Jason Hartman and John Rubino of DollarCollapse.com tackle the latest hot EU issue happening in Cyprus with the potential implosion of the Cyprian banking system. John discusses what is on the table to bail out Cyprus and the consequences of any deals reached. He also shares his outlook for Japan, the U.S. and other countries around the world, including the race to debase currencies and the run to gold. Listen at www.JasonHartman.com/podcast for more important insights and details.
John Rubino manages the popular financial website DollarCollapse.com. He is co-author, with Gold Money’s James Turk, of The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.
Female Voice: 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 then you ever thought possible. Jason is a genuine, self made multi-millionaire who not only talks the talk but walks the walk.
He’s been a successful investor for twenty years and currently owns properties in eleven states and seventeen 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’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman: Hello, it’s Jason Hartman. Welcome to the Creating Wealth Show. This is episode number 308. Hope you enjoyed the last episode with Jim Rogers and some of the great prior episodes we’ve had in the last 307 of them. And today we are going to talk with John Rubino, and we’re going to talk a little bit about economics. I wanted to sort of put this interview ahead of several others and switch it up, because we talked a lot about the Cyrus situation, which is an absolute disaster and a really scary situation, and it really shows how important it is to follow the plan that I have outlined. And really what that plan is — you — you know I mean there are many parts to it, of course but one of the major parts to it is to denominate — denominate your assets in things. And one of the things that we’ve seen about Cyprus is how difficult it is for governments to go after things and how easy it is for them to go after paper or monies stored electronically, essentially in banks and that is a very, very scary situation.
Basically as I’ve been predicting for many years now, the people in Cyprus — now I didn’t predict it in Cyprus, of course, I predicted it in the United States and that is that the potential for our government to seize retirement accounts and to nationalize them to of course protect us from ourselves and from the ups and downs of markets and so forth, and this happened in Argentina. It’s happened in other countries historically, and I think it is a real possibility here in the U.S.
So, your retirement fund should be self directed and when it’s self directed you can have some of that fund in things. Remember, governments always go for the low hanging fruit. They look for the easy thing, whatever they can get at grab billions or maybe a trillion or more dollars in assets and do it through decree. Okay, through just changing the law and all of the rest that follows is electronic or paper and very simple for them to do this if you have those accounts denominated in dollars, savings and banks or in brokerage accounts. Very easy to do.
But if it’s in things, say you owned a bunch of real estate or you have self directed assets within that retirement account — say you have notes and trustees, much, much more complicated to deal with those types of self directed assets. So, that’s one part of it and the other part is denominate your liabilities in — in debt, in fiat currencies like the dollar and denominate your assets in things. And you know I’ve said this before, a lot of people say well you know, money’s not important. You always hear that cry from the poor right, or the people who just didn’t succeed in life, they always say, oh money’s not important right? And in a way they’re right, but I’d like to put a new spin on it.
Money actually isn’t that important. What’s important is things — the things that buys. And you know for some reason I just think of the movie, Cast Away with Tom Hanks and when he was stranded on that desert island what he lacked was things, those things have intrinsic value. Housing is a thing and it’s made of things. It’s made of commodities that are traded globally and have intrinsic value regardless of a specific currency, they have intrinsic value.
Now our guest today is a gold bug. I asked him that before we started the interview, if he could be considered a gold bug, and he said yes. And I just want to remind you of my take on this. I know we’ve discussed it so many times before in the last 307 episodes of the show and on my other shows, as well. And gold and silver, they are a defensive, not an offensive strategy. They’re a way to save, but not a way to invest and I — I used to have five things I identified that were flaws in gold and silver, and then I increased it to seven things. And now I’m up to eight things, okay. So I’ll just remind you before we jump into this we’ve got this — this guest is great. He’s really, really knowledgeable and I think he has a really balanced view of the whole situation, which you’ll hear here in just a moment, but just a reminder on the — the flaw in the metals.
Number one: Know income. And you know what I say, anything without income, without rent or without income is not an investment, it’s just a speculation. And this is why raw land that doesn’t produce income is not an investment in my opinion it’s just a speculative gamble. You’re gambling on, will it go up and — and that’s speculation.
Number two: No financing, no leverage, you have to pay one hundred percent cash for this asset.
Number three: No tax advantages. In fact, it has terrible tax treatment because it’s taxed as a collectible and that is a twenty eight percent tax rate, to my knowledge and that’s just for the federal. That doesn’t include any state tax you might have to pay when you sell it. So here you could be looking at a liability of — of around forty percent of your game. You know, you can’t do a 1031 tax deferred exchange like you can on a piece of income property. Again, no tax benefits whatsoever and certainly no depreciation tax benefit while you own it, which is the — the holy grail of tax write offs. And taxes are the single largest expense in any of our lives and income property is the most tax favored asset in America.
Number four: Subject to confiscation. Oh cry, they say. That would never happen in a country like the United States. It already did happen in the ’30s. Gold was confiscated from people and it was confiscated based on a price of, I think if memory serves me correctly, of twenty one dollars per ounce back in the ’30s, and then instantly when the government grabbed the gold from the population from us — from the citizens, it instantly recast the price of that gold to thirty five an ounce. I mean, just a — a complete scam at every level. So it’s subject to confiscation.
Number five: High transfer costs and questionable liquidity. Now, this is one of the things the gold bugs love to brag about is the liquidity of the asset, but they don’t really tell you about the transfer cost most of the time. When you buy gold or silver you pay a premium above the spot price and so, you know you might pay a premium of let’s say one hundred dollars per ounce for an ounce of gold. It might even be higher. It might be one hundred fifty dollars per ounce. It depends how things are going at the time, but these premiums, just like the prices of the metal, fluxuate. And a lot of gold dealers say well, they’ll buy your gold back from you if you buy it from them. Well maybe they will. Sure they probably will if they’re still in business but the question is, at what price. At what price will they buy it? Okay. And they charge you a premium or — or you pay — you get paid a discounted price when you sell it to them, yet you pay a — a — the spot price plus a premium when you buy it.
All in all I did some calculations on this a while ago, on this premium to get in and out of the investment or in and out of the asset, and it amounted to about eight to twelve percent. You pay a couple of percent on the way in, you pay a few percent on the way out, eight to twelve percent. So, that liquidity is a little more questionable than I think most people would have you believe.
Number six: Remember these metals, gold and silver, especially the monetary type metals are competition for central bankers and they want you to deal in their fiat currency, their dollar or whatever the currency is that they’re recommending, if you will. So this represents competition to them and they like to manipulate the prices. And if you look at the GATA, the Gold Antitrust Action Committee website, they’ll show you how central banks and governments around the world have been manipulating gold prices, and that’s fine. It’s — it’s not fair. It’s wrong absolutely, but the question is can it be stopped? Can you ever stop these incredibly powerful interests, more powerful than probably any government on earth at the end of the day? They say that the Rothschild family — I — I recently saw a piece about this, the Rothschild family that is behind many people think, but nobody knows for sure because it’s like part of that — that new world order secret society, but the Rothschild family, this big banking family, look them up, do some research on them, it’s quite interesting, is worth potentially two — get this. I — I mean I was shocked when I read this, 230 trillion dollars. And you thought Bill Gates and Warren Buffett, the billionaires were rich at somewhere around fifty billion dollars or what is it Carlos Sims, the Mexican telecom mogul. I think he was up to eighty billion dollars or seventy billion dollars at one point. These people are nobodies in the more secretive world of the Rothschild’s and the other people who control central banks around the world at an estimated — and — and again, nobody knows the number, but it estimated two hundred thirty trillion with a “T” dollars, trillion dollars.
Now just to get some perspective on that, of course we all know a trillion dollars is a lot of money, but with inflation it ain’t what it used to be, right. But the GDP of the U.S. is somewhere around twelve trillion dollars. The GDP of the entire planet earth in one year is around sixty trillion dollars. The Rothschild and the debt is what around sixteen trillion dollars now U.S. debt. Okay, the entitlement time bomb of — of what we cannot pay, has been estimated to be between sixty and two hundred trillion dollars of the — the U.S.’s entitlement obligation, the forward looking entitlement obligations, and just one major central banking family the Rothschild’s could potentially be worth two hundred thirty trillion dollars. Do you really think you’re going to out manipulate them? They really control the prices of gold and silver, okay along with J.P. Morgan of course, and the rest of the — the Wall Street cartel. Okay so, you don’t have control because it’s — it’s subject to manipulation.
Number seven: And this is interesting, one of our clients Gary who I’ve had on the show before, an interesting guy, some of the old shows he’s been on commenting on some of this stuff. But number seven, the — the interesting question here is, what is the supply? One of the things Gary says is — he — he said to me when he bought his first piece of income property through us, he said Jason, you know I’ve invested in pretty much everything in my life. I’ve purchased stocks, bonds, mutual funds. I purchased ETFs. I’ve purchased gold and silver and other metals, and I’ve purchased shares in oil and gas exploration and I’ve owned businesses, and I still own businesses, and I’ve done bank CDs. I’ve done pretty much everything okay in the investment world, but the one thing I do know is that they can always create a new stock. There can be a new initial public offering at any time and a new stock is created. The supply is not limited, but they can always find a new oil field or a new natural gas exploration opportunity. They can always find a new gold mine, new silver mine, a new platinum or palladium mine, so the supply is not limited.
But the one thing I — and — and people can always start a new business. All of these investments, there’s no limited supply. Remember, the fundamental rule of economics, supply and demand right, definitely. But the one thing I know Gary says is that all real estate has been discovered. It has been mapped and catalogued and it has all been discovered. The supply is absolutely finite, it is limited.
So, my comment on that, well that is true. However there is a lot of real estate in the world okay. If you’ve flown over the U.S. anytime recently, you’ve seen a lot of open space. Now the question is, a question of distribution. Well, is it in a desirable place where people want to live, where businesses want to locate? So that’s another question, of course. But when you combine real estate and the favorable elements it has like the most favorite tax treatment in — in America, it’s the most debt favored asset in America. Housing has absolutely universal need, everybody on earth needs three basic things. Just remember to your — your psychology class, Maslow’s hierarchy of needs, the three basic human needs, food, clothing and shelter and the shelter is made from commodities, and as the world population increases, and as the middle class grows in size, okay they say that globalization for better or worse, you know there are detractors and proponents of globalization, but for better or worse it has lifted almost three hundred million people around the world out of poverty. And when people are lifted out of poverty, they start consuming more and more stuff. And guess what they start consuming? Concrete, lumber, petroleum products, copper wire, glass, steel, all the ingredients of a house or an apartment complex. So shelter, shelter, shelter. The question is what is the supply? That’s number seven.
But finally, Number eight: You know when you talk to the gold bugs they say, did the gold go up or did the dollar or whatever currency you’re referring to that you live you life in, maybe it’s the Australian dollar or the euro or the — whatever it is, okay. the ruble — you know, I don’t know, whatever — whatever the currency is, it doesn’t matter, okay, the Swiss frank, whatever that fiat currency is, the question is, did the dollar go up or did the currency go up or did the — or did it go down and was that the reason the price of gold or silver went up?
And universally if you talk to gold bugs they will always say — the way they always answer that question is that the currency went down in value. So there again you have proven my point that this is simply a defensive strategy. It is a way to store wealth. It is a way to save money. Fine and dandy that’s great, but then it begs the question, what do we do about investing? We’ve got to do something offensive. None of us just want to tread water. None of us want to just keep pace. We want to grow. We want to expand, we want to make money. We want to create wealth as is the title of the show, The Creating Wealth Show.
So, that’s what we want to do. We want to be on the offensive seat. We want to be in the cat bird seat as opportunities come, we want to exploit them, we want to be opportunists. And in my opinion, there is no better way to do this than by owning income property, rental housing, everything. Every factor practically is on your side. When you consider all of the multi-dimensional aspects of an income property investment, where they’re not just looking at appreciation or depreciation, but you’re looking at cash flow, tax benefits, leverage, inflation induced debt destruction, multi-dimensional asset class.
So, with that let’s get to our guest here but before we do, just want to mention, we have been having a few website problems, as you know so if you have any trouble registering for our upcoming Memphis creating wealth in today’s economy boot camp, and distressed property tour, it’s going to be fantastic. It’s just a little over a month away now so get your plans made, register for that at jasonhartman.com in the events section. If you have any trouble with registration, just give us a call, (714) 820-4200. Our web developer promises our websites will be back to one hundred percent by the end of business on Tuesday. So I’m sure hoping that comes true. We’ve had a few glitches of problems in — in some of the change over here.
Anyway, let’s get to our guest here. Be sure to join us in Memphis. We want to see you there. It will be a fantastic event. We’ll share several meals together, do a lot of networking, you can get a lot of questions answered from me one-on-one personally over dinner, over lunch and the other investment counselors that will be there as well, and you’ll have a chance to hear the creating wealth in today’s economy boot camp. That’s a nine hour day on Saturday and then of course the property tour the following Sunday.
So, it will still be a great time. Early bird pricing is still in affect but the pricing will be going up in the very near future. We just do that based on the amount of registrations. So get registered. Go to jasonhartman.com and let’s go and let’s talk to our guest. Oh and by the way we’ve got some other great guests coming up, I wanted to mention. We just did an interview with the chief economist for Trulia and what’s really interesting — just let me take one moment on this. What’s really interesting about websites like Trulia, Zillo, realtor.com is that not only do they have an economics perspective on things, but they also know who’s searching for what and what they’re — what they’re searching for which is an incredibly interesting thing to know.
If people are searching in markets like Memphis or Atlanta or Dallas or Houston versus markets like Los Angeles or New York or Miami, okay or Chicago, the markets that make sense and the price ranges that make sense. So, a lot of interesting things we talked about with the chief economist from Trulia. We’ll have that show up here in the very near future. And let’s go to our guest. We’ll be back with him in just a moment.
Female Voice: Jason provides an extremely unique service, deal evaluator. Are you interested in a property outside of our network? Need a second opinion? No problem. Let our experts evaluate the deal. Find out more about it at jasonhartman.com.
Jason Hartman: It’s my pleasure to welcome John Rubino to the show. He heads up a website called Dollarcollapse.com and I’ve read some interesting articles there, and he’s also co-author with gold money’s, James Turk, of the book the Collapse of the Dollar and How to Profit From It, published by Double Day back in 2007. John welcome, how are you?
John Rubino: Hi Jason, thanks for having me on.
Jason Hartman: Well, the pleasure is all mine. You’re coming to us from I guess, northern Idaho today, right?
John Rubino: Yes, beautiful, scenic, cold northern Idaho.
Jason Hartman: Yeah, there you go, but it’s a good place to get out of the way of maybe the — the collapse that is coming soon?
John Rubino: Yeah, you know there are an awful lot of Californians moving out here already.
Jason Hartman: Yeah, yeah. There’s a lot of Californians moving everywhere. I — I — I left the Socialist Republic of California almost two years ago to — to move to Phoenix, Arizona. So — I — I consider it to be one of the best decisions of my entire life. So —
John Rubino: Oh yeah, this — this time of year in particular it’s gorgeous down there now, huh?
Jason Hartman: Yeah. Oh no, it’s – it’s beautiful here. Eight months of the year I think we have the best weather around, but those — those hot four months, it’s pretty tough then.
But hey, let’s talk a little bit about your work and what’s just going on macro economically? Obviously Cyprus, Cyprus, Cyprus, Cyprus is in the news and — and the latest, just to update our listeners and get your commentary, as of — as of yesterday they decided well maybe we’re not going to confiscate peoples’ money in the bank, although there is a bank holiday, so banks are closed, ATMs are closed, people can’t do anything, but instead of doing that, maybe we should just nationalize the pension system, something about which I’ve been predicting in the United States for several years now, going away of Argentina. The government always picks the low hanging fruit and those things are pretty easy to do especially when that money’s not self directed when it’s in traditional brokerage accounts and — and bank savings accounts. But your thoughts on Cyprus, and then you know I guess you’re predicting Italy and Japan are coming right up afterwards, right?
John Rubino: Yeah. And what’s happening in — in Cyprus right now is huge, but let — let me take a — a brief step back and — and kind of set the stage for it, because Cyprus is symptomatic of what’s going on all around the world. You know we’ve — we’ve spent the last thirty years in the U.S., Europe and Japan borrowing more and more money each year and then printing more and more currency to cover our borrowing.
So, we — we’ve ended up with more debt than we can ever hope to pay off, a kind of across the board, and — and because of that you get country after country blowing up, you know getting into financial trouble and — and it becomes clear to the world that they can’t pay their debts and they have to be bailed out in some way. And it was us in 2008 and the euro zone right after that and — and Japan is coming. But right — right now, the euro zone has a lot of stuff going on that is emblematic of the — the global financial crisis and the — the — the current one is Cyprus, which is — it’s a pretty little island of like one million people. You know, there’s no reason we should be paying attention to Cyprus other than as a vacation destination, but what they did was in the last few years is converting themselves into an offshore banking haven. They paid high interest rates on deposits and they attract a lot of money from Russia and other places, ended up with their banks — and then they took that money and they invested it in Greek bonds. So dumb moves all around and — and now they’re completely insolvent and they need to bail out of only like ten billion euros which is really a rounding error considering the amount of money that the — the European government’s have been throwing around lately, but nobody’s willing to give them that money without strings attached.
So, what the Europeans have told them they have to do is to go in and confiscate part of each account holder’s account in — in the — their banks. So they’re basically stealing money from people who thought this was just risk free money where they were just parking their spare cash in — in anticipation of doing something with it later, and that is huge because that’s the first overt confiscation of money in the western world. You know, you see Argentina do things like that once in a while, but usually they’re a lot more circumstacked, you know they’ll — they’ll raise taxes or they inflate their currencies a little bit which is really theft of everybody’s savings, but it’s kind of secret. It’s not really very clear of what’s happening to most people. This is just over theft and if people draw the correct conclusion from it, which is that none of us are safe any more. All of our bank accounts, all of our IRAs, all of our 401Ks, all of our brokerage accounts are now vulnerable to a government that panics and decides it needs to get money where — from wherever and just goes in and takes it from financial accounts, then — then we’re going to come to the conclusion that we shouldn’t be leaving our money in financial accounts anymore and that’s going to throw the financial system into absolute chaos. So —
Jason Hartman: See — see, and that’s really the key, the financial accounts, brokerage accounts, bank accounts, anything that’s part of the — the — the mainstream financial system, that’s always the low hanging fruit and that’s what is really easy for governments to come after. And so I say, look if you have a — a retirement plan, an IRA for example, if that IRA — if it’s even self directed — of course, every year you tell the government the value of the IRA on your tax return, so they know there are assets in there, but if it’s self directed those assets are a lot harder to get.
The — the assets that are in brokerage accounts, bank accounts, that’s just a — a — a law. You — you make a new law and those assets can be revested in the name of the government for our own protection, of course, because — because it’ll probably come on the heels of some market crash, whether it be engineered as a false flag or something that just happened in the market, because the federal reserve and Goldman Sachs are the giant bubble machines of the world, many — and you know, the rest of the system. And — and so, it’s just the low hanging fruit. I mean, it’s just really easy to just revest those accounts. It’s an electronic transaction. It’s just a law that’s made and — and boom, it’s done, trillions of dollars, potentially.
John Rubino: See, that’s what we all have to worry about now, that we wake up on Monday morning and over the weekend the government has decided to freeze all our accounts. So all of a sudden, we can’t get our money anymore, and then once it’s frozen, they can do what they want to with it. They can ten percent off the top or they can force us to convert our — our high quality equities into treasury bonds or something like that and there’s nothing we can do about it. They’ve — they’ve changed the law. They’re no longer acting illegally and — and we just have to accept it.
And so, the — the logical conclusion to — and you know — and then to say an even further setback, modern successful democratic capitalism is based more than anything else on the sanctity of private property and contracts. And if we cannot assume that our property is our own and can’t just be taken away by an arbitrary new law being passed and that contracts are only as good as the government says they are, then there’s no real reason to engage in any kind of financial activity that involves contracts or offshore [voice over] accounts.
Jason Hartman: And — and — and — yeah, and I just say ask the GM bond holders what they think.
John Rubino: Yes. See now that — that was a — a really important case but it was obscure. Most people didn’t understand this and eve — even though it was a contract being abrogated, it didn’t have much — much of an impact on public opinion because it was too complicated for the average person to get, but this — this thing in Cyprus where they’re just going in and they’re taking ten percent off the top of everybody’s bank accounts, people get that.
Jason Hartman: Well, that’s what — that’s what they do, they bury a lot of the stuff in complexity —
John Rubino: Yeah.
Jason Hartman: — so people don’t understand it. But you know what, I — I — I don’t want to leave that totally alone. Can you just — just take a moment to touch on the GM thing and you know, explain it in a — how they — they rate it in complexity?
John Rubino: Well, when — when GM went bankrupt — when a company goes bankrupt in general, that means there’s a limited amount of money that has to be divided up between the people that the company owes money to and they — they had senior bond holders, people who had lent money to GM by buying GM’s bonds with contractual obligation for GM to pay them back first.
They — they were first in line, if — if GM got in any kind of trouble and so, those bond holders assumed contractually that they were going to get all their money back no matter what happened, and when GM went bankrupt, the government got involved and said, no, no, we’re — we’re going to give money to the unions — to — to GM’s workers and it’s going to come out of the principle of — of the senior bond holders. So the bond holders had to take the haircut.
Jason Hartman: Because those bond holders are those evil, rich investors, those evil capitalists.
John Rubino: Yeah, and —
Jason Hartman: And — and — and — and the Obama fans can’t figure out why people hate him.
John Rubino: Yeah, well shocking. And – but — but I mean it — it was politically astute because there are more unionized workers than there are bond holders, so you — you gain more votes by doing that —
Jason Hartman: Right.
John Rubino: — because you aggregate a contract which just reverberates through the rest of the financial system, because now people with money to lend are going to be less likely to lend it because — even if it’s a senior bond with nothing above it in the capital structure, it’s still not guaranteed. You still might not get your money back if the company runs into trouble, because the government might intervene and — and — and abrogate that contract. So, that gums up the works. You know you get a financial system that’s — that’s less able to provide capital for productive uses and so you get less growth and more unemployment.
So in the end you know, doing something like what the — the government did with GM, they thought they were doing it in the interest of workers but in the end it hurts workers because mow there’s less capital available, fewer factories being built and fewer people being hired.
Jason Hartman: Right. But you’re asking a typical, American — a low information voter to actually look at the big picture. I mean, they just think what do I get?
John Rubino: Exactly, exactly. That’s — that’s why it’s — that’s why it’s a politically astute move to do something like that. But the long term consequences are horrendous because we — we really — you can’t overstress the importance of — of — of property rights, and the sanctity of contracts in a — in a functioning capitalist economy. You take that away and — and we are Argentina or someplace like that where — where things just don’t get done. And we’re on the verge of that now, and people are starting to get it. That’s — that’s why Cyprus is so important because it’s — it’s really not that much — much more importance in the scheme of things than General Motors, but it’s understandable.
Jason Hartman: Yeah, sure. Okay well let’s — let’s go back to Cyprus. So — so, good point. So, what else do you want to say about that because we kind of changed courses there.
John Rubino: Sure. Well — well, the thing to — to watch with Cyprus now is what happens when they try to reopen their banks? They’ve closed their banks. Nobody can get to the money [voice over].
Jason Hartman: They’re going — they’re going to have a run, right?
John Rubino: You would think. You would think every rational Cypriot is going to show up at their bank on Tuesday morning or Thursday morning or whenever they finally open these banks up and — and take all the euros that they have out, immediately. And you would also think that every rational Italian and Spaniard is going to see themselves as next in line for something like this and want to take their money out of their banks. So you have the real potential here for a cascade failure of the preferable euros on banking system where everybody just pulls their money out just to be safe, just to for this week, and all the big banks have no cash left and — and so they fail and have to be bailed out by the governments. And then you know you get this —
Jason Hartman: And — and that’s exactly what happened in Argentina.
John Rubino: Yes.
Jason Hartman: Okay. You know, just not so many years ago it was pretty recent, and — and — and the — the other thing that happens is this massive crime problem. Now in Argentina, the capital control they — they did is they — they let people pull small amounts of money out of the bank, not large amounts. That was the initial thing, I think, and forgive me if I’m not getting this completely right because it really — it was a long — I mean it was — it wasn’t that long ago historically, but it was long enough ago in my life, you know —
John Rubino: Yeah.
Jason Hartman: — to maybe not get it perfectly right. But — but then you had all of these people working in teams. I remember reading a Wall Street Journal article about it, working in teams to mug people as they were leaving the banks. And so you had one guy at the building across the street with binoculars. They were communicating with two other people and as the person would come out of the bank, there was another person inside the bank watching. And as people would come out of the bank with money they just robbed them and you know, sometimes they’d — they’d beat them, they’d kill them, they’d — or they just steal the money. And so it creates a — a whole slew of — of new problems, as if the monetary system isn’t enough of a problem.
John Rubino: Well, this — this gets to a — a bigger issue which is that when you destroy the value of your currency, you change the culture in a fundamental way because all of a sudden what you’re saying is borrowing money is good, saving money is bad. We’re going to punish you if you play by the rules and save for the future. We’re going to destroy you.
Jason Hartman: And we’ve —
John Rubino: [Inaudible].
Jason Hartman: — and we’ve been doing that ever since 1971 in the United States.
John Rubino: Absolutely.
Jason Hartman: So, you know that’s what I — that’s what I try and auger into people’s head. When they — when they listen to my show, they come to my seminars I say look, all of this stuff that you have believed because your parents and your grand parents acted responsibly and they have the mentality of save for a rainy day, delay gratification because that’s what you should do so that you plan for your future. All of that stuff really since 1971 has gone out the window because just in 30 years following ’71, a dollar went from one dollar to twenty four cents and the people that won the game in those three decades were the people that had commodities and things that had intrinsic value and then people who were in debt. People who had long term, low interest, fixed rate, investment rate debt tied to those commodities and what I mean there is owners of real estate because their debt was just debased along with the dollar, yet at the same time all the people that did the seemingly right thing, that had savings accounts, and even stock portfolios they don’t adjust for inflation very well although they do a little bit in theory. But those things — those things were attacked by inflation. And bonds certainly were attacked by inflation, they were destroyed.
John Rubino: And then when you see people who have– having — having their lives destroyed by — because they played by the rules, because they believed that the government was basically honest and that the system was — was set up in — in their favor, when they see that all turned out not to be true, it — it causes them to — to be willing to break any rule and — after that. So — so, the cultural norms that kept people in line and — and made for civilized society break down. So you get a rising crime at the street level, at the same time that you get people more and more willing to vote for “strong leaders”, who — who are going to maybe you know put civil liberty off to the side for a while in order to maintain order. And so you — you end up getting dictatorships out of all this too, you know.
France destroyed its currency in the — the late 1700s and got Napoleon. Germany had a massive hyper inflation in the 1920s and got Hitler and there are examples of — from throughout history of this happening over and over again. And so we’re doing it world wide, right now and so you’re – you are seeing the political system change in a really disturbing way.
And for instance in Greece now, the facets are getting a lot of votes and the communists at the same time —
Jason Hartman: Oh my God.
John Rubino: — [inaudible].
Jason Hartman: Scary, scary stuff. Oh my God.
John Rubino: Yeah. And — and so you see society break down at every level all because we’ve destroyed the value of our currency. You know, we — currency’s really the promise that if you save money now — if you delay gratification now, that the value that you’ve put away today will be the same ten years from now or twenty years from now. You break that promise, you destroy everything. You — you really tear out the fabric of — of — of a society and — and you get a place like Nazi, Germany or a post revolutionary France. You — you know, you get a place that seems crazy to us, but it’s really a normal reaction of human nature to a system that has gone crazy in the first place.
Jason Hartman: Okay. So, let’s move on and let’s talk a little bit about Japan. I mean everybody has pretty much heard about Italy, Spain, Portugal, maybe Ireland, certainly Cyprus by now. Although Cyprus is a very small country, but it’s — but it’s a — it’s a great example of how folks, you better be prepared. But move over to Japan if you would. Let’s head East and — and talk about Japan.
John Rubino: Yeah, Japan is — is not front news — front page news today but it will be soon. Basically, their story is that they — they had twin bubbles back in the 1980s, real estate and equities. Those bubbles burst in the early 1990s and instead of allowing their banks to fail and then cleaning them up afterwards and you know, getting rid of all that bad debt that had been created, the — the government chose to do kind of what we’re doing today. They — they borrowed a lot of money and they — they financed the banks to keep them alive and the builders to keep them alive, so you ended up with all these zombie organizations that — that weren’t really capable of — of giving an economy any growth, but also weren’t causing it to fall into depression. And the government had to borrow more and more money each year to keep that system going to the point where they — they owe more money at the sovereign level, the national level than any other country in the world that’s a percent of GDP. You know Japan is more indebted than Greece or the U.S., or Spain or Italy or anybody, and they’ve been able to get away with this because they — they’re people were big savors and they were running a trade surplus.
Now, those two things are done. The peo — too many Japanese are retiring now and having to spend their savings, so their saving’s rate is down to zero and they’re running a trade deficit, so they don’t have a lot of extra money coming in from, for instance, Americans buying Hondas and Toyotas to — to finance their overspending and borrowing. And so now they have to borrow on the open market, and there’s a hedge fund manager named Kyle Bass whose been making this story really compellingly out there. And then basically he says that if — if Japan has to just pay for its new borrowing what the U.S. and Germany currently pays for — for ours, that their interest costs would exceed their entire tax revenue at the — the central government level. In other words, they would have nothing left over for anything. They would just be paying interest, which means their — their system would collapse and that’s coming in the next year or two, that’s how close they are to — to this point which is — is kind of a death spiral where they have to borrow more and more just to cover their interest, which means they — they have to pay more interest going forward, because they had to borrow more. And — and — and you spin out of control and Japan is not far from that.
Jason Hartman: You know I’m curious though. I hung out with a guy recently in Belize when I was speaking in an offshore conference there a couple of weeks ago and he was talking about shorting Japan’s debt — shorting their bonds. Would you agree that that’s the play?
John Rubino: Well, if — if it works out the way it looks like it’s going to, Japanese debt is the short of the century. Now, the question is how long can they keep it going?
Jason Hartman: That’s always the question, and that’s where people just die and — and all of these plans is that —
John Rubino: Yeah.
Jason Hartman: — where you just never know when? What’s the timing?
John Rubino: Yeah, and — and — I mean that’s — that’s the — really the — the story with any investment piece is — is you want to be there kind of when it’s going to start happening, because if you have to wait two or three years for it to happen, you — you’ve got at least a big opportunity cost and maybe all kinds of interest costs and other things. And — and — so, whether today is the day to short Japanese bonds or next year is? I — that I don’t know. I wish I did, but at — at some point — let’s say ten years from now we will look back and say, oh that’s one of the things we should have done.
Jason Hartman: Right, right, sure. But why did you say two years?
John Rubino: Well, that’s — that’s Kyle Bass’ calculation. Basically the — the — the — as of now, they have to start borrowing on the international markets to finance themselves or they have to have the central bank print new yen at — at a level that’s big enough to just buy up all their debt, which would make the yen go down in value which is bad for Japanese bonds. You know either of those things is a bad deal from the point of view of somebody who’s thinking about lending the money, which is basically what you’re doing when you buy one of their bonds. And so it makes their bonds less valuable going forward, make the bonds a good short and that’s happening now according to Kyle Bass.
Now, you know I’m — I’m old enough to have been wrong on timing, a whole bunch of times in — in the past and — so things that seem like they should happen right away, frequently don’t happen for years and years, and — so I’m gun shy, based on too many overly early investment ideas that I’ve had and so it’s — it’s completely possible, based on my experience, that Japan chugs along for another few years, just kind of treading water and building up more debt and printing more yen and then it doesn’t fall apart for a while. So again, whether it’s this year or three years from now, when the — when the best entry point appears, I have no idea. But eventually it’s going to appear. Eventually, Japanese bonds are going to be a grade short and the only question is when.
Jason Hartman: What — what happens after Japan, so the dominos keep falling here?
John Rubino: Well Japan is the third biggest economy in the world and let — let them crater and — and they will pull everything else down with them. So, what will probably happen is that the — the — the other countries in the world will go to extreme lengths to keep Japan afloat, keep them from them floating and the only way to do that is to print lots of new currency and use it to prop up whoever you’re trying to prop up. So, you’re probably familiar with Jim Rickards’ book, Currency Wars, and that’s basically a blue print for what’s happening now. And — and the thesis of it is that when — when a — a country runs into financial trouble, when it borrows too much money, it eventually concludes that its only solution is to depreciate its currency. And you make your currency go down in value, that makes your exports cheaper. You sell more stuff overseas. You have more money coming in and that buys you some time.
So right now the — the three big debtor systems, the U.S., the euro zone and Japan have all come to the conclusion that that’s what we have to do, and so Japan is — is the most aggressive right now because they’re in the most immediate trouble. They’re — they’re aggressively inflating away the value of their currency and that’s going to force the — the other two big systems to do the same thing because if the yen goes down, that’s the same thing as saying the dollar goes up and we lose export sales because our currency’s too strong.
And so, probably what we’re going to see over the next few years is kind of a round robin deal where Japan for instance, pushes down the value of the yen and that forces euro — the euro zone or — or America to do the same thing. And so we all engage in a race to the bottom of the value of our currencies. We — we all push the value of our currency down to the point where some kind of financial crisis occur — occurs because everybody sees it happening and nobody wants to hold these paper currencies any more and that’s — that’s really the — the reason dollarcollapse.com is named dollarcollapse.com because that’s out there somewhere. And you know some kind of currency crisis where everybody heads for the exits at once is the logical conclusion to a process where everybody’s trying to push the value of their currencies down. And the — the question then becomes, does some big part of this war blow up first? Like just — just — does Japan have the mother of all bond crisis and does that tip us from a currency war into a deflationary crash like the 1930s or do we keep it going for a long time and have mounting inflation to where the markets look like the 1970s where interest rates go up to double digit levels and gold and silver go up exponentially for — for a few years and — and — and at the end all the currencies have been depreciated to the point where maybe we can — we can go on from there, but a huge amount of damage has been done in the process. You know there’s no way to know how — how this plays out specifically, but you know that it has to be extremely painful to get from here to some kind of sustainable system, because we have to work off this debt somehow.
Jason Hartman: Let me take a brief pause. We’ll be back in just a minute.
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Jason Hartman: What kind of opportunities do you see in all this? I mean, in all this bad news there are a lot of people who will be enriched by it. I used to say I was an optimist. Now I — now I say I’m an opportunist.
John Rubino: Yeah, you — you can be optimistic about certain investment plays within a — a system that you’ve — you’re pessimistic about.
Jason Hartman: Yeah, right, yeah. And that’s exactly right.
John Rubino: And that’s — that’s exactly what — that’s exactly where we are today. Crisis equals opportunities, and — and — and there are tons out there. You know, precious medals are kind of obvious in the sense that they are alternative currencies, alternative forms of money. So, for destroying the paper and the currencies of the world, then historically when that happens, money flows into gold and silver because governments can’t create more gold and silver. So, their — their supply is pretty limited and therefore their value goes up relative to the paper currencies out there.
Jason Hartman: And I — and I — I — I asked you before we started if — if you — if it would be fair to call you a gold bug and you said yes. And you know I’m curious, do you approach it mostly from the angle of storing wealth, saving money in these metals and just a strictly financial side, or if things were — I mean do you think things will really get bad? Is this a survive — do you have a survivalist vent to your thinking at all?
John Rubino: Well I think the worst case scenario in this is — is pretty bad and — and kind of plays into the — the survivalist’s mind set. In other words, if we end up like Cyprus where the government starts just confiscating bank accounts and — and then we have civil unrest because of that and a lot of the systems break down and — and you know, the food supply chain doesn’t work like it used to. You know things — things like that at the really extreme end of the system — of the spectrum possibility would lead you to wish you had been a survivalist, heading into it.
Jason Hartman: Right.
John Rubino: And I don’t think that’s necessarily the — the most likely possibility. I think there — there are lots of financial crisis scenarios that — that don’t destroy the food supply chain, for instance. You know — and I — I think that they —
Jason Hartman: But they sure do make it a lot more expensive.
John Rubino: Oh yeah, totally. Well they — they do that because the — the currency that you’re buying your food with, goes down in value and so it gets harder and harder to live. Yeah, the basic necessities of life get harder to get.
Jason Hartman: And that’s already been happening for many years.
John Rubino: Oh, absolutely, yeah. It’s — no — no matter what the government tells you about inflation, it’s a lot harder to live today than it was thirty years ago on a — a typical middle class income. It’s certainly on — on a — a lower — on their own income.
Jason Hartman: But then there’s the Hedonic Index, oh wait, I can’t eat my iPad.
John Rubino: That’s right.
Jason Hartman: I can’t eat my iPad, that’s the —
John Rubino: Yeah, yeah.
Jason Hartman: — the moral of the story.
John Rubino: This — this — this also plays into the — the whole cultural breakdown thing. When we realize that we’re being lied to about stuff like unemployment and GDP growth and — and inflation, that’s one more piece of the puzzle that — that we’ll put together and then come to the conclusion that — that we can’t trust the government anymore. That the — the people in charge are not acting in our — with our welfare at heart anymore.
Jason Hartman: Yeah, and — and — and you know what I say to that? Duh, yeah.
John Rubino: Yeah, yeah. But you know, there was a time when the systems were more transparent and — and you — you could — you know in the — in the ’60s, leaving the Viet Nam War out of the equation for — for a minute, you — you could look at a lot of things and kind of understand them, and — and see why they were happening and understand the rationale that the government had for it. And now it’s — it’s — it’s basically just lie after lie after lie. So, it’s gotten worse. You know, it’s — it’s harder and harder to trust the guys in charge and — and that’s because they’re — they’ve been borrowing more and more money and they have fewer and fewer painless honest options left to them. So, their only choice is to lie and continue to lie and make bigger and bigger lies out of what used to be transparent public policy. And — and so the question is what happens when we — we all catch onto it? And one — one thing that will happen is when —
Jason Hartman: Well I — we’re catching on. I mean —
John Rubino: Yeah, we are.
Jason Hartman: — it is — it is amazing to me John, how just literally I would do a seminar or I’d keynote somewhere and it would be six years ago, just six years ago, not that long. Six years ago, maybe seven years ago, five years ago, you know around there, and I would bring up the concepts about the federal reserve, a lot of these things that we’ve been talking about, and — and people just would sort of glaze over. But now, I mean the — the common man is — and I credit Ron Paul a lot for this.
John Rubino: Yes.
Jason Hartman: The — the — the — the common man understands this stuff or at least is curious about it whereas before, people just didn’t even — it was a — a very small segment of the population. It was like ten percent of the room would be nodding their head and the ninety percent would say, no I don’t know, this is too abstract. It’s too esoteric, what are you talking about? But now everybody kind of gets it.
John Rubino: That is one of the up sides of this whole collapse scenario taking way longer than it seemed like it was going to because it’s given us time to educate ourselves. And so, at the bottom when things really fall apart, we’ll — we’ll have a — a more informed debate about what we want to rebuild from the rubble than we would have otherwise. You know if everything fell apart in — in 2000 with the textile collapse, I think the debate would have been — it would — it would have taken place at a really low level. It would have been really frustrating, and now it’s you know, 2015 or 2018 or whenever we — we have the debate about what to rebuild. It’s going to be an intelligent debate. It still might not go the way you and I want it to go, but the — the people on — on the various sides will be reasonably well informed and — and so we’ll all you know, kind of educate ourselves further, as part of the process. So that at least is — is part of an optimistic scenario and that’s one — one of the few things I think you can say is positive about the — the past ten years.
Jason Hartman: Yeah, it is but I got to tell you, it’s just — it’s just really sad, and I think it’s by design with the powers that be, the way people divide up along political parties and — and — and this is G. Edward Griffin’s been on the show a couple of times and of course you know who he is, the creature from Jekyll Island.
John Rubino: Yeah.
Jason Hartman: Yeah, and — and he’s a — he — he put it so well. He said, Jason it’s like watching a wrestling match on television. It’s staged, it’s fake. These — these — these two sides of the isles, it’s largely fake. They’re really part of the same big scheme, and today one of my friends posted on his facebook and — and I just shared it on my own facebook wall, and it’s that picture that was floating around on the billboard, and I think it’s somewhere in Texas, I don’t know where it is but it’s a picture of George Bush waiving and it says, miss me yet. You’ve probably seen it. It’s pretty cute and funny.
John Rubino: Yeah.
Jason Hartman: And — and — and –but this one has that same picture with a caption at the bottom of the picture that says — it’s got George Bush, miss me yet and it’s kind of a funny picture and — and then the caption says nope, we can hardly even tell you left.
John Rubino: Actually that’s — and — and that’s — that’s a good point. You know, the way you know that — that the same party is in control after every election, is by following the money. For instance, when — when George Bush and the republicans were in charge, government spending still went up even though they were the — the party of small government.
Obama and the democrats take over and defense spending continues to grow, and — and — and nothing really changes. Are — we’re still fighting the same number of wars overseas that we were. And so — so, Guanantamo Bay is still open. We’re — we’re still conducting all kinds of coverts, military assassinations around the world using higher and higher technology, and — and so you really can’t tell much of a difference between the — the republicans who were in charge eight years ago and the guys who are in charge now, and the reason for that is — because there isn’t that much difference, you know. They — they both get most of their — their campaign financing from Wall Street and from the — the big — the other big banks and — and the big corporations and so they’re beholden to the same people.
So, what that says is that there is no fix. It’s on the — on the spectrum of politically possible. You know we will not stop what we’re doing until we fall off the cliff. So, we’re — we’re just going to careen in the same direction taking on more and more debt year after year, printing more and more dollars, increasing the amount of intrusion of the government into the lives of people, especially in their financial lives but also in their personal lives.
Jason Hartman: Yeah, yeah. So — so, let me give you a thought about that. I have a theory about this that I always like to ask my — my guests, such as yourself, and that is that — it’s the kick the can down the road question. All of this stuff mathematically you know would say that hey, the U.S. is on the verge of losing reserve currency status. The U.S. is on the verge of insolvency or really you can argue it’s insolvent already if — if we don’t mind for our own great natural resources, which we have in abundance here, and we could be the energy leader of the planet probably, if we would just exploit our own resources, you know without invading other countries. We don’t need to do that, at least not for a long time but — but the whole theory is — the whole question is, is that the U.S. — because you mentioned Japan. We talked about Cyprus, we talked about Spain, Italy, Portugal, Ireland a little bit too, but the U.S. is in a really enviable position. I’m not saying it’s right or fair, I’m just saying it’s enviable for the U.S. because we do have reserve currency. We can probably bully our way around to keep reserve currency status for a heck of a long time, even though it’s illogical, even though the other countries can see what our business plan is to inflate away our debt, that’s our business plan of course, so we get all the stuff from China. We get all the commodities, the things that have intrinsic value, the goods, and they get a bunch of paper that is losing value that they can buy less and less of our stuff later with that paper. And we’ve got the biggest military, we’ve got the biggest economy. I — I don’t see that stuff changing too much at least not for a couple of decades.
John Rubino: Well, if — if you look at how Russia and China and Brazil and — and some of the other creditor nations are behaving out there, they’re preparing for the transition. And what — what they’re doing is they’re — they’re buying more and more gold each year which would — would allow them to back their currency with gold and then suddenly have a strong currency. And they’re liberalizing the trading rules that govern their currencies to make them more useful for international trade instead of just internal trade, but they’re continuing at the same time to help prop up the U.S. to an extent by buying treasury bonds and by doing other things, to allow us to keep running a trade deficit to keep buying their stuff because that keeps their factories running.
And so they like this set up right now because it allows them to buy more and more gold and to go — you know, China’s buying oil wells and gas fields and gold mines all around the world right now with — with all the money they’re taking in. And so the longer this goes on, the stronger these countries are in relation to the — the old debtor countries, like the U.S. and Japan and Europe.
So, I — I agree that it’s — it’s in everybody’s perceived interest to keep this going for a while, but you — you can’t violate the basic laws of economics forever. You know they — they can be bent but they can’t be broken and at some point our — our debts and the resulting interest costs that — that are attached to them just become overwhelming and I — I would say that based on just the numbers, you know not — not looking how anybody’s behaving in world, that we’re pretty close to it. Because then if you add up all the — the debts, if you calculate debt correctly in the U.S. system, it comes to like two million dollars per family of four, already and that’s — that’s clearly an unmanageable another debt and it will clearly cause us to blow up at some point. And yeah, you know I — I would have expected it to happen sooner which means that I’m no — no kind of judge of short term behavior of big financial systems. So, it could go on for a lot longer than the numbers would say that it should go on, but you know it — I’d be really surprised if — if we — we were like this five years from now, you know if everything was — was still the same. I — I think that it’s much more likely something blows up, brings down the rest of the global financial system with it. It’s just a question of what’s the catalyst.
Jason Hartman: So here’s — here’s the thing, though. The — the next part of my thesis is this. Look, I host a — another podcast called the Holistic Survival Show, and I interview survivalists, experts on whether it be, you know the tag line is protecting the people, places and profits you care about in uncertain times and it’s my number to rate its show. I mean it’s big, it’s got a huge audience and here’s the thing. And here’s the thing, on a personal level as it is on a national level, it’s the same thing at the end of the day. In a survival situation, what matters is not really how much gold you have, it’s how much military might you have.
If the so-and-so hits the fan, if the crap hits the fan, what will matter most is who has the guns and the bullets, more than who has the gold and who — who owes interest to whom? And — and — and — and that’s the thing that the U.S. has. It’s got the military might to throw its weight around, and I’m not saying it’s right to be a bully, I’m just saying it’s the way of the world. It’s the way of history.
Whenever I turn on the history channel on cable TV, it’s all about war. That’s what history is. History is just war. I mean it’s this war, that war, that’s — most of history is — is war.
John Rubino: Yeah, but — especially on the history channel, I’ve noticed this lately too, because a lot of it is about empires falling.
Jason Hartman: Well, sure.
John Rubino: But — but — but empires are — are very powerful before they fall. You know the Soviet Union had phenomenal military —
Jason Hartman: But not like —
John Rubino: — at one point.
Jason Hartman: — not like the U.S.
John Rubino: Yeah, but — well in relative terms though — but you know pretty soon we’re not going to want to fight China, straight up. They’re — they’re getting stronger all the time. That’ part — another part of their strategy is building a — a blue sea navy, for instance.
Jason Hartman: I know but they — they are so — they pale in comparison. I mean, America controls every — every ocean on earth. I mean — I mean I know that China’s doing this stuff, but that’s going to take a long time. I mean —
John Rubino: Well I mean, before they’re able to fight us even up all around the world yes, but in the China Sea for instance, they — they could dominate the China Sea very easily because you know we could send a task force over there, but we’ve — in other places we’ve got to have our — our — our military engaged and if they put their entire Navy, which is now growing and — and becoming more sophisticated all the time in — in a small space near their — their coast, then they can do what they want to with Tai Wan and Japan and there’s nothing we can do about it. And that day might be coming to where — where they decide that their sphere of influence is theirs and they kick us out.
Jason Hartman: Well, remember — remember we are their best customer. So, I — I doubt that they’re going to want to really alienate us.
John Rubino: See that — that would coincide with them not needing us as a customer anymore when they’ve accumulated enough energy assets around the world and they have enough gold in their treasury to — to be able to say okay, we don’t need to trade with you. We’re not desperate for the American consumer anymore. We’re going to have – do you want a — a global reserve currency backed by gold and — and we’re going to trade with Europe or Latin America or Africa to make up the difference, and we just don’t need you anymore. So go away, and — and you know, that’s — that’s I think part of their long term strategy — and the question really is, is that at 2015 thing or 2035 thing?
Jason Hartman: Well, okay look —
John Rubino: You know, when does it happen?
Jason Hartman: — you know I see everything you’re saying and I’ll just played devil’s advocate on one issue with you and by the way, I appreciate you staying on so long —
John Rubino: I appreciate you having me.
Jason Hartman: — because you’re fascinating to talk to, but — but with that happening, that would be like a business saying — that would be like an entrepreneur saying, hey, I have enough business. I mean, nobody says that. You always want more business, right? Why wouldn’t they want the American consumer? Granted they — they’re positioning themselves to be financially sound. They’re doing a lot of the right things, and it’s amazing that they’re still considered a communist country frankly, but that’s sort of another subject. But why wouldn’t they want more? They want more. They — they’re going to want our business.
John Rubino: Well part of the — the deal in — in the current system that’s bad for China is that they have to take dollars in return for their stuff, and we’re aggressively trying to make the dollar less and less valuable. So, they — they still do have a — a big treasury bond balance which for them would be a bad investment if we succeed in depreciating the dollar.
Jason Hartman: You are very right about that, and they know that that’s coming. They know that it’s happening already. It’s a bad deal for them, but they suppress their currency too to make their exports more attractive. I mean they’ve been accused of manipulating — not letting their currency float which — which they should. I mean you know over and over.
John Rubino: Oh, ab — absolutely. The difference is is that nobody else has to accumulate a portfolio if you — on denominated bonds just yet. So, nobody else is affected by their attempts to make — you want a weaker currency and — so we — we have through the — the deal that we set up for the last twenty years, caused Japan and China and a lot of other countries, Saudi Arabia for instance, to give us stuff in return for dollars which we’re actively trying to make less value.
So, we’re — we’re kind of trying to screw them over, at least at that level and they know it. And — and they’re taking steps. You know, they-‘re — they’re using the dollars now to buy real assets.
Jason Hartman: Yeah, which is a good idea.
John Rubino: It is.
Jason Hartman: And on a personal level, that’s what people should do too, which I know is the premise of your thinking.
John Rubino: It — basically, I mean yeah. I mean it’s — it’s – if — if you could boil — boil down the — the dollar collapse fee system in sentences, it would be to move your finances away from dependent some dollars. Don’t — don’t set up anything that gives you an income stream in a depreciating currency because that’s a bad deal.
Jason Hartman: Yep, yep, you’re right. You know what I say, denominate your assets in things that have intrinsic value and denominate you liabilities in fake fiat currencies that are depreciating in value. And so — so take on debt as long as it’s long term fixed rate debt to buy assets. I mean if I could do that with gold, I’d be buying up a lot more of it. I just — you can’t finance it that well.
John Rubino: Yeah. Well you know what you can do though is you can — you can borrow against your house. Like if you take out a thirty year mortgage on a house that was already paid off and then use that — the proceeds to buy gold. You would — you would be making a leverage bet that the world is going to continue to go in the direction that it’s going. I think it would be a good bet although I — I would definitely would not advise any of your listeners to do that, because it is leverage bet you know it is a big risk. But the people who do that and — and are able to cover their mortgage payments for the next ten years would probably end up really making out.
Jason Hartman: Right, and see the thing I wish about that is if gold would just produce income then you would be in a position where you could do that and you could use the income from the investment to pay the mortgage payment that you just refinanced on your house, and that would be an ultimate arbitrage.
John Rubino: That would be phenomenal —
Jason Hartman: But it — no one — no one will rent my gold from them.
John Rubino: No, no. You do have one more layered risk. You can do that though. If you buy a portfolio of — of high quality mining companies that pay dividends and the dividends in — in the aggregate are equal to you know your mortgage will be like three and a half percent right now, let’s say. And so if you’re getting three — three and a half — four percent from your portfolio of mining stocks, then — then you’ve accomplished what you were talking about there. And then — then you have zero cash outflow and you’ve made a leverage bet against the dollar and in favor of —
Jason Hartman: And — and —
John Rubino: — precious metal.
Jason Hartman: — you’re — you’re holding something that everybody in the world agrees is — is actually money rather than something —
John Rubino: Yeah, yeah.
Jason Hartman: — called currencies?
John Rubino: Yes.
Jason Hartman: Okay.
John Rubino: Yes.
Jason Hartman: So — so, I agree with you there completely. The problem is, let’s — let’s pick the right junior mining stocks. Good luck with that one. You even said it yourself —
John Rubino: That is.
Jason Hartman: — it’s — it’s impossible, right?
John Rubino: Yeah. And — and you know to do this you have to go with the big guys because they’re the ones that pay dividends the big miners, and they have — they have a lot of operational issues right now that — that have made them bad investments over the last few years. You know they’ve actually gone down on the aggregate while gold has in general, gone up.
Jason Hartman: And you know what — you know what I fear with these mining companies is the mining companies around the world is as — as the crap hits the fan, I fear that more and more of them will be nationalized.
John Rubino: Yeah.
Jason Hartman: And more Hugo Chavez type mentality is — that’s just spreading around the world. I mean, what if you have mining company in Cyprus? Do you think the government would be looking to snag that?
John Rubino: Yeah. And — and that’s a natural outgrowth of the — the stuff that’s happening in Cyprus. If they won’t take your bank accounts they would certainly take new minings — Nevada mine or something like that here, right? They wouldn’t — they wouldn’t hesitate to do that. And so yeah, when — when you invest in mining stocks, this is something that’s crucial for people to understand because a lot of people think that a gold mine is the same thing as owning gold, but it’s not. You get more leverage — you know, you can make more money if everything works out but there are all kinds of — all kinds of things can go wrong with that business. And so, you — you — you’re investing in other words at that point, instead of saving. When you buy gold and silver as is, we — we talked about —
Jason Hartman: You’re saving.
John Rubino: — yeah, you’re saving money. You’ve taken money, you’ve putting it off to the side and you’re preserving wealth. If you invest in a gold mine, you’re investing. You’re hoping to make a lot more than you would have if you just set your cash off to the side.
Jason Hartman: You’re taking a risk.
John Rubino: Yes.
Jason Hartman: You’re taking a risk but here’s the other thing. Even if that business goes well, you have a whole new layer of risk. You have the risk of the inter — what I call intermediary party risk, and that’s people managing the deal. For example, you look at Larry Ellison, founder and CO Oracle. Okay, we’ve all heard of Oracle.
2000 to 2002, in two short years, Larry’s personal take from that company was almost a billion dollars. It was seven hundred eighty one million dollars in two years. Mind — mind boggling, yet at the same time the shareholders lost sixty one percent of their stock value, in the same exact time period and that’s completely legal. The C class and board of directors, they just skim all the damn money off the top, and that’s the problem. Even if the business does go well, if you get past that hurdle which is a giant hurdle right, then you’ve got the second hurdle of all the crockery that goes on above that between you and your money.
John Rubino: No, that’s — that’s absolutely right. I — I mean of course that’s —
Jason Hartman: And — and —
John Rubino: — an issue for stock investing, in general.
Jason Hartman: — it’s legal crockery investing.
John Rubino: Yeah, any — any time you invest in — in a company, you — you — you’re taking on the risk that not only will the business do well because of external factors, but the guys in charge might — might pull some kind of a — a shady deal that — or just be incredibly incompetent. You know you’re taking on all those risks and so you need to be rewarded for that. So you need — you need to be able to double your money in a relatively short amount of time in — in any kind of stock to make it worthwhile and that’s historically very hard to do and it’s even harder now than it used to be because — because of the — the long term credit bubble. Stocks went up in value for a lot of years, for a lot of decades, and so now we — we need a few decades of under performance in order to balance things out, which means you know finding stocks that are going to double, very hard to do now.
Jason Hartman: Yeah, and just be careful. Did they go up in value or up in price?
John Rubino: Yes.
Jason Hartman: There’s a big difference as you know.
John Rubino: Yeah. Well that — that’s really what happened. We changed the measuring stick over the last thirty years by depreciating the dollar, so for the stock market to be about where it was ten years ago, which is — is what it is today means the real value of those stocks actually went down dramatically because the dollar that we’re measuring them in, the dollars went down in value, and so —
Jason Hartman: And — and — and there’s no question about it. The Dow has not hit any new highs not yet, because it would have to go — I think I calculated it to fifteen thousand eight hundred to — to be evened with the prior high before the financial crisis.
John Rubino: Yeah.
Jason Hartman: So, we’re not there yet, you know and you — you turn on CNBC, oh they’re ringing the bell, the Dow has hit a new high, record breaking. No, it’s just in nominal dollars, not real dollars.
John Rubino: And you know if you calculate it in gold it gets even more extreme —
Jason Hartman: Oh, yeah.
John Rubino: — because during — during the depression we were on the gold standard and so stock prices were calculated in terms of gold. They went down by — by about ninety percent. But if — if you apply the same standard now, if you — if you measure the stock market in terms of gold you get about the same thing a ninety percent decrease in the real value of the — the U.S. equity market. So, we — we had a depression here that we didn’t know about. We — we mastered by printing a lot of money but we did that at a cost of taking on another ten trillion dollars worth of debt in order to hide the fact that — that financial assets were in a depression level market.
Jason Hartman: It’s — it’s one thing after another. It’s just nothing but a bunch of manipulations and people have got to be educated so they understand it.
Last thing for you and I hope you have time for just one more concept here, and — and I want to — I want to ask you about this. I believe that if you’re buying the metals you should take possession of them and at the same time I want to say that I — I don’t believe you should keep them in your house. My grandparents suffered a home invasion robbery. My dad was a — a — not dad but grandfather was a bit of a coin collector and — and guys came in at gun point, tied them up, took everything. That could have turned out a lot worse than just being tied up, but it didn’t, fortunately, but they — they lost — they lost it all. They stole everything. So, I — I believe that keeping that stuff in your home is — is a real danger to home invasion robbery. So, do not do that. But if you do own it and I — you know I’m not going to say where you should keep it, but you should keep it off site but you should take possession of it personally.
And it amazes me that all of these people who are gold bugs and who say, we don’t like paper assets, we like hard assets, we don’t like fiat, we don’t like currency, they will buy metals like gold and silver, and they will say okay, store them in some vault in Jersey, which is a European little jurisdiction —
John Rubino: Um hmm.
Jason Hartman : — yeah, yeah, with very favorable laws, I guess for off shore banking. Okay, I don’t know if that’s the right way to say it about Jersey, but — but whatever. Put — put it in Switzerland in a vault or something and/or as Peter Schiff he was on the show and he — he was recommending that my listeners buy these — buy gold in the Perth Mint in Australia. So, it be– it would be — it would be kept in Perth and I suppose you can go visit it if you wanted to, but you accept a piece of paper in return for your dollars. And the thing that blows my mind about that, about not — non-possession, non-physical possession investors is that aren’t they doing the same thing? They’re just taking a piece of paper with a promise, fiat money if you will, just like the dollar. I mean look I would — I would sooner trust, and I don’t trust the government at all, or not much — I trust them a little bit but I’m — I’m losing trust for the government, but I would sooner trust the government to give me a piece of paper that says it has value than some private company. I — I — I don’t know. If I’m crazy, please set me straight.
John Rubino: Well, I — I — I think the — the crucial point in — in any discussion about physical precious metals is recognition that nothing is perfect. There is — there is no 100 percent, iron clad guaranty — guaranteed solution to the — the physical precious metals storage question because like — like — as what happened with your — your grandparents. Somebody puts a gun to your head or — or to your loved one’s head, you’re going to give them what you have. You just — you know — and — and even if it’s off shore — or if not off shore but out of the house somewhere, you’ll go get it. You have to you know, because you — you have to protect your loved ones no matter what. And — and on the other hand as you said, if you store it in a vault in Switzerland or someplace like that you can — never seen it, you know. If they stop taking your calls, that — that gold is gone.
Jason Hartman: And — and even if you do see it how do you know it’s really yours?
John Rubino: Yeah, exactly.
Jason Hartman: They — they could have had — if — if you go visit your gold in one of these vaults somewhere, you don’t know that that same gold hasn’t been sold to one hundred other people. That is exactly the definition of fractural reserve banking.
John Rubino: Exactly. Yes, absolutely. So — so I think the — the only solution with something like this is diversification. You know, you spread it around. You — you store some at home, you store some in the bank deposit — safe deposit box, you store some overseas. You — you know you do three or four different things in the hope that two — two or three of them will work out in the end and you accept that some of it is just going to be lost because that’s the nature of the — of your environment now. And I mean you — you do that with any other kind of investing program too. If you — if you buy ten stocks you’re — you’re buying them under the assumption that two of them are going to go bankrupt and two of them are going to go up by five hundred percent and in the aggregate you’re going to make fifteen percent a year and — and so it’s the same thing with storing precious metals. You — you — you can’t put all your eggs in one basket because no basket is one hundred percent secure and so there’s — there’s really an active discussion about this online. You know there’s all kinds of creative ways to store your gold. You know it’s fun to listen to it, but —
Jason Hartman: What — what’s interesting is the — I’m seeing a lot more of these private vaults. They’re not safe deposit boxes at banks, but they’re private vaults close to your home potentially, and it’s a — it’s — it’s not a vault where it’s co-mingled, it’s like you receive your valuables and you go put them in a safe deposit box that is off the grid. It’s not recorded. I — I don’t know how the safe deposit box system works, but I — my assumption is that of course the bank knows that you rent a safe deposit box from them and of course, if they close the bank and put a bank holiday like in Cyprus, you probably can’t get access to your safe deposit box either, or if some creditor comes after it they can probably go in there and open it. I — I — I don’t know but you know, I’m just theorizing.
John Rubino: You know at this point, anything is possible.
Jason Hartman: Right.
John Rubino: A safe deposit box is — is absolutely not iron clad guaranteed security. So —
Jason Hartman: Yeah.
John Rubino: — there — there are a lot of different options out there and — and the only —
Jason Hartman: And [inaudible] recommends the midnight gardener product.
John Rubino: Yeah.
Jason Hartman: You bury it in your back yard.
John Rubino: In — in — in that case, you’ve got to bury it deep enough so that somebody with a metal detector doesn’t find it and then you have to tell the right people about it —
Jason Hartman: Yeah, right.
John Rubino: — so that you don’t — the secret doesn’t die with you, you know, and — and so that’s complicated too because, are you telling the right people or are you creating an incentive for something you don’t want to happen, to happen to you by telling the right people.
Jason Hartman: Like — like another put a gun to your head robbery, exactly.
John Rubino: Yeah, exactly. Or just you know, can — can you trust your breakfast from then on?
Jason Hartman: Yeah, I know. Yeah, yeah, you’re poisoning —
John Rubino: Yeah. So — so —
Jason Hartman: It’s complicated.
John Rubino: — everything — yeah, everything has a downside. It all requires some thought and there’s no alternative but to put the thought into it, and to diversify wisely.
Jason Hartman: No question about it. Well hey, give out your website. Tell people where they can buy the book and learn more.
John Rubino: Yeah, I — I run dollarcollapse.com, which is a — a blog/news aggregation site that covers a lot of this stuff on a continuously updated basis, and you can pick up — the Collapse is a Dollar and How to Profit From It at Amazon and pretty much any other bit book store.
Jason Hartman: Fantastic. Well John Rubino, thanks so much for the very interesting and intelligent conversation today. Really appreciate you staying on so long. I think — I think the listeners got a lot of value out of it. I know I certainly did, so appreciate it.
John Rubino: Thanks Jason, enjoyed it.
Female Voice: 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 to be 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, LLC., exclusively. (Top image: Flickr | infomatique)
Transcribed by Debra
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