Economic Storms are Gathering | Peter Schiff | EP 353
should accept yourself just the way you are what does that say about who I should become is that just now off the table because I'm already good enough in every way so am I done or something get the hell up get your act together adopt some responsibility put your life together develop a vision unfold all those manifold possibilities that lurk within be a force for good in the world and that'll be the adventure of your life [Music] prices go up all the time because the government is so involved that's why it keeps getting more expensive and the quality goes down the quality of Education I mean a high school degree you know 50 years ago is is way more valuable than a college degree today even a master's degree the governments have destroyed the value of degrees while dramatically increasing the price to to get one so government drives quality down and price up the free market does the reverse government let's say the post office right post office was a problem and so then FedEx came along right and okay we can avoid the post office or more recently uh governments create monopolies in taxi cabs well Uber comes along Lyft comes along and and creates some competition to these government monopolies so the same thing is going to happen with money government money is is so bad and it's going to get worse that the market is going to offer Alternatives yes the government is going to try to put up roadblocks to protect its Monopoly but ultimately it won't work [Music] hello everyone I am speaking today with Peter Schiff The Economist and stock broker who successfully predicted the 2008 housing crisis today we will discuss the current market hyperinflation fiat currency and the value of gold in times of instability looking forward to the conversation so thank you very much for talking to me today and to everyone who's watching and listening thank you for your time and attention that's much appreciated so the first thing I guess I might ask is what do you think it is that the typical person who's watching or listening should know on the financial front practically for their own protection and and incremental wisdom that they don't know I mean people are aren't taught even the basics of how to think financially in our education system and so maybe you could walk through what you regard as the as the basics of fun of financial literacy on the Practical front uh well there's a lot there but I think the the most pertinent thing that people need to understand before they make any Investments really particularly now is inflation and the impact that inflation is going to have on the decisions that they make on their savings and their investment because inflation is probably a bigger threat now than it's ever been and therefore it's a even bigger Factor in determining everything that we do and ultimately uh what the rewards are going to be or the returns from your Investments and and the reason I think that inflation is a bigger problem now then it's it's been in the past is because of the fiscal predicament that most of the major governments have you know put themselves in and the fact that all politicians unfortunately and this is a a fatal flaw in democracy is that politicians first and foremost care about themselves and their own political career and their own re-election that's what they do for a living they are career politicians and so you know like anybody else you know they're they're they're you know concerned about perpetuating their career and most people who are in politics they really enjoy it I mean they they like all the perks that come with it uh you know you get a lot of uh you know respect if you're you know United States or Congressman you're a senator uh you know it it's it's a it's a career that a lot of people would aspire to and once you get there you know once you get to Washington and I'm sure this is true and you know every you know country in Europe and all around the world that you know you like it right you like the lifestyle you like The Prestige that comes with being a government official so you want to stay there right well how do you stay in office well you got to keep getting elected you know in the United States you know we get elections every two years right so politicians are are very concerned about you know the polls and they're constantly got their finger in the air seeing where the winds are blowing and they don't want to say anything or do anything that might jeopardize their re-election and of course one of the most important things that you need to get reelected is you need a lot of money you need to spend money on advertising on television which is expensive and so you tend to cater to donors um whether it's a corporation or a a you know a union anyone that can provide a lot of money uh you need to do things that are in their interest and so what is usually sacrificed by these politicians is the national interest doing what's right for the country is secondary to doing what's right for themselves and also in order to be as successful as a politician you have to be a really good liar and that's probably why a lot of lawyers go into politics because lawyers you know they're paid to lie I mean you have to argue your client's case even if you know they're wrong right and you have to put on a defense or whatever it is and and so lawyers are generally pretty good liars and so they they they they be they become politicians because if you're honest and you tell the truth you're not going to have a career in politics you're you're just not gonna even if you manage to get elected telling the truth you're not going to stay in office telling the truth so you got to lie so here's the situation so you've had Decades of politicians buying their re-election by promising voters something for nothing because unfortunately that's what a lot of Voters want they want something from the government so if you're running for office like I ran for office in in 2010 I was in Connecticut uh but you know all I promised was more freedom I'm going to leave you alone I'm going to repeal government laws regulations I'm gonna I'm Gonna Leave You free to do what you want and I'm not going to interfere with you some people like that message but a lot of people that's not what they want they don't want to be free they want to be taken care of they want to know what are you going to give me what stuff am I going to get if I vote for you right what free stuff and so yeah well that's attractive in the short term especially if you're not paying attention right and lots people don't pay that much attention to political discounts and so if you offer something tangible and immediate that's grip short-term attention and that can be an effective strategy yeah and if you and so it's this proclivity to gift in this manner that to the drives inflation do you want to define inflation yeah I will decide I know exactly what we're talking about yeah yeah I will I'm getting there but and it's even worse when it comes to trying to take away something like if you want to cut a program spending that's even worse because once a voter has something nobody wants to take it away in fact even some of the politicians let's say Republicans United States that might have opposed certain government welfare type programs you know when they started once they're in place even those people won't vote to take them away that's how how a danger it is so the situation is you've had all these politicians who have promised so much stuff that the taxpayers can't deliver and of course when politicians want to give voters something they don't want them to pay for it so they want to spend money but they don't want to raise taxes because governments don't have any money they only have the money they take they have to take money from the people in order to give money back to the people and and so if the government's taking your money that you don't like so with paper money which unfortunately we have now fiat currency where the governments don't need gold real money they could just create paper money out of thin air right they could just manufacture it digitally and there it is that enables governments to spend without collecting taxes they run these large deficits and they're able to print the difference and hand out that money so they can give people money without also taking the money away and now they don't mind taking money away from rich people because you know there's not as many of those right so they don't lose as many votes although certain rich people can donate a lot to their campaigns which often you know prevents the taxes from from getting too high but inflation I asked for the definition inflation is really just another tax because governments create inflation and inflation is also probably one of the most misunderstood words in the English language and deliberately so I think governments around the world kind of led the campaign to redefine inflation so if you go back to the origin of the word and if you if you have a dictionary even from the 1980s a Webster's dictionary you'll get the real definition of inflation so inflation is an expansion of the money supply that's all it is deflation is a contraction of the money supply so if you even think about the word inflate inflate is to expand like a balloon if you if you fill a balloon with air it expands so with inflation what's being expanded is the money supply and who expands the money supply governments you know or they they do it generally now through a central bank but it's the central banks of these governments that are expanding the money supply now when you expand the money supply you have more money well if you have more money but you don't have more stuff to buy well the price of everything goes up that's just basic economic supply and demand the more money there is the less each individual monetary unit is worth and now prices go up now what governments have done is they've said price is going up that's inflation no it's not that is the consequence of inflation because prices don't expand prices go up and down as a result of inflation now what happens is sometimes prices don't go up but you still have inflation and that's because without that inflation prices would have gone down and if prices don't go down because government creates inflation that still represents a loss to the people because they lost the benefit of lower prices because in capitalism the tendency of capitalism is to reduce prices that's why it's so good because you keep coming up with better ways of producing more efficient ways economies of scale if you look at the CPI for example in the United States in in 1800 and then you look at the same CPI in 1900 and they have the data prices were cut in half you had a hundred year period where you had deflation or you know the money or prices falling for 100 years uh and that was a good thing you know all the politicians now tell us that we need prices to go up that we must have inflation you know the way they Define it of two percent a year why why do prices have to go up every year why can't they go down every year isn't that better if stuff gets cheaper you know if the cost of living goes down of course it is but these politicians are trying to sell this lie to the public that Rising prices are somehow necessary for Prosperity that if prices don't go up okay so let me sum up let me sum up what you've said so the first thing you said that I think is worthy of note for people to remember is that the price of something is a function of the ratio of the money available to the goods available and so if you make money twice as available then things cost twice as much and that's and then you Defined inflation you Defined inflation in that regard you said inflation isn't prices going up inflation is the value of money going down and so it isn't because things are becoming more expensive it's because there's more money chasing the same amount or fewer items now you could imagine an inflation in a particular sector that would emerge because that thing has become more scarce but General inflation is a reflection of the inflation of the money supply right then you said well here's here's the let me just finish the summary you said there's drivers of that inflation of the money supply and the basic driver is that because we have a fiat currency that isn't paid to something um permanent let's say like gold and because politicians can create money by printing it they're incentivized to do so because they can offer people who aren't paying much attention cheap gifts for nothing and the fastest way to pay for that because they don't want to raise taxes is to increase the money supply and then you might say and this is where we could bring this home to land is well what's so bad about that is that we defer our expenses into the future people get more free stuff from the government there's a bit of a tax that's the inflation tax let's say but all in all the system works pretty well but you started this whole discussion by saying the biggest threat to the financial Integrity of people individuals over the long run is inflation and so why does that pose the Cardinal danger to long-term Financial Security and prosperity for people yeah well first of all it's not it's not working well that that is the problem it it worked much better when we had honest money when we were on a gold standard uh if governments wanted to spend money they needed gold and where did they get it they had to collect taxes because they couldn't create the gold it needed to be mined and and so it was an honest system um and it it was discipline on politicians now the politicians don't want to be disciplined any more than you know teenagers want to chaperone at the prom right so you know they want to they want to do a lot of stuff that The Chaperone won't allow and so gold uh was keeping politicians in check but to your point about individual prices you can't confuse prices individually will go up and down based on the supply and demand but if the price of one thing goes up it's going to necessitate the price of something else to go down uh and so the general level of prices won't change uh it's only when you have the expansion of the money supply that the price of everything goes up because the value of money is going down and so now you need more money to to buy stuff but the problem now is because these governments have run such enormous deficits uh and it you know inflated you know the housing bubble that popped in 2008 the US and then uh a decade or more of massive deficit spent ending quantitative easing programs and by the way quantitative easing is inflation they basically get you know taken inflation and put a nice sounding name to it because quantitative easing is printing money and buying government bonds that that's inflation but if the politicians said our policy is inflation you know the public doesn't like that so they said no we're doing quantitative easing and somehow that sounds you know more palatable than inflation but they've created so much and and for years and years these Central Bankers were telling us that inflation is too low we don't have enough inflation because it's not two percent and again we don't need prices to go up you know and the reason they say that price prices have to go up is they claim that we won't buy stuff that if we think prices are going to go down we'll just hold off on buying indefinitely waiting for a cheaper price and the economy is going to collapse and that's a bunch of BS because you buy things when you need them and when you can afford them I mean if if that was true nobody would own a cell phone nobody would own a laptop computer nobody would have a television that because all those things get cheaper every year yet we keep buying them so it's nonsense that we won't buy if price is going down in fact price is going down create demand if you can't afford something the way to have to buy it is for the price to go down and then you can afford it and then you buy it but they've created so much inflation when they said it was too low that now it's exploded right you've got double-digit inflation or high single digit inflation pretty much in all the invest economies in the world and no government anywhere in the world is willing to actually do what it takes to reduce inflation because a they have to accept responsibility for creating it and then B they have to significantly reduce government spending and or raise taxes on on middle class uh voters and neither of those choices are politically expedient and so politicians now are under more pressure than ever to continue to finance their spending through inflation so the inflation tax is going to get bigger and bigger and bigger uh every year and the reason that that's such a problem is it's really the worst possible tax because it impacts the people the most who can afford it the least it's the middle class the Working Poor uh and the retirees who are living off of fixed income uh they end up paying the inflation tax the most uh they have some savings they have a pension they have an annuity a cash value and insurance policies all this stuff gets uh destroyed wealthier people who tend to own assets and who have more good debt right bad debt is Consumer Debt you go out and you borrow money and you spend it you buy a consumer good you buy a TV with your credit card and that's bad debt or you take a vacation and you pay for it on a credit card but if you buy an asset particularly an income producing asset a piece of property uh if you a business a comp stock if you borrow money and you buy an asset and that asset is appreciating and generating income inflation is your friend inflation helps you out because it wipes out the value of your debt and you still have the asset so wealthy people very wealthy people if they invest the right way will benefit from inflation whereas Ordinary People are going to get hurt have you ever read the fine print that appears when you start browsing in incognito mode it says that your activity might still be visible to your employer your school or your internet service provider to actually stop people from monitoring your online activity you need expressvpn think about all the times you've used Wi-Fi at a coffee shop hotel or even a friend's house without expressvpn every site you visit can be logged by the Admin of that Network that's still true even when you're in incognito mode it expressvpn is an app that encrypts all of your network data and reroutes it through a network of secure servers so that your private online activity stays private expressvpn works on all your devices and is super easy to use the app has one button you tap it to connect and your browsing activity is secure stop letting strangers invade your online privacy by visiting expressvpn.com Jordan that's expresvpn.com Jordan and get three extra months free expressvpn.com Jordan [Music] so inflation is particularly hard on non-entrepreneurial savers so people who've put put away a certain store of value maybe that's in a pension who aren't invested in some active Enterprise that could be generating Revenue it just devastates them and if it's four percent a year they lose what what does that mean they lose half the value of their investment in like four percent a year would be something like 10 years yeah and so unfortunately it's going to be a lot higher than than four percent yeah let's talk about that for a second so two things two questions about that that are that come along with what you've already laid out the first question is how is the inflation rate calculated that's mysterious right because yeah that's it Consumer Price Index that's another big part of the fraud because certainly in America and I know a lot more about the U.S CPI let's say than I do
about cpis in other countries but my assumption is that you know the politicians are being dishonest everywhere because you know the inflation rate it's like a report card and if our kids were responsible for grading their own report cards it wouldn't be as shocker if they came home with all A's right so that this is the problem that we've hired the government to grade its own you know is its own Pro success you know in the economy because High inflation would would be would be bad um so the government again when they're measuring inflation and they're looking at prices they're looking at an effect they're not looking at the thing itself but over the years governments have changed the methodology for measuring price increases so the CPI that we use today is nothing like the one that we use say in the 1970s yeah that's exactly what I want to focus on because so the CPI for everyone listing that's the Consumer Price Index and it's in principle please correct me if I've got any of this wrong it's the average cost of something like a standard basket of goods that's what a question then is which Goods yeah okay so let's go into that it used to be there was the basket didn't change they picked a basket and they just measured the same basket year after year and so you could see the changes now the basket changes the politicians decide what to put in the basket and when to take out and generally they take out stuff that's gone up and they put in stuff that hasn't gone up as much there's all this substitution there's a lot of other indexes that they use where they have hedonics or it is CPI there's hedonics and so what hedonics is is the statisticians who compute the CPI they look at a product and they don't use the actual price they subjectively decide if they think that product got better and if they think it got better they adjust the price down now maybe it did get better and a lot of times stuff gets worse and they don't they don't adjust for that um like let's say they're looking at airline prices and they just look at the ticket price and they say wait a minute but you're charged extra for luggage you're charged extra for a blanket you're charged extra for food oh you know they just look at the price you know a lot of quality has gone down and a lot of things that hasn't been captured and you know I did this exercise I did this a long time ago in 2013 and I made a YouTube video about it but I just did this for kicks I looked at the CPI in 2013. and according to the CPI over the prior 10 years um the the price of newspapers and magazines had gone up about 30 percent according to the CPI in 2013 magazines and newspapers were 30 percent more expensive than they were in 2003. well I decided to check because it's easy to do you know you could just go on the internet and you could see a picture of those magazines because they put the price right on the cover so I took about 20 I took like 20 of the most circulated newspapers and magazines in the country and I just looked at what the price was in 2003 and then I took the exact same magazines and I looked at the price on the cover and I just compared it over the the 10 years and what I found was that the actual increase in price wasn't 30 it was a hundred and thirty percent so the question is where did that extra 100 go because you know that those are the prices so obviously the CPI is rigged in such a way as to have a a number it's not that people lie when they calculate like they get a certain number and they say oh no that's too high the methodology that is used has been engineered to mask the real degree to which prices are rising you also pointed to something else that's a fundamental flaw if your reasoning is correct which is that if inflation is best construed as ratio of money to Goods merely calculating inflation as a consequence of price increase doesn't capture the essential element of the inflation because that's a huge problem too because let's say prices should have gone down by three percent and instead they go up by two percent that's five percent inflation in that my cost of living is five percent higher than it would have been um had you not had the inflation and again if you think about inflation as a tax when the government taxes you legitimately let's say through a sales tax or an income tax whatever the government takes your money money that you had goes to the government and then the government takes that money and gives it to somebody else right you lose your money but when they tax you through inflation they don't take any of your money you get to keep your money but they print new money and they give that money to somebody else now when that's somebody else spends that money that he didn't earn it drives up your prices so now you pay more so the government didn't take your money they took your purchasing power so it's the same thing and you know another thing about our CPI that they how they changed is Once Upon a Time back in the 70s housing prices were in the CPI and and so were rents and and that's about a third of the CPI which is shelter but somewhere along the way they decided to use something called owner's equivalent rent instead of actual rent or actual home prices now what is owner's equivalent rent well it's a fiction that they made up that nobody actually pays apparently uh the government calls people at random and asks them if they own their home how much do they think they could rent it for if they were to rent it and they keep track of those numbers now I don't know like you know who they're asking I mean I've owned homes for a long time I've never gotten a call from a government guy wanting to know what I think I could rent my house for but if you're not a landlord and you're not in the rental market how the hell do you know what you could rent in your house for it's such a ridiculous way to try to measure the cost of Shelter by using a number okay so let me okay so let me ask you a question about that because I've really been curious about that because it's obvious the K the case in Canada in particular like housing and rent prices have skyrocketed in the last eight years and that's not reflected in the inflation statistics and that seems to be a major oversight at least according to one line of argumentation because that's one-third of what people spend their money on now you could argue this is where it gets complicated as far as I can tell that if what you've bought is an asset that generates income and its value goes up that's actually not a cost to you it's an advantage you already made reference well only if you if you own the asset yes if you own it if you want to buy it and the price has gone up it's a disadvantage right because now the assets that you want to buy are more more costly right so does that imply that a proper CPI that would include the cost of shelter would be calculated on the basis of those who want to buy rather than those who already own yeah because I'm trying to figure out how to measure inflation properly here right you're very complicated problem if you already own a home then the cost of buying another one is not as important to you of course a lot of people that own homes they may want to buy bigger homes as their families grow and and so it would be but for those people what's important are uh your maintenance costs your insurance costs your property taxes uh there are a lot of other factors that would be significant to you if you don't own if you're a renter then obviously rent is of primary importance to you you're you're paying rent there's all sorts of valid ways that the government could measure shelter as a component of the cost of living but in the United States they don't choose any of those valid ways they choose another way and they're doing that because they want the number to be lower they don't want to report High inflation and they even do this as part of the GNP because when they deport report GDP they don't even do GNP anymore it's GDP now that they report gross domestic product in order to get the number they have to deflate it every there's a deflator which adjusts the GDP for prices and the government always underestimates that deflator so the GDP looks bigger than it really is because in many cases economies are actually Contracting in real terms but because the government is dishonest in the way it reports it it reports economic growth even though there is no real growth it's inflation which creates the illusion of growth that's another reason that politicians like inflation and of course when inflation drives up the stock market and the real estate market people think they're richer right because oh my house has gone way up my stock but it hasn't gone up your money has gone down right but people don't necessarily connect those dots uh you know they they think they're they think they're wealthier but also if you think about as I said earlier inflation benefits debtors it's a transfer of wealth from creditors to debtors who are the biggest debtors in the world governments and the biggest most highly indebted government is the United States government we have 32 trillion dollars of funded debt almost and our unfunded liabilities commitments that have been made where they didn't borrow the money but they're on the hook like guaranteed student loans or a guaranteed pensions Social Security Medicare all that stuff that's like a hundred trillion so when the government creates inflation they repudiate enormous amounts of their debt and so the governments have massive incentives to create inflation but then they have massive incentives to lie about it and pretend it's not as bad as it is and blame other people which is the main reason that they redefine inflation from the expansion of the money supply to Rising prices because when you know inflation is an expansion of the money supply then you know who causes it it's the government you can't blame greedy corporations for it you can't blame Putin for it Putin doesn't print our money we do the Federal Reserve does and so when politicians can redefine inflation they can they can blame everybody but themselves okay so so let me ask you a kind of a modified Ponzi scheme question because this is something that's bedeviled me so I understand that so I have two questions I understand that getting the measurements of something as fundamental as inflation correct is absolutely necessary so one of the things I've wondered is like why aren't there independent teams of economists who generate various true estimates of inflation make them public so that the public itself could gather a basket of independent estimates and know for themselves what the inflation rate is very curious about that well they have one other well I mean there's a website who's reliable who's reliable yeah you know well I think the least reliable would be the government right yeah yeah you don't want their statistics because they're completely biased right you know it's like you know the mafia is not going to give you accurate statistics on crime right so um you got to look to Independent sources but um I think it's kind of obvious though if you understand what inflation is and you see the enormity I mean the United States is running two trillion dollar a year plus deficits now uh and technically we're not even in a recession the deficits are going to get even bigger uh when this next recession starts but how are we financing those deficits it's it's inflation there's just no other way they'll look at the the Federal Reserves balance sheet so we know that inflation is going to be a significant threat it's going to reduce the value of money and so that has to be the single most important factor in driving your decisions on savings on investing um you know and and even for in this day and age if you don't have a lot of money to invest you know I I've been saying this for years to people I started talking about it several years ago people have to stock up on things you know you know buy things that you're going to use in a year or two buy it now because it's going to be a lot more expensive if you wait why hold on to the cash if the cash is going to lose value uh just buy the things that you're actually going to need because those things will retain their value if you're planning on using them so here's the Ponzi scheme question so because of the efficiencies of the capitalist system free market system let's say we are generally able to produce more for less and in some instances we seem to be doing that faster and faster so consumer electronics are a good example and price of computation and so forth and so what that means is that independent of inflation because of technological progress things will get cheaper in the future the future will be richer than the present so then you might say if you're a politician you say well if that's the case and if that's invariably the the case then why not defer our debt to the Future like essentially why not borrow from the future because the future is going to be wealthier than the present and then I wonder like if we had a three percent increment in actual productivity per year then maybe we could tolerate a two percent inflation rate because fundamentally the tendency for things to get cheaper because of enhanced productivity would be balanced by that inflationary proclivity so are the politicians could you make a case that the politicians are making a good bet because they're throwing the debt into the future when we're going to be richer no well they they are making a politically opportunistic decision yeah fair enough because they're they're telling the voters hey don't worry about it your grandkids will pay for it right or whatever uh and and right of course not all voters have kids right some voters you know don't have kids and so what do they care if somebody else's grandchildren uh pay for their for their program but the only time you could justify borrowing from the future is if you are creating something that future uh people will benefit from let's say a capital investment let's say the government is going to build a bridge and that bridge is going to be there for 100 years right uh and and people who aren't even born yet are going to benefit from that bridge okay maybe they can sell bonds to finance the construction of that bridge that future people will end up paying because they're going to have the benefit of that bridge so you can make an argument for debt to support that but if we're going to borrow money just to pay for welfare benefits or Social Security benefits where we're leaving our children and grandchildren with nothing but a bill right they don't have a bridge or a capital asset uh the money's been spent I see so your argument basically is is that if you're borrowing from the future isn't designed specifically to drive productivity let's say then it's a degenerating bet yeah I don't think it's borrowing from the future I think it's stealing from the future you're trying yeah okay fair enough and and yeah but you know a lot of this stuff is going to backfire because I think the current generation is going to pay for a lot of this stuff because the dollar is going to collapse you know we could have hyperinflation and and because the future Generations are not going to pay this they're you know they're they're they're going to leave that you know they'll leave the countries that because they're not going to want to be subjected to the confiscatory tax rates when they can't get commensurate benefits from government they're going to leave uh the the currency is going to collapse in value and we're already there I mean we're already at that point because you're talking about this intergenerational Ponzi scheme that's really what Social Security is I mean it wasn't created that way in the 1930s when Roosevelt uh first uh concocted this social security and it was totally unconstitutional and unfortunate that that we haven't but the idea was that it was like Insurance the government was going to take the money and invest it and then when everybody was older you would get paid your benefits and they even called the taxes premiums but the whole thing was a con because it never was Insurance because the government never invested the money they spent the money and now they gave themselves an IOU they created these things called trust funds and so what would happen is the government would collect the money from Social Security then they would take the Social Security money and spend it on whatever military or whatever they're doing but then they would put an IOU in the government trust fund in the form of a bond and then they would say oh we have an asset in this trust fund we have a bond that's not an asset it's it's your own debt it's like if I write myself a check for a million dollars I can't take that uncashed check and claim I've got a million dollar asset no I mean it's also a million dollar liability so there never was any money in Social Security they spent it all their the system is broke and now they have to keep raising taxes on the workers but now they won't even raise taxes on the workers so they just keep they create inflation to pay for Social Security we'll be right back first we wanted to give you a sneak peek at Jordan's new documentary logos and literacy I was very much struck by how the translation of the biblical writings jump started the development of literacy across the entire world illiteracy was the norm the pastor's home was the first school and every morning into a begin with singing the Christian faith is a singing religion probably 80 percent of scripture memorization today exists only because of what is sung this is amazing here we have a Gutenberg Bible printed on the Press of Johan goodberg science and religion are opposing forces in the world but historically that has not been the case now the book is available to everyone from Shakespeare to modern education and medicine and science to to civilization itself it is the most influential book in all history and hopefully people can walk away with at least a sense of that okay so let me let me offer another Rosy scenario sort of like the boring from the future scenario so I've been thinking about this issue of fiat currency and the fact that the currency is on moored but we have a situation in the world now where every currency is unmoored right and so you might say no matter what form of money you use you're making a bad bet you're relying on something unreliable but if you're going to rely on something unreliable you should rely on the least unreliable currency right and so then you might say well the least unreliable currency becomes by default the standard and the US has managed that for 50 years 60 years and so why isn't it the case because you said for example well people who are subject to unfair tax because of future deferral of debt will leave but I could say yeah but there won't be anywhere better to go I know there will be and so the the whole world doesn't doesn't you know there have those tax rates of a certain country you know um Saddles it's yeah future generations with too big a debt burden um those you know that they could leave and go to a country that doesn't have that demographic problem that big um of a dead burden and and and and of course so you think there'll still be enough call even if everyone's on fiat currency and if all the currencies are corrupt you still think there'll be enough variability oh yeah corruption so that people will vote with their feet like they are in the U.S moving from correct Democrats correct Republic and states and the idea that you know it's the you have to settle for the least bad uh currency and again currency isn't even really money money is a commodity gold was money silver you know it would be money uh legitimate currency which is backed by real money is currency what we have now is fiat currency and and both fiat currency and and legitimate currency are substitutes for money they're not actual money but they substitute and they can function as money but they're not really money in the real sense of how you define money as the most marketable commodity which is would be money but people have been saying well you know the dollar is the cleanest shirt in the hamper and but I I think the dollar only appears clean because of its status as the reserve currency and I think that status is in Jeopardy and when it's lost then the dollar is going to be the the by far the dirtiest shirt in in in in that hamper so so and okay so two questions from that so first of all maybe you could walk everybody through why the government is the biggest debtor because people aren't really clear even for example about the difference between the deficit and the debt and they don't know what the debt means to them in real terms because it's always expressed in these huge numbers like 132 trillion it's like no one knows what that means but they could figure that out if they knew how much of that debt they were responsible for or their family so you've got you've got two first of all why is the government the big debtor well you've got the national debt which is the accumulation of every Year's budget deficit and then you've got the the annual budget deficit which adds to the total debt um but what I'm talking about creditors versus debtors Nations can either be a creditor Nation or a debtor Nation a creditor nation is a nation in which the world owes it money more money that it owes the world a debtor Nation owes the world more than it's owed so prior to the US going off the gold standard in 1971 and in fact all the way up to probably the early 1980s the United States was the world's biggest creditor Nation right we we generated tremendous amounts of wealth um under a Freer economy than the one we have today and one that was governed by the disciplines of a gold standard so we became the world's wealthiest creditor Nation today after 50 years of Fiat money America is not only the world's biggest debtor Nation America owes more money than all the other debtor nations of the world combined right that's how uh much our financial position has eroded now when the dollar became the reserve currency it became the reserve currency because of America's Financial and Industrial might we were the world's biggest creditor Nation we also had huge trade surpluses now we have massive trade deficits I mean over a trillion dollars a year but when the dollar became the reserve currency we made everything you know all the Consumer Electronics that are now made in Japan or Korea or China all that stuff was made in America I mean if you wanted anything we made it in this country in America and so since everybody wanted American Products everybody needed American dollars to buy them and the American dollar was as good as gold because if you had dollars you had gold if you had 35 dollars you could get an ounce of gold from the government it was convertible and so under those conditions the US dollar became the reserve currency but today the the dollar would never be the reserve currency today if it wasn't already there right nobody would pick the dollar given our financial position our trade-in balances but you know it's been the reserve currency because you know for the tradition of the fact that it's been but in order for the world to to maintain this status it's very expensive for the world it's a huge benefit for America I said we have a trillion dollar a year trade deficit that means the world has to supply America with a million dollars worth of merchandise for which it doesn't get paid right it doesn't it doesn't get products you know most countries in order to export have to I mean in order to import have to export you have to export something in order to pay for your Imports well we don't have to export anything we just print money and Export that well that costs nothing but the rest of the world has to produce real stuff and and use resources land labor and capital to produce products so Americans get to live beyond their means because of the dollar status but the rest of the world collectively lives beneath its means and of course it's not um uh consistent because some countries uh have to live even further below their means depending on how big a trade Surplus they have with the United States that's how much they're subsidizing the US economy so a lot of the Emerging Markets uh bearing even uh bigger uh uh uh burden of preserving the dollar status and and so I think the world is starting to move away from the dollar not only because of the economic cost of maintaining it but now we have raised the political risks if you look at what the Biden Administration did with Russia the unprecedented sanctions on Russia this has really highlighted the tremendous risk that every Sovereign Nation assumes by being beholden to the dollar because it puts tremendous power in the hands of the United States it's like putting a noose around your neck and then throwing throwing it over a tree to America who's holding the other end then you're hoping that they don't pull I mean nobody wants to really be in that position especially if you're a country like China where you know we've kind of made China our enemy but in reality China provides America with the largest annual subsidy they're our biggest uh uh uh trade deficit is with China so they Supply us with more merchandise than anybody else and they're our largest creditor now some people say it's Japan uh but no it's actually China because you have to take Hong Kong because Hong Kong is part of China so if you take all the treasuries that Hong Kong owns and the treasuries that China owns that's more than Japan so they're our biggest Banker they Supply us with credit they Supply us with merchandise right that's all going to end right China is going to wean itself of that okay so well so let's let's go after that so you said and let me see if I got the reasons right you said well the American dollar could stand as the um fundamental currency because it had come off the gold standard but had still benefited from that it was extraordinarily productive it ran huge trade surpluses it was a dynamic expanding rich country with a very stable currency so it could run on that for a long time and and you said however now if people looked at the American economic situation the American dollar without that historical context there's no way the US dollar would be the reserve currency but then we're back to the dirty shirt in hamper problem and I know the Russians and the and the Chinese and the Brazilians Etc are wrestling with that they're trying to move people away to some degree from the dollar as a reserve currency but like nobody in the right mind is going to trust the Chinese currency so where so where do people go if it's not the American dollar that's going to be the standard for all the reasons you laid out well you know the Euro doesn't look better really and certainly you have to be insane to use Chinese currency I think see that that is the false choice that everybody thinks we have to make one of the reasons that people are so arrogant particularly in America that the dollar status is not in jeopardy and so that we can keep on running these huge deficits we can create keep on creating inflation and the world's got no choice right but the state with a dollar because are they going to go to the euro are they going to go to the Yen you know the pound I mean they're winning B I agree all of those currencies also have problems and so do you really want to switch from one flawed fiat currency to another even if those other Fiat currencies may be less flawed than the dollar right do you really want to make that shift I don't think that that's what's going to happen what everybody is missing is that there is an alternative to the dollar that doesn't involve another fiat currency and that's gold that is real money everybody forgets that for thousands of years gold was money it was money because it worked now over the course of time we had paper currencies that would arise and fall I mean hundreds of years ago they were paper currencies that are now worthless and you don't even know their names you know they come and go but gold has has stayed you know gold works as money and so I think what these central banks are going to do is as they get out of dollars they will just increase their Holdings of gold gold will be the monetary anchor gold will be the reserve monetary asset just the way it was before the dollar it wasn't the British pound I mean the British pound was a dominant currency but gold was what everybody owned the British back the pound do you see any do you see any evidence that some of these alternate currencies are starting to back their currency claims with gold oh yeah you can what's happening on the central banks are now buying more gold than they've bought in in in decades especially a lot of the uh you know the Emerging Market countries not even maybe so much the United States isn't buying any gold and maybe you know some of the more mature uh countries but a lot of other countries that had predominantly held dollars and then to a lower degree Euros or Yen or pounds these countries are increasingly buying gold that's why gold is at a record high it goes around two thousand dollars an ounce but in terms of just about every other currency on the planet gold has been hitting all-time record highs uh and again that's not really gold going up that's all these Fiat currencies going down but what are the reasons that countries would want gold as opposed to the dollar is the US government doesn't have any control over it you know gold is an asset that's not also somebody else's liability and nobody could create it you have to mine it no one country you know has the advantage so you know why would you want to take away uh that that privilege that the United States has and just bestow it on somebody else who is going to abuse it the same way I mean the United States abused that privilege that we had and we we we exported all this inflation to the world we took advantage of the this the position that we were in uh so why would you want to put another nation in in a position to similarly take advantage of the world it's much better to go back to to honest money and again even when we were on Bretton Woods before you know 1971 and we were on the dollar standard it was because the dollar was backed by gold again if you held dollars you held gold that's where the saying came from the dollar is as good as gold in fact the legal definition of a dollar is a is a weight of gold that's what a dollar is dollars are gold the the the paper currency that circulated Federal Reserve notes are not dollars they are notes of the Federal Reserve initially the those Federal Reserve notes were payable in dollars the dollars were the gold that the Federal Reserve notes paid because if you think about what a note is a note is a promise to pay something a Federal Reserve Note is supposed to pay something well what did it pay it paid gold it paid dollars today Federal Reserve notes pay nothing their ious nothing the Federal Reserve is not obligated to give you anything I mean if you have a ten dollar bill okay so people people might object and they and they have that well gold is just another arbitrary standard of value it has some intrinsic worth it's useful for jewelry it's useful for certain industrial applications but it's just another psychologically valuable currency without any intrinsic value and so it shouldn't be a repository of value in principle that's any more stable than let's say a well-managed or even a badly managed fiat currency and so what do you what do you why is it that gold has proved itself let's say over centuries or Millennia as a storehouse of value what is it about gold intrinsically let's say that seems to have given it that edge the idea that gold doesn't have any intrinsic value is just pure nonsense it's obviously politicians have a vested interest in in trying to diminish gold as a monetary alternative to the Fiat system and even now you have a lot out of cryptocurrency enthusiasts who say the same thing well you know gold has no value because they want to justify something like Bitcoin which also has no value and say well gold worked as money and it has no value so so Bitcoin could work well it's not true that gold has no value gold is the most valuable the most useful metal on the periodic table gold became money because it was such a valuable commodity but gold has a lot of properties that make it uniquely qualified to be money more so than than other Commodities that's why gold was so successful over the centuries as money because people preferred to use it as money it wasn't governments that decided gold is going to be money the people decided that gold was going to be money and once the people decided that gold was going to be money if you were a king you know well you would tax people in Gold because if you wanted to pay your soldiers to protect you your soldiers wanted gold right so it was the money created in the free market and it beat out all other forms of money because gold you know a gold coin uh all they're all all the same you could melt gold down and you can make it into coins uh it's fungible it's portable it's divisible but the other aspect of goal that is the key you can save gold because if I have an ounce of gold in 100 years in a thousand years it's exactly the same it doesn't lose any of its properties and in fact even if I take my gold and I make you know I make a ring out of it or I I use it to make a watch right you can melt this ring down and you get your gold back and it's exactly the way it was you could do something else with it there's really no other metal you can keep using it over and over and over again I mean they fill teeth with gold if you find somebody buried in the ground you know you could take their fillings and you know the Gold's still there you know there treasure ships from the 1400s 1500s they sink if they recover the wreckage the only thing that's still there is the goal it's an it looks exactly the way it looked when the sink when the ship sank 500 years ago so from a point of savings because money has to satisfy three primary conditions two of them are a unit of account an immediate exchange but the third one is the store of value and that's important because it's also makes it possible to do loans that I can borrow money you can lend money and you can be repaid and you know that the money that you're going to get repaid is going to retain its value and so that's something that gold that gold does better than than other metals but the the value of gold even if I'm not using my gold today as a metal let's say I have gold stored in a safe and you say well you know you're not using it for anything that's true but I'm preserving the future use of that gold somebody in the future is going to need that gold and so I'm storing it right now because you know there are more uses for gold that are discovered all the time because of its very unique properties I'm sure in a hundred years or a thousand years there will be more uses for gold than there are now and and so okay so let me where are they push you on the crypto front for a second so so you know I've been contemplating permanent storage storehouses of value concerned about such phenomenon that we've been discussing as inflation and potentially hyperinflation Which is far from rare even among developed countries I think you have a one percent chance if you live in a developed country of uh hyperinflation incident at some point in your life it's something like that but anyways the cryptocurrency people and I think the Bitcoin people have made this case the best is that they've managed to duplicate gold in its important elements in that they've produced a storehouse of value that can't be corrupted because it's blockchained and distributed and that's a nice argument that also gets more scarce with time which was quite the brilliant um technological innovation that requires work to obtain and so that's the Bitcoin mining but that is also easily distributable digitally and so it's out of the hands of governments it's a
2023-05-05 01:25
