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July 13, 2019 - Freedomain Radio - Stefan Molyneux
58:28
Hoarding Gold, Food and Friendship - Chris Martenson on Freedomain Radio
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Hi everybody, it's Stefan Molyneux from Free Domain Radio.
I'm proud, honored and privileged to have Chris Martinson on the line today.
He obviously is a very prominent, is it fair to say, libertarian thinker?
Would that be a fair approximation of your approach?
No, I don't espouse any particular political views at all and that's quite on purpose.
So it's wherever the data leads without any particular ideological label that would seem to be your approach from what I've seen and read?
That's absolutely correct.
Well, when I was going through your material, the first thing that struck me, there was a phrase that kept popping into my head, which was, Malthusianism postponed.
You obviously know the history of Malthus' prediction that human growth outstripped the capacity of us to feed them, and it seems that that got fairly discredited over the past few hundred years as food supplies have increased rapidly.
But I think that you're saying that there's a bunch of Malthusian factors where we have, you know, extrapolating growth relative to some pretty fixed resources.
And you've categorized this into the three E's.
So before we apply these to more current events, I wonder if you could just give us a brief overview of those.
Well, certainly.
So, you know, Malthus was one of the first people to, in print, note that you can't grow something exponentially forever on a finite planet.
And so one of the things that he was comparing was food production, which was growing rather linearly, and population bases, which were not.
And, you know, he did publish his principal treatise in 1776, I think, is the first edition of that.
Somewhere right, that might be a couple years off, but that's around when it came out.
And so we fast forward a number of years and people often like to say, look, he made a prediction that people would outstrip food supply and that didn't happen, so therefore he was wrong.
And they make up a logical fallacy, which is to then say, therefore, he will always be wrong.
And Malthus had a couple of things going there.
First of all, his ideas are absolutely spot on for any organism that we study in science.
It could be a reindeer on an island or yeast in a vat.
Humans are definitely not yeast.
We're much more clever than that.
And we still are subject to the same conditions as all the rest of nature, which is that If we have food, we will eat and be healthy and reproduce, and if we don't, we will starve and go away, and energy is a proxy for food.
So, here we are in the year 2012, and I would note that we have a couple of things going for us, Malthus didn't have.
One is, we have a lot more data and information and understanding.
Two, we have Google.
We can get a whole lot of data at our fingertips anytime we want.
Three, we really have incredible, rich, detailed data sets that speak to us around the idea that we pretty much know what the resources are that we've got to use.
And there are certain resources, once you use them up, they're gone.
There's really no other way to get them back.
So they're called non-renewable natural resources.
You could spend 10 human lifetimes waiting for them to come back, and they won't, and And it's because they take millions of years, if not tens, sometimes hundreds of millions of years for those resources to be concentrated through natural earth processes into an ore body or deposit or reservoir that we can then go ahead and access as humans to do what we want with.
So, when I look into the Malthus argument, what he really was saying was, you can't grow something infinitely in a finite space.
And there is nothing wrong with that argument.
It's absolutely correct.
It's provable, reprovable.
It has no fallacies in it yet.
It's not yet been evaded or voided or escaped.
And here we are today.
I probably read in the past two days, about three articles all saying peak oil is bunk.
And what they're basing that on is the idea that we've discovered a new way to unlock tight oil reservoirs in these shale plays, specifically the Bakken formation up in mostly around North Dakota.
And yes, we've got some fancy new technology, and yes, we've accessed some more oil in the world.
No, it's not easy oil.
Yes, it's fairly expensive oil.
Does it in any way invalidate the idea that there's only so much oil on the planet?
No.
Does it delay the date at which we'll have to recognize what we'll consider to be a very uncomfortable peak in production?
Yes, absolutely.
But to jump from one One minor finding in a large extrapolated conclusion is really just wrong.
And here's how I can summarize sort of the anti-Malthusian argument.
Because this person was wrong once, because peak oil didn't arrive exactly on the date it was predicted to arrive, because we have this new technology which will delay it for a little while, therefore it will never happen.
It's a big mistake to make.
And I understand how that mindset comes in play because what is being asked to consider the idea that we have limits is to wrap your mind around the idea that the future is going to be really different from the past.
We're going to have to do things vastly differently.
It won't be as easy necessarily.
It'll be a little bit more challenging.
There won't be quite as many resources to go around.
It doesn't mean it all ends next Tuesday, but it does mean that we are going to have to really start to very intelligently deal with the idea of limits.
Right.
Now, you've talked, I think, in particular about the impact in particular economic spheres, the exponential growth in the money supply, which I think the data you gave was that it was 8 to 16 percent a year, which is truly, I mean, it doesn't sound like a huge amount, but of course, when you look at it over time, it's enormous growth.
The first collapse of the global credit binge, the aging population, and a failure to save.
And I think you argue also that the failure to save is really driven by the exponential growth in the money supply.
I wonder if you could break that down a little bit.
Well, certainly.
If you have access to cheap and easy credit, there's really no need to save.
You know, you can just try and balance future cash flows against current borrowing.
And we all do that to some extent with credit cards.
If you want to go out and buy a new TV set, you don't have to have the $500 in your pocket right then.
You put it on credit, you know that you'll be able to pay that $500 off over the next month or two, or however long it takes, out of future income.
So there has to be some relationship between the amount of debt you're taking on and your future income.
So as you started that piece out, you noted that one of my observations is that since 1970, we have doubled the total amount of credit market debt.
Not once, not twice, not three, not four, but five times in the four decades since 1970.
So when I say doubled is if we had $10 billion in credit, we went to $20 billion, and then $40, and then $80, and then $160, and so on.
We're standing at $52 trillion in total credit market debt right now, and it's a pure exponential curve.
You start it out slow, and it just keeps growing at this ever-increasing rate.
of accumulation, and that's because that's how our money system is designed.
It needs this kind of growth, and if it has that kind of growth in the money supply, by which I mean the debt underneath it because all our money is debt.
It's loaned into existence.
If you have that kind of growth, it's happy.
It's perfectly happy.
The 70s, 80s, 90s, 2000s, all of that was reasonably happy.
The data series gets broken in 2008.
That is the first time that the credit markets broke down in a way that they failed to grow in the manner in which they've been growing in each of the prior four decades.
And from 2008 to now, I think anybody listening would agree, things are a little wonky.
They just aren't right.
We don't know what's going on.
They're dumping money into the central banks and governments of the world.
They're dumping money into markets, institutions, big banks, small banks, the stock market, wherever, in an attempt to get everything working again, and it won't work.
And one explanation for that is that our credit markets just aren't working like they used to.
They're not growing like they're supposed to or we expect them to.
And on the other side, we have this really uncomfortably high energy cost sitting here.
We've got $100 a barrel oil minimum.
On the world stage, it's $118.
And there's no examples ever yet of an economy, whether it's a nation state or the whole globe, coming out of a recession with oil over $100 a barrel.
So we're in this really uncomfortable territory where we don't quite understand what the story is.
We're dumping huge amounts of money in.
Yes, there's been minor upticks in the employment figures.
Yes, there seems to be a slight resurgence in manufacturing in America.
Oops, but there's global trade.
Falling off.
Japan's in recession.
Oh no, Greece is in a depression.
It looks like Germany, France are slipping.
We look at all that together and it just doesn't make sense with the old lens which is if we just pull back the money lever and put money in, the economy will rebound and keep going.
And it won't do that.
It seems that all addictions require greater and greater stimulus to produce less and less response.
Think of the classical addiction to cocaine or alcohol or whatever.
You need more and more to produce less and less response.
I was really struck by a data set that you put out which said that in the first 300 years of America, It took 300 years to create or inject the first trillion dollars into the economy and the last time slice to inject a trillion dollars was four and a half months.
That is astounding because the economy has grown but not by anything to that magnitude.
No, no.
I think it's an apt analogy, this whole idea that yes, we are pumping more and more debt, and for anybody who's listening, should really look into how debt and money are really the same thing in our society and our system.
We don't experience it that way, of course, because our money doesn't have any debt associated with it.
It's money.
It's real.
But there is a corresponding amount of debt on the backside of every dollar or euro or yen in circulation.
And so another way to track what you're talking about there is the idea that If we look at how much debt we took on to create a dollar's worth of income, that is GDP growth, back in the 50s it might be around $1.8, maybe $2 of debt to create $1 of GDP growth.
Today that number has slipped all the way to $7 of debt, maybe $8 of debt to create that $1 of GDP growth.
We're just dumping debt in faster, faster, faster to get less and less and less back.
And that slippage that everybody feels and we see in the data, because why isn't it working?
We're putting all this new debt into the economy.
Where's our 8% GDP growth?
It's not happening.
And you talk about these major, I mean you have a great graph on the website about the history of inflation in the U.S.
and I get corrected by this all the time because I slip into the vernacular and say that inflation is rising prices but no, inflation as you point out and other major economists have pointed out is always and forever a monetary phenomenon.
Inflation in prices or increases in prices is an effect of increases in the money supply and you talk about three major inflection points.
I think you could call them 1913 with the Fed, 1933 dropping the convertibility of gold under FDR, 1971 when Nixon slammed shut the gold window dropping international convertibility to gold and these have very very specific rising points in terms of money creation and of course the resulting increases in prices.
For people who are Younger than me, which unfortunately is getting to be a large rather large group of people now They probably don't remember what it was like before the 70s They don't obviously don't remember really what it was like before the the 30s or 1913 What was the huge difference that changed this creation of this monopoly granted bank cartel and what effects did that have on the money supply?
You know, governments have always, and all through time, and current ones not accepted, have always hated being limited in what they can do.
You know, the desire to be able to do whatever you want at any point in time is just a human condition.
And something that happened in 1913, which really helped unlock The whole beast for governments in particular was this idea of central banking, meaning that if you could collect your money supply and your money system into a central bank which had the authority to print up as much money as it wanted at will, you could then be sort of untethered, if you will, from the normal strictures of economics, which up to 1913 had been you either had money, meaning gold or silver, or you didn't.
If you didn't have it, you couldn't spend it.
If you had it, you could.
That's really limiting.
It's very hard to conduct wars under that sort of a scenario.
And so in 1913, the Federal Reserve was created.
We decoupled gold domestically from our money supply in 1933, meaning there was no backing for gold at that point.
It was illegal for citizens to own gold in 1933 forward until the 70s.
And then internationally, we decoupled the United States and the whole rest of the world from any gold settlement standard on August 15, 1971, when Nixon slammed the gold window.
Those were two major inflection points, as you say, where we're first decoupling us internally and then the whole world externally.
It meant that there were no longer any hard limits, gold being a hard limit on how much you could spend.
And once freed from that particular shackle, you know, it was really the only question was, How much could you get other parties to accept your particular brand of debt?
Against this backdrop of this loosened money system, it couldn't happen all by itself.
What was also happening then was we were constantly increasing the amount of energy that was available to us.
We were really starting to exploit oil very heavily right through that whole period.
And, you know, it's not like we used as much oil in 1920 as we do today.
Half of all the oil ever burned has been burned in the last 22 years.
So it's really like this story of we have an exponential money system that's been laid on top of an exponential expansion of goods and services to the Industrial Revolution, which itself is being driven by exponentially increasing amounts of energy.
That's the whole story.
The money system could not have, I don't think you could take the Federal Reserve, drop it back in 1633 and have it work, because we were still tied to a very much a linear, non-energy growth dependent model back then.
It would have broken just like all paper currencies broke back then, very rapidly.
Here we got to hide it a little bit, because we did have tremendous increases in productivity, tremendous technological advances, but all of those came from the energy system.
Not the other way around.
The energy system didn't arise because we suddenly unlocked the secret of money.
Exactly backwards.
And inflation is like what's also backwards.
Like when you say, we experience inflation as rising prices, but that's the symptom.
The cause is not rising prices.
You know, the fact that an apple costs $2 and an orange now costs $2, where they each cost $1 last year, nothing's changed to my utility between an apple and an orange.
They're the same.
Exactly the same this year as last year.
They cost more.
That has nothing to do with apples and oranges.
That has to do with the money.
So the money's losing value.
That's what inflation really is.
It's not goods and services changing.
And in this particular case, talking about the energy and the money systems, we have an enormous, enormous shift coming up because it turns out all the data suggesting that our energy system can't grow in the same way that it has grown for the past hundred years.
We live in that interesting inflection point right now.
Well, I think, you know, to go out on a theoretical limb here, I think an argument could be made that it's not just inflation that is a monetary phenomenon, but in a sense, a huge amount of economic organization is a monetary phenomenon.
So if you look at, you know, why did we become so oil dependent?
Well, a lot of it has to do with the fact that we have, you know, free roads paid for through fiat currency, right?
I mean, the interstate highway system was put in in the 50s and It was paid for through fiat currency.
You couldn't raise everyone's taxes to pay for it right away.
This created a huge infrastructure around burning oil, the wars that are incredibly destructive.
Of course, the military is not usually put front and center as a massive consumer of resources, but not only consumer, but destroyer of resources.
So it seems like a lot of our consumption-based society, even if you discount the fact that you need this constant growth to service the debt, the interest that is generated by previous debt, it seems like the – it's almost like our consumer society, our energy policies, our energy consumption is in many ways driven by the our energy consumption is in many ways driven by the – The currency system, does that make any sense to you?
It does.
It's a very good point to make.
It turns out that each money system you have, and this is a hard concept for us to get our minds around sometimes because we've only ever had one.
How could you have different ones?
But we do have parallel alternative money systems.
Airline miles.
That's a form of currency, right?
I mean, you accumulate them through some mechanism and you get to spend them through some mechanism.
So let's call airline miles one currency system.
Let's call debt-based money, our money system, another.
Every currency system enforces some behaviors, punishes others.
And one of the great things about a debt-based money system is it makes you work hard.
When you are in debt, whether you have student loans, you've got a car loan, or you've got a mortgage, or whatever that form of debt is, there's a really powerful incentive to not go into default around whatever those loans happen to be.
And so this whole ever, you know, how did we expand this rapidly?
What really drove all of this incredible expansion?
It was the money system itself.
It was our debt-based money system.
It's an incredible driver of activity, if you will.
And so this has been, you know, two things have gone hand-in-hand here where we've developed an economic system around debt-based money which itself has been shaped around the idea of how resources come out of the natural world and flow in through our economy and all of that.
It's both together.
You're absolutely right.
And so here we come to a point where if we really understand how that exponentially-based, debt-based economy and money system, how those are fashioned, it's very easy to conclude that they not only need but utterly require to have these resources flowing through them in ever-increasing amounts.
It doesn't sound like much, 3% more a year, 5% more a year, but just at 5% growth, it means that you are going to be having a doubling.
of your overall economy every, what's that, 14 years?
Doubling.
That means if we just grow our economy by 5% for 14 years, it'll be twice as large when we get there.
Twice as many schools, roads, sewer systems, tons of copper produced, homes built, everything you could possibly imagine.
You get twice as much of that in 14 years at 5% growth.
It's an astonishing thing.
And let's talk a little bit about India and China, which I think were the two wild cards looking forward from 20 years ago.
I don't think many people were anticipating that the communist economy of China was going to turn more towards free domestic and international trade, that the socialist policies of India were going to collapse and be replaced by a much greater emphasis on manufacturing and free trade.
Because you said I mean the world population is growing and that has a huge impact but it would seem to me almost that if you don't take into account the degree of economic freedom that that population is experiencing it's hard to calculate because when people have more economic freedom their resource consumption goes up considerably.
Well, everybody wants to join us in our lifestyle, in the Western lifestyle, I mean, and that's perfectly natural.
And it's a case of, you know, where China has 1.3 to somewhere between, yeah, 1.3 and 1.6 billion people.
It's hard to count.
They're a total base of people.
All they have to do is move up just a tiny bit on the overall prosperity scale, and they consume an enormous quantity of resources as a consequence.
And so China is now, hands down, the number one consumer of coal in the world, consuming pretty much half of all the coal that's being mined and burned.
And they got there, as you mentioned, in startlingly short order.
Ten years ago, they were not even remotely on the map in that same sort of league.
And we look at their oil imports, their copper imports.
We look at China going across the world looking for resources everywhere they can.
India, same thing.
They are now scouring the globe looking for critical resources.
And so they've come to the game a little bit late, but they will not be dissuaded by that.
They are going to do everything they can to continue for a variety of political reasons that make sense to them, sociological reasons that make sense, all sorts of reasons.
They are going to be competing with the rest of the world now for resources more on a one-to-one basis, more as equals.
And that's really changed the landscape here enormously for everything from soybeans to tin to anything you can think of.
And that's really an enormous structural change in our overall landscape where the United States has been content to say, you know, we're kind of in the catbird seat here.
We're just going to let markets, you know, operate freely and trust that we'll be able to buy whatever we want off of those markets.
That game has changed where we've already seen nation states nationalize their oil production so that they are now not in the hands of private companies anymore.
They're nationalized.
But we're starting to see nation-states themselves go out and purchase things like land, timber rights, oil concessions, all kinds of things.
So it's a real game-changer that's afoot here.
And it's hard for me to understand how that would be happening if Malthus was entirely wrong, or if the data was entirely wrong.
In fact, there is way more resources than anybody thinks.
Everything I see is consistent with the idea that there is a Fairly large and growing and probably, in the construct of my life, a perpetual demand for resources that's going to be there that's going to really create opportunities for, let's just say, friction.
Yeah, it's one of the things that I have a few tests when I'm going to take someone seriously, and one of them is if an environmentalist complains to me about the environmental degradation, I ask them if they know anything about the money supply, and if they don't, then they haven't really delved into the real cause of it, and that's one of the sort of tests that I have.
Let's take a quick sprint through some current events because, you know, the media keeps your nose right up against it.
The world events, if you don't look at it through the lens of things like, you know, Malthusian money supplies and population growth and so on, it's like trying to look at a Monet painting with your nose touching one of the dots.
All you see is a bunch of blurrers.
So if we pull it back a little bit, how do you see the three E's that you're talking about working their way through things like, and we'll go through a few, but if we can start with the eurozone, the euro crisis?
Well, so Europe really just gets to experience what the United States is going to experience, and also Japan, just a little bit earlier.
And the reason for that is because the taxing authority and the monetary authority are split, meaning individual member states over there have the taxing authority, the monetary authority is lodged over here in this large politicized body called the ECB.
And so because of that slight fracturing of, you know, the hand and the glove are not exactly fully inserted one over the other.
And so because of that, the flaws in the system were able to surface a little bit earlier.
Right now, if Greece had the opportunity and they could just print up whatever they needed in order to cover up their budget shortfalls and the world would accept that, would they do it?
Of course they would do it.
Does anybody get to do that?
Of course, the United States is doing that right now, with the Federal Reserve buying over 91% of the long-dated bonds that have been issued this year.
So in the Eurozone, what we're seeing is this
Four decade long expansion of indebtedness, finally coming to a fever pitch just like it did all across the world in 2008, but for political reasons and mostly, they've been unable to rapidly paper over the situation in such a way as to make it appear less obvious and next thing you know, one thing leads to another and Greece is tumbling down the steps, Portugal's sure to follow, Spain's in really terrible shape and so on.
Against that backdrop, we also have to understand that the North Sea fields tipped over, went past peak.
The UK became a – the fields tipped over in 1998.
The UK became a net energy importer instead of exporter.
I believe that was 2005 now.
And so we look at that, and we look at the rising cost of energy, even though Europe is far less exposed to that than other parts of the world, because they're much more energy efficient per capita, per unit of GDP, however you measure it.
Very efficient.
Even still, you have those rising energy prices and costs as a headwind.
It doesn't blow the engine up, but it certainly provides a stiff headwind against that vehicle as it tries to push forward.
And so you have the huge mountains of debt on one hand, there's this inability to move quickly to paper over the debt problems by just printing for a whole host of reasons, and then you've got this oil headwind and you have what we're calling Europe today.
There's these predicaments, there's these problems, there's a solution every single day, doesn't work, doesn't last very long.
All of this needs to be understood in the context of where we are.
In both the money story and the energy story.
You put those two pieces in there, it all makes perfect sense.
And the prediction is easy enough.
There is no return to normal in that story.
It's just a question of who's going to eat the losses.
That's the battle that's being undertaken right now.
Banks are saying not us.
Taxpayers don't have a little bit more agency over there than they do here in the U.S., but even still, we can see politicians doing everything they can to make sure that austerity is visited upon the people, not the banks, or that taxes are raised upon the people instead of losses on the banks.
It's a titanic battle, and it's an age-old battle.
current period of history in Europe is no different than any other that's been played out before.
There are always – the question is who will eat the losses.
And the thing that I don't think they're really looking at yet in the way they need to there or over here in the U.S. either is the extent to which everything they are planning, trying to do, counting on, thinking about doing, all of it has baked into it the presumption that we will get back to pretty ordinary, all of it has baked into it the presumption that we will get back to pretty ordinary, regular, if not stellar growth soon If the oil story is right, that won't happen.
It means everything that's being planned, plotted, idealized, thought about, hoped for, fingers crossed, it's not going to come to pass.
No, I mean, it's looking at Europe as looking like somebody whose parachute, you know, if they didn't tie it to their backpack, it's floating off in the sky.
And now they're just flapping their wings thinking, hey, this is a good backup plan.
I think we'll be fine now.
Yeah.
Now, what about Iran?
What's going on with Iran?
Which, of course, is you see the dogs of war gathering on the horizon with regards to that.
And I generally assume that it has nothing to do with national defense and something to do with other things that I think are better covered in your topics.
Well, the idea that we're over in Iran because we're worried about its nuclear program, that's really just a story that's there to be consumed by the masses.
It has nothing to do with the real story.
I mean, note that North Korea They developed a nuclear weapon, actually torched one off, I believe, about two years ago now.
And we were concerned, and we made some noises, some very frowny-faced noises about it, but we didn't really do anything, and we're still shipping them rice and oil and all kinds of things.
The reason we didn't care about North Korea, even though arguably they're very belligerent, very hostile to their neighbor to the south, in whom we have a very compelling set of interests and strong ally relationship with South Korea.
Why isn't the world all up in arms about North Korea?
Well, let's be honest about it.
North Korea is sitting on absolutely nothing in terms of natural resources that anybody has any interest in.
Iran, quite arguably, has a reasonable case to be made for saying, you know, seeing what happens over there in Iraq, there was a nation-state that hadn't threatened anybody, was accused of having weapons of mass destruction by the international community, was attacked, pretty violently overthrown, and turned out they didn't have any weapons of mass destruction, which was the Qasas Belli.
So Iran's object lesson in that is, well, I don't look safe unless I can reasonably defend myself.
So Iran is probably, and I would think somewhat rationally, pursuing the idea of developing weapons as a deterrent policy.
And so that's a pretty convenient excuse to say, well, here's why we have to go attack Iran.
But, you know, Pakistan Not the most stable of places.
It's got nuclear weapons.
Israel's got lots and lots of nuclear weapons, of course, and excellent delivery capabilities.
And so the idea that we have to go into Iran to prevent it from getting something that, by the way, exists all over the world.
There's nuclear weapons everywhere these days.
It doesn't really hold water.
What does is when you put a map of Iran up and you take a little, in all the surrounding areas, and you take some flag pins with the U.S.
flag on it, and you start poking those into the surrounding territories around Iran, when you say, where does the U.S.
have an active military presence?
And Iran is completely surrounded.
It is the only state in which we do not have a military presence there.
And it occupies a really critical spot.
A, it's got some very nice oil reserves.
Those would be a nice prize.
But B, most importantly, it sits astride and can control the Strait of Hormuz through which 40% of all the daily seaborne oil flows in tankers.
So there's sort of very strong compelling reasons why we would want to have Iran under the Western thumb as it were and against that we have to look at the idea that China is very very actively seeking all kinds of Energy sources everywhere.
China, was it three years ago now, inked a very large gas deal with Iran.
I think it was 100 billion, one of the largest deals ever inked at the time.
China has a land route that they can walk to Iran.
You know, the United States has to get there by boat or plane.
So it has a very different sort of a strategic advantage, as it were, there.
Of course, you know, Russia It also has a land route there.
So this whole big game that's being played around Iran, really, once you look at it through the energy lens, everything that's going on there makes perfect sense.
The idea of a nuclear weapon, to me, is a cover story at this point in time.
I'm sure some people believe in it wholeheartedly, even the planners and architects of wanting to go in there.
I'm sure there's some very fervent believers in that story.
But the truth of the matter for me is that we are there and we are pressing there because we would, if, you know, just simple Machiavellian politics, if you get to flip a coin and it lands and either the U.S.
has a commanding presence and the Western world has a commanding presence in that region astride the last large known reserves of oil on the entire planet, or China, possibly China-Russia, or some combination thereof, has a compelling interest there.
That's, to me, a story that makes perfect sense, and I understand it through that, and everything is perfectly obvious through that lens.
Right.
And of course, the last time that the Western powers had significant control over those resources was, I guess, through the imperial period, 19th century, early to mid 20th century.
And that only didn't end very badly for the West because there was much less, much more of a limited capacity to strike back at the occupiers, which I think is quite different now.
And it's going to make a big difference in foreign policy and military policy.
Let's turn for a moment and look at domestic U.S.
policy because it seems to me that there's these sort of lines that are being drawn.
There is, of course, massive unfunded liabilities in, I mean, everything that you can't throw a stone in the U.S.
budget without hitting something that is catastrophically underfunded to the tune of trillions of dollars.
I think it seems to me like there's going to be a kind of desperate face-off over the shrinking resources together with, as you talk about, with the aging population and the failure to save, increasing demand for decreasing resources, which is when the veneer of civilization tends to get a little cracked, if not dissolved completely.
Do you think that's going to play out before the next presidential election, or to what effect, if that's a reasonable analysis, to what effect do you think that's going to influence politics over the next year or two?
Right now politics is using the deficit as sort of a hot potato.
You know that the Republicans like to trot it out now because it will be a Democrat on the hot seat, but when the situations were exactly reversed four years ago, you couldn't find Republicans anywhere that would be willing to talk about it and vice versa.
This is not a They're all playing the same game, which is that they really don't want the game to change.
Preservation of the status quo is the name of the game.
There's some minor icing of differences between the two parties, in my view, as to how they approach that.
But ultimately, the bottom line is this.
We've been spending much more than we've been earning for a long time as a nation.
That's at the federal level, that's at state levels, that's at the private levels, household levels, I mean.
And so everybody wants to sort of perpetuate that, and of course we do.
It's a really easy, fun way to live.
Spending more than you earn is just delightful.
That game is drawing to a close.
I don't think it's going to really come to a head in a real sense before the next election.
It might.
But for now, when we look at where treasury interest rates are, and we look at market liquidity, and we look at what the Fed's been able to do with the rest of the world basically yawning or saying, we'll do that too, I don't see the pressures yet that would really cause that to break.
But they will break at some point, whether it's – and I could be completely wrong.
It could happen by next November.
It might happen two years from now.
But at some point, the dynamic will be this.
The Federal Reserve will no longer be able to just print up all the money it wants and buy government debt with it.
The world will start to rebel at that.
And in its rebellion, there are probably around six and a half, maybe seven trillion dollars of U.S.
Money, debt, sitting off of our shores.
So this would be, you know, China holding a couple trillion in treasuries.
This might be UBS holding a bunch of treasuries for client portfolio accounts, whatever.
There's all these treasuries and agency debt obligations that are outside of the U.S.
belonging to foreign entities, whether they be official or private or corporate.
And those entities, if at any point in time they say, we've had it, that's it.
We're all done with holding US obligations.
We don't trust the dollar.
We don't trust the management of it.
And they start to sell those.
It will absolutely be beyond the Federal Reserve's ability to buy those all up and keep interest rates low.
And they won't be able to do that.
And keep the dollar at what I'd call a safe and stable rate.
Pick one.
You either let the interest rates go or you let the dollar go.
There's really no other too many ways to run that.
So once the interest rates start to go, I do believe the Fed will preserve the dollar.
When push comes to shove, it's its only product, and it has a monopoly on it, and it costs it zero to produce, and it has a lot of value.
So my belief is they will defend the dollar first.
In the defense of the dollar, interest rates will have to spike.
In the spiking of the interest rates, we will suddenly discover that interest costs now are mushrooming into the federal budget in an alarming sort of a way.
Also state and local markets.
And sorry to interrupt.
I mean looking at the example of Greece, we can see that the interest rates need to spike considerably, you know, 5%, 6%, 7% or more.
Of course, right now, you could argue they're effectively zero, but I think Greece had to go into double digits to even entice people into short-term purchases of bonds.
Well, if you wanted to – I think the rate I just saw this morning flash by for a Greece one-year paper was over 600 percent.
Okay, triple digits, I hadn't thought of that, but yeah, okay, triple digits it is.
Yes, it's quite an astonishing number.
So yes, but it doesn't take many percentage points, like 6, 7, 8, 9, that's it, and all of a sudden you discover that at that level your interest costs are now eating into all of your revenues that are coming in.
In Japan's case, Japan's been running at 0% for a really long time, effectively, and so if Japan's interest costs suddenly went to 3%, Every single yen that's taken in in tax revenue would be consumed by interest payments.
And that doesn't even take into account the catastrophes that would arise in a heavily indebted consumer culture as well.
Not even.
This is just one strict calculation.
At what point are 100% of your official receipts consumed by your interest payments?
Right?
And so that's a simple math function that we can run, and that dynamic, once it gets started, as Greece showed, you know, they slipped to 7%, and then, you know, they didn't go to 600% on their one-year paper overnight.
It went up from literally close to zero, or, you know, just a few basis points above Germany, and then it went to 4%, and 6, and 8, and 10, and then it was at 20, and 25, and everybody was freaking out at 100%, and then it went to 200, 250, and so on.
Everybody was freaking out at 100 percent.
Then it went to 200, 250 and so on.
So once that dynamic gets started, that's basically when you set the egg timer for basically the political parties, the fiscal policies, all of those things all have to be chucked.
And that's when, you know, austerity basically gets imposed on you by, well, in some cases it's the IMF, in Greece's case it rides in, or the ECB plus the IMF, but in the U.S.' 's case it'll be the bond markets.
Saying, we will not loan to you at anything other than these much, much higher rates.
Now, if you try and print your way to pay me off, I'm going to charge you an even higher rate as we go forward.
There'll be this cat-and-mouse game as we chase each other, as more printing leads to higher interest rates.
You find out that interest rates will always exceed the rate of printing.
And so there's no... So at that point, you just have to go, well, then what do I do?
Then you have to cut expenditures massively.
Well, and raise taxes.
Those are the two things.
Everything you see in Greece, microcosm, Exactly what's going to have to happen.
Well, what does that happen?
Like you said, there will be sets of interested parties out there.
They might be retirees who've diligently worked for 40 years paying into a social security system.
They might be defense contractors.
They might be federal agencies.
They might be creditors of the U.S.
All of these interested parties are going to be looking at this saying, I want mine.
I want my share of that because here's my compelling reason for why I should not be the one to take this hit.
That will be the fight that gets played out, but without knowing who the winners are, we can predict the overall state of things, which is that somebody's going to take some big losses.
There are big hits to standards of living in there.
There are dashed expectations.
That's just how these things work out.
Mathematically, the social and political repercussions are unpredictable.
But again, it's not hard to predict that there will be disappointments baked in there, especially for people who don't see this coming.
And there is, you know, an absolutely awful story that we tried to design.
Let's use as generous a word as we can.
We didn't have it inflicted on us by ignorant people in history.
But let's say we designed a system that we wanted to smooth out some of the extremities of rich and poor.
We wanted to take care of the most vulnerable.
But when these kinds of fights occur, at least my historical reading has been that it's the least politically connected, it's the least politically powerful who tend to get it the worst.
And that is sort of the lower middle class, the very poor the government's kind of frightened of because if you cut the welfare payments you've got a revolution.
The very rich, well, they're very politically connected and they can usually survive anything.
But it's the sort of lower middle class, they tend to get hit really hard because they just don't have the same level of interest to fight the political fight that the poor and the rich do, so it is a way of carving out that great stabilizer in any economic society, which is the middle class.
You carve that out in the Weimar Republic in the 1920s, you eliminated the middle class there, you get some pretty wild oscillations in the political sphere.
It's absolutely a very good observation and it's certainly, I understand, I don't condone it, but I understand why it happens and I'm expecting it to happen again.
In fact, I think it already is happening.
A quick example that came across the wires today, it turns out, so the big banks have all been spanked by the Attorney Generals.
of the various states in cahoots with the Feds to a $40 billion slap on the wrist for all of these foreclosure, let's call them documentation, what's a polite term for this?
Anyway, they were committing fraud and felonious fraud, as far as I'm concerned, by doing these signings.
These robo-signings.
Yeah, forging documents and submitting incompletes.
I mean, just doing stuff that really you shouldn't do.
And sorry, this doesn't even count the complete atomization of ownership is when you bundle all these mortgages and sell them to every Tom, Dick, Harry with a chicken on the planet.
I mean, nobody knows who owns anything anymore.
Right, and so you're supposed to, right?
Before you foreclose on something, you should be pretty sure you own it, right?
And so that was a component of this story.
They were foreclosing on houses they didn't even properly own, and they knew they didn't even properly own.
Instead of going to prison, they got a civil sort of a penalty against them.
And the civil penalty is supposed to be this $40 billion, you know, wow, that we've really taught them a lesson.
But it turns out in the fine print, it just got dug out this morning, that the banks are going to be allowed to use money from the HAMP, the Homeowners Assistance Modification Program, to cover that.
Don't make me cry right here on air.
And do you know who's paying that?
Do you know where those monies come from?
Taxpayers!
Right, taxpayers who probably aren't even born, and people have this weird belief that if you tax a corporation, somehow you're hitting the personal finances of the people in charge.
But that's the whole point of the corporation, is you take money out, and if the corporation gets hit with a fine, you don't have to put any money back in.
It just comes out of general revenues, comes out of your customers, you get increased fees on your depositors.
Anyway, that's something that gives me a close to an aneurysm in terms of the injustice of it, but it's sort of to be expected.
Well, again, in Microcosm, although this is a pretty big story, it illustrates exactly what you're talking about, which is that here we have a case where these very large, very well-connected banks that do a lot of political lobbying and they've got super PAC money that goes in and all of that, and they're very well-connected and rich.
And so they got caught with stuff that really, honestly, people should be going to prison for.
Thousands of people.
Literally should be going to prison.
The whole company should be shut down as criminal fraud operations.
They could be tagged with the RICO statutes, I think, in some cases.
But they're not.
And what's happening there is that they are going to get away with all of that, with no criminal charges being filed, and having the taxpayer pick up the bill.
Which taxpayers?
Well, you know, that taxpayer money, because it's going to flow to the banks, won't flow to other things.
And as you know, when Pennies get pinched and things get tight.
It's astonishing to see what Congress actually turns its attention on.
They'll carve $30 million out of a park budget.
They'll take a little money from school lunch programs.
They'll shave a little bit off of a fuel assistance program.
But it's just chump change compared to where the big money is, and they won't go after the big money.
Oh, yeah.
The bank execs must watch The Sopranos and just mutter, "amateurs." They're just not in the same league.
All right.
So now that we've – if you could just take a few more minutes.
Now that we've slowly lowered the elephant of despair upon everyone's chest, perhaps we can jack it up a little bit and talk about strategies that people can have to batten down the hatches, to protect core acids.
I don't think it's really easy to become wealthy during these kinds of transitions.
I think people are mostly happy with not losing core values.
And I know that when we met in Phoenix for Doug Casey's conference, you had some very compelling things to say about defensive strategies to keep your capital safe during these transitions.
I wonder if you could dip into those a little.
He who loses least wins the most in this story.
This is a primary structural bear market.
Its job is to take as much money from as many people as possible.
Bear markets are incredibly good at what they do.
By definition, that is what they do.
And history tells us that that doesn't have to be the case.
So I'm a big believer in large trends.
And these are trends that I don't wish them upon us.
I'm not glad they're happening.
But if you're in the middle of an avalanche, it's best to be aware of the fact that you're in an avalanche.
There are things you can do.
Right?
Let's make sure when it stops moving that we're on top of the pile, not 20 feet down.
And so this is sort of an avalanche is a pretty apt metaphor.
I believe in swimming very aggressively in these turbulent times.
And the number one thing that I believe in as a big trend is that when faced with the predicament of either going down a deflationary black hole that destroys political careers, institutions, banking systems, social contracts, everything, or risking inflation.
That we're going to risk inflation.
That is, central banks are going to print.
In the past three years, they have not disappointed me.
I was predicting this years ago.
Crisis hit.
Everything they've done to expand balance sheets and do all this printing, absolutely in accordance with my expectations.
Within the context of that, the first thing that we have to understand as a major trend is that there is an extraordinary risk, not just to the dollar as a currency, but to virtually every currency as a consequence of what's happening right now.
And so the only way to play that game is to not play and get out of those currencies.
So I'm a huge believer if you've got paper wealth, whether that's dollars themselves or euros again, the actual physical currencies, or whether you've got money market funds or you've got stocks or you've got bonds, to take a chunk of that off, and for me it was a big chunk, and put it into gold and silver to a lesser extent as a means of Just taking money, and it's like taking your chips when you're at the poker table, you know, and you decide you want to go get a drink or something.
Just take those chips off the table for the moment.
That's what gold represents.
It's taking our money out of that game.
I love gold because it is a monetary asset.
Central banks hold it as a monetary asset.
You can use it like money in every country on the face of the globe.
It's been that way for 6,000 years, and it's the only monetary asset I know about that isn't simultaneously somebody else's liability.
That gives it huge value.
Okay, so you've taken some of your net assets off and put it into gold.
20% is my number.
I'm personally sitting at a much higher number than that.
It's about 75%.
Has been for a number of years.
I'm pretty comfortable with that allocation for me right now.
It's not a recommendation.
I'm just giving you a sense of where I'm coming from.
And then the remaining balance for me is in real estate, meaning it's in my homestead.
It's in my homestead in the form of energy improvements, solar systems, different things I've done around here that will make me more resilient to rising energy and food costs in particular, and a number of other things that I think will potentially transpire as we go forward.
I'm also very interested, as we look forward into this next period, of starting to own other real estate assets which have energy baked into them as a story.
Now, if I lived in Oklahoma, you bet I'd be exploring how I got mineral rights to what was 6,000 feet under my feet.
But I live in New England, and we don't have that option, so I'm eyeing the trees that are growing around me, understanding that in the late 1800s there weren't any trees here, because we hadn't really started to use oil Yet, most of our heating here came from wood, so there wasn't any woods around here.
All the trees I see around me are an expression of oil having come along and heated people's homes all these years.
So I look at, this is more like value investing, but here I'm looking at the value of real, tangible things I can understand, principally in resources, because that's an enormous trend that I have great confidence in two things.
There's going to be more people next year than this year.
And those people are going to want to eat and stay warm and have shelter and some basics.
So the basics are, I think, a really good play.
I don't know what we're going to be using as money in the future.
It might be dollars for the rest of my life.
Maybe it'll be that plus something else.
Maybe it'll be gold.
I have no idea.
But I know whatever we're using, people are going to want to keep their houses warm, and I know that trees represent, in my region of the world, a source of heat for people, and therefore, whatever we're using for payment, these will have value in that system.
So I really do believe that one of the things that everybody needs to be aware of, those are the basic things, like, okay, there are these big trends, you know, they're going to print a lot of dollars, and we're going to have this long-term structural sort of energy crisis going forward in terms of slowly rising prices over time, or maybe even rapidly rising prices for periods of time.
That's sort of the long trend that I think we can count on happening.
The thing that I'm less clear about is what might happen if we suddenly faced a sudden crisis of sorts.
So in 2008, we came this close, I'm holding my fingers really close together, this close to a major banking failure.
It was going to come to us out of the UK.
Courtesy of the UK, but it was going to spread rapidly across the entire banking infrastructure.
If banking gets shut down, for whatever sets of reasons, for a period of time, because it's all globally interconnected, unknowable, unpredictable consequences will happen and erupt across our supply chains.
Because, you know, it's all very interconnected, and if you don't have a bank supplying a letter of credit, the ship doesn't leave port, and if the ship doesn't make it over there in time, that manufacturing line gets shut down, and if that happens, you know, so on and so forth.
If the banking system suffers some sort of a catastrophe, whether it's for a couple of weeks or a couple of months, I would predict that we would have fairly unpredictable, fairly interesting disruptions that would occur in all kinds of supply chains as a consequence of that.
Well, I'm sorry, just to point that out.
I mean, I think you're putting it very delicately.
This would be a crisis for cities in particular.
Because, I mean, cities are massive consumers.
Obviously, it's a massive conveyor belt of food going into a city.
Very little food is grown in a city.
And without food, cities are completely unsustainable.
And, you know, we saw this at the end of the Roman Empire.
You went from a million people in Rome to 17,000 in a couple of years.
Again, I know that's a very extreme way of putting it, and there's lots of people who would do lots to avoid that, and a massive amount of grey or black market opportunities would erupt from that, but I think the interruptions in the food supply, the food chain to cities, I think would be the most extreme results of that.
That absolutely would be one thing we might worry about.
If there's a disruption to the food delivery network, every community is exposed.
Cities, you know, a bit more than most.
I think the average city has about three days of food on hand.
Your average community has in the vicinity of five.
Farming communities might have 20 years in their silos.
Yeah, for most communities it's just a few days, and so I do recommend that, and this is something I've done myself, I never recommend anything I haven't done myself, that everybody store some food and have some food stored.
Particularly if you live in a place with natural disasters anyway, like earthquakes or hurricanes, you should be doing this anyway, and most people don't.
I think 3% of the people in California have any sort of earthquake preparedness supplies.
And you can't lose because the price of food is going to go up either way.
So you're either buying cheaper food in the future or you're buying emergency stores for interruptions.
You can't lose that way.
So yeah, I've done the same thing.
You can't lose.
And worst comes to worst, you know, near its expiration date, you donate it and you get a nice tax write-off and you feel good.
So however you want to work that.
But the barrier for most people is not the act of saving money or doing something prudent.
It's that it's a little uncomfortable to think about this kind of stuff and my neighbor isn't doing it.
So there's no good, compelling, prudent, risk-adjusted, adult-sized reason why you wouldn't do these sorts of things.
There's just sort of that squishy, uncomfortable feeling that might lead us not to.
But I think everybody ought to have some food stored and ought to be thinking about, you know, if you have opportunities where you live, If the next thing you plant could either be a holly bush, which has no food characteristics, or a peach tree, go for the peach tree.
There are simple things we can do in our daily lives, which personally I find fun and enjoyable.
You talked about lifting that elephant up, jacking it back up a little bit.
I actually really enjoy All of the steps I've taken towards personal resilience, whether it's taking command of my finances or my physical infrastructure around food and fuel and all those other things, or whether it's even the emotional resilience that I've obtained by going out into my community and getting to know people better and learning how to manage stress and do other things that I think I would, now that I've undertaken them, I would do them even if the future was so bright I had to wear, you know,
double dark shades to peer at it.
There are really, really compelling reasons to sit up, look around, see what the trends are, and start taking actions to step into a future that's probably going to be very different than the one in the past and has some major risks sort of embedded along it, that if those get triggered, could be highly disruptive and start taking actions to step into a future that's probably going to be very different than the one in the past and has some major risks sort of embedded along it, that if those get triggered, could be
That's where I'm trying to get to, to be that person where happy and all that.
Yeah, I mean, I've really aimed to... I mean, it's a two-pronged strategy.
One is to aim for more self-sufficiency, and the second is to convert as much fiat currency into stuff.
You know, because the stuff isn't... they can't print your house out of existence, but they sure can print your savings out of existence.
And so the more that people can convert this monopoly money into tangible stuff, I think the better off they'll be in the long run because the value of that is going to increase relative to the fiat currency anyway.
And, yes, I think some steps towards self-sufficiency, we don't necessarily all want to go live in the woods in Montana, but some steps towards it I think will pay off in dividends.
Oh, absolutely.
And, you know, right now your bank account is earning 0%.
So any fiat currency you have stored there is getting 0.
And Bernanke has already told us that he's targeting 2% inflation rate.
Trust me, he'll miss that target to the upside a little bit.
But even taking him at his word, he's saying that in 35 years he wants to take your savings and cut them in half.
That's what a 2% rate of inflation means.
So if he gives you 0% to hold your money in a bank and then guarantees you 2% inflation out in the real world, you're going to see your savings erode by half in 35 years.
But if he gets the 4-5% I think he's going to get, he's going to be cutting your savings in half in 14 years.
So imagine if the government suddenly came forward and said, you know, we have a program in place where for all the holdings that anybody currently has in dollars right now, we're going to tax half of that, but we're going to spread it out over 14 years.
People would go insane, you know, and rightly so.
But when the Federal Reserve official comes out and says, yeah, we're targeting, you know, 2 to 5 percent inflation, that's fine.
Everybody kind of goes, what?
What did he say?
I don't know.
You know, it's confusing.
Inflation is such a subtly sadistic tax.
A tax is like some eagle pecking at your head and you can duck and do something about it.
But inflation for most people is some god-awful intestinal parasite.
It's like, oh, I just feel bad.
I don't know what's going on.
I don't know what's happening, but I'm gassy as hell.
Anyway, perhaps on that metaphor, we can wrap things up.
I really wanted to point out and to compliment you on your website.
There's a wonderful treasure trove of free information that I want to really compliment you on your generosity at chrismartinson.com.
I'll put this on the video.
Do you have – I mean you have great books out there.
Do you have speaking engagements that you'd like to mention or any other projects that you'd like to mention for my listeners?
Well, certainly, you know, the Crash Course is the seminal offering I have.
It's available in video form at my website, which is chrismartinson.com, and you'll have the link there, but it's m-a-r-t-e-n-s-o-n dot com for anybody who's listening there.
And I have a book called The Crash Course, which is doing actually quite well, and it's got much of the same material in the video.
form, but updated, and some people prefer to read instead of watch, so that's useful as well.
And then on the website, we have a series called the What Should I Do series, which is a lot of content, mostly generated by users, that talks about everything from beekeeping, to water filtration, to protecting your homes, you know, written by a police sergeant, and so on, which is very practical, sort of bottom of Maslow's hierarchy of needs, you know, bottom of the pyramid kind of stuff, good stuff.
And very practical how to and how to get started links and ideas and all that.
And then we have a nice community there and what's fun for people when they come see what's going on there is they discover a that they're not alone with with these thoughts they're having and be that the other people who are are really looking at how different the future might be.
By and large, very ordinary to very successful is how I'd sort of characterize them.
We've got a lot of doctors and lawyers and people who are comfortable with numbers, engineers, a heavy population of those.
And then we've got just a number of people who've come at this information through other means, potentially, you know, noting.
What's been going on in the world environmentally, or politically, or sociologically, or just they've been paying attention, or they had a class they took in the 60s, whatever other mechanism, has led them to this uncomfortable sensation that we're on an unsustainable course and they know it.
And it's fun to get all those people together at the website and realize that we're not alone, we're not crazy, and there's a lot of things we can do about this with joy, with purpose, all this good stuff that makes us feel like humans.
Well, again, thank you so much for your time.
It was a very enjoyable conversation.
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