Aug. 5, 2016 - Freedomain Radio - Stefan Molyneux
45:21
3373 Is Economic Collapse Inevitable? | Mike Maloney and Stefan Molyneux
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We're back with a good friend, Mike Maloney, the founder and owner of GoldSilver.com, the author of the very best-selling precious metals investment book of all time, Guide to Investing in Gold and Silver, Protect Your Financial Future, and we will link to all of this stuff below.
Mike, welcome.
How are you doing today?
I'm doing really well, Stefan.
How are you doing?
I'm well.
And we want to talk today about – and don't worry, we're going to make it gripping as hell – deflation.
And this is something that a lot of financial gurus think is a bad thing.
The average population, I'm sure, thinks it's a fairly good thing because who complains when the price of computers or cell phone plans and so on go down?
But the Austrians, like the Austrian economists, not those from Austria, but those who follow the Austrian school, say that the massive amount of fiat money creation – Yeah.
Yeah.
before there's a potential for hyperinflation to kick in.
So I wonder if you can just step us through what's happened, where we're at, and where you think things are heading. - Well, in episode six of "Hidden Secrets of Money," I lay down about half of my case for deflation Episode 7 is coming soon, and that one deals with the velocity of currency.
I don't call it money, because money has to be a unit of account, a medium of exchange.
It's got to be portable, durable, divisible.
Those things, and fungible, the units are interchangeable.
Currency has to be all things, those things.
Money has to be those things, plus a store of value.
Currency does not have to store value.
Fiat currencies that are borrowed into existence by their very design cannot store value.
It's impossible unless the thing goes into a deflationary collapse and they gain in value.
If you borrow the first dollar into existence and you promise to pay it back plus another dollar and the second dollar doesn't exist yet, when you get to the point where you have to pay it back, you have to borrow that dollar of interest into existence and promise to pay it back with interest.
And so there is always more debt in our system than there is currency to pay it off.
So we have to, as the entire world, has to go deeper and deeper into debt because we're on these Keynesian monetary systems where they borrow currency into existence.
And it enslaves us.
It's part of what you were talking about in the story of your enslavement.
But because we have to pay taxation in the future To pay off the prosperity that we're having today because we borrow this prosperity by...
The government does deficit spending.
It's borrowed on treasury bonds.
And we have to pay those back.
Those are paid back by the government with principal plus interest out of future taxation.
Well, this is a strange thing that people have a tough time understanding because we're so far from the gold standard now.
I guess the last vestiges were taken off in the early 70s under Nixon.
We're so far from the gold standard now that people don't understand that money meant gold and silver, for the most part, throughout almost all of human history.
And during the giant deflationary period of increased prosperity, even with the Civil War in the 19th century, in America, it was gold and silver.
In ancient Rome, before they corrupted it, it was gold and silver because...
It has value even if you don't use it for currency.
You can use it for jewelry, of course, gold and other things you can use for electronics now.
And so money used to have value and that's why we used it as money.
Now, under paper currency, it's not even that money doesn't have value.
Money is actually a liability.
I dislike paying taxes as a whole because I think the money is being used badly.
But the idea that I'm paying taxes so that the government can use it as collateral to borrow against my child's future just adds an enormous amount of insult to injury.
It certainly does.
And when you said that the paper currency that we use, we used to use money, the very fact that all of our old notes, 1928 and before, said that they were gold certificates, that this note entitles the bearer to $20 in gold coin payable upon demand.
There was a promise from the government to give you the money for your claim check, the currency that represented the money.
One of the things that the public doesn't understand is that the velocity of currency Controls short-term inflation and deflation.
The quantity of currency controls long-term prices, whether we have inflation or deflation.
But in the short term, it's velocity, and velocity is determined by the public's mood.
The Federal Reserve, no central bank, has absolute control over how the public feels.
And it doesn't matter how much currency they print.
If the public doesn't want to go, if they don't feel good enough to go out and spend that currency and it doesn't circulate, prices will fall.
If they stick the excess currency under their mattress or into a savings account or, heaven forbid, pay down debt, that's very deflationary because when we create dollars, the banks create most of the dollars through fractional reserve lending.
And fractional reserve means that they've only got a tiny percent of the fraction of what they're actually lending us.
They get to create, invent the other dollars.
So they get to counterfeit, bring these dollars into existence, and they exist on their balance sheet as a debit and a credit.
They've got a loan, and you've got the cash that they borrowed into existence against that loan.
You owe it back, of course, with interest, and the dollars that Those are required to pay the interest don't exist yet.
You didn't get those when you borrowed it.
So paying down debt is deflationary because when the currency that you're in possession of meets the debt on the bank's balance sheet, they annihilate each other like matter-antimatter and you end up with zero.
Those dollars extinguish themselves when they meet the debt.
And so that causes the currency supply to start to collapse.
And you talked about all the economists that were predicting inflation like in 2009 and 10 and 11 as Ben Bernanke was doing all these enormous quantitative easings and expanding our base currency from just over 0.8 trillion.
We had about 825, 850 billion dollars of paper dollars, base currency in existence.
The currency that the commercial banks use for pyramiding the fractional reserve lending scheme that gives us the other 96% of the currency supply.
But the base currency, they had expanded, and now it's up near $4 trillion.
It was at $4.2, I think, when it peaked.
So from $0.8 to $4.2.
So they had created over $3 trillion.
They created about 600 years worth of currency at the previous rate in just the six years or so after the 2008 crisis.
But that was sitting on banks' balance sheets in excess reserves, not circulating in the economy.
And if you deduct the portion that was not circulating, those excess reserves, from M2, the portion of M2 is a broader measurement of the currency supply that encompasses a lot more different types of savings accounts and brokerage accounts and checking accounts and so on.
If you deduct the excess reserves that are not circulating, what you see is a $1.2 trillion deflation that we had in 2008 to about 2013, 2011-2013, somewhere in there it bottomed, and it's come back up.
And we're now slightly above 2008 levels when it comes to what I call the people's currency supply, the portion that we use.
And so we have gone through, during this period of inflation of base money, Ben Bernanke was almost exactly offsetting the deflation that was being caused by people paying off their debts and loans going bad and bankruptcies and foreclosures and all of that.
Because most of the currency supply is created by people when they take out a home loan and they sign their name on a mortgage.
That currency just It springs into existence.
When they pay down debt, it vanishes.
The reason that gasoline in 2007 was a couple of bucks more a gallon than it is now is because we've been in this deflationary cycle, and you've seen it in all commodities, and the Fed is trying to fight it.
Central banks around the world, about a quarter of the world's GDP, those countries now have negative interest rates, which is an insane concept.
It's absolute madness.
It can't work.
This wasn't even a concept before 2008.
And if you had mentioned it to any economist, They would have thought you were mad.
That's like having a business plan that says, I'm going to open a restaurant and I'm going to pay people $100 to come and eat at my restaurant.
All that says is that your food is minus $100 in value because you've got to pay people to eat it.
It's got to be some awful pig swill.
And what does this say when we have banking institutions and central banking institutions that say, here, our money is so worthless, we have to pay you to borrow it?
Well, you just said it.
It says our money is so worthless.
But it also says that the Keynesians that run the economic system of the world are completely misguided.
They're operating under a false assumption.
Keynesian economics, if you really think about it deeply, is not remotely plausible.
It cannot work.
John Maynard Keynes said that whenever we have a recession and there's an economic dip, that the government should step in and do a whole bunch of deficit spending and create jobs and stimulate the economy by creating excess currency.
Well, there's a fundamental purchasing power that's in currency, and it represents the purchasing power is all of the goods and services that are in society.
Say's law basically says that the moment that a good is produced, it creates a market for another good.
So you produce something that has value.
That is the purchasing power.
And the currency is just this temporary medium of exchange that is storing the purchasing power that is in your good or service that you have It allows you to sell it and then store that value of the good or service and then purchase somebody else's good or service.
So say was absolutely correct and this is the only place the purchasing power comes from.
If you have a government or another entity that is legally allowed to counterfeit What they do is they create new empty digits of currency that have to steal their purchasing power.
As soon as they are spent into circulation, they steal their purchasing power from all the other units of currency that are in circulation.
And so the best that the government could ever do when it comes to trying to stimulate an economy is to rob from one section of the economy to inflate another section.
So Keynesian economics Can not work.
It's absolutely impossible because it's not creating any new purchasing power.
I interviewed Steve Forbes once and he said the currency is sort of like you go to a restaurant that has a coat check.
You check in your overcoat or whatever at the front door and they give you a claim check.
The Federal Reserve and the other world's central banks think that they can create more coats by printing claim checks.
Or that people can wear claim checks in order to keep out the coat.
Exactly.
The currency represents the goods and services in society.
The goods and services are the wealth.
The currency is a measurement device of that wealth, and by creating more of them, you actually make the measurement device a little bit smaller, so it requires more units of currency to purchase that.
If you have the same number of goods and services, and you double the currency in the system, and people are still feeling the same, so velocity is about the same, it means the prices will double.
Keynesian economics isn't plausible and our biggest problem and the proof is these negative interest rates and all this stuff, especially like Japan, they've proven now for 30 years that Keynesian economics doesn't work.
They keep on proving it over and over again.
Yet they never question their assumptions.
These people that are running the world monetary system, these Keynesians, have the hubris to say, oh, it wasn't our belief that is wrong, it's the fact that we didn't do enough of it, or the fact that the government did this thing and it got in the way.
But they have proven over and over and over again that it doesn't work.
Well, and the fact that debt is deferred deflation is something that people have a tough time understanding.
Like, if I go borrow $10,000 to renovate my kitchen, I'm simulating a lot of demand in the here and now, and that's going to drive up prices for everybody who is going to continue to purchase it.
You know, if you take that money and stuff it under your mattress, that's different.
That's what you're talking about, sort of short-term.
Velocity drives immediate inflation.
And again, inflation is not a bad thing.
If it's driven by demand, it simply raises the price of things to reduce demand and make sure the goods and services are allocated as efficiently as possible.
But if I borrow that $10,000, clearly I'm stimulating demand in the here and now.
And at my personal household level, I am reducing demand for outside goods and services in the future because I'm going to have to pay back that money, which means I'm going to be minus $10,000 plus interest in the future.
So debt is deferred deflation because it's going to reduce demand in the future.
As you say, the money collides to pay off the debt and vanishes.
So that, of course, is a great challenge for people to understand.
And one of the things I thought was fascinating in part four of your series was the degree to which – Housing has bubbled back up to where it was, even slightly higher than in 2008.
And your point that the baby boomers are going to be selling their houses at a faster rate than the millennials are going to be buying houses, which is going to drive down the price of real estate, which of course a lot of the boomers are relying on for their retirement savings, and that that demographic decline may drive a bubble in real estate, a bubble burst in real estate much worse than 2007, 2008.
Yes, that's episode six.
It shows in there the population demographic in the United States, and there's a difference between the coming crash and the crash of 08.
The coming crash, we're probably going to be bottoming in 2018 or something like that.
Well, that means the baby boomers have moved on 10 years.
This is the largest population demographic I haven't done the demographic on Canada, but it's probably somewhat similar.
When they get worried and start saving for their retirement, every five and a half years, roughly, we have a recession.
They come without fail.
You cannot put off a recession indefinitely.
And they have stimulated and stimulated and stimulated and it's a phony stimulation through Keynesian economics and stealing wealth from one sector of the economy to give it to another.
It's pumped the stock market and real estate back into bubbles like you saw in episode six.
And this is about to come home to roost in that not only is that currency due, but the baby boomers who now have to retire in just a few years.
This all happens over the next ten years here.
The baby boomers are going to retire right now.
They're starting to get scared because they haven't saved enough.
And when they get scared and they do stop purchasing, they stop borrowing currency they can't afford to...
They stop borrowing money that they don't have to buy stuff that they can't afford.
And when they do that and they start paying down debt, it's a deflationary collapse.
And we also have a bond bubble, and the popping of a bond bubble is deflationary also.
At the end of Episode 6, I show all of these different cycles that are lining up, and they're all sort of pointing downward toward deflation.
Okay, so let's talk about something that is outside the realm of the average consumer, right?
The average consumer is mostly focused on household economics, personal economics, and so on.
I remember when I first became an entrepreneur way back in the day, understanding just how big the business-to-business market was, was really kind of important.
You know, you don't buy a tractor, I don't buy a tractor, but still, there are lots of tractors out there.
So the B2B economy is huge.
The B2B can also include the bank-to-bank economy, and the degree to which As you point out, one of the things that happened in 2008-2009 with this quantitative easing money printing stuff was that the Fed was trying to prevent bank runs on banks by banks.
And the degree to which money is sloshing back and forth between banks every single day is something that is hard for people to understand and the degree to which it may in fact affect them.
I wonder if you can help step people through exactly what is going on with this interbank lending and these daily closures.
Well, in my video I point out that that is proof that our whole monetary system is a fraud because at the end of each day, in order to get banks' balance sheet to balance, one bank has to borrow from another who has to borrow from another, and it's this interlinked daisy chain of basically a bunch of broke entities.
Creating loans for each other and sort of offsetting whatever does not quite add up for the day.
And it's immense amounts that we're talking about.
And when it comes to all of the brokerage accounts on the planet, all of the currency trading that goes on in the forex, the amount of currency that sloshes back and forth on this planet in the Sorry.
The amount of currency that sloshes back and forth on this planet in the banking system outweighs the number of the goods and services that are bought and sold by individuals by many, many fold.
The financial economy is making the real economy a very, very small thing and that also It's a by-product of an economy that is basically a lie.
It's a Ponzi scheme.
It's debt.
It transfers because the entire currency supply is borrowed into existence on all of these loans that we create and it is due back plus interest.
And the currency to pay the interest does not exist yet.
It's robbing portions of our daily lives.
We have to work to create the good or the service that we're going to exchange for the currency.
So that was the value.
And the currency is just a measurement of that value in a temporary storage device.
If we owe back that currency plus interest, we have to create another good or service to...
Offset that constant.
So the inflation that we've got is a representation of the amount of our lifetimes that are being stolen by this monetary system.
It is a form of enslavement.
There's always more owed to the system in the future.
And what it does is creates this warped economy where we have this huge financial sector where about 5 or 10 percent of the financial sector is serving the honest function of making a transaction more likely to occur.
But the other 90 percent of the monetary system is all of these people handing digits back and forth and computers and stuff running and all of this steals prosperity from the real economy where goods and services are created, transfers it to the financial sector.
Right, right.
I saw you give this speech at a Casey.
I was there for a speech you gave at a Casey conference some years ago.
And I've always found it extraordinarily compelling because especially for younger people, there's this meme on the internet called Old Economy Steve, like what the economy was like in sort of the 60s and 70s.
Graduates from high school, gets a job, buys a house, has a family, like the way things used to be.
Arrives at the airport 10 minutes before his flight leaves.
Welcome aboard, sir.
You know how things used to be.
And with your father, I found it particularly compelling to see just how much has changed since the 50s.
So I could tell people a little bit about what things were like for your father, what kind of taxes he was paying, what kind of opportunities for real estate in particular were available to him because that stuff's really in danger of being forgotten.
Yeah, in episode 6, you know, just before we filmed that, I ran across his tax return that he would have been filing about a month after I was born.
And on that tax return, it said his total income was just a little over $9,000, so it was less than $10,000 for that year.
And he paid $1,200 in taxes.
Now, that sounds like he wasn't making very much.
It sounds like he wasn't doing very well.
He was a manager at an auto parts store, a high performance store.
But when I went to the Census Bureau data and found the price of a single family median price home in Salem, Oregon, where I was It showed that the home in, I believe, it only occurs, the census gets this data every decade.
So I didn't have it for 1956, but at that time when he was making just under $10,000 a year, In 1950, a home was about $5,000 or $6,000, and by 1960, it was $8,000 for a single-family median price home, so less than his income.
Now, I was living in Los Angeles.
I've moved to Puerto Rico recently, but in Puerto Rico, a single-family home was closer to $400,000 At the time.
So an auto parts store manager working in Los Angeles to live the same prosperity that my father was able to enjoy back in the 50s as an auto parts store manager would have to be making $300,000, $400,000 a year.
And that's not including the much higher taxes that he'd be paying, right?
Yeah, my father was paying 12%.
If you were making $4,000 a year and you don't have a bazillion tax write-offs, you're going to be paying about 40% tax instead of 12%.
And this is part of all of what I call frictional jobs that are in government and in the financial sector.
When you think about all of the thousands and thousands of people that work in the financial sector, you think about the people on Wall Street and everything, they don't create anything that you can eat, wear, drive, or live in.
And that's the real wealth.
They do all of this high-frequency trading and stuff, handing digits back and forth in a zero-sum game, but it actually does.
When the financial sector becomes bloated like this, you have all these people that are basically being able to live by stealing tiny portions of wealth from all of us They do get things.
They're working for the things that they can eat, live in, wear, drive, health care, things like that.
That's what they're working for.
They're not really working for currency.
They measure their wealth in how many digits they make.
So they're able to buy some of the things that we make with stolen wealth.
Well, they are forging soft digital chains for your children, and that is a pretty grim exercise to spend your life doing.
And of course, what they're not doing is providing other things.
So it's not just that they're stealing off the general population, but if they didn't have that job, they could actually be creating wealth.
And the one thing that struck me about your father's story, and I remember talking many years ago to a retired teacher who was teaching in Toronto in the 1960s, and she said that she was paid about $9,000 a year, I guess fairly similar to what your father was making some years earlier, but that the average house in Toronto cost about $11,000 or $12,000.
Now teachers are paid $65,000, $70,000, and the average house in Toronto costs over a million dollars.
It's completely out of whack.
The thing to remember about the 1950s, right?
Your father was in the mid-50s, just 10 years after the most destructive world war that humanity has ever seen.
And this is what drives me crazy, because these problems could be solved in a year or two if...
Everybody let the house of cards fall.
You know, as in 1920, there was a worse crash than there was in 1929, but the government did very little about it.
Within 18 months, everything was fine.
If we just ripped this bandit off, went cold turkey, things could be solved.
Because look at how much wealth was being accumulated by your father 10 years after Western civilization almost tried to commit seppuku with bombs and a war that killed 40 million people and destroyed hundreds of thousands of American lives and so on.
I think we're good to go.
But how quickly things could be resolved if we had the stern Viking courage to simply take our medicine, let the whole thing collapse, let human beings make the rational decisions based on self-interest, let goods and services align themselves to what people voluntarily choose rather than what they're forced or manipulated into, We could solve this whole problem within 12 to 24 months.
But because it's all so slow, you get these god-awful zombie-dragging nightmares like Japan where decade after decade they continue to apply the same drug to the same dying patient which neither dies nor gets better.
And that is really frustrating for me how close we are to a solution and yet ideologically how distant it seems.
Yeah.
You know, not only if we let things collapse like that, but if we went to an honest monetary system, and it doesn't have to be gold or silver, but if it was moral, something where you're not borrowing currency into existence, stealing from the future and enslaving future generations, and working today to pay off prosperity that we enjoyed 10 or 30 years ago.
You know, we pay taxes for the 30-year bond.
So we're paying for prosperity that we were enjoying in the mid-90s right now.
If we had an honest monetary system, the real reason that we live a better life than we lived a hundred years ago is because of advancements in efficiency and technology.
It's all the improvements that we've made through the years.
And we've had this system that leaches away prosperity and gives a certain percentage of the population a free ride.
Imagine if the financial sector, instead of being like 25% of the global economy or whatever it is today, if the financial sector was 80% 80% smaller than it currently is, was just 20% the size that it is,
and provided the real service of making transactions easier and wasn't doing all this other stuff that makes a bunch of Wall Street guys rich to ride around in limousines when they're not actually producing something real.
If all of those people were also producing something real and not siphoning prosperity away from the rest of us, Society would just be on a whole other level.
A lot of economists and stuff think we've gotten to where we've gotten from credit creation.
And that isn't true.
Credit, all it does is you're in this constant race to produce more than you did last year so that you can pay off last year plus the interest you owe for last year.
It's like the old analogy that sloshing money around the economy and pretending that you're creating wealth is like giving a blood transfusion between two patients and you're slopping blood back and forth and spilling a whole bunch.
It's like, well, that's not going to end up well for either of them.
Now, when it comes to big cycles, and I'm actually currently working on a presentation on the fall of Rome, which is basically us in a nutshell.
I might as well put on a toga and have an orgy because it's so similar.
But these big cycles you've talked about a lot.
There is, of course, a demographic cycle, and it was really interesting to see in the presentation the degree to which the real value add that people put into the economy is a fairly narrow window, sort of like mid-30s to mid to late 50s.
And then, of course, when people get older, they become sort of Drains need healthcare.
They're retired.
They're consuming capital and so on, which is fine.
It's just, you know, it's a deflationary pressure.
But there's the demographic cycle and I don't know if we can also touch on the east-west cycle, which is a big, big half-millennial pendulum that swings back and forth.
Yeah, about every 500 years, the lead in technology prosperity shifts.
It's a pendulum that goes back and forth from east to west.
I mean, the Chinese had invented type.
And then, you know, Marco Polo went to China and you had the Renaissance and then went into the Industrial Age and now 500 years later it's about to start swinging back.
So it takes a thousand years to complete a cycle.
You might not believe it, but just take a look at the evidence, and the average person can also feel it now, that China has been gaining so rapidly.
The whole Asian continent is gaining in prosperity and technology, and the Western cultures are starting to wane in that.
One of the things that I've noticed is society starts off fairly simple.
The United States started off as a very libertarian society where we had established a constitutional republic with a Bill of Rights, not a democracy.
And we have been making it into a democracy very slowly.
And we keep on layering on more and more and more rules and then they start doing a little bit of wealth distribution.
Oh, these people need help over here and that causes some reaction in the economy so they've got to try and manage this and then manage that and it becomes So complex that I haven't seen an example in history that I can identify where that trend has been reversed.
What has to happen is you go into a total collapse of that society, just like Rome, like you were talking about, before you can rise from the ashes again.
And it's a shame.
We do have the knowledge.
We've got the history.
You know, Elon Musk suggested something very smart that I hadn't thought of.
But every law that these guys pass should have some sort of sunset period where it's going to be valid for five years and then if it's not voted on and put, you know, if it's not renewed, the law goes away.
Like they do with tax cuts, only with other things, right?
Yeah, exactly.
Exactly.
And we wouldn't have the thousands upon thousands of laws that make everybody, literally everybody in the West, is a criminal.
They just don't know it.
But there's some law that you broke today and you don't know it because there's so many.
There's a very strong argument that – we'll put a link to this article below – which says if regulations had remained roughly as complex in America as they were just after the Second World War, when it wasn't exactly some Mad Max, Thunderdome, Wild West, if the regulations had remained about that Wild West, if the regulations had remained about that complex, then the gross domestic product of the United States would not just be sort of $15 trillion but we'd know off the 50, 5-0, $50 trillion because they estimate it's shaped a couple of percentage points of economic growth and that accumulation is enormous.
$50 Now imagine if everybody had or the average income in America was $200,000 a year, then the only people who would be poor would be monks or people who sort of voluntarily wanted to do something like become an artist and take all of the bullets financial that it took to get there.
We'd have no problem with poverty.
People wouldn't have any problem paying for college.
All of this could have occurred if the regulations had simply remained about as complex as in the post-Second World War period.
And that sort of road not taken is another kind of torturous thing for people in the know, just what an incredible society we could have if we had simply let people go.
Remain as free as they were 60 odd years ago.
Yes, and that's one of the things that we have to, I mean, we really have to look at that and try to change where we are today, to change this path.
Because, I mean, you're talking about just 50 years and that's two and a half times the level of prosperity that the average person should be at.
Prosperity compounds.
This isn't just a linear thing.
So if you had that freedom and we had that level of prosperity, that means that out another 50 years from now, we'd be 10 or 20 times as prosperous as we are going to be on the path that we're on.
Right.
So, let's talk about some of the approaches that, now that we've scared the snot out of people, let's talk about some of the things.
I know, of course, that you feel gold is an important hedge against inflation, but what are some of the things that people can start to look into with regards to protecting their assets?
Because we hate to sound like vultures circling the dying, but every catastrophe Thank you.
you know, the deflation and then the over-response as government, government response is always over-response, the over-response to a deflation that may drive hyperinflation, how can people protect themselves?
Yeah, okay, so what can people do in a deflation?
And one of the very few assets that, you know, there's not a whole lot of really big deflations to point to in ancient history where we have data.
There's nothing really where we have data.
The one that's very, very well studied is the Great Depression, and that was caused from government interference.
Well, we've had about a thousand times more government interference in the last decade or so than we had leading up to the Great Depression to create the factors that caused that bubble that preceded the Great Depression to pop.
We now have a government that is so many times the size that it was back in 1930 that the reaction that they did back in 1930 that made what should have been A very bad recession into the Great Depression by meddling with the economy and their responses with all of Roosevelt's programs and such,
trying to do the Keynesian economics of stimulating the economy.
That caused the Great Depression.
Those things are going to be far, far worse this time because we had a very small government to begin with And their reaction caused the greatest depression that this country has ever known.
This coming one is going to be immense because the amount of moving wealth around and regulations that they establish and all these experts that think they know how to run things imposing themselves on our lives.
The only thing that has shown to work in both inflation and deflation, gold did a tremendous job of protecting you if you hung on to it.
The US government made it illegal for Americans to own for 50 years from 1934 to the end of 1974.
But gold and gold stocks did very, very well during the Great Depression.
So I'm personally mostly invested in precious metals, a little bit of emergency food, because I don't want to sound like a conspiracy theorist or a nutcase, but there is a possibility with all of this of civil unrest.
I have it too.
The one thing you always have to do is eat and so I think it is wise because it doesn't take a lot of interruption in the food supply for your life to get pretty uncomfortable and it's pretty cheap and easy to buy stuff and store it so I recommend it as well.
And I've heard many times that there's about three days worth of food in any major city.
If the chain of supply gets interrupted, that in three days the store shelves are going to be empty.
So these are just prudent things.
It's sort of like having fire insurance on your house.
How often does your house burn down?
Most people, if they consider precious metals, they'll talk about getting 10% of their portfolio into precious metals as insurance.
Well, during the bull market of the 70s, precious metals were by far the number one asset class in performance of anything.
Nothing came close to precious metals.
And the Wall Street elite, the status quo, the people that are sort of in charge of the financial system, they really don't want you buying precious metals because it isn't what they sell.
They need to sell things where they're just whipping up digits.
They're creating more stock certificates.
They're They're creating options out of thin air.
They create currency out of thin air.
This is something real and the amount that they can make on it is so much smaller.
When you look at what they sell on mainstream television and so on, what all of the ads are on the financial channels, The financial channels get all of their income, the media is getting all their income from Wall Street, and so they push the status quo items.
I was talking with somebody just the other day, and they were talking about...
How Wall Street never really says, sell.
That this is over-inflated.
You've got to get out of the entire asset class.
It's time to move on.
What they say is that, oh, this is just a buying opportunity.
Things are just retrenching.
Buy and hold.
Because the stocks go up so much in the long term.
But there are these major cycles.
And if you had gotten out of stocks...
For instance, if you sold a single-family median price home...
In 1970 and bought silver, you would have been just eight and a half years later in 1971.
Eight and a half years later when gold and silver peaked in January of 1980.
You would have been able to take that silver and buy 17 homes just like the one that you had sold.
So in that eight and a half years you would have 17 times more true inflation-adjusted wealth.
And so there are these brief periods in history Where what is considered the safest asset class also becomes the asset class with the greatest potential gains in absolute purchasing power, the greatest wealth creators.
I believe we started that cycle in 2000-2001.
And it's just in the mid-cycle correction since 2011, and it's going to go much, much higher than it is right now.
And this is measured in absolute purchasing power, not in dollars.
Yeah, everything that can't be created out of thin air is going to gain value, that has value.
And gold, of course, you can't just...
Central banks can manufacture it using giant robots or computers or anything.
So as the made-up fantasy currency begins to devalue, it is absolutely going to shift its value to whatever is more limited.
To some degree, that may be real estate, but of course, with the demographic winter, that's a challenge as well.
But gold, of course, and silver, other precious metals, and I have also argued for certain electronic currencies like Bitcoin, which can't be created out of nothing either, that whatever is Purchase limited is going to be a pretty good place to put your assets because everything is going to remain priced in general in the fiat currency and if the value of your limited assets is rising relative to fiat currency, your purchasing power is going to remain intact or perhaps even escalate.
That is, I think, a pretty good approach.
I wanted to say thanks so much for your time today.
Also, thank you so much for the Money Masters videos that you put out there that are free.
They are engaging, very well produced, and very educational.
I really strongly urge people, you go to the dentist, you hopefully go for your checkups, you go get your eyes checked, and you really need to It's been 12 languages now?
It's in 11 languages.
11 languages.
So that's fantastic.
And thanks so much for sharing your wisdom.
And hopefully we can save people some time and money in the future because we really are heading for some challenging waters and we are going to need some ballast.
So thanks so much, Mike, for your time today.
Two last things I'd like to say to your audience is, one, nothing will affect your lives more than economics.
So get interested in it and try to learn as much as you can about the current situation that we're in.
Two, 50 years from now, historians will be looking at this period of Keynesian economics and going, what were they thinking?
That's it.
Thank you very much, Stefan.
Thanks, Mike.
Take care.
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