Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing. Fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self made multimillionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 days and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it and now here is your host Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Welcome to the Creating Wealth show. This episode number 273 and this is your host Jason Hartman. Thank you so much for joining us today. Today we’ve got an interview where we are going to talk about little more on gold, we’ve got a guest who is going to talk about that and we’ve got one of our investment counselor Sarah here with me. How you doing, Sarah.
Sarah: Hey Jason, thanks for having me.
Jason Hartman: Well, my pleasure. So I wanted to have you on today just in terms of the intro part to kind of give the listeners and clients an update on what’s going on out there and I thought maybe we’d start by talking about a few properties. Inventory is becoming a challenge again, you know this is constantly a moving target. Sometimes there’s lots of inventory, while in the last year there’s not too much. W we have had a few times where we had a decent amount of inventory and now it feels like it’s getting a little bit skinny again in terms of selection, but we do have a few good properties and wanted to talk about those and just kind of generally get the feel of what’s going on with you and the client perspective, Sarah. So that’s why I wanted you to come on today and tell us about some of these properties maybe.
Sarah: Yeah well the inventory is definitely shifting. I mean at any given time we get a handful of great properties in some of the different markets and just yesterday actually I should say Friday we got some new construction duplexes in Indianapolis which we are really excited about. As of right now we have access to about six and we have already put a couple under contract, so it’s sort of a first-come, first-serve basis, but they are really great. You know lot of the investors are really liking the new construction in terms of not having a lot of maintenance. You know I brought a new construction in 2007 and literally I have put about $250 into that property in five years. Maybe I am lucky, so that’s a huge plus for new construction, but this one if you want me to give you a run down of the numbers it is purchase price is 175,000 and the cost per square foot on this is just $62 per square foot.
Jason Hartman: And I should just point again that’s new construction and then you look at the RV ratio here 175 as Sarah mentioned that’s the price, but the projected rent here is 2100 per month. Now are these, do these Sarah pre rented by the builder?
Sarah: The builder is leasing them up, I don’t know that they will leased prior to close. They don’t do any kind of a guarantee so to say. But we have done some of the single-family and they are leasing up, some of them are leasing up prior to close. So I don’t think there was any issue with the rental market in Indianapolis. It is one of those sort of linear borrowing markets in terms of appreciation but the rental market surprising has always been pretty strong and you know with the exception of maybe the winter months but that’s in any market. So you know these again they are new construction, and what I like about these is they are scheduled to be complete towards the end of December which you know knowing builders could even get pushed out a little bit longer but that puts you right into, when the rental market picks up again which is January always picks up after the holidays. So for somebody that maybe is already in escrow on a couple of deals and they are looking for their next buy this maybe a great strategy for somebody to pick up their next property.
Jason Hartman: Now with this one, you know with these brand new duplexes, $62 a square foot new which is pretty darn amazing and the cash flow here is projected at $770 per month on a $45,000 total investment total cost of about $45,000. So look at your cash on cash return. Now everybody I hope you are sitting down because this one is going to blow your mind okay and this cash on cash return is nothing short of amazing and remember I love that very, very simple cash on cash return metric because if the property goes down in value if it becomes worth $1 the day after you buy it as long as you achieve the income and keep the expenses at the pro forma expenses you will get this cash on cash return of get this 21% annually cash on cash. Amazing that doesn’t include tax benefits. It just doesn’t include anything, it’s just based on the income your money is generating. Now many of our listeners including yours truly as well have been interested in hard money lending or private lending and I’ve been doing a lot of that lately and I really like it. I like the simplicity of it, but the best I’ve ever gotten on a hard money loan is 13.25%. So here even if you manage it one-third worse than projected, you’re going to get about 13% cash on cash. So that’s the comparison to your hard money loan and it also gives you some tax benefits as well. So all of you can really see why I like actually owning the property better than doing the hard money loans to the private lending. I think the private lending and hard money loans it is my second favorite, but owning the property is far and away the best. Now the other thing Sarah, do you want to mention the overall return on investment here?
Sarah: Overall return on investment projected at 40%.
Jason Hartman: 40% annually. So when you put everything into the equation with some conservative assumptions you know including vacancy rate management fees and maintenance fees et cetera you know you’re looking at an overall return there potentially 40% annually and you know what I always say Sarah, it doesn’t go as well as projected it would only goes half as well and you make 20% on your money I bet you’ll be happy as a clam and clams are really happy.
Sarah: Well and just one more thing I wanted to add in on this particular new construction duplexes is that each side is four bedroom 2.5 bath and the total square footage is 2800. So that’s 1400 ft.² per side and it’s also in a really great area. So you’re tenant classes probably going to be pretty nice. I mean usually duplexes are not that many bedrooms are not that big you know per side so it’s a nice property.
Jason Hartman: And you know I want to mention something on the area comment you just made. Generally speaking we like houses in sort of suburban kind of yuppie or semi yuppie, not really, really yuppie, that would be too expensive and the cash flow wouldn’t make sense type areas and you know yuppie of course is that old I think it came out of the 80s that young urban professional right and those kind of areas that are nice areas and areas pretty much anybody listing would be willing to live in they are not really bad areas, where you know in these really bad areas the cash flow can look good but you know the management becomes a real nightmare and you know I kind of love to pick on Detroit so I just want to mention something on Detroit here because I saw an article about it at the other day and this is from news and it says and Sarah I haven’t talked to you about this but it’s mind-boggling right. Detroit’s vacant field are dumping grounds for the dead. This is mind boggling right. It says of all the grim stories coming out of Detroit this one from AP News might be the bleakest of all “abandoned and neglected parts of the city are quickly becoming dumping grounds for the dead at least a dozen bodies in 12 months time writes Corry Williams and authorities acknowledged that there is little they can do. The problem is that with vast swaps of the city now vacant and few people have reason to venture into any of these areas including the police you can shoot a person dumped the body and it just goes unsolved because the delay in finding the corpse says one city or lease officer in fact some of the victims are believed to have been killed elsewhere and dumped in Detroit just for that reason. I mean that is really they shouldn’t be laughing that’s a really sad story. But you almost have to laugh because it’s mind-boggling. I mean can you imagine a place where the economic devastation is so significant and that’s really some parts of California I think are going to be like that in the future, not all parts but some parts and I mean that’s what happens when you get these unions and that the government and all those social programs they just ruin it and Detroit is kind of the poster child for that. It’s pretty mind-boggling it really is. But we like the areas that are nicer you know we got people all the time trying to pitch us on selling $25,000 homes in Detroit and that’s why I have to mention that okay. We turn those deals down constantly. Right Sarah do you have any comments on that.
Sarah: Yeah I mean we get e-mails and calls all the time offering the lower price point property and we have sort of dip into some of the older properties and the older construction. We try and stay in decent areas though because there are some all-cash buyers that you know only have certain amount to work with. We also have investors purchasing with their IRA and of course financing and the IRA is very challenging and so some of them you know 40 to $50,000 deals are still attractive but I mean anything under 30,000 I would just stay away.
Jason Hartman: You get down into some of those things and they just become messes. They just — they just don’t work in real life. They look good on paper.
Sarah: I mean I always say you know in talking with different investors about the lower price point properties. The question really is you know do you want to pay now or do you want to pay later. If you buy a nice property you know newer nicer property in a good area the return is going to go down a little bit you know your return will suffer or projected return I should say but you are going to have less maintenance and it’s going to be more of passive deal. When you get into the older stuff at the lower price point you may have an excellent you know cash on cash projection but you know you are going to be paying into a little but little you know every year. So it’s just the question is you want to pay now or do you want to pay later?
Jason Hartman: Yeah good point, good point. Well and when we say nicer and more expensive you know we are talking about properties between 70 and $120,000. It’s not like they are that expensive. But you know here is another one. Let’s talk about this one. Let’s jump on the jet and let’s go over to Memphis, Tennessee. This market has been again surprisingly good to us and our clients and we have for a long time didn’t want to do Memphis. We really kind of objected to it. But we finally came around and you know a few more clients who are probably listening are the ones who brought us around. So that’s why we love it when you participate in the show and share your experiences with us because we learn a lot of from all of you all of you listeners and clients. But this one let’s just look at the pro forma here. We have got an ROI return on investment projected at 29%. What else would you like people to know about this one, Sarah.
Sarah: Well I mean this is a perfect example. The older more established property at a lower price point, it’s 56,900 and purchase price is about 1300 square feet built in 1964 and it’s a three bedroom two bath, but looking at the picture is has got a great little curve appeal. I mean it’s just you know you can tell it is just an older construction deal and in talking with the seller you know it’s in a good area. He would probably rate this like a B area and you know not a high crime rate area or anything like that, but estimated rent is 850 a month and cash on cash is projected at 16%.
Jason Hartman: Yeah you know this property looking at the picture for the benefit of the listeners it’s a tree-lined street, it’s got nice big lawn, it’s nicely manicured. You know when you start seeing a lot of bars on windows and fences those are the areas to avoid, so yeah. And that by the way is why I don’t like a lot of this foreign countries folks that I know some of my competitors are talking about and I have been there and I have looked and I just — I don’t think it works that well. I have been to 64 countries and I have looked at real estate in all of them you know I have gone around with agents there and it just doesn’t work. The American real estate so far I still like it the best. So this one 56,900 and it will cost about 18,000 to get into, $44 per square foot and your cash flow here is almost $3000 per year on an $18,000 investment. So how does that make the cash on cash return look Sarah?
Sarah: Great, I mean it looks great.
Jason Hartman: Oh well I was kind of going for a number there.
Sarah: Well I already said that 16% of cash on cash. That’s what I said.
Jason Hartman: Okay, sorry about that and –
Sarah: Jason knows how ill-prepared I am for these interviews.
Jason Hartman: And by the way folks we do not rehearse at least we are totally spontaneous. I just happen to be on the phone with Sarah and I said you know I have been wanting to get you on the show again and she says okay well let’s do it now. So there we go, that’s her amount of rehearsal. Okay good so we done talking about this one then.
Sarah: Yeah I mean again this is a great all-cash buy or IRA deal at this price point but also we do have lenders that can finance these, so if you are somebody that may be is working on your very first deal and you want to stay under $20,000 for your initial cash invested, this is a great starting point.
Jason Hartman: Good stuff. Okay now before we talk about the next property I wanted to talk a little bit about business models. You know folks in my financial freedom report newsletter I published an article a couple, about three issues ago and for those of you who subscribe and that article was about different business models in our business. Okay so first of all most of you know that what we do is pretty darn unique. But there are a few other people out there that do similar things to what we do. And many of them though and many of them have podcast that are quite popular by the way and I know you may have stumbled across them at one point or another, but they don’t have the same business model we have. See my background in over 20 years is in the real estate business. Now I used to own a traditional real estate company that I sold in 2005 to Coldwa Banker [PH] and that business is a pretty traditional sort of service oriented business and that’s my background. When I was in college I became a real estate agent and started selling properties just like any other realtor that you probably know and that’s been my background. I didn’t go into this business from the perspective of being an Internet marketer or a radio show host or anything like that. I am in this business as the real estate person that is my perspective on it. Even though I use media and so forth in that business. Now what’s interesting about that and why I bring that up is because I was talking with one of our local market specialist the other day who happen to be on someone else’s podcast and you know I asked him about it and that was about a year ago that he was originally on their show and I said how is it going do you do any business with them. And he said well know we haven’t done any business with them yet and I said gosh you were on over a year ago and not a single referral. And he says well Jason you know the difference is they are not really in the real estate business they don’t have investment counselors like your company has. They don’t provide any sort of follow-up service or anything they do is basically do a show. And it’s a different business model am not saying that’s bad. I’m just saying it’s different.
Sarah: And Jason you know let me just comment there because that begs the question. You know are they investing in the same properties that they are hyping up and talking about on their show, you know do they have experience working with investors that are you know investing in these markets and the ins and outs of the little details you know in analyzing properties and making sure you know that the maintenance is projected and you know all of these items are itemized on the pro forma.
Jason Hartman: The answer is I hugely doubt it, 99% chance the answer to all those questions is no they don’t. Many of these shows you can just play a fee and be interviewed on the show. We don’t charge our guest to be on our show. We put our guest on the show because we want them to be on the show because we think their content is valuable. So we are not an advertising company, we are not an advertising portal. We are real estate investors, buy and own properties all over the country. I have been involved personally in thousands of real estate transactions and this is what we do. We just happen to be talking about it on the show and so, so it’s really a different business model and Sarah what kind of inspired having you on the show today is that you were talking about one of our sort of competitors and how one of our clients bought a property through them in the past and then came to us and couldn’t get any help, couldn’t get any service after the transaction had closed and it was about a year down the road. The offer free lifetime rental coordination. We will help you years and years after the fact. Okay as long as we are around if you have an issue with your property, a lot of times even if you buy the property from somebody else we will help you out with that. And Sarah you do that every single day of your career. So you know I thought I would ask you to comment on that.
Sarah: Yeah I mean just a little things that come up you know with property management and more specifically communication. You know everybody is always really excited and communicating well when they’re trying to get the sell or they are trying to get the business and then you know years go by and sometimes they forget the value in that and you know don’t return the calls quickly or a lot of times you know investors get a little bit nervous about maybe a situation that comes up with their property and meanwhile the property management, they are working on it and everything is fine, but they are not communicating that to the investor and so you know I’m happy to you know jump in and make sure that investors are getting updates. We do that all the time, so you know another thing you know that happens is sometimes property managers you know they go out of business or maybe they get too busy and they take on too many clients and so you know if we ever have to go in and identify a new property manager, that’s just part of what we do. So and again you know Jason and I and our other investment counselors have properties in a lot of these markets and so sometimes we have to do it for ourselves and then you know that is a benefit to all of our investors or vice versa. Sometimes our investors bring you know great new team members to the network and then began then share that with the rest of our group. So it’s just nice to be a part of a group where you have kind of you know somebody to check in with when you have questions.
Jason Hartman: Yeah our referral network is helping people buy real estate every single day. That is what we do, it’s not the radio show. We are a real estate company in the background, that is what we do. We do this and live it and it’s amazing because I remember how you know I was very successful in the traditional real estate business. But I was 24 years old I was earning almost $400,000 a year and all of our listeners can adjust that for inflation by the way. Because you know all about inflation and you know it really makes a difference because you know what my clients had always said to me Sarah. You know I was one of the top agents in the Re/Max [PH] system for many, many years. And my clients always said I cannot believe your level of follow-up are you keep in touch with us. You know we bought this property from you eight years ago, 12 years ago and you are still in touch with us and you know I was just kind of taught that it’s all about repeat business. And that I think is a major, major distinction between us and the other people you might come in contact with out there.
Sarah: You know it’s funny you say that because it really is about relationships and you know just the real quick story. Last week I had a gal call in and she says hey you know I would like some more information about you know what you do, my friend referred me. And I said oh okay well great and nice to hear from you. Thanks for the call you know, who is your friend. And she goes you know what I am a real estate agent, can you just cut the small talk and just tell me if you can help me. And it was literally like that kind of call. You know she wanted to buy, sell one of her clients on you know California property and she had a license but wasn’t really involved in the business. That she wanted to outsource that you know and get paid on the deal and you know I really wanted to explain to her like, you know what we did and why it’s probably not in the best interest for her to have our clients buy in California right now, but she just like the rain gave me the inch. She was just so sure and I’m thinking gosh you know that, she had about a great and like you know long-term client and they do you know for everybody listening we do work with real estate agents you know. If you’re in a market where your properties just don’t make sense and you have somebody looking to invest, just you know call in or e-mail us and we do work with agents in helping their clients find great properties.
Jason Hartman: Absolutely, yup, we definitely do, we are an open network. So we help agents do that for the clients and we pay them referral fees and so with you know it’s just win, win thing all the way down the line. But hey let’s talk about this last property real quick and then get to our guest today.
Sarah: And that would be the other new construction deal at Indi.
Jason Hartman: Yup and you know the reason I kind of want to talk about this one is because I just bought one of these with the client of ours didn’t I.
Sarah: Yup.
Jason Hartman: So AJ and Sandy hello out there. How are you? We just went on one of these deals together and I actually have been investing with them. So talk about this one and give the listeners the details on it.
Sarah: Well this is another new construction, single family home in Indianapolis and you know what I like about this one as opposed to the duplex is that it’s so much smaller, cash investment. So if you know $50,000 is a bit much for you to get started you know this one is right around $20,000 initial cash invested with 20% down and the purchase price is 1049. It’s a nice single family home, it’s about 1600 ft.² cost per square foot is $64 and estimated rent is 1150 a month. So cash on cash projection for this one is also 20%.
Jason Hartman: 20%, that’s just amazing yeah. Now one of the things I also want to mention is you know our two — I would say you know maybe I don’t know if you agree with me or not, but I would say our two best cash flow markets right at the moment are St. Louis and Indianapolis. Would you agree with that by the way?
Sarah: Yeah I would, St. Louis and Indianapolis. And I also think you know Memphis is coming around on some of there like B and C class properties.
Jason Hartman: Yeah in other words being really high on the cash flow side of the equation. And maybe we should just mention you know St. Louis for a moment because we haven’t talked too much about it lately as of the listeners might be wondering why not. Well I guess it’s kind of nice that you know your company has the ability to do this right because we do so much volume the way Apple computer does where we sort of put our supplier out of business for a little while didn’t we.
Sarah: We did and I actually got an e-mail from a client today and hopefully he’s listening you know will be listening to this podcast but you know some of our investors purchased these you know duplexes in St. Louis and when we first started, they were already ready to go. But what happened was we had such a high demand because of the high cash flow that you know we contracted all the ones that were rehab and we started contracting deals prior to the renovation being completed. Now of course if you do that you don’t close until the rehab is done and you have the right to inspection and all of that but what happened was they got kind of backlog. So you know they were contemplating the catch of game and so I got an e-mail from a client who you know was a referral I believe his brother also purchased with us in St. Louis, but you know just saying hey you know, the closing got postponed. They said they are almost finished with the rehab. You know can you just kind of check-in with them and see how things are going and again that’s part of what we do is just trying to stay with them through the processes and you know he actually responded to my Indianapolis duplex e-mail saying he wants to get going on another deal and needs to wrap up the first deal. So you know this is just kind of something that happened in St Louis and so maybe some of you guys are noticing that we are not getting a lot of new inventory there because we don’t want to over promise and under deliver. We want to wrap up those deals and want to make sure all the investors that you know are buying are now happy and then once everything caught at we will probably get some new inventory there again.
Jason Hartman: Yeah this is the important thing to understand that all of this — this whole game of real estate investing is so dynamic, it’s so fluid. It’s always changing and you know as soon as St Louis for example starts to slow down and they get behind and their rehabs are moving too slowly because they have got too many transactions in the pipeline we stop referring there because you know it will be too long a wait for our clients to close and that’s exactly what we are saying. So you know St Louis is fine we still like the market, but we just can’t recommend it at this very moment because we are waiting to play the catch up game with our supplier, the same way you wait for the factory in China to manufacture all those iPhones that you want to buy right. So they have certain launch date and that’s what we are always doing. We are always monitoring this and the same thing happens within Property Management and with rental expectations and so forth. So say for example you have a market where it’s renting really well and then three months or six months later we start to hear from clients, oh you know what, my house is vacant a little bit longer. My apartment building is not leasing up quite as quickly as it used to, then we stop recommending that market. You know we investigated, we see what’s going on and if it’s the systemic issue that that rental market may be softening for example, we stop referring that market and we favor another market instead. This is the beauty for you as our clients have been area agnostic. And that’s what we are, we are area agnostic. Okay so anything in closing Sarah?
Sarah: You know we didn’t mention our upcoming boot camp in Atlanta. So I just wanted to say I’m really looking forward to that. I missed the one in St Louis which I was really bummed about but I have been to Atlanta before. I love it there. I own property there. So I’m really excited for that boot camp and for anybody that’s going to be there we are going to be showing properties the next day. So it’s always great to put a face with a name and so we would love the opportunity to meet you guys in person and if you can make it happen, we would love to see you the last weekend of September, all the details are on the website and we are happy to take calls if you have any questions, call or e-mail us and we hope to see you there.
Jason Hartman: Yeah so any of our investment counselors can help you with questions on the upcoming boot camp and tour in Atlanta. I just want to briefly tell you some of the stuff we cover. The creating wealth boot camp is our most fundamental program. We had thousands of people come through that over the years and you’re going to learn nine basic things. Okay there is much more to it than this because it’s a full day from about nine in the morning till 6 PM and it’s almost, all of it is given by me. I teach that one myself, unlike meet the Masters where we have guest speakers and by the way we got something to mention here about Masters in just a moment. But the nine things, the nine most fundamental things you learn there is how to move from active to passive income as quickly as possible. We will talk about of course my fundamental thing, the 10 Commandments of successful investing, how to understand true ROI, how to read performance, how to vet them and vet the properties, how to pick the best markets, how inflation benefits us as investors, how to get tax-free money out of your investment over the course of your investing a lifetime, how to maximize returns and minimize risk at the same time, we will talk about the three dimensions of real estate and we will talk about our complete solution for real estate investors. Now before you go Sarah I just want to mention it and that is meet the Masters. You know for many, many years now I have put on these meet the Masters of income property investing events and we had lots and lots of you come and we are still going to do it. But we are making a little bit of a change and we have been talking about this for a few months and what we are planning to do is do Masters only once a year. Now there is a reason for this okay. Number one is that we want to do more events in different cities. We have had some great success holding the creating wealth boot camp and a property tour the following day in our markets and we want to get you guys out to our markets. We want to see you in places like St Louis, Memphis Atlanta, Dallas and Phoenix and so in the interest of doing that we are thinking that we want to do maybe four or five events in other cities with the property tour combined per year and then do Masters once a year in January. So it’s kind of a new thing for us and I hope you all like it. We will be happy to hear your feedback and you know if you want to change our mind tell us you hate the idea and you want Masters twice a year like we used to do in every spring in fall. But that’s what we are thinking of doing and many of you have asked why haven’t they announced meet the Masters yet. It is usually in October. Well that’s why because we have been wrestling with this idea and we want to do more events in other cities in our markets and get you in the market actually looking at properties. Sarah any thoughts on that?
Sarah: No I think meet the Masters in January is a great idea. You know everybody is all into that goal setting after the New Year and what better way to start off the New Year than to make a plan of action to go with your goals. So I like the idea, maybe we can squeeze in two, if there is a demand for it. But that seems to be a lot of demand for this on location boot camps and you know for those of you that haven’t attended the one-day boot camp, you really should attend once a year. It’s a great refresher course. You know I think I do Jason Hartman event at least once a year and I always pick up something new because the different markets are always changing, the lending is always changing you know of course there is always a plan you know politics that Jason loves too, bring it to the mix. So you know it’s a great time and it’s a great refresher course for those of you that have already attended. You know, join us again and then learn about the market while you are there.
Jason Hartman: Yeah and so that’s the nice thing. You get to do two things at once. You get to see a market may be visit the city that you haven’t been to before and also get some great real estate education. So that’s fantastic. Okay Sarah hey thank you for joining me today. We always go so much longer than we think we are but hopefully we are keeping it interesting for the listeners. But thanks for joining Sarah.
Sarah: Okay thanks for having me.
Jason Hartman: Be sure to call in to the creating wealth show and get your real estate investing and economics questions answered by me personally. We would love to have you call in, share your experiences, ask your question and a lot of other people listening have those very same questions. So be a participant in the show at 480-788-7823, that’s 480-788-7823 or anywhere in the world via Skype Jason Hartman ROI, that’s Jason Hartman ROI for return on investment. Be sure to call into the show and we are going to enter all of the callers in a draw for some nice prizes as well. So be sure to call into the show and I look forward to talking with you soon.
Jason Hartman: My pleasure to welcome Alasdair Macleod to the show. He is a senior fellow, contributing author and podcast for goldmoney.com and he heads up the financeandeconomics.org website. Today we will talk about monetary policy, fiscal policy or as I said before we started taping monetary or fiscal calamity as it were and just kind of get into it in the outlook for the economy and what investors might want to do about it. Alasdair joins us today from about 180 miles outside of London, England. So it’s in the evening his time and welcome Alasdair, how are you.
Alasdair: I am very well and it’s very nice to speak to you, Jason.
Jason Hartman: Well my pleasure. So tell us about your thoughts, I’m sure you have many are especially being in Europe near the newest epicentre of financial crisis. It was over here three years ago, but it seems to be moving and morphing.
Alasdair: Well I don’t think you came to me for good news. Really so I hope you didn’t. I mean as we speak today, there was yet another meeting between France, Germany, Italy, Spain in Rome which came away with absolutely nothing and you know sort of they have agreed that, that’s got to be a growth package of €130 billion, but that was already preagreed anyway. And the problem isn’t growth packages. The problem is that they are all bust. And you know they have got to address that problem, not talk about, why didn’t we spend the money on infrastructure which is they are talking about. They are also talking about introducing a turban tax, you know our tax on back transactions which Mr. Hollande, the President of France is so keen on, but I mean this is absolute rubbish. I mean it’s fiddling while Rome burns and I think that’s actually quite appropriate. It is the Nero influence if you like, that’s sort of comeback to haunt us 2000 years after his death.
Jason Hartman: You know that’s a good comparison Alasdair, it really is maybe more contemporary way to look at it and it’s not that contemporary but 100 years old about is rearranging the deck chairs on the Titanic. Every time our prestigious world leaders meet at any summit, the discussion is just, it’s based around one thing, shall we you know when they say, well the ECB or the Fed be responsive and what is the response. The response is always print more fake fiat money. That’s all they can do or introduce a new tax, either one is going to either devalue the savings virtually everybody or decrease economic activity through taxation.
Alasdair: Yeah I agree with that entirely Jason but it’s worth when you say in the sense that they don’t have the tool of being able to just print money in the way in which the Fed or the Bank of England does. The quantitative easing is effectively banned as far as the ECB is concerned. So what the ECB now doing, I mean they have taken all sorts of collateral to try and keep the banks afloat. They are now lowering the quality of asset, that was announced today. They are lowering the quality of asset except they are taking residential mortgage-backed securities, do you remember them four years ago.
Jason Hartman: Sure do.
Alasdair: They are taking securitized loans of the banks, I mean this is — this is just — this is last ditch stuff.
Jason Hartman: Well explain that a little more if you will. I’m not sure the listeners know what you are referring to specifically?
Alasdair: Well basically the ECB stands there ready to help, so the banks in the Eurozone where they have liquidity problems and the way that works is quite simple. We will lend you some money in return for the deposit of some collateral which you will assign over to us and that’s what the banks do. But basically they run out of collateral. Well they run out of good quality collateral, if you think the sovereign debt in the Spain and Italy is good quality, Greece good quality collateral. Anyway, now the digging is done saying well we will take residential mortgage-backed securities. I mean what Spanish RMBS going to be worth, securitized loans on small companies and things like this. This is the endgame for your I’m afraid, Jason and the reason that it is hitting Europe rather than anyone else is because the ECB is not able, it is banned affectively by its constitution from printing money in the way the Fed or the Bank of England can do. Because the primary reason for printing money is to finance government spending and at the same time rescue the banks. In other words when you get, the banks have contracting balance sheets on their bank credit side. The amount has to be replaced by new money and this is why QV is so favored by the central banks because it kills two birds with one stone. It finances the government and it rescues the banks. The ECB is not able to do this, so they have to find other means of trying to keep the banking system afloat.
Jason Hartman: It would seem that the Keynesians out there though who set up you know the modern version of the Eurozone and the European Union would have allowed themselves that backdoor the way they do in virtually every other country most ridiculously the United States.
Alasdair: Well the reason that they didn’t allow that was because really the ECB took over the role of the Bundesbank. The idea was that the euro was going to be a properly run currency on Bundesbank lines. And remember that said, the Bundesbank was operating in an environment where the Germans have had their currency wiped out twice in the last hundred years and the result is that’s all the result was that the Bundesbank ran a pretty tight monetary ship. The other thing that happened in Germany which is unique really to Germany more or less unique to Germany in Europe and that is that they did not discourage savings. So the result of that is that savings you had a savings driven economy rather than a consumption driven economy and that’s the fundamental difference between Germany and the rest of the Eurozone and the result is that you got a very very strong successful German economy. Remember that it absorbed a bust East Germany when the Berlin Wall fell down and that was an enormous cost. But it’s been strong enough to bear that cost, absorb it and go on to better things. In contrast with the euro was created, what happened was that the Mediterranean countries in particular found that their cost of borrowing declined. In other words they were dealing on the back of Germany’s credit. So what did they do? Governments just said, well pay let’s go and spend some and that’s basically what happened and now they have got themselves into the situation where the creditors are saying no more we want our money back.
Jason Hartman: Wow what a mess. It’s really a structural system though, that is prudent. It makes sense but now nobody stops spending I guess. Nobody stops pandering to buy votes with other people’s money and you know ultimately it really brings back Margaret Thatcher and her famous quote, the problem with socialism is eventually you run out of other people’s money.
Alasdair: Yes, though your analysis am afraid is absolutely right and I have an enormous sympathy for the people who are caught in this. I mean think of the people in Greece who have effectively, you know I mean they have been impoverished by this, they have been impoverished by the government’s actions. The fact they don’t understand what is happened to them and why it’s happened to them, doesn’t stop me feeling if you like, an enormous amount of human sympathy for the plight. They are having to queue out for food now. I know this is a feature of a lot of America, but this is — this is something which was never, never going to happen in this sort of brave new Eurozone world. It comes as a very nasty shock for those who haven’t been prepared for it.
Jason Hartman: Sure, it sure has. But you know I just have to ask you about that though Alasdair. I mean haven’t the Greek citizens being the beneficiaries of it all these years. I mean that they probably didn’t really think that it would come home to roost as it has in such an ugly way, but you know they have been retiring at young ages and enjoying government largesse and you know a very sort of laid-back lifestyle. It’s not like, the government has just completely stolen all of the money, they had just spent it.
Alasdair: Well Jason that is true if you work for the government. It’s true if you work for one of the industries that are very closely allied to government like the Railways or something like that.
Jason Hartman: You know isn’t it true if you are a hair stylist and retiring at a young age because you work with dangerous chemicals speaking of hair dye and things like that. I mean you know I heard they get to retire like 49.
Alasdair: Well no. I think I mean.
Jason Hartman: Is that a myth or are you going to tell me that’s not true.
Alasdair: I think that’s the bit of a myth. I don’t know the details but what tends to happen in this case is, is that the union which is close to government manages for its workers to arrange a very good deal and that’s been going on in Greece for some considerable time.
Jason Hartman: And in California and in the United States in general, but especially California. You know the public employee unions are just, just have destroyed the state.
Alasdair: Absolutely. I didn’t like to suggest this but, think of California being twinned with Greece. Then you get a pretty good idea, underneath it all there are lots of very honest people just trying to make a living, trying to do their best to provide a service for people and they are getting screwed and that to me is tragedy in the whole thing. And the same incidentally it’s not just Greece, Italy. You find that even the lower middle classes are now so frightened about losing what little money they have that you know they get in their cars and drive over to Liguana or they drive over to Austria or France and they try and find some way to change you know sort of, if you like Italian denominated euros into something else, whether it’s a bank account or French denominated or Austrian denominated or whatever because they are worried that their government is going to fail and what they are going to do is they are going to endorse Italian issued euros into you know something that isn’t worth a euro. I mean this is — this case are really quite frightening and this is now going on in not only Greece but Italy which is extremely large, Spain which we have all heard about an obviously Portugal. Ireland is perhaps less hysterical about it, but hysterical is the wrong word. These are genuine freeze from you know which are in the past minds of individuals. So I do have enormous sympathy with them because their governments have fouled up and they are now paying the consequences and in the case of Italy I mean Mr. Monty is trying to screw down the tax. I mean a year ago, it was you know a nice yacht comes in to a harbor, right we will jump on board that and just make sure that it is not an Italian owner. We will go and pay someone in Lichtenstein to leak the details of bank accounts say that we couldn’t see whether we bought any Italians who are ferreting money away.
Jason Hartman: Or they just — that’s really similar to what the Obama administration is doing. It’s got to be just you know an encouraging people to expatriate from Italy. I mean the government is basically attacking its own citizens.
Alasdair: Exactly, exactly and funnily enough, I have written a bit for the — for gold money because I do a weekly thing and I describe it as governments are now eating their own children. I don’t know if gold money will print it but.
Jason Hartman: Well that’s a really an appropriate way to say it.
Alasdair: It’s an apt metaphor. And I mean really what I’m trying to say Jason is that we have watched the politicians need time after time after time and nothing happens, nothing happens, nothing happens. If any of your listeners are beginning to sort of get bored with the whole European thing and which is totally understandable because today we had yet another meeting in Rome. The reality of the situation is that Europe is bust and how on earth, how on earth the politicians deal with that I really don’t know. They have got no answers at all. This is why they meet and they come up with blandishments like, we need another 130 billion growth package you know and we got to introduce a turban tax. I mean really, they have come up with nothing. The real problem is that they are bust and they cannot, cannot face up to it.
Jason Hartman: Well first of all, a comment on something you said a while ago and that’s although it’s, is that everybody listening needs to understand that what always happens with government, the larger it gets the more abusive it becomes, it’s always the way of things. It never ever anywhere in history or anywhere on earth there is never an exception to that rule. And what happens is like in Greece, like in California and with the federal government of the United States in general the people running the show will dip their hands in the tail to a greater and greater extent and give themselves more lucrative and more luxurious packages pensions benefits, earlier retirement ages. The public employee unions are destroying California, they have destroyed Greece. Look at what’s happened in Michigan. I mean there is just never an exception to this rule, is there.
Alasdair: No I think that’s right. But the point I would make about Europe is we are now beyond that. The politicians are no longer in a position to feather the nest in any way.
Jason Hartman: Yeah eventually, eventually you know comes time to pay the piper and we are there, we are up against that wall.
Alasdair: We are there, yeah.
Jason Hartman: So that’s what I wanted to ask you about, but I just wanted to make sure I made by libertarian point there, okay.
Alasdair: Well I’m totally in agreement with this and why on earth interest rates Bond yields for these countries are as low as they are. I really don’t understand. Would you lend money to Spain at 7% or at 6.5. No way I would, but you see this is why they are in it debt trap because if the interest rate went to the level which I would sort of think, well hold on a minute, that might be worth a risk, then actually what we are then saying is interest rates are so high that there was no way they are going to get out of this. So I don’t want to lend them money at 10%, 15%, 20%. No way because they are bust. I’m not going to get my principal back and the higher interest rates are the less likely I am to get my interest you know my interest is paid. So they are in a debt trap which they are not addressing. Now it can’t be done. If politicians understood precisely the problem that they have and if they were not advised by Keynesian economists, they would have a chance of getting out of this problem but neither of these two conditions are true. So I just don’t see how we can reverse the normal order of crisis first, response second. That’s what’s happening.
Jason Hartman: Well that’s what I want to ask you about. See I would submit to you and the listeners that both you know in Europe and in the United States, austerity is really not even an option any more, although it’s going to be forced upon everybody. We are just so far gone into this path of big government and all of these things that it’s just a complete bust. And of course plays out differently in the US, it will probably play out as the slow devaluation of peoples wealth who aren’t playing the game correctly because the dollar will be further debased. But in Europe it’s just hitting, it’s just hitting a wall right.
Alasdair: That’s right but I think, I think there is one way in which they can defer this. And that is — that is for all central banks to announce maybe this weekend, maybe next weekend I don’t know, but sooner rather than later probably to announce coordinated quantitative easing. And in order for that to work things are got to be so bad that even the ECB can do it without the Germans complaining. And I think that, that moment is pretty close. I think there is no other way in which they can get out, I mean that doesn’t get them out of it. All it does is, it just kicks the can down the road, but it might give Europe another I don’t know well if you are lucky three months, six months, beyond that who knows. But I do think, I do think that there is a very strong possibility that the central banks will do that. And if they did that the market response I think might take pressure off the euro and give a little bit of breathing space to governments. But the key to it I think would be the other side of the deal and that is that the ECB in Europe would have to get commitments from the governments in Europe, I mean particularly the ones in trouble to really deal with that spending issues. You got to see real cuts because it’s not just — it’s not just budget deficit, it’s rolling over debt and they would have to be really substantial cuts.
Jason Hartman: What kind of percentages are you talking about. I think the people are just you know in the various countries, where this applies, they are just too spoiled, they are just used to the government giving them this and that and it will ultimately be forced if they don’t do it willingly at first you know which is of course a much better plan, but is anybody going to do that voluntarily?
Alasdair: I honestly don’t know. I think, I think it’s like anything else. You know you got to be really frightened before you sort of actually get off your backside and do something about it you know, but a really bad situation like this. And I think we are going to get to that point what everybody is so frightened that the one thing they can agree on is that well forget reflation, forget you know all that sort of stuff, the fact is that we are bust. And we got to get out of this problem and you know the idea that — the idea that the Eurozone would break apart, I think in terms of desirability, comes second to actually keeping the thing going. And that’s a rarely a very, very big incentive for the politicians to buy into real austerity. And I don’t actually I mean when it comes to what austerity is, actually what we are talking about is cutting the inefficient spending in the economy which is the government spending. It’s that, that is crowding out the entrepreneurial relationship between, well between entrepreneurs and the consumer because that is where the progression in an economy comes from. It doesn’t come from government spending. If you actually cut that government spending and maybe through QE, keep the banks afloat, then you have got a chance that perhaps while your GDP numbers are getting a lot bad you might find that unemployment begins to stabilize after a period. Maybe not a very long period and things begin to look may be a little bit better, not reflected in that to say and things like GDP which is just a money total. But really reflected if you like in the very strong likelihood that at some stage, entrepreneurs are going to begin to think hold on, I got a way of making money out of this or in the situation people need this, they need that. They got a little bit of discretionary money which they can spend on this. I think I’m going to see if I can provide it. That’s really what entrepreneurial ability is all about and that can happen if you remove all this excessive wasteful government spending. That’s what got to be cut.
Jason Hartman: And how will the situation with the European Union play out with the nonmember countries.
Alasdair: Sorry, do you mean the Eurozone with those that are not in the Eurozone?
Jason Hartman: Right.
Alasdair: Yes, that’s quite a difficult one because David Cameroon for example is being running around Europe recently trying to protect British interest because our banks have enormous exposure to the Eurozone but I have been talking to a number of people in places like Madrid and so on that I get the feeling that they are in real — they have got real problems in somewhere like Spain. And for you know the bank manager if you like to sort of come around and say I don’t like what’s going on, just sort of, it risks rubbing people up the wrong way. So the answer to your question is I think that the relationship between particularly the UK if you like as the largest currency outside the Eurozone, single currency outside the Eurozone I think it could be very, very difficult and I think our politicians got to be very careful in how they tread on this one.
Jason Hartman: Yeah it’s really quite a mess and I mean well.
Alasdair: Yes it is, it is.
Jason Hartman: Let me take a brief pause. We will be back in just a minute.
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Jason Hartman: Let’s talk about the States for a moment. I love, whenever I go to Europe, out of the country in general I love reading more foreign media and just being exposed to sort of the attitudes and the perspective on the United States from outside of the country. What are your thoughts about the US and particularly our problems as they relate to monetary and fiscal policy you know in terms of your outlook for inflation or just kind of where things are going, I mean there are quite a few deflationist out there still even in the midst of this massive debt and spending and it surprises me. It really does.
Alasdair: Yes I think the principal difference between Europe and the US and for that matter the UK as well is that we have central banks. I mean you have got the Fed we have got the Bank of England who can put off the inevitable by printing yet again and that’s what’s happening. I mean when I look at what’s happening to money supply and things like that in the US I get the very strong feeling that you’re going to have another round of QE. It would suit to have some more QE because your government has got to be funded, your banks balance sheet are going nowhere. There is a risk of contraction. We are beginning to see that the economy in both the UK and the US is beginning to roll over and the thought of shock from Europe is very, very concerning.
Jason Hartman: What does roll over mean? When you say roll over what do you mean by that?
Alasdair: Well you have had a little bit of sort of recovery in GDP numbers if you like and there is participation that things might get a little bit better, but that’s sort of disappearing into the rearview mirror and the reality coming out is not quite so good. So on that basis I can see that is pressure is for a new budget quantitative easing going to mount on the Federal Reserve board and I think they will amount on the Bank of England as well. So what that does basically is it just buys time it doesn’t deal with the underlying situation. If anything it makes it worse because you made the point earlier about how the destruction of savings is going on. Printing money is destroying savings. Now as to how that gets recognized in the market, you got a situation where the Federal Reserve board are trashing their own currency. At the moment the currency is supported because most international businesses run their balance sheets in dollars where they have currency risks, they are trying to wind this down so that they don’t you know I mean whatever that view on the dollar from an accounting point of view, if you go back to the dollar then you know you have dealt with the risk problem as it were. And that’s what’s been going on at the moment, but at some stage that’s going to cease I would think. At some stage as well you’re going to find that the dollar will ease in the foreign exchanges against commodities and as that happens price pressures will begin to mount in the US. So inflation will then sort of comeback I know that inflation is understated. As inflation –
Jason Hartman: By about 50% at least I would say.
Alasdair: Well yeah absolutely. I mean we’re talking a bit of nonsense because there is no such thing as a general price level. I don’t know about you Jason but you know the things I spent my money on would probably very different from what you spend your money on.
Jason Hartman: Oh most definitely, yeah. Everybody has their own personal inflation rate, you know you no question. However they keep manipulating the basket of goods you know they keep changing in and weighing it differently and substituting you know.
Alasdair: It’s a nonsense, it’s a complete nonsense though, the whole of that sort of statistical thing is just — it is a nonsense, there is no other word for it. So you know I think that at some stage the pressure is going to come back on the dollar. Your inflation I think is going to start to perk up, even without any economic recovery if you like. Call it a stagflation thing and really the reason that happens is because the dollar which has no intrinsic value whatsoever other than the promise from your government, the full faith in the credit of the government is exactly the same with Pound Sterling in the euro for that matter, that begins to be eroded in the marketplace and is that begins to be eroded in the marketplace, you will find that prices rise and as prices rise you have then got the prospect that interest rates have got to rise because the market will no longer where the situation, where the Fed suppresses interest rates at zero and under those circumstances then you’re looking at government deficit which really is so obviously out of control. Now your government is already in this debt trap. You don’t notice it because the Fed has managed to depress borrowing cost to very, very low levels.
Jason Hartman: Well again, you know they are manipulating the rates, they are so artificially low given the kind of debt we have. It’s just, it can’t go anywhere but up in my opinion. In fact I can’t believe they have been able to manipulate this long and kick the can down the road this long. I mean I thought rates would be much higher by now.
Alasdair: Well it’s a reflection. I think quite simply it is a reflection of the expansion and narrow money which as we know really took off after the first banking crisis back when Lehman Brothers fell over in best terms. But we are coming up to second crisis, so we are likely to see another round of this I think. I can’t see how we can avoid it if we are going to have Keynesian rescue of you know the global economy.
Jason Hartman: The real estate market in the US is really in recovery mode. It’s actually quite shocking and I just sort of attribute that to all the money printing that stabilized and I use that word sarcastically I guess stabilized the stock market right after Obama’s election all of the QE and the bailouts and so forth and just the Keynesianism and I think it’s finally trickle down to the real estate market in the US where I call it the nominal recovery. But the real estate prices are going up and inventories are shrinking massively all around the country. It’s really rather amazing how quickly that’s turned inside of just a year.
Alasdair: I don’t think we need to be very surprised. Now obviously I know nothing about the detail of your real estate markets. But the one thing I look at, if you like from outside is I look at what you get on your money on the street. I look at all terms of investment. There maybe some equities that you could buy if you find a company that pays a nice safe dividend and the rest of it. The alternative is that you can buy a house at a depressed price and rent it out and you will get an income on that. And you could take the view that if I can sit on this say for the next five or 10 years, then you know it will probably recover and I will probably make a reasonable return and I suspect that, that is the logic behind the recovery that you got in your real estate markets.
Jason Hartman: Let’s talk about gold and precious metals for a moment if we can. Now you are a writer and a podcast for gold money. Tell us about gold money. I hear about that company frequently in you know the precious metal circles or the gold bug circles, what makes it different?
Alasdair: I think what really makes it different is that it offers a facility to people who want to hold physical bullion, not in our homes but in a secure location and gold money offers locations in London, Zürich and also in the Far East. And particularly outside the banking system, this is important because if you are trying to ensure against systemic risk then you probably would take the decision that you don’t want to hold your insurance policy within the banking system. So that’s basically what gold money does and it’s very, very simple. They don’t do anything else, they hold gold, silver, platinum, palladium I suppose and you know that’s what they do. It’s very, very simple and but I think the key point is that you can have your gold, silver whatever held outside the jurisdiction in which you live which makes it slightly harder for the government, your government to actually get that hands on it because it sort of just that little bit removed and its outside of the banking system and it’s really as simple as that. It secure, it simple.
Jason Hartman: So with your last comment and I want to just play devil’s advocate with you on a couple of things. You said that it makes it harder for one’s government if it’s outside your own jurisdiction to get their hands on it. But doesn’t it make it harder for you to invest to get your hands on it too?
Alasdair: Well I mean yeah it depends on the circumstances. If we have a complete collapse of global banking system, then accessing anything is going to be interesting. Let’s put it that way. At the moment banks are regulated you know in different jurisdictions, but if the banks go then I suppose the regulators go as well. I don’t know. Now at that stage really what you are going to want is you’re going to want to have something which, is that insurance policy in the background which would help you. Now what I would probably do if I thought that was likely is I would have a facility in a company like gold money, but I would have some spare changes it were in gold and silver at home. But I wouldn’t want to have everything at home for the simple reason that you know I am then open to being robbed or whatever, whatever.
Jason Hartman: You know I always say that to my listeners and I want to talk to you about gold and so forth here but my grandfather was a bit of coin collector, gold bug himself and he suffered home invasion robbery that was not pretty at all and very dangerous to keep it in your house. And it’s certainly, if you ever do, do not tell anybody because it is a very risky proposition I would say. So you know I agree with you there, but you know here is the thing, look there are few different kinds of gold bugs if you will okay. There is the person who believes in systemic failure, who believes the zombie apocalypse is coming and you know you should have gold okay. There is that one out there who believes in the collapse of the dollar, the collapse of civilization and that is one kind of person and okay and I see their points for sure. And then there is the other type of person who just believes the dollar or when I say the dollar I substitute it for any currency in any country, any fiat currency is going to collapse or not totally collapse or it’s just going to continue being devalued and they want a hedge against that inflation, they want to store their wealth in a way that won’t be debased along with the fiat money. So you have these two kinds of people. Now let’s examine the really ugly scenario, the collapse of currency, the collapse of civilization. Well with Gold Money and companies similar to that, their argument is look I have just a piece of paper you know a Federal reserve note if you will backed by the full faith and credit of the US, a promise that ultimately every fiat currency on earth has ultimately become worth only the value of its commodity, paper and ink okay.
Alasdair: In fact less than that because most of it’s electronic.
Jason Hartman: Well, good point. I didn’t want to even go into the — you know when they say the printing press of course that’s the metaphor okay, but it’s electronic really and so that makes sense. But if you are storing your well with another company like Gold Money or any company, there are other companies that do similar things and you know I have gold storage and so forth. Aren’t you really just accepting a case of paper or a something on a website that says, hey I have $1 million in my gold money account. I mean that’s fiat too, isn’t it?
Alasdair: No because what you have got if you like is you have got an entitlement, it’s actually not an entitlement, you know we are actually at Gold Money we are acting as custodians for your property, as simple as that. It’s yours, it’s not you know there is no counterparty in this at all. It is your money, your own gold, your silver.
Jason Hartman: Well isn’t the government at the as custodian for the value of my money too?
Alasdair: You wish.
Jason Hartman: I mean obviously they are not doing a good job, I will agree with you there.
Alasdair: Yeah, the answer is that they are acting as custodians as far as, they have issued the currency and have discouraged you or banned you from using anything else as currency. But if you like, you know the way in which they look after your interest is to put it that is, at its mildest extremely negligent. The last thing they have is your individual interest at heart.
Jason Hartman: Nobody, nobody listening to the show would disagree with you on that, okay. My listeners are very in tune with that idea that the government is being very negligent and so our central banks. But what really ultimately people are being asked to do with any company that stores gold and gives you a statement like a bank statement saying you have this much, that is just a piece of paper too ultimately. I mean and the reason I bring this up Alasdair and I don’t mean to be disagreeable, but you know I had Peter Schiff on the show a while back. And I just want to remind all the listeners that Peter Schiff predicted that gold would be $5000 an ounce by the end of Obama’s first term and better hurry on that prediction.
Alasdair: You never know.
Jason Hartman: But you know no one seems to mention that, as right as Peter has been on so many things you know let’s see if it’s $5000 by November okay. But he said you know he was hawking and pitching that, that people should buy gold that is stored in the Perth Mint and he was selling this financial product okay. And I was thinking, well isn’t that just fiat money too, I mean if it’s not in your hand, if you don’t have physical possession of it, it’s just a statement on like the brokerage account statement or bank statement or a dollar bill — a dollar bill is just a statement too. It’s just — it’s all fiat in my eyes.
Alasdair: What it boils down to Jason is something which Austrian economists are very, very well — very much aware of and advocate quite strongly. And that is in a free market, the people who will succeed in providing a service are the ones that look after the customers and have to trust their customers. The thing that is most important about any storage facility, whether it’s Gold Money or Perth Mint or whatever, whatever, whatever, is that they have to be absolutely clean and clear about their reputation. There must be absolutely no question in the customer’s mind about what is actually happening to my gold held at the Perth Mint or at [Indiscernible 1:13:54] with Gold Money that you have to be absolutely clear that you are confident in the counterparty, well they are not counterparty, the custodians for your real money. And that basically is what we try and do and this is — it is an absolutely vital point. I mean you’re right to raise it and you know this is why, if the whole reason on debt behind Gold Money and this is why what we try and do is to cut out any counterparties because, if let us you go to a bank, you go to a bullion bank and say you are ready wealthy, you can open an account at the bullion bank and you say right, I want to put my gold and my silver in an unallocated account. The bank will say well we would rather you put it in an allocated account — sorry I want to put it into an allocated account. The bank would turn around and say, well we rather you put it into an unallocated because it’s a lot cheaper for you. But actually what that means is that they can do things with it, but you insist and it goes into an account which is allocated to you. In other words that bank then has a custodial relationship with you. Now the problem is that banks are regulated and the regulators are controlled by governments. If the bank goes belly up on a spike in the price of gold because it hasn’t got enough gold to cover its obligation on the unallocated accounts, how certain are you going to be that your gold held on a custodial basis allocated to you in that bank, how certain are you going to be that that is protected.
Jason Hartman: Oh not very – yeah not very well, yeah.
Alasdair: You know with the best will in the world I would not go and accuse a bank of letting me over and take my allocated gold and using it for its own purposes. But I think if I’m going to put aside some of my money into gold or silver as an insurance policy as against the worst, I think I’m going to want to be confident that when the worst happens, that is still mine and that basically clears is what Gold Money sets out to do.
Jason Hartman: Okay so what you mentioned about the Austrian economist a few moments ago is being absolutely certain and putting your faith in our reputation okay you mention that word. And the founder of Gold Money in your circle is James Turk has an excellent reputation from everything I have heard and here is my qualm with that though. When someone depends on reputation, everybody has the great reputation the day before and what I mean by that is if you look at our friend Bernie Madoff, he was President of NASDAQ. Okay if you look at Jon Corzine with MF Global, he was governor of New Jersey. I believe he was CEO of Goldman Sachs. When you look at the Enron folks, before the Enron scandal, they had incredible reputations. Kenneth Lay was hanging out with George Bush, not that, that’s a — you know endorsement but, these were people that were at the highest levels of our system and you know there are other examples as well and you know look at what happened.
Alasdair: Well, Jason the system is the right word because everybody that you mentioned was regulated. They were hiding behind the regulator. The whole point about regulation is that you can do a way with any reputation issues the moment you are regulated because all that happens is you say, well I am regulated. So why should you be suspicious about you know what I’m doing. I am regulated and I comply with the regulations. So don’t call my integrity into question. Now this is the way banks and the whole of the financial securities industry works, they all hide behind regulation.
Jason Hartman: Well in fact they encourage regulation to keep competition out. That sort of a whole another subject and we don’t need to get into but yeah.
Alasdair: Exactly that. I mean the fact is that regulation is good for business, for any business that you know might otherwise be quite regarded as quite careless with their customers. So we are a very, very different thing. We do one thing, that no conflicts of interest at all. We just — you know we will buy and sell gold and silver for you and we will store it. And that is all we do, there is no other conflict of interest and I think that’s desperately important. I mean in terms of regulation, the regulation that we have in Jersey is that, yes we are regulated by the Jersey Financial Services Commission. That is one of the first — it’s the jurisdiction which is in the first division if you like, of international financial centers. Jersey prices itself on that. Jersey is — I can tell you because I have actually worked in Santalia in Jersey. It’s rather like a village and it’s like how it used to be in the city of London before the massive regulation. Everybody knew who to deal with and who not to deal with. Reputation is all in a place like Santalia. And that’s why it’s a very good place for us to be. You know that we don’t have conflicts of interest and people have confidence about you know this is established and you know one of the foremost financial centers of offshore or international financial centers.
Jason Hartman: I just wanted to kind of clear that up and understand that a little bit. But give out your website if you would Alasdair and tell people where they can learn more.
Alasdair: Yup well I have my own website as well which is financeandeconomics.org, though most of my writing at the moment is for Gold Money Foundation and that’s goldmoney.com and you will find it all there.
Jason Hartman: Fantastic, well thank you so much for joining us today.
Alasdair: That’s a great pleasure, Jason. Thank you.
Introduction: This show is produced by the Hartman media company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email [email protected]. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, or business professional for individualized advice. Opinions of guests are their own, and the host is acting on behalf of Empowered Investor Network Inc exclusively. (Top image: Flickr | Images_of_Money)
The Jason Hartman Team
Transcribed by: Renee’
