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Dr. Chris Martenson: “Mother of All Collapses” Looms
“Nobody Alive Will See the End of the Effects…”
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Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.
Coming up later we have a fabulous interview with Dr. CHRIS MARTENSON of The Crash Course and PeakProsperity.com. Chris has a rather scary forecast for the global financial markets. And he shares some very important information about how the average investor can protect himself against what he sees coming. Don't miss my interview with CHRIS MARTENSON -- coming up after this week's market update.
Well, as trading begins for the month of May, precious metals bulls are watching to see if the gold market can finally break out of its recent trading range. Gold prices teased another upside breakout above the $1,200 level earlier this week but sold off Thursday to finish the month of April at $1,185 an ounce. As of Friday morning, gold is down another $10 and comes in at $1,175, down now 0.4% for the week.
The price action in silver is a bit more encouraging. Despite its late week struggles silver still shows a weekly gain of 1.7%, with prices currently coming in at $16.04 an ounce. Platinum and palladium are also showing a little bit of strength, with platinum advancing 0.8% to trade at $1,135 and palladium relatively unchanged to come in at $775 an ounce as of this Friday morning recording.
The precious metals are faring relatively well this week compared to other asset classes. Both stocks and bonds sold off after the Federal Open Market Committee's statement on Wednesday. The metals also got hit, but they are being supported by a falling dollar and a rising commodities complex. The U.S. Dollar Index broke down to multi-week lows as weak numbers on GDP and new home sales raise concerns about a sluggish economy.
Weak economic data may cause the Fed to postpone its telegraphed rate hikes, but many Fed watchers think a rate hike in June or late summer is still on the table. As Fed watchers dissect policy statements for clues about whether policymakers are turning hawkish or dovish, investors mainly want to know if the outcome is bullish or bearish. Perhaps the Fed will show its true colors during the dog days of summer.
Meanwhile, the 800 pound gorilla in the room is the coming debt ceiling battle. And the financial crisis we're headed for when it inevitably gets raised to enable Washington's spending addiction. So far, no credible long-term debt solutions are coming from the leadership of either the donkey party or the elephant party. Some fed up grassroots Republicans accuse their party's big-spenders in Washington of being RINOs.
It's a jungle out there, in more ways than one. Thugs and bullies, which in some cases appear to include the police themselves, are rampaging through the streets of Baltimore and other American cities like wild animals. It's enough to turn hopeful people pessimistic toward human nature.
But economists have long been pessimistic. There's a reason why economics is called the dismal science.
The hugely influential economist John Maynard Keynes observed that human economic choices aren't driven purely by rational calculation. Humans are instead moved by what he called the “animal spirits.” We spontaneously join in on cycles of optimism and pessimism, creating economic booms and busts.
It was Keynes who famously observed that “the market can stay irrational longer than you can stay solvent.”
There is much truth in his observations. But his policy prescriptions haven't exactly worked out. They have been seized upon by politicians and central bankers to expand their powers and promulgate economic mischief.
Keynes believed that fiscal and monetary policy could be employed to tame the animal spirits and prevent economic panics. He called for policymakers to tighten credit markets and rein in government spending during booms. During downturns, Keynes prescribed loose money and increased government spending as key stimulus measures.
In the name of Keynesian economics, politicians and central bankers have pursued stimulus in ways Keynes himself couldn't have conceived – from Cash for Clunkers to Quantitative Easing to trillion dollar deficits. These so-called Keynesians have completely neglected the part about putting on the breaks to prevent asset bubbles. In reality, their policies have produced more excesses than the free-market left to its own devices ever could.
It turns out that central planners are guided by animal spirits as well. And that's why Keynesianism is doomed to fail. The U.S. dollar may be doomed to fail as well.
Investors would be wise to seek protection from a mismanaged currency. And the surest way to do that is by owning hard assets. The animal spirits may one day produce a buying mania in precious metals that makes them hard to obtain in physical form. For now, though, there is ample availability of most bullion products at premiums that are on the low end.
Here at Money Metals Exchange, we have products that reflect just about every type of animal spirit. We carry the popular American gold and silver Eagles, of course. You can also buy gold American Buffalo coins, privately minted silver Buffalo rounds, and silver Red-Tailed Hawks from the Royal Canadian Mint. The Land Down Under is rich in wildlife, and our Perth Mint products include Australian gold Kangaroos, platinum Platypus coins, silver kilo-sized Koalas, and one of our newest products, the 1-oz silver Australian Funnel Web Spider coins.
You can view images of these and other bullion products on our award winning website, MoneyMetals.com. And as always, our Specialists are available to answer any questions you may have about our products at 1-800-800-1865.
Well now, without further delay, let's get right to this week's exclusive interview.
MIKE GLEASON: It is my privilege now to be joined by Dr. CHRIS MARTENSON of PeakProsperity.com and author of the fabulous work called The Crash Course. Chris is a commentator on a range of important topics, such as worldwide economic and financial markets, governmental policy, precious metals, and the importance of preparedness, among other things and we're very excited to get a chance to talk with them today. Chris, it's been quite a while, so welcome back and thank you for joining us.
CHRIS MARTENSON: Hey Mike. It's my pleasure to be back with y'all.
MIKE GLEASON: To start off here, Chris, I want to get your take on where we are today. We've certainly got some crazy markets these days. The equities have reached extreme levels here and one would think that we should be nearing a tipping point there perhaps. Meanwhile, the out of control debt levels as a percentage of GDP keep climbing and climbing. All the loose monetary policy and low interest rate environment from the Fed has really goosed the markets, but you have to wonder what will happen when the addict is finally cut off from its fix and starts to go through withdrawals. Talk about that, Chris, what do you make of the overall financial landscape right now?
CHRIS MARTENSON: It is pretty much just a junky market at this point. It's totally addicted to Fed money. The Fed knows that and so does the European Central Bank and Bank of Japan. They're all monkeying in markets. We know this. They do it overtly and I'm convinced covertly as well, but at any rate, we've been through this three times now, Mike. We've seen what happens when the Fed throws easy money at things. They did in 1994 in response to a small corporate bond market hiccup. They gave us the so-called roaring late 90s and that burst of course. That bubble blew up on them.
Then they responded to that with 1% blow-out interest rates, which gave us a housing bubble, among others by the way. That was just the most obvious one to blow up. Then that popped and of course that was a bigger bursting bubble. This one is for all the marbles. This is a global credit bubble that's been blowing since about the mid-1970s and no central banker wants to see this pop. They know perfectly well what happens. They've been inflating things with fingers crossed, hoping beyond hope that we get the growth we need to make all this pay off and work out, but anybody opening the paper today, as you and are talking, the GDP for first quarter in the US came in at 0.2%.
Europe's probably in recession. Japan doing nothing. China worse than advertised. So here's the summary: lots and lots of money printing. They didn't get what they wanted, which was growth out of the deal. Now we have a dangerous, dangerous bubble in not just stocks, but bonds. Both are going to burst at some point.
MIKE GLEASON: Expanding on that a little bit, since the ‘08 collapse, it seems that basically everything in the financial world at least here in the States anyway hinges on the Fed and what they're doing and I would imagine that like us, you're a bit annoyed at the tendency of the press to dissect every policy decision and every utterance. Will they raise rates? Will they not raise rates? Did they use the word patient? Did they remove the word patient? It's rather ridiculous to say the least, but the Fed is still taken quite seriously. So at what point will the central bankers stop having so much influence?
CHRIS MARTENSON: When this all comes crashing down and I hope nobody ever listens to them again we honestly can end the Fed, not just the Fed itself, but this idea that you would entrust or empower 12 people to decide what the correct levels of unemployment are, what the correct levels of prices for equities are, what the correct rate for economic growth should be? These are all things that need to go through the market? We're going to relearn the most important lesson, which has been learned many times in history, which is that you have to let the natural business cycle work its magic. Sometimes that magic is on the upside and then there's this creative destruction on the downside.
This heavy influence of thinking that big government can solve all this stuff is the most broken idea ever. Listen, if GM had gone out of business, it would have been terrible for all the people who work there, but for every GM that goes out of business, you're probably going to have 20 brand new fresh dynamic companies come in and take its place. That's how you move away from buggies into Model Ts and finally into Teslas. It's just part of the beast. What's it going to take for the Fed to lose its credibility? Listen, deflation is going to come roaring through.
Markets are going to get ripped apart again and eventually we're going to have people realize that the Fed has way over-stepped its boundaries and is actually, if you follow the sequence, took a little problem in ‘94, made it a big problem, took the consequences of that, turned that into an even huger problem, and took the consequences of that and have now turned it into something that I am concerned when it bursts, literally nobody alive listening to this today will see the end of the effects of it.
MIKE GLEASON: In the Crash Course that you put together a number or years ago, you described how debt-based monetary system is inherently flawed because of its requirement for perpetual growth in the money supply, but as things progress as we're talking here and get more and more out of control, there are of course serious questions now about how much longer the fine people in charge will be able to keep the wheels on. What is your best guess regarding what might replace this current system should it finally fail?
CHRIS MARTENSON: We're going to have to move to, I think not just one, but several different types of money systems. Each one enforces some behaviors, punishes others. The debt-based money system is really great at enforcing this idea of constant growth. When you're in debt, you do anything to get out of debt, so you don't lose your house, your car, your fishing boat, what have you. So it's great at enforcing that, but we don't need perpetual growth on the planet anymore. We can't support it. We already look at issues around water, soil. Look at what's happening with the collapse of the fisheries in the Pacific now.
There's clear signs that say “hey, we're going to have to moderate things a bit, do things otherwise.” I think we're going to have to move to money systems that fundamentally cannot be under political control in terms of how much gets printed and at what rate and all that. I think money has to represent real value. Whether it's backed by energy in some way or whether it's gold or whether it's silver or whether it's backed by, I don't even care, sheepskins, it doesn't matter, it has to be backed by something of tangible and intrinsic value. I think we need several of them, several different types of money.
If the Federal Reserve decides it wants to print like crazy, I could wander over to Mike's gold-back dollars and use those instead. I would prefer your currency over theirs and then there's would lose value and they would through the art of competition learn that they're going to have manage their money system in a better, more useful way.
MIKE GLEASON: That's certainly something that the founders had in mind when they set up this nation and drafted the Constitution is that there wouldn't be central banks I guess for one, but the government would not be in control of the money supply. We inherently are going to get the types of issues that we're getting now.
CHRIS MARTENSON: Oh absolutely, and it's even possible that the government could issue its own money directly. Why would a nation borrow its own money? It's literally a concept. It's paper at best. It's not something that we should be borrowing and paying interest on from a group of people. Absolutely, I think that the money is essential and it's too essential to be left to politicians to monkey around with whenever they feel it's important to do do, which by the way, is every time. So we're going to have to get back to basics in all this. My concern, though, is that we're not going to until we're forced to. My bigger concern is that this is going to be a heck of a crash when it finally comes.
MIKE GLEASON: One topic we've been covering on our site in a lot of our commentaries recently is this war on cash that's been heating up. More and more financial institutions are starting to impose draconian measures to keep cash out of people's hands, criminalizing it in some cases. Obviously they've been penalizing savers with low interest rates for a while now, but they seem to be taking it to a new level. There's even been some grumblings by the central planners that maybe we should eliminate cash altogether. What do you make of all that and what should people be thinking about as they're watching this situation unfold?
CHRIS MARTENSON: Well what we should make of that was actually said directly by a Swiss bank when they prevented one of their key commercial clients from actually taking cash out because the client was thinking if I can either lose money with negative interest rates at the bank or I can just keep cash in a vault and lose nothing, I'll do that. And the bank said no, you can't do that because that would interfere with Swiss National Bank policies. What they're effectively saying when we have zero percent interest rates, which are negative, which are punishing, punitive to savers, what's really happening is that is part of a program of financial repression.
The Central Banks operate this and it has a few key legs. One, negative interest rates. You have to lose money on it. Two, capital controls so that you can't escape the ravages of negative interest rates. Three, they're going to cap gold and silver or give you no other way out. That really forms the primary part of the stool. So they've been putting us all through financial repression and the purpose of it is to take a little bit of everybody's purchasing power and funnel that towards the government. And that's supposed to provide, it's like a silent tax.
They do this, this is probably the fourth program of financial repression run in the United States. This one is global. They're running it in other countries now too, but it really doesn't help if people can escape your ability as a central planner to punish their savings and to reduce their value over time and thereby take them. That's what they're really saying. I'm worried about this war on cash. We've seen a frontal assault. They've been floating trial balloons, little PR things, coming at it from multiple angles. So it's an idea. Obviously, anybody listening to this on your show is going to try and demonize cash.
They're going to say terrorists use or something illegal or something and try and get to it that way, but really the primary thing is they want us all locked into a system that's going to effectively punish us all a little bit. You know, the thing, Mike, that really gets me about that is that even as they're running those programs, they are still at the same time printing money and handing it out in such a way that the 0.1%, the elites of the elites, make out like bandits. So what they're really saying is you, the little people can't have cash because we, the bigger fish who are running this thing, want to get even richer than we already are. It's really that immoral.
MIKE GLEASON: Your main message is that people ought to prepare themselves and precious metals certainly plays into that in terms of financial preparedness. But from an investment standpoint, the PMs have had a rough go of it recently and have certainly fallen out of favor by the mainstream financial crowd, given the weak price action over the last few years now. So what do you have to say to the gold and silver investor who may be a bit frustrated and left scratching his head based on what has transpired in the metals markets with this extended corrective and consolidation period?
CHRIS MARTENSON: It extends beyond just gold and silver. I'd put almost all commodities into one basket. When we look from 2011, this was the first QE program in the world where commodities actually did not go up by a lot, but actually went down from the initiation of QE3, $85 billion a month. It shocked me because we thought QE1, QE2, not so much during Operation Twist, but then with QE3, I was certain we were going to see commodities really lift off, but remember the Federal Reserve had received a lot of angry calls from overseas from various countries that said hey, you gave us food riots. This is creating a lot of social unrest. Cut it out.
To me, it's rather interesting that during the largest round of stimulative purchasing and money printing ever in Fed history, that we saw all commodities wobble down, but here's the great thing about commodities, supply and demand actually matter. When I look at this, if you'd said Chris, four or five years ago, here's the deal. I'm going to show you a point in time where China is consuming 120% of all global mine output of gold. We're going to take another 700-800 tons per year going into India, another 600-700 tons going into the rest of Asia, and gold prices are going to actually just wobble down during that period.
I would have said you're nuts, can't happen, but it is happening. We're seeing massive flight of gold from the West to the East. I don't know how long the people in the West are going to put up with that, but it's at least 1,500 tons a year, maybe more, that has to be kicked out of our vaults to head elsewhere. I don't think that can go on forever. I think gold and silver are mispriced badly. Silver is below the all-in cost of production right now for primary silver mines. Oil is below the all-in cost of production. We're going to see commodities eventually catch back up to at least their all-in cost of production, but I'm looking for gold to do a lot better going forward, primarily because I think there's a financial accident coming.
MIKE GLEASON: Expanding on that, what's it going to take to finally get them going again? You think just a collapse in the mainstream financial assets will get gold and silver going again? What do you think?
CHRIS MARTENSON: Yeah, right now, I would say probably 80%, 90% of the price action of gold and silver are explained simply by speculators. You detect that because somebody asked me, Chris, gold went down or up 30 bucks. I wander over and I look at the price of the yen cross compared to the dollar and the euro. The yen has gone up a lot, gold and silver will go up. If it goes down, they go down. There's been this high correlation, which just means the big players out there have access to a lot of liquidity, and they're playing games, which are long this, short that. They're going to short the yen, short gold, go long the Nikkei, plus S&P. It's just a game.
So we saw this in 2008 as well right before the break where the speculators, again there was money everywhere, and they were playing around with all kinds of things. They drive markets, but the instant they become concerned, they pull in their horns real quick. Institutions no longer trust each other. It's when the institutions lose that faith in each other, that's when gold is going to do extremely well.
MIKE GLEASON: You of course talk a lot about preparedness and have lots of advice for folks. What do you have to say to people who are hearing this? Obviously it's little bit of a bleak picture that we're painting here with all follow the headwinds going on in these markets. What should the average guy being doing right now if he's trying to protect himself and his family against what may be coming down the road?
CHRIS MARTENSON: The most important thing it you have to know what's going on. Get the appropriate context. You're not getting that out of the newspapers. You're not getting that off the TV. Make sure you figure out what's going on. We have a product called The Crash Course, all free. It's an online video course or it's a book, whatever you prefer. Just understand what's happening. And then two, we highly recommend that people take some basic precautions, basic preparation steps. The first thing is don't have all your eggs in one basket. Don't have all your financial eggs in the market, in stocks and bonds. Even if you have foreign stocks and bonds, you are not diversified.
We recommend people have cash, physical cash, or cash holdings too. We recommend people have gold and silver. Next you want to invest in yourself. There are lots of things you can do in your home, your homestead, to invest in ways that will take out of your pocket today, but have you spending less in the future in ways that have double, triple digit returns, that guaranteed, as long as you are investing in the right systems in your home. We're really inviting people to rethink what investing means. We believe that there are lot of great opportunities coming, but it's not going to be the old thing Mike, just sending your money off to Wall Street, buy an ETF, buy an index fund, and it will all go up.
We think you have to be careful. You've got to know where we are in the story. You've got to pick your moments and your companies and the individuals even that you're going to invest in. If you want the future to look just like the past, we think it is a bleak story, but there's a lot of ways that we can improve our quality of life. I'm here as somebody who having digested this story, I am healthier than I was ten years ago. I'm happier. I'm wealthier. And I feel very confident about the future, but I do worry about people who don't understand what the risks are and will enter this next period unprepared, mentally, physically, financially.
MIKE GLEASON: Well Chris, thanks very much for your time and your wonderful insights. When it comes to some great resources where people can go to get themselves more prepared, talk about your service there, the great content and commentary that you put out there at Peak Prosperity and basically just tell people how they can find out what's going on there and what you've got at your website.
CHRIS MARTENSON: 90% of the web-site is free. We have lots of content ranging from cutting edge analysis. We have our video product offerings so people can understand what's going on in the world. We've got a great community. We have groups of people who have organized around either ideas or locations. We have groups in Santa Barbara, etc., for people who are interested in talking about where the world is going, our community is, if I had to use one word, curious. We're curious people. We're just trying to figure out how the world works and we have our subscription newsletter service for people who like to go a little deeper, want a little more context.
We've got a nice group of people that write for us, as well as myself. It's just a really incredible community of people if I could just say, we had a gathering, a weekend long seminar, just this past weekend, and it was phenomenal -- doctors, lawyers, engineers, people who businesses, just people, and very successful people, but who understand that the future could be very different from the past, and are interested in understanding what they can do about it.
MIKE GLEASON: Chris, thanks again for coming on. I really hope we can talk to you again in the future and all the best to you there.
CHRIS MARTENSON: Thank you so much. It's been a pleasure.
MIKE GLEASON: That will do it for this week. Thanks again to Dr. Chris Martensen of PeakProsperity.com. Be sure to check out the great stuff Chris and his team have for you there. It's first rate resource for all things financial and preparedness with some great practical action items that you and your family can take, as Chris mentioned, to make yourselves more self reliant.
And don't forget to check back with us here next Friday for our next weekly Market Wrap podcast. Until then, this has been MIKE GLEASON with Money Metals Exchange. Thanks for listening and have a great weekend everybody.