Jason Hartman’s guest on this Flashback Friday episode is James Dale Davidson. He is the co-founder of Agora Publishing, the founder of the National Taxpayer’s Union, co-editor of Strategic Investment for the Sovereign Society, and founder of Newsmax. James predicts a marketplace disaster brought about by Obamacare, Chinese ghost cities, and fictitious capital. They also talk about what the economy would look like under Trump’s presidency.
Jason Hartman 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy.
Announcer 0:15
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Jason Hartman 1:05
It’s my pleasure to welcome James Dale Davidson to the show. He is the co founder of a Gora publishing, the founder of the national taxpayers union, co editor of strategic investment for the sovereign society. He’s author of the best selling books, blood in the streets, investment profits in a world gone mad. The sovereign individual mastering the transition to the information age, the great reckoning protecting yourself in the coming depression and the new book, the breaking point, profit from the coming money Cataclysm. James, welcome. How are you? I’m great. You too. I Oh, yes, yes. Well, we’ve we are we are talking post election and you are my first post election guest. That was quite an amazing victory. for Trump. It seems as though the silent majority has spoken and the mainstream media has lost a lot of credibility. What are your thoughts?
James Dale Davidson 1:52
Well, they should? Well, I’ll tell you, I, I sent Donald Trump congratulations for winning the White House the day before the election.
Jason Hartman 1:59
You just missed the Russia. Yeah.
James Dale Davidson 2:03
It produced a fantastic campaign. And I think he has sussed out the basic fact that I tried to analyze in detail in the breaking point, which is that the whole business model of Western civilization is to put and almost necessarily the consequences. The social contract, which underwrote and supported that business model, is also could put, and I think we’ve seen in Brexit and the election of Donald Trump as president in the United States. There’s strong evidence that my basic thesis is correct.
Jason Hartman 2:40
So tell us tell us why you say, why is the western business model output? Are you when you say that, are you referring to the welfare state, the massive debt spending government entitlements, issue or something else
James Dale Davidson 2:51
with the whole nest of issues that they’re combined in? What was basically described has been described over this years as big government, which was principally an invention of this the last century, the 20th century. It’s a reflection of the system which has evolved away from its the advantages at once had there were there was a time when the welfare state paid its way when you needed the gigantic, one size fits all system in order to manufacture the weapons that you needed at a mass scale in order to preserve your prosperity slash independence. But that is sort of gone. Sometime in the middle of the last century, there was an inflection point where it was no longer an advantage to have what the Polian described as the big battalions. He said that famously the guard was always on the side of the big battalions. But as from about 1950, guards ceased to side with the big battalions. Then more frequently than not in an asymmetrical conflict between a ragtag group of terrorists like ISIS, and a nation state like Iraq, the terrorist one, we saw the the Vietcong defeat the US and rice paddies of Vietnam, we saw the absolutely ridiculous expense in the war in Afghanistan, which has gone on forever. Donald Trump, correctly, in my view, analyzed and disputed the value of spending six or $7 trillion in ceaseless wars in the Middle East that accomplish nothing to make the world less safe. We have it,
Jason Hartman 4:38
okay, so so when, when you say Western, the western business models could put just to help. Let me just kind of help understand that here if I can. It’s the idea of the big one size fits all concept to a more customized, tailored approach or tell us more.
James Dale Davidson 4:55
Here’s what I think goes along with as I said, it was a whole hornet’s nest of issues part of it. Is that there was a time when government big government could efficiently provide a certain amount of welfare benefits to people. And this kept the system lubricated, made its way, there was a little bit of where there were some effective stimulus from doing this, which led to more purchases, and the economy sort of sped up as a result. So it made its way but it seeks to pay its way. And this is evident in the fact that every government in the Western world is running chronic deficits at a level that make it almost heart attack temporary, if you try to imagine how these debts can be paid. with normal interest rates. That’s why the interest rates are thrilled to have visibility, which is wiped out grandmother’s pension and other people’s pensions as well as the left the world in a deflationary stall. And this is part of the whole the whole story, we’ve lost the impetus of growth, which existed in great measure in the 20th century. And which really began to get going in the early 19th century after the industrial revolution in England. We had our own industrial revolution in the last half of the 19th century. And we were really putting with gas. As I say, after a while there was a huge increase in life expectancy, people were doing better. Now one of the reasons I think Donald Trump was elected president is because life expectancy among white middle class people in the United States has been falling. It’s sort of the same kind of indicator that you saw before the collapse of the Soviet Union, when life expectancy for Soviet citizens began to plunge, which happens when you have poverty and the lack of jobs. There are no effective for most people that are really no, no financial reserves. 70% of Americans couldn’t pay an emergency of $500, which is what made it I know, that’s mind boggling, which is what made Obamacare so disastrous, because as Donald Trump was emphasizing in the election campaign, the deductibles are through the roof. So if you have a $15,000 deductible on your Obamacare insurance policy, that means you can’t ever use it. If you’re one of the 70%, I don’t have $500, even a $500 deductible, make it useless with 15,000 makes it puts it in on another planet just doesn’t work. And I think that that’s why the social contract is fraying because basically what has happened is that we’ve moved away from mess. industrialism, which gave unskilled people, jobs. I differ from Donald a bit in his feeling that you can make America great again by bringing back jobs. Now, it’s true that many factories have moved to Mexico, China, all over the place. And undoubtedly, many of them have closed. But it’s not just the Chinese and the Mexican who are undermining the demand for unskilled labor. It’s also technology. You can look one of the most prevalent high paid jobs in the United States as truck driver for unskilled or low skilled people. But as you may know, Mercedes Benz and others have developed driverless trucks and train
Jason Hartman 8:28
transportation. Well, they’re going to displace a lot more. Yeah, it’s going to displace a lot of people transportation itself, in all its forms, not just truck driving is a giant industry, one of the largest in the world. So yeah, we’re in for quite a change with automated, you know, robotics and automation. Yeah, no question.
James Dale Davidson 8:44
Do I think we’re sort of stuck in the midst of a very important global development, probably the biggest one in centuries, kind of revolution, because the industrial period began with a bit of discomfort about the change away from the agricultural, social contract, which involved most people being peasants on biggest states. And you know, that was always a great divide between the United States in North America and Europe. In Europe, people were peasants. They couldn’t own their own land. They work for the Lord on the estate. And that’s why it seemed so attractive to cross the ocean and go even to Chile spotlite, Minnesota, where you could get your own 150 acres with a mule or something.
Jason Hartman 9:35
Ended up being a landowner and an independent person. All this was great. That was the American dream. Absolutely. You can control your own destiny. And that’s the way that’s the way it should work. Free people in free markets. No question. So, talk to us a little bit about your thoughts on a Trump presidency and the economy. I mean, what’s next what, what can we expect in the first 100 days, the first six months the you know, the first year? Well, I
James Dale Davidson 9:58
think one thing that is next is He’s going to repeal and replace Obamacare. That is definitely, definitely on the horizon. And I would think that if you wanted to know more about what the replacement law will look like, you probably need to drill into what the republicans have proposed in the House of Representatives, and have tried to pass during the last years of Obama’s presidency. Obviously, it wasn’t going anywhere. It couldn’t pass the Senate with a veto implied by the filibuster. And it certainly would not pass an override on Obama’s veto, that would have happened if he had legislation had gotten out of Congress. But I think some of the details, they will be there, because it’s going to take a while to replace a law as big as Obamacare, which as you probably know, was devised by the pharmaceutical industries Association, who gave billions in support of it, and actually wrote the legislation in many, many parts.
Jason Hartman 10:58
Tell us what what the pharmaceutical industry what what’s their motivation on Obamacare?
James Dale Davidson 11:02
Well, its purpose perfectly obvious, they were getting subsidies that they were forcing people to buy, to enable others who previously may not have had the wherewithal to buy their medicines, to get prescriptions, and through the Office of Obamacare, presumably, their prescriptions would be filled. And you’ve got this, the system, one of the things that we look at, and the breaking point is this horrible, symbiotic relationship between the drug industry, the medical profession, and the food industry, which is busily creating patients for the medical cartel. Yeah,
Jason Hartman 11:45
that’s just that’s just really sad. It’s a cycle. I know. But but then then you have Michelle Obama, you know, as First Lady talking about healthy food and having a garden and all this stuff, but it’s just the complete opposite seems to be happening. I mean, the obesity, obesity epidemic and diabetic problem is, is massive, no pun intended.
James Dale Davidson 12:03
And it gets worse because, you know, one of the things that the drug companies do as they push the standard drugs, which have adverse effects on your heart, because they end up screwing up your joins mq 10 energy sources for for the heart. And it’s been shown that they increase the propensity to diabetes. And so the, the saten drugs are very profitable, they prescribe them, people who take them, stupidly, like the people who listen to the media, who are then told, well, Hillary Clinton is going to win, you better arrange your portfolio along those lines, and then hit the middle of the night, you have to get up and try to sell them sell or buy in Tokyo or something to fend off the risk that has been created, because they were misled about everything. And this is what happened in Brexit. You know, the huge market fallout from Brexit reflected a lack of proper discounting of the actual situation. And the news media do everything they can to persuade people, not of what is actually going on, but to persuade them of what’s not going on. It’s not as somebody said, it’s not what you know, as Mark Twain said, it’s not that you want to note, it’s not that you don’t know that when ever do what we know that isn’t true. with Medicare, you do anyway, we have what has been described as the curtain of Oz pulled over people’s eyes with the Wizard of Oz is behind the curtain, and we’re not supposed to look at it. But we’re we have to look because the illusion of growth is sort of over Donald Duck, he’s going to revise it and revive it. I’m not sure how easy it will be in the breaking point that makes the point that the regulations since 1949. has apparently according to quote studies have reduced the GDP so much that the average person has $125,000 less to spend annually than he would do without the regulation. No, no. So maybe something get rid of some of that we could see.
Jason Hartman 14:19
Well, we shall see if he’s able to reduce regulations. Well, this is the first time in a long, long, long time that we’ve had an outsider step into the Oval Office. It’s the first time in a long, long time that we’ve had an actual business person, step into the Oval Office. And I believe it’s the first time ever and I say this because a lot of my listeners are real estate investors as EMI, that we’ve had a real estate guy in the office. What do you think about that, that does that? Do? do those things hold a lot of impact for people?
James Dale Davidson 14:52
Well, I would say that there’s one thing that holds impact, which is that Donald Trump is a man who understands the political Process well enough to circumvent it. Because the whole process is designed to stop development and prevent people doing things. And he’s managed to do many things that were thought impossible because he got through got the permissions, just went ahead and did it. And we need some kind of business savvy, I would think, to improve the quality of decisions made in politics. I’m not sure that he’ll be able to do as much as he hopes he can do. But I think he’ll do something, and will have a much, much more consideration and care was forgotten. Man will be forgotten the longer, right, yeah,
Jason Hartman 15:43
I had Amity shlaes on the show before the author of The Forgotten man’s great book, it seems like Trump is really going to get something done. And I mean, you know, we the right now has control of two branches. So and you know, he’s probably gonna point to maybe even three supreme court justices. And you know, with the Senate on his side, that’s going to happen, this presidency is going to have a lot of impact, isn’t it?
James Dale Davidson 16:08
Well, one thing he’s going to do, I think it’s definitely cut taxes. And I hope he does something that George W. Bush backed away from, they’d had a consideration of actually revising this horrible tax code, that the lobbyists sort of sat on that so they said, Oh, no, let’s just cut the rates and leave the the whole architecture of the tax system as it is. And Donald Trump has the good sense to know that you can’t compete effectively. In a world where we have high costs anyway. And we then have the highest tax rate in the world as corporate taxes 35%, you’d have to go to some really remote Third World hellhole to find a tax rate higher than that if there is one. And I think he knows that this is definitely helping to drive business out of the country. And it’s reducing the amount of investment here we have a large portion of our stock market that capitalizes sales and activities outside of the United States that are owned by US companies that are under the ambit of a specific trading symbol, but their business is going on someplace else. We have all the trillions of dollars that have been parked offshore, for good reason, because if you bring it back, you do you get killed
Jason Hartman 17:23
on taxes. Yeah. So the the counterintuitive thing that the left has to remember is that, you know, if you do an amnesty or you reduce tax, the stuff comes back, the money flows back and the jobs flow back with it and, and the GDP comes back with it. So that that’s
James Dale Davidson 17:38
thinking that a lot of the not to interrupt, but I will, I think a lot of what he’s looking to in the way to at least begin the financing of the infrastructure rebuild that he has in mind will come from the 10% tax that he’s in a book imposing on the repatriation of money that’s been parked offshore and basically forced offshore by the tax laws.
Jason Hartman 18:03
It’s always been amazing to me, James that liberals just do not understand. Or at least they pretend like they don’t understand that. You know, people in the marketplace react. You can’t you know, I mean, you listen to people like Bernie Sanders, especially, I mean, he just drives me nuts. his views are so immature, you know, we’re gonna just tax the rich, we’re gonna do this, we’re gonna do that. Well, what do you think they’re gonna do? Just sit by and let you do all that? I mean, they’re gonna react, they’re gonna do things?
James Dale Davidson 18:33
Well, I’ll tell you something. Listening to Bernie Sanders made me nostalgic remarks. As March wasn’t an idiot. If you read Marx, which I actually did, because I went to Oxford, where I had to read, he had a lot of deep insights into the way the world works. And one of the things one of his insights that I take advantage of in the break the breaking point, as we said, You can’t make the country rich with fictitious capital, by which he meant quantitative easing. Money just spun out of thin air. Marx believed in the gold standard. He was not a complete moron. About the that’s interesting. I’d see. This whole thing has been very, very instructive about the liberal views. I wanted to give you an example of a liberal who did understand at least under certain certain under the right circumstances, how incentives mobilize activity, how Gordon remember when he sold his useless television network to
Jason Hartman 19:38
Yes, I do. Yeah.
James Dale Davidson 19:41
Right. Yeah, he had to get the deal closed before the end of the year because the Bush tax cuts were going to be revealed in the next year.
Jason Hartman 19:49
Typical leftist hypocrite. They all they all take advantage of everything when it’s in their favor, but spout a different message to the
James Dale Davidson 19:55
hoi polloi. Well, they understand understood it when he knew that he was going to pay this this Did you buy the millions if the deal closed when the tax laws were more punitive than they were in the previous year, so that they really scary to get the deal close, so he wouldn’t have to pay the extra Obama tax on his lottery winnings.
Jason Hartman 20:18
No surprise there. It’s just unbelievable. Hey, in the breaking point book, which can be pre ordered. Now, by the way, you know, in the in the table of contents, you talk about the idiot principle of deflation. And you also talk about the next next stage of capitalist development. two consecutive chapters are 20 and 21. You know, with a Trump presidency, inflation, deflation, sort of status quo, you know, Fed policy standing anything their thoughts that you have? Well, my
James Dale Davidson 20:47
honest opinion about the Trump presidency is that in some way indicates an inflection point about in fight against inflation, when you go back to the Volcker days in the 1980s, when he hiked the interest rates to the sky, because they recession and also launched the greatest bull market in bonds in the history of the world, where they went for the interest rates on US Treasury, went from 18 19% to the visibility, I think this is the moment that you take your profits in bonds, and you’re holding them, it’s an opportunity to get to get out with a strong bid. Because I think that what Trump is doing is he is embodying the protests on the part of the 90% of the population against wage deflation. And one of the biggest ways that the system works has been through opening the US political ecology to competition from abroad, which implicitly brings the unskilled labor in the United States into competition with billions of people working for pennies elsewhere. And this has had the effect of keeping wage costs down. So all the gains that have come from that have flowed to the owners of capital, or most of them have, along with the hangers on in the education system, and the legal system, were sort of parasites on old deal. There was a time when there was in the high water period have been done pi of fixed industrial capitalism. So when Henry Ford was building his giant plants that were 30 miles of railroad track, and one point, they were making steel and glass and everything else in the world, by even wanting to have his own rubber plantation in Brazil. So this was all encompassed in one entity was all rolled up into a giant business, which had ultimately was shown to have diseconomies of scale, things had gotten too big. Stalin and Hitler were really totally turned on by Henry Ford’s factory system, because to them was a way of circumventing the free market. They didn’t want to have to have various processes of production bid up to the market to different contractors. So you could have Stalin send somebody to Detroit to order a version of Henry Ford’s factories, to build tractors in Gorky, Russia,
Jason Hartman 23:37
he did, he did. And what happened with that, that’s fascinating, I have no idea.
James Dale Davidson 23:40
Well, that’s really built them and they did build them. So it was, you know, the difference between the gigantic capitalist enterprise and what Lenin called state capitalism, which is what we call communism, during the bull call or the Cold War was, it was a fine distinction. It would didn’t, it didn’t work as communism versus the state capitalist system really didn’t work. And we’re converting our own autonomy into a state capitalist system with instead of the poet girl, hiring a group of planners to orchestrate the five year plan. We have a group of clueless idiots in the Fed, meeting every once in a while, and creating the de facto five year plan, where they hike interest rates and change the capitalization of everything in society based on their own winds. And they also do what Mark’s oldest never worked, which is you’re creating this fictitious capital, that raises the price of every thing that they can build it on. But, you know, this is also another reason why people were offended and upset with the status quo. Because they remember from 2008 2009 that the banks were bailed out to the tune billions But little guy on Main Street wasn’t bailed out to the tune of even 1000s. He got no bailout. When they create the money other scenario, the fictitious capital, it goes to him, it goes to people with collateral, they can borrow it, and they get the money at zero, or nearly zero interest costs. And it’s created a whole ricochet effect of assets being created around the world and what’s known as a carry trade, where if you had any sense at all, you could see that you can borrow money, next nothing and take it to another country and invest it at a high interest rate, you can make a fortune. In my newsletter strategic investment, we show people how to make hundreds of 1000s of dollars on a Brazilian government bonds that were paying 12% interest. So what was the interest rate on the on the US borrowing practically nothing. If you had if you’d had a collateral if you had a good balance sheet, you can borrow money at almost nothing. And I know from specific experience, I’m a founder of a company called Newsmax, which is a big media operation has a lot of financial newsletters, a very good company, we had at one point, a partner who is now deceased, unhappily who was in Milan. And I’m not giving away too many close secrets to say that, because he had a portfolio of hundreds of millions of dollars, because a lot, we could borrow money for practically nothing on the brink of his portfolio. And anybody else who had a portfolio like that could have borrowed money for almost nothing. So if your costs are less than 1%, for the borrowing, you can take a risk of going to Brazil and buying a zillion government bonds that are paying 12 or 13% interest, you got such a huge margin to work with, in the beginning of that trade, the Brazilian real actually rallied against the dollar. So that’s why our gains were so stupendous. You’d have to move on those as soon as the reality starts to go down. And that’s why all these things are self unlimited. And this is part of what I think is going back to this idiot principle of deflation, I don’t think it’s an idiot principle. I think it’s a it’s an inevitable consequence. As fa hyack told us long ago, when you have the inflation, you’re basically making the decision to have the deflation. And the only way it will be prevented is you have even more inflation, that’s your layer over the previous inflation.
Jason Hartman 27:33
Right. But you know, it seems as though the inflation business plan, if you will, is a very good deal for governments that have massive amounts of debt, and governments that want to basically lie to the population and keep them happy. So why can’t they just always make when you have the reserve currency and the biggest military in the world to keep it that way, you know, not lose your reserve currency status, of course, referring to the US, why not just just kick this can down the road forever. I mean, who’s to
James Dale Davidson 28:02
say, when it will end, the first thought is that there’s a financial reason why you can’t do it. And I would point to what happened with the mortgage backed securities, Fannie Mae, Freddie Mac securities, which were construed as triple A credits, when the year 2008 began, somewhere along the way, who was contrary to Hillary Clinton is not a moron at all. Realize that this was completely untenable. So he got Russia, he had Russia, the Russian banks and everything, sell all of their mortgage backed us securities and the Fannie and Freddie paper. And the Chinese saw the kootenay done, and they did the same thing. So the value of this paper collapsed. But previously, it hadn’t been the foundation for a lot of lending for these investment banks that didn’t have enough capital to support their portfolios, which is even worse today in Europe, with a bank like Deutsche Bank, $70 trillion derivative portfolio, which is, you know, some huge multiple of the German economy, the way that it could be supported. So where’s the capital from the capital right now and for supporting Deutsche Bank is borrowed mostly in the form of collateral, which has to be usually government securities, government bonds, these government bonds are hypothecated and re hypothecated. Think of them being used over and over again. It’s like if you were you, you and I went to Las Vegas and decided to bet on a bunch of things that we had. We wanted to know how much money we could bet. And we look at our profits and we say, Well, we’ve got together $2,000, so we’ll get the $2,000 together and put the chips on the table. We’ll use the 2000 as collateral to borrow more chips. So we’ll borrow $60,000 just for the sake of argument and love that There are a hell of a lot of things. Well, if our bets go bad, they’ll seize the federal, and the whole daisy chain will collapse. This is what happened with the Freddie and Fannie paper, they were using it to fund the Lehman Brothers. But when the Chinese sold that paper in it and was seen no longer to be as good as treasury bonds, even then it was better for treasury bonds from the point of view they owners because it had a higher yield. But what happened was, she got busy and tried to get a government guarantee for the explicit guarantee for the Freddie and Fannie paper. But it didn’t come through in time, so they could no longer price those debts as triple A paper. And then there was no longer enough money in the system and no longer enough collateral to support this massive edifice of debt. And it collapsed. Because same thing can happen again, in Europe. Now, because the collateral is used on average of 30 times each bond, it’s on deposit in a bank is used to support 30 times the transactions. That was one, because it’s borrowed by somebody, he put it up as collateral, and then it’s borrowed out of that account and put to use someplace else. And this ricochets along an average of 30 times for each bond, that tells you how fragile and unstable the old system is. So that’s one reason it can’t go on. Because the collide destroys the collateral, it doesn’t create new collateral. Because the new bonds that are being created when the government’s borrowing wildly our bonds, they’re paying no interest rates. So the yield is really low. Because the new bonds are not as useful as the old bonds. But then there’s another factor, which is what do they do with the money that is borrowed. And I just use this example in China, because it’s the most extreme, but it says a lot about what’s gone wrong, and why it can keep going on. Because they create effects in the real world that are unsustainable. The Chinese us from 2011 to 2013 more cement than the United States did in the entire 20th century.
Jason Hartman 32:18
That’s, that’s mind boggling from 2011 to 13. Did you say yes, in 2000, in two years, 2011 to 2013. And that was post boom time. That was, you know, coming out of the great Was it the boom, yeah, it was the height of their boom, I mean, they were booming in 2005. There weren’t they,
James Dale Davidson 32:38
they were, they were going crazy back then building been booming, ever since dung shopping, turned the switch and said, okay, it’s good to be rich, because the Chinese are basically mercantile people. And he just took the handcuffs off of them and the way they went, I mean, they weren’t completely baffled about what to do, you know, they wanted to make money. And they were hard workers. You know, they, if you have a peasant who’s trained to get up in the morning and enter the rice paddies. He’s a hard working chap. And that’s putting that same hard effort into finding a way to open a factory and sell something. They’re good at it, and they did a good job. But the biggest cause of this huge surge was the fact that vast amounts, trillions of money, dollars of fictitious capital, were created by the banking system in China, and were imported from the banking system in the United States. A lot of that was financed by quantitative easing, because they had what are known as non bank banks, which in some cases, they were shipping, shipping companies, they fertilizer companies, you can name it, the non bank banks were using, we’re getting, say they got some money from someplace for dollars, they could use the dollars to create more, and you remember un and they had more of those. And they they lent the money out at very high rates. They created all these trusts and gimmicks that disguised it and you know, there was a time when the Chinese central authorities were trying to curtail the huge expansion of credit. So they put limits on what could be borrowed off your business accounts. In other words, if you if they’re just looking at your receipts and your expenditures, your cash flow, you couldn’t borrow on that. But they said it was still okay to borrow on the collateral of solid objects, like you could mortgage land and you could mortgage copper. There was a big push among pig farmers in China to develop as much expansion as they could. They wanted they wanted to make a lot of sausage and send it around the world. But the government said no more lending to pig farmers. But you could still lend on on the collateral of a bunch of copper ingots. So pig farmers in China bought up about a fifth of the world. Old supply of copper and used as collateral to expand the operation of the sausage business.
Jason Hartman 35:09
This all happened. One of the things that you said really early on in this discussion today was that the people that did have the collateral get the cheap money. And so this goes back to the old saying, This is why the rich get richer, quantitative easing QE makes the rich richer. And it impoverishes the poor even more, because it ultimately causes inflation. You, you’re welcome to pick up that statement. But that’s my that’s what my feeling is
James Dale Davidson 35:36
still I think it’s true. But I want I want to highlight to you a little more about how disastrous this whole inflation is, in terms of what it does to supply, create debt creates supply. You have all this money that was invested in real estate, we’re talking about real estate earlier in Chinese real estate. Do you realize that they’ve built the equivalent of 27, empty New York cities in China? With all this money?
Jason Hartman 36:04
That’s mind boggling. I know, I hear about the ghost cities, and we’ve done reports on them on prior episodes, and it’s just mind boggling.
James Dale Davidson 36:11
But one thing people should know, is the rule. That’s why you’re gonna get deflation. Because if you have, let’s say somebody gave the same, Jason is we’ll get we’ve got a deal for you. I’ve got an entire empty New York City, I’m signing it over to you. Now, how are you going to make money operating an empty New York City,
Jason Hartman 36:28
when you have all this, all these apartments that are empty? Well, you can wait for the what’s called the passive progress. In other words, wait for the population to catch up and need all that supply. But it could take a while,
James Dale Davidson 36:38
it could take a long time to take longer than you could live, you know, 27, empty New York cities is millions and millions of this housing for millions of people. And my point is that this is not going to work every time in the history of the world that you’ve had these gigantic expansions, they collapse. And part of the reason they collapse is that not only do people get misled into mal investing in the buildings, but the product of the supplies that produce the buildings, like the more summit in a couple of years than the US used in the entire 20th century to build the Hoover Dam and all the skyscrapers in New York and Chicago and Los Angeles. And everyplace else, you that is a tremendous amount of cement. So that’s an that came from someplace, and then they had to ship it. So people built a lot of extra ships to carry raw material. Yeah, it’s just a big cycle.
Jason Hartman 37:30
Right. And I remember when, when the shipping companies bill Bonner, you know, your your partner wrote a lot about that, you know, in the in the daily reckoning, and, you know, probably in the books that the two of you wrote together, so yeah, no question.
James Dale Davidson 37:41
Well, he’s, he’s so right. I mean, so all I’m saying is, that when you when they they create malinvestment, the malinvestment has consequences. The one thing that debt drives drives production,
Jason Hartman 37:53
right, it has just like QE, just like pretty much everything just like fractional reserve banking, it creates a ripple effect. It has a multiplier to it. Yes.
James Dale Davidson 38:03
And you know, you can’t get you just look at look at the copper, we talked about a copper and all the copper that was hoarded by the farmers in China. All this copper also went into the buildings of the 27th. In New York cities, you think of all the copper that’s on the wires in the wall. Copper, that’s there’s a tremendous amount of copper in each unit. So that copper had an effect on the whole copper mining industry. If you look at the big source of copper in the world, the biggest sources from Chile. And there, there is a basic problem with declining marginal returns from any type of fixed resource like copper, because the asset, the copper in the ground is mined off first in the most accessible and the cheapest areas. But as the veins go deeper into the ground, it requires more investment, return false. So the Chileans seen this dizzy, aimed increase in demand from for Chinese, from Chinese for conference, they got busy. All right, billions. It’s just busy dug deeper holes and expanded their production. And now there’s no use for this copper. I mean, it’s not at the price that it’s going on now. So I think one of the best, the better shorts in the long run is going to be copper. Right, right.
Jason Hartman 39:21
Hey, we’ve got to wrap up. But one thing you didn’t say about the Chinese Ghost cities that I’d love for you to just address before we wrap it up, is, you know, overall, even though there’s been this, like mass migration to cities by you know, from from rural China, no question about that. There’s still as a percentage of the overall population, there is still a massive rural population in China that could migrate into the 27 New York cities, right? The ghost cities. Now granted, they have to have jobs there. And that’s another question but you know, is the ghost city thing really as bad as it sounds on the face? Maybe it is I don’t know, you know, just to ask
James Dale Davidson 40:02
if it is. And here’s another point that you need to bear in mind. How many jobs you have to ask the question how many jobs have been created in factories, since China moved out of the Stalinist production road into the more capitalist way of doing business? Anybody have any idea? Oh, no, not many.
Jason Hartman 40:21
Yeah, okay.
James Dale Davidson 40:22
Not many, because you start over hire, you know, the use of the word labor in these Chinese, when it was largely tongue was running the deal, he wasn’t interested in efficiency of production, everybody had to have a job. So they had all these jobs in the state industries. And then they move to a more market driven economy they had need, they needed to hire many fewer people in each activity. So their productivity went way up. But the number of people hired in these cities was not substantially greater than it was before. And the fact is, you’ve got all these millions of people lying out in the countryside in the rice paddies. The fact that they wouldn’t be better off if they had an industrial job in a modern plant, doesn’t give that job life, just as the fact that the voters in along the Ohio River in those counties that voted overwhelmingly for Donald Trump. The fact that they would be better off if they had coal mining gods or jobs in the field note that you still tried to doesn’t mean that there are such jobs. So looking at the world as it is, I see the prospect of a very similar, crackup, the probably the biggest in history. Because it always happens that way. When you have a gigantic artificial credit, expansion, and the Chinese has been the greatest one in history, you get a gigantic amount of malinvestment, 27, at the New York cities, and eventually the people who are holding those investments go broke.
Jason Hartman 41:50
Yeah, this is this is why government needs to minimize its interference in the economy, because it creates massive malinvestment government and central bank, I should say both of those entities, regardless of what the government is, but and I agree with you looking at the math, yes, I totally get it. I totally get what you’re saying. I just wonder, you know, the question is always win. It’s always it always comes down to a question of timing. And, you know, how long can they keep kicking the can down the road? I argue that it could be for decades. And, you know, what do we do now? Do we plan for the end of the world now? Or do we just keep going along. And, you know, as as governments and central banks keep kicking the can down the road, because no one knows when the jig is up. Nobody knows what the limits are. But let me give you a thought.
James Dale Davidson 42:35
I think the length of time they can continue to kick the can down the road is much shorter than that they have anticipated though they wish, I think it’s going to come to an end soon. It’s not something that will happen at the crack of doom, it will happen in our lifetimes, if we’re healthy. And this is going to come to an end. And it’s going to have great reverberations. And that’s why I think it’s important for people to understand really what’s going on. So they can begin to plan a new life in the new environment, with this funky business of having a system based on huge amounts of debt, to try to paper over the lack of growth. And the debt price that nothing. And the money created out of thin air to fund the huge budget, budget deficits have been looking Obama and his term, we’ve had more debt created from budget deficits than in all the Presidents that preceded him combined. Now, how long can you keep going on like that?
Jason Hartman 43:38
Yeah, you can’t you can’t do it forever. There’s no question about it.
James Dale Davidson 43:41
Yeah, very close to the end. And I believe that people who think this through will be much better positioned to survive and thrive. And I give examples in the book that show that you could survive even in the most united medieval economy, some people made money, it wasn’t an easy thing to do. It wasn’t like there was, you’re just sitting in your easy chair, and you’re floating down the river, on a sea of red ink. So you could easily make it, but you could make it. And the people who think are the ones who will survive and prosper in the world that’s changing dramatically.
Jason Hartman 44:19
Absolutely. James, give out your website and tell people where they can learn more about your work and your fantastic writings.
James Dale Davidson 44:23
Well, one thing you can do is go to Amazon and order the breaking point, you’ll get one of the first copies hot off the press. And we have a newsletter called strategic investment, which I think you can look up online. And we have these probably seen me on many of these on online advertisements talking about the danger of economic collapse, which I believe is high and growing. And I hope that Donald doesn’t get the blame for what’s going to happen because it’s all baked in the cake.
Jason Hartman 44:56
Yeah, it was baked in a long time ago. No question about that. But
James Dale Davidson 44:59
And I’d like to thank you for your talking to me and I hope your listeners get something out of it.
Jason Hartman 45:04
The pleasure is all mine and James Dale Davidson, thank you so much for joining us today. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website Hartman. Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.