1937: Putin Can Destroy NATO, Paul Craig Roberts, So Long, California, Housing Inventory Shortage, Twitter Files

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Hey, Jason, just wanted to send you a quick message of gratitude. So grateful that I got into the game and got in with properties that make sense because the rent income keeps coming in. So thank you. Glad we connected and I'm glad to be in the income property game instead of the Wall street game for my future.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, LE developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1937. 1937, 30. Thank you for joining me today. And let me start off by offending some people.

Well, that'll be with the quote that you see on the screen. And that is a great quote. I stated this one for a long, long time, but I thought of it again today and thought I'd share it with you again. In times of universal deceit, telling the truth is a revolutionary act. George Orwell, not his real name of course, but you know, he wrote that right around 1948 when he wrote the book 1984, interestingly, and with these Twitter files, that is certainly the truth, isn't it? The government paying money to suppress our free speech rights. Absolutely unbelievable, folks. It's unbelievable. But hey, we got a bunch of real estate stuff to cover today, so I won't go on a tangent. And our guest today, I think you'll really enjoy him. This is Paul Craig Roberts. He's going to talk about America's relationship with Russia and China, what it means for all of us around the world, what it means for the economy, what it means for how we should invest and, and how we should think about the geopolitical situation. So he'll be here in a few minutes. And before we get to that, let's talk about the housing market for a moment here. Now, here are some recent stats from our friends at Altos, and it shows here that we have 48,000 new listings that came on the market. You know, basically they do these stats every single week. Okay, so this is very current information. 48,000 new listings, but that's 28% fewer than last year. And if you're watching this on video, you can see the chart. You can see that there is this incredible shortage of inventory. I mean, I keep beating that drum, but I just got to make people understand. So that's the supply side of the equation. And back to Ronald Reagan. Reaganomics talked about what? Supply side economics. You heard that one a lot, right? As you study economic history or if you were alive during the Reagan era, supply side economics, trickle down economics. We heard all of these terms over and over again in our looking at the past and looking at the way the economy has been managed at various times. But that's the supply side. What about the demand side? Okay, well, this is total single family homes that have pending contracts and the number of new contracts every week. We're not going into this too much. On our other episodes before this. Mostly we're just looking at the overall inventory. But of course, we need to consider both sides of the equation. And I will say that because of the seasonal nature of real estate, it is a little bit hard to evaluate things right now because of seasonality. When we get about a month forward or a little less than a month forward, even before Empowered Investor Live, we are going to have a better read on the market. And I don't really mean just from the numbers. I also mean the soft side of the equation. And that is the vibe. Yeah, I know.

Hey, Jason, that doesn't sound very analytical or very precise. No, it doesn't, I admit that. But it is meaningful. Just the vibe of the market, what is going on? What are people thinking? What's the psychology? What. What does it feel like? You can't just do it all from data. A lot of this comes from instinct, visceral gut instinct, right? That just after doing this as long as I have, and that's longer than I care to admit.

Really, you do get a feel for it. You really do get a feel for it. So a lot more coming up there. But in terms of the pending contracts. So this is where people are conflating issues and making a lot of mist. Mistakes right now. A lot of mistakes right now. Because what they're reading is so misleading in the news media, they're conflating two things that do not go together. They're like oil and vinegar, right? Well, no, those do go together actually. Right okay, so better example, oil and water, those don't go together, right? Those separate. All right, so with these two things we see sales volume down. Sales volume is very, very bad in terms of looking at a market like California, right? These cyclical markets that we would never recommend investing in, but I heard a stat recently saying sales are down 37%. So if you are in the real estate business in California or that's pretty much true of all the cyclical markets, not so true for the linear markets that we like, but the cyclical market's definitely true.

Right?

So if you're in one of those cyclical markets and you are in the real estate business or some tangentially related industry, mortgage title escrow. Just a lot of people in the legal profession, right, that are involved in real estate transactions, home improvement, appliances, paint, you know, any of these things, right? This all is related to the housing market. So they're all feeling it. And that definitely ripples throughout the economy. No question about it. But it's not like it's that big a share of the economy. I mean, it's not the energy industry, it's not a whole bunch of other industries, right? That's just housing. But it's a big deal. It's certainly not everything, but there is a ripple effect from it. Just we need to be mindful of that. So when we look at the pending contracts. And why are we looking at the pending contracts? Because they give us a more immediate read on things if we wait until a transaction closes and records. I've talked to you a lot over the years about how real estate statistics lag, lag, lag. When you're looking at most real estate data and you're trying to form an impression of how the market is doing, you're looking at data that is really three to even five months behind because that property was sold, it's under contract, the deal closed. Okay, so go 45, 60 days there, maybe longer if there's any construction involved, or maybe just longer because of the way they negotiated the deal, and then it has to record at the county recorder's office and then that data needs to be reported. So very big lag time. And that can make for a lot of false impressions. So the pending sales, even though they could fall through, the deals could fall through, are valuable to just get a more immediate read on the market. So 282,000 single family homes have pending contracts and that is 35% fewer than last year. But let's look back at the supply side and we have 48,000 new listings, but that is 28% fewer than last year. So we have 28% fewer new properties coming on the market. We already know the amount of inventory out there is already extremely low. Less than half of what it should be to be, quote, unquote, normal. And we have a lot less coming on the market, but also have a lot less selling. Now, you've heard me make that comparison to a sink. Think of a sink in your bathroom or your kitchen or whatever, right? So you've got the faucet, and the faucet represents the new listings coming onto the market. So if you're looking at the chart, that's down 28%. You cut the water supply by 28% on the amount of water coming out, and you've got less than 50% water in the sink. That's the existing inventory, right? That's down by more than half of what it should be to be normal. So the sink is less than half full, and then you've got less going down the drain. The drain isn't open completely. And down the drain is actually good in the real estate comparison here, because that's the sales. The faucet is the new inventory, the new listings coming on the market. The existing inventory is the water that's presently in the sink. And the drain represents the properties that are selling and going under contract. So all of it is down, all three components. There's less inventory coming on the market, there's less water in the sink, existing inventory, and there's less going out the drain, selling, going under contract. So it's down, down, down, all the way around. But what does that mean for prices and rents? See, no one's ever talking about what does it mean for rents. They're all talking about what it means for prices. But real investors don't invest for price. That's just a bonus. They invest for cash flow, for rent, for yield. That's investing price. I don't even want to say investing, because it's not investing. It's buying for price and speculating, which is the proper word. It's a speculation that it'll go up in value. That's not investing. Okay, so we all know that. I've gone over it a million times. All right, so that's the latest on the market. Let's move on. So it is an amazing time to be alive. Now, that was a quote I used to say all the time. We even printed it on a bunch of our swag. And you know, we're going to be giving out some swag at Empowered Investors Investor live in Scottsdale, of course. And I've said that for many, many years. It's an amazing time to be alive. But I haven't said it much lately. I know you're wondering, did Jason just lose his optimism? Well, you know, with COVID and the thought police and the Ministry of Truth and the censorship, yeah, I've been pretty upset about things.

And so I have not said that famous quote so much. It's an amazing time to be live. But boy, this one gives me hope. You all probably heard about it on the news just recently, about the breakthrough. Now we talked about this before, how Lockheed had a patent on a nuclear fusion reactor. This is the good kind that leaves no waste. This is what we have not been able to achieve until last week at Lawrence Livermore Laboratories, right? And this is the way the sun operates, right? So this is awesome. This is awesome. And what scientists couldn't do is they couldn't ever. I mean, if you look at history, you know, what was it like a little over 100 years ago? I think there was this big endeavor. Everybody was trying to invent something. And what was it called? It was called the perpetual motion machine, because motion is equal to energy. Just ask Albert Einstein, okay? So motion is energy. And no one could make a perpetual motion machine. The motion, regardless of how you tried to make a device, would always eventually stop. It could never be perpetual. If it was a flywheel, yeah, you could get some leverage, you could use gearing, you could do all kinds of stuff, but you could never get more energy out than you put in. Until last week. That was the first time humanity ever achieved this in a stable manner. Now there are nuclear bombs and all that kind of stuff, but that's not what we're talking about. We're talking about stability. That's not stable, clearly. Right. In fact, the whole point of it is to be unstable, to destroy things. But this is very difficult to do. And they got a little bit more energy out, I think, ah, forgive me, I just can't remember. I read a bunch of articles about this and now I don't have them in front of me, but I think they got like a couple percent more energy out of the controlled fusion reactor than they put in. And this is an amazing accomplishment. If you can get more out than you put in, that is incredible. You know, it's like being an over entitled person.

You know, you expect more out of the world than you're putting into the world. Right. You think the world owes you living, right? And sadly, we have too many of those people in the world nowadays, present company excluded, of course, because everybody who listens to the show is a winner. But we all know that's not most of the world, unfortunately. So I just wanted to share this because this is just an awesome, awesome, awesome thing. Now, Lockheed thinks that they can do this on the bed of a pickup truck or a really small reactor like this that would be portable. Can you imagine having unlimited portable waste free, no nuclear waste energy available to power the planet and the solar system and space exploration and who knows what. This would be absolutely incredible. And folks, some are saying this is going to happen really quickly. It'll be developed really fast. Others are saying it's going to be a while. Don't get your hopes up. So we'll see what happens. But this is a huge, huge breakthrough. So let's give all of our scientists a big, big hand for that. Yes, science is so critically important and sadly, our society does not revere science. Right? And I don't mean this in the political environment. I don't mean with these vaccine arguments. I don't mean with global warming climate change arguments. You know, trust the science. But that's, you know, your version of science, right? I don't mean it like that. I mean that. Why is it we revere idiotic movie stars and singers and, you know, rock stars and celebrities that maybe they've got some talent or maybe they just kind of got discovered and got lucky? Because we all know talent does not always win the game. Okay? We seriously know that. Just ask the, the Kardashians, okay, that, you know, like, show me the big talent here. Where's Paris Hilton's big talent? He's famous for being famous, right? That's, that's not talent, folks. Okay, so anyway, we'll move on. But this is amazing. We should revere the scientists. We don't even know their names. Right? It's just amazing how upside down the world is, right? Yeah, it really is. Okay, let's talk about Wall street for just a moment. You know, I got to get some of this stuff out because I accumulate these things so quickly and I want to share them with you. And there's just so much stuff I haven't shared. I'm going to start doing a whole bunch more just impromptu live streams on the YouTube channel because there's just so much stuff I always want to share with you and just can't get it out on, you know, the three shows a week that we do on the podcast and the two videos a week we generally publish on the YouTube channel, okay? But this is the average pay on Wall Street. And I don't want you to feel sorry for the Wall street people. I want you to be upset because this is commandment number three, right? Thou shalt maintain control, be a direct investor. When you're not a direct investor, someone is skimming all the cream off the top of the deal. And just look at this, right? Average compensation for securities industry workers in New York city, okay? In 2020, it was $439,000. Just rounding here, $439,000. And in 2021, just a year later, that the same job, the job didn't change. It went up to $517,000. This is ridiculous. Some of these people earning this money are kids. They're in their 20s. They don't have experience in financial tools and handling people's accounts and so forth. Now, these are all sorts of different Wall street jobs, obviously, but this is what you're paying for, folks. You're paying the fees when you trade the stock. You're paying the investment banks. This doesn't even mention the graft and corruption of the people running the companies, the CEOs, the boards of directors that are just getting tons of money out of your investment that's coming from you. You are paying for this because you are not a direct investor. You are an indirect investor. And someone else is costing you money, either by their crockery, their incompetence, or just the giant fees they skim off the top of the deal. That's what you're paying for, folks. All right, one more thing, then we'll get to our guest. I just got to mention this thing because I saw this article about Californ, and since I spent the vast majority of my life in the Socialist Republic of California, I thought it was interesting. It says, so long, California question mark. Major county to study secession. Okay, so this is San Bernardino, the Inland Empire in Southern California. I know it well, okay? I lived in Orange county in Los Angeles, and that was just inland of us, right? But this sends a message. The article says, and it talks about how, you know, in over 170 years that California has existed, right? You know, there have been various movements for people, or not people, but counties. Well, I guess the people leave with them, right? To leave. And San Bernardino county has 2.2 million people and they want to leave. They want to, I guess, be part of Arizona or Nevada or, I don't know, be their own state or what, but, you know, they're just fed up they're fed up. They're fed up with the politics in California. It's just such an absolute disaster. So we'll see there where that goes. It probably won't go anywhere. But look at this. There have been more than 220 failed attempts to dismantle the state into as many as six smaller states, according to the California State Library. And, you know, I think it would actually be a really good idea if California would split into at least two, if not three states, because then people could vote with their feet and, you know, they'd have different governments. They'd have more of a free market. Right. You know, maybe Southern California would be more conservative and Northern California would be more liberal and people could vote with their feet and go where they want to go, but they could still be in California. They could have that coastline. I mean, California is a beautiful, gorgeous state, obviously, but the politics are absolute disaster. It's beyond comprehension. And I know some of you listening. I mean, we've got listeners in Myanmar, in Angola, I mean, like, all over the world. Why do we care about California? I'll tell you why you care. It's 40 million people. It's the sixth largest economy in the world. If it were a country, it's a big deal. Now, it did not get that way because of its current politics. It got that way because. Because of its former politics and its natural resources and its access to the Pacific Rim and many other factors. What always happens in the cycle of societies and countries and so on and so forth is they start out being great and then they get to the point where they just screw that up because of their prosperity. And that's what always, always, always happens. Anyway, so let's get to our guest, Paul Craig Roberts. But be sure, if you haven't done so already, go get your tickets for Empowered Investor Live. Just go to Jason hartman.com. get your tickets. We are almost sold out, so be sure to get your tickets for Empowered Investor Live at the end of January in Scottsdale. It's going to be a fantastic conference. We have so many great speakers and we definitely want to see you there and make sure you get a ticket before it sells out. We are getting fairly close to selling out. So Jason hartman.com for your tickets there or anything else you need, and let's jump over to our guest, Paul Craig Roberts. And, oh, let me say one more thing that may be offensive in this PC world we live in, but for those of you who celebrate it, Merry Christmas. Yes, I know those are controversial words, so I apologize if Anybody feels left out, sorry. Happy holidays to all the rest. Okay, so anyway, let's get to our guest, Paul Craig Roberts. Let's talk about America's relationship with Russia in China.

It's my pleasure to welcome Paul Craig Roberts to the show. He is a nationally syndicated columnist for Creators Syndicate and former assistant secretary of the treasury in the Reagan administration. He's co founder of Reaganomics and former editor and columnist for the Wall Street Journal, BusinessWeek, Scripps Howard News Service, and author of How America was lost from 911 to the police Welfare State and the Tyranny of Good How Prosecutors and Law Enforcement Are Trampling the Constitution in the Name of Justice. These are all very interesting topics. Paul Craig Roberts, welcome to the show. How are you?

Just fine, thank you.

It's good to have you. Where are you located? Are you in Washington by chance?

Oh, no, I've left Washington.

You're not in the belly of the beast anymore.

The Gulf of Mexico and part of the year in the Blue Ridge Mountains.

Fantastic. Oh, that's a beautiful area. Blue Ridge Mountains are gorgeous. Well, good. I, I don't know exactly where to start, but I, I would definitely like to talk about the economy and most notably maybe Russia. You know, there's a lot of talk about the ruble collapsing, how Russians are trying to soak up dollars and run toward the safety of the currency, our currency, which is not exactly well managed, but maybe in comparison it is. I don't know. What are your thoughts?

Well, the ruble is not collapsing. It's being driven down by the United States as part of.

Actually, it's an act of war. Actually.

The ruble is driven down by short selling. And it's not clear whether it's the Fed and the treasury or whether it's the big hedge funds or all of them. But.

Compared to the dollar, the ruble is in good shape because unlike the United States, which has a massive trade deficit, the Russians have a trade surplus.

And unlike the United States, which has a massive public debt.

100 or more percent of GDP, the Russian public debt is some tiny fraction of GDP, something 14, maybe 20%.

And so what should be happening is the dollar should be collapsing, but economic forces are not in the picture. It's not economic forces driving down the ruble. It's short selling. It's either officially done or it's done with official blessing.

How do the oil prices, I mean, the oil prices have just deflated so much. How do those play into it, though? That's got to have some real impact on Russia, right?

Well, it would have more impact on the United States because the cost of producing oil in Russia is below the cost of the United States. The average cost of Russia is less.

In fact, the biggest effect of the oil price decline is probably going to be on the fracking industry in the United States. Put them out of business. And since they have so many loans for the banks and there's so many derivatives associated with them, you're probably going to see another serious financial crisis like the one we had over the mortgage backed, the fraudulent grade mortgage backed security. So the most likely effect of the oil price decline will be on the United States. And because all the derivatives.

Are interrelated with the European banking system.

You may see bank crisis throughout the Western world. So I don't think it's of any specific.

Attention to Russia. It's a problem that will have far more adverse effects on the United States fracking industry and all of their debt instruments and the derivatives associated with them.

Well, so the, I mean your view, would you agree that your view is somewhat counter. Counterintuitive or at least counter to popular opinion nowadays? Maybe not counterintuitive, but certainly not counter.

There's no such thing. I mean, it's popular opinion. You mean the propaganda that comes up.

If you want to call it that. Sure.

Lie, lies comes out of Washington and the financial press. Yeah. Well, all they do is lie. They don't, they never tell the truth about anything. I mean, I don't know anything they've ever said, it's been correct.

I would not disagree with you for a moment there. I would definitely not disagree. Agree with you. So is it, I mean, you know, the, the BRICs, several nations in fact are trying to trade outside of the dollar. And you know that that reserve currency advantage that America enjoys is a huge advantage because we can wantonly print and do all kinds of things to take advantage of the system. Do you think that will last or do you think the reserve currency status will go away or.

I, I think it's on the verge of being overturned. Mainly for two reasons. One is the quantitative easing created so many new dollars that weren't matched by the output of goods and services.

That the value of the dollar is no longer tenable. It's held up, of course by the pressure the United States is able to put on the bank of Japan to print money even quicker than Washington.

And on the European Central bank to print in order to support the sovereign debt so that the European banks don't go belly up. So it's all the printing of Fiat currencies that protects the dollar's exchange rate because everyone else is printing, even the Swiss.

But of course the Russians are not printing.

So one reason we'll lose the reserve currency is the dollar is being oversupplied. And also of course, dollar denominated debt, the amazing rapid escalation and in US issued debt will also put this pressure on the dollar. Now the second main reason is that the rest of the world has learned that the United States abuses the role of reserve currency and uses it for financial imperialism, for financial hegemony over others. And the rest of the world is learning from the examples of Iran, Russia, that the United States illegally.

Uses the reserve currency status of the dollar to impose sanctions.

To threaten people's exclusion from the Swift clearing system.

To interfere with their currency, to interfere with their access to foreign credit. And so the rest of the world is withdrawing from this system. It's not just the BRICs. It'll also, of course South America will join that, probably most of Asia. And as these countries cease using the dollar to settle their international accounts, the demand for dollars in the currency market stops. And so whereas the Fed can print all the money it wants in order to support bond prices, it can't print foreign currencies in order to support the dollar's price. So as these new mechanisms go into effect, for example, Russia is creating its own clearing system, so it no longer will use the swift system. The BRICs are creating their own IMF and World bank. And the transactions these countries are entering into with one another are in their own currencies. They don't use the dollar. So I think you'll see such a.

Strong drop in the use of the dollar that it will affect the dollar's value.

So that means inflation is coming right where we're finally going to see the inflation we seem to deserve.

We may see it from two sources, certainly.

A collapse or just a fall fall in the dollar's exchange value will raise import prices. And since the United States is now import dependent, having offshored so much of its industry and so many of its professional service jobs, the prices of all of that will rise. And so when people go to Walmart, they'll think they walked into.

Neiman Marcus or something like that. So that's one source of it. Now.

When the economy falls out.

That May, we will see more.

Money creation. They'll try to stuff the money into the economy. You know, so far we've had a situation where the money the Fed created with quantitative easing has been hung up in the banking system.

The question is when, when will that hit the street, if you will?

Well, it's hung up in the banking system and it's not hitting the street because the banks are in such bad situation.

They can't lend. And because the consumers are so heavily in debt, they really can't borrow. But when you start seeing a substantial increase in the current recession, things start worsening rapidly. Then there will be efforts to stuff money into the economy beyond the banking system. So you would have a second form of inflation that would be the ordinary price inflation from domestic money creation. So you got both sources of inflation could hit.

Okay, so aren't you, though, Paul, presupposing that the US will just kind of sit by and let this happen? And I mean, I understand that they can't necessarily do anything about it from a, from a monetary military standpoint directly because like you said, they can't prop up the value of the dollar vis a vis foreign currencies. Right. But they can have sanctions, acts of war, all kinds of ugly things that are not fair or ethical. But the fact is the world's a tough place.

I mean, it's going to be, going to be tough for Americans, going to be tough for Washington. Look, what the morons in Washington have succeeded in doing is creating a strategic alliance between Russia and China.

Yeah, that's a good point.

Now, Washington may be full of itself, but if it thinks it can take on that, it's going to get its ass kicked from one end of the world to the other. And at any time, the Russians or the Chinese can basically destroy our economy.

How can they, how can they do that, though? Because we're their customer. Well, especially China, you know, I mean, we're far and away their biggest customer. Why would they want to destroy us?

Why would they care about that? If you're trying to hurt a country, they don't. It's a lot cheaper for them to destroy us and lose a few customers and to go to war.

Well, compared to going war to war, I agree with you. But compared to just having inflation, the.

Customer business doesn't bother them in the least. Look, what can the Russians do?

Well, suppose.

They say, look, they tell you, look.

Since you're mucking around with our currency for political reasons, we don't think we're going to pay you the loans that come due in 2015. So what do you think that would do to Europe? Those banks are so thinly capitalized.

One of them, one of the banks, it's 62% of its capital is tied up in a Loan to Russia. So all Russia's got to do. Well, we're not really going to default, but since you're beating up our currency, we think we'll have to wait until the ruble recovers before we pay you. Well, the European banking system would collapse. Think about all the swap, all the derivatives, the American.

So what would that do to, what would that do to the U.S. yeah.

That'S one thing they can do that doesn't take but a few words. They don't even have to load a gun. What else could they do?

All Putin. Putin can destroy NATO in five seconds. All he has to do is call up the Europeans and say, hey.

We'Ve decided we no longer sell natural gas to members of NATO.

Then what does Europe face? Germany faces the close down of some 30 to 40% of its industry.

You're talking about unemployment rates around 30, 40%. Freezing people in the winter. This throughout east and West Europe. How long do you think NATO would exist?

Instantly cease to exist. So. But why doesn't, what could the Chinese do?

Well, they could simply sell all of their dollar denominated assets. Now it's true, the Fed could print the money and step in and buy them and prevent the price of Treasuries from tanking.

So they could prevent the sale of the Chinese treasury position from destroying the US Bond market.

That wouldn't make any difference. But they can't stop the next step because when the Chinese get the trillion plus dollars, they dump those.

The Fed has got no way to buy those dollars. So what would happen to the dollar and the currency market collapse. If it collapses, the whole financial house of cards collapses.

Skyrocket. Every bank, all the big banks would fail. Everything would fail. So the whole Western world can be destroyed in a few minutes by either of those two countries. Why don't they do it?

Well, because what the United States is trying to do to them is not really hurting them that much.

I don't really know what the impact of the fall in the ruble's value is on Russia. If I was Putin or the Russian central bank, I would be sitting there saying, hey, this could be a good thing because.

Let'S hope they drive the ruble down really, really low because we're sitting on a huge stock of dollars and we can buy up all the rubles at practically no cost and get them out of the foreign exchange markets and then they can't bother our currency anymore.

So I'm not sure that what's happening is actually hurting Russia. We get a lot of propaganda from Idiots and fools and liars and propagandists who like to pretend we're so powerful and can lord it over other people. But if it's not really hurting them very much, I suspect that what Russia and China will continue to do is simply ignore it and go on and recreate the world over this time, under their leadership.

There will be a new trade bloc larger than the Western one that has nothing to do with the West.

And that's what's happening in front of our eyes right now. And when the Chinese foreign minister said yesterday or today that any help Russia needs, they'll get it from China, that they understand that they have a common strategic interest and a common enemy.

And so China, of course, unlike the United States, has massive reserves.

United States hasn't got any unless it can borrow them from Japan or euros from the European Central Bank. And so you're faced here with a situation where the arrogant fools in Washington, wallowing in their hubris, are picking a fight with two countries that are much better positioned economically than the United States. The only source of strength the United States has is. Is the reserve status of the dollar, because that lets the United States pay its bills by printing money. It's the main source of American power.

It's a pretty good deal for the U.S. that's for sure, as long as it can keep it going. It's a big sham, but it's quite a good position to be in while you have it.

But it's a house of cards because fundamentals don't support the dollar. It's supported by these rigged mechanisms. Japan has to print dollars faster than America. The European Central bank has to print them as fast. So does Switzerland, so does everybody else that's part of the Western system or they aren't part of it. Being an American vassal means you support the dollar. But of course, China and Russia and India and South American countries and much of Asia, they're not American vassals. And you see increasingly.

Currency swap agreements made between China and even American allies like Great Britain. So I think that the Washington people, I spent 25 years there, I never met 12 intelligent people.

I love it.

And what they're doing, they're picking on people that can whip their butt. And it could happen. Or as I suspect, simply Russia and China are going to turn their back on the west and create their own world economy.

And it will exclude the Europeans and the Americans and the Canadians and the Australians and the Mexicans.

All right, so can I chime in here for a moment? I would. And listen just so you know, I am by no means being an apologist for the U.S. okay. I used to, I used to beat this drum about currency collapse and all of this stuff. And I still think it's possible, okay? I still think we could see, you know, some very significant inflation. However, I just want to temper it with a few concepts. You know, we have that reserve currency status. If, if Russia and China really had their own middle class base of consumers, I would, I'd be right there with you. If Russia and China, I mean, granted, we don't want to get into military stuff, but the U.S. even if it's financed by fiat currency, still has the biggest military the world has ever known. And also, you know, Russia and China have giant demographic problems that in the next 10 years, I mean, I mean, Russia is a dying country, quite literally. And China, with this one child policy ten years from now has got a major demographic problem starting to hit it. Whereas the US Granted, it's not through, you know, birth rates of European Americans, but, you know, we've been very receptive to immigration and we're immigrating our way out of a demographic problem. So at least there's some young people coming in to support the older people. Granted, it's still a mess and Social Security is insolvent. I, I know that, but it's not as bad. I'm just making a comparison to other countries. And then the last thing I'd like to just point out is, is, I mean, look at the, the innovation and the technology that might just save our rear ends. I don't know. You know, and it's, it's not all exclusive to America, but America is certainly a, it's a pretty innovative place, you gotta admit that.

No, it's not.

No. Okay.

Not at all.

All right.

When you offshore your manufacturing, you lose the ability to innovate because you're no longer in touch with the production process. You have the foggiest idea how to innovate anything. Okay, so. And of course, the United States doesn't any longer have a middle class.

Well, the middle class is diminishing.

All the middle class jobs have been offshored for the last 15 years. Not just the well paying manufacturing jobs, but all of the jobs that college graduates used to take, such as software engineering, information technology. All these are offshored, even call centers.

You know, I mean, I agree it's diminishing, but it's still better than it is.

There's no middle class there. Didn't you see the Federal Reserve report a week or two ago? They surveyed everything Trying to find out why the bottom had fallen out of first time home buyers. So they did a survey of the 25 year olds and 30 year olds and they found out that almost 50% of 25 year olds are back home living with their parents and 30% of 30 year olds. Now these are people who should be well advanced in their career. 30% of 30 year olds are back home living with their parents. And why is this? Because they cannot get jobs. They pay enough for them to have an independent household. So if you've got, I think the figure was 47 or 48% of 25 year olds. And many of these are college graduates with extensive student loans. They're living at home with their parents in their childhood rooms.

Yeah, it's amazing. I know. It's the boomerang generation. I agree, I agree.

There's no middle class. And of course the Russian.

Birthright is turned around. It was down during the period of the following the dissolution of the Soviet Union, when our agent Yeltsin was running the place for us and when they had that crazy austerity policy imposed on them by the Harvard idiots.

But that's not there anymore. Their birthrights turned around. The Chinese, they have such a massive population. But besides, in 10 years the dollar will not be the reserve currency. It certainly is not going to last 10 years. It's the house cards. We don't know what's going to come out of the. As I've already said, the falling price of oil has got to disrupt all the oil derivatives. All of the fracking companies.

Who were conducting massive loans when oil was over $100 a barrel, it's now 60. How are they going to surface it? They're not. And so, and all that, all of that crappy loans are all mixed up in derivatives just like the mortgage backed securities.

So what you're looking at where all the economic vulnerabilities are, are in the United States.

The vulnerabilities the United States have are mountains. They're like the Himalayas compared to the mobile hills in China and Russia.

Very, very interesting. So do you have a prediction as to how much inflation we might see and when? Any thoughts on that? It's a very important question to investors.

Well, you know, we already have substantial inflation. It's just they don't measure it. Since I was in the treasury, the way they measure inflation has been altered in two ways that lead to a dramatic understatement of inflation.

One thing they do is if a price goes up, they simply say it's a quality Improvement and don't count it. Now in some of those cases it actually is a quality improvement, but it's overdone. The other way they do it is if the price of something in the index goes up, they throw it out and put a cheaper thing in. It's the substitution. They say, well, consumers do that, but it no longer measures the cost of a constant standard of living, it measures a falling standard of living. If the price of prime rib goes up and you stick in round steak in order to avoid counting that as a price rise, then you are measuring a lower standard of living. And so as John Williams has pointed out over and over, if you shadow.

Shadow stats. Yeah, I had him on the show.

If you use the 1990 official methodology, the inflation rates over 5% annually. If you use the 1980 efficient methodology, it's close to 10%. And if you talk to any one who does grocery shopping, I mean, I see it myself.

I see it too and I agree and I was beating the drum about how much inflation we really do have until about a year ago. It really did seem to subside even with the bs the way they measure it. You know, weighting substitution hedonics certainly hadn't.

Started in food or anything that we buy. Let's see, the last three years I've been undergoing massive home improvements and repairs. Really? And just watching the price of the same material over the three years, it's at least a third higher. At least a third higher, yeah. So when they tell you there's no inflation. See, the reason they concocted these inflation measures is so they don't have to pay Social Security cost of living increases. So they cheat the people on Social Security and they cheat anybody.

Well, all the government employees, all the entitlements, everything. You know, it saves the government money to lie about inflation. And it gets people reelected too.

It's quite high actually in terms of materials and food. And so.

How bad do you think it'll get? I mean, do you think we'll see 20% inflation worse than Carter era types stuff?

Oh, it could be a hyperinflation which means 100% annually.

What does that mean? Hyperinflation doesn't have an exact definition. So I always like to ask my guests what theirs is.

Well, it's huge range hyperinflation, but it could certainly be much more than 20% when you're import dependent as we are. You know, you have to keep in mind too that.

More than half of our so called imports are actually the offshore production of American firms.

So when it comes back in, it counts as imports. And so unless these American firms are just going to go out of business, if the dollar drops, then the cost of their offshore production rises.

So all those prices have to go up when they bring it back in. This is what I say you're going to. The time will come when people walk in Walmart and they think they've walked in Neiman Marcus because prices will be so dramatic. So.

If the dollar falls, then the exchange rate will cause very high inflation and that will produce a crisis. And the Federal Reserve's likely response to the crisis will be money creation.

And not the kind that just goes to the banks for their reserves, but the inflation kind.

It's about the only tool they really.

Have, unfortunately, is to print money.

So. And of course, once you get inflation, they can't control bond prices, so the interest rates explode and the bond market will collapse, even though the economy dropping. That. You can have a situation. This is what people understand. You're gonna have a situation where you have inflation and depression at the same time. We've never had that.

Yep, that's the, that's the misery index times five. Yeah, right.

Yeah, that's right. We've never had that. And economic policy has no solution for that.

See, that's what people don't understand. And I'm really glad you pointed that out because what has to give in that equation is the standard of living. The standard of living just, it has to decline. A lot of this wealth is illusory. It's, it's, it's, it's just a smoke and mirrors illusion that we've been living maybe since 1971, possibly, I don't know.

And I'm referring to the gold standard, of course.

Well, actually the real, the real median family income is actually lower now than it was in the late 60s.

So people are already suffering. And we have a record percentage of the population on food stamps with record homelessness. And there's still a lot of home mortgages that are underwater in the sense that the house is not worth the mortgage, but people are still paying it because they got to have a place to live. So there's plenty of room for a lot of suffering, more suffering. And so I. And of course, the wealth of the so called 1% is paper. And when this hits all these paper assets, they drop like a stone too. So all the billionaires will disappear as well.

So it's not.

In my opinion, a hopeful.

Outlook. And I think it's very foolish of Washington to be picking fights with the Russians. And the Chinese. And it's very foolish of Washington to be convincing these two well armed nuclear countries that Washington is their enemy now. The so called American military. It's not clear that it's all that good either. We fought for 13 years in Afghanistan against a few thousand lightly armed Taliban and we weren't able to win.

We were in Iraq eight years and we weren't able to win.

And not long ago we sent one of our newest super duper missile ships into the Black Sea and stationed it right there near the Russian naval base in Crimea to show what a powerful technological marvel we were. And the Russians flew one jet fighter over it and every communication system in the ship went down.

So the notion that we have all this is just propaganda from the military complex. It wants the money.

And it wasn't long ago when we were prancing around that the Chinese sent up a missile and blew one of their own satellites out of space.

So that told us they can make us blind whenever they want to.

So this notion that we have some kind of military superiority.

It'S nonsense. And if the United States has no possibility of invading Russia or China.

If we were to invade Russia or China, the whole army would be destroyed.

The war that they're heading toward is nuclear. And there's no winner of that. Nobody?

No, there's certainly no winner of that. Okay, so Paul, what is the solution? I mean, you've done a great job outlining the problem. I mean, what should we be doing? We should curtail our spending. We should not pick fights with big enemies like that or anybody for that matter. We can't get out of this mess with curtailing our spending and raising taxes. You know, that's that. We're just too far in the hole, aren't we? I mean, it seems like the only way out is to inflate. It's the only question is whether that is, you know, severe or moderate.

That's what they've been trying to do because they believe in the Phillips curve. They believe that if you want economic growth, you have to pay for it with inflation.

Right, Right. And as long as the GDP is in increasing and the population is increasing proportionately, that isn't the end of the world. But that's not happening, is it?

That's right. If it was, you wouldn't see declines in real median family income. So no, you can't grow an economy without growth in income or credit. And Greenspan used up the credit. He substituted the growth in credit for the missing growth in income with his real estate boom. And in other words, the low interest rates drove up mortgage, drove up housing prices so people could refinance their mortgages and spend the equity. And that kept the economy going during the Greenspan era.

And before that he did that, did it with the stock market. It's like they move from bubble to bubble, these people. It's just, it's just ridiculous, you know. And Bernanke, same deal. I don't know, we'll see what Janet Yellen's like.

But it's all bubble now. You know, the stocks, there's no basis for the stock values. The largest purchases of stock are the companies buying back their own shares.

The main source of profits is layoffs. There's no retail sales supporting anything. And so the whole thing, as I've said over and over, is a house cards standing on the dollar, which itself is a household.

I think we covered it. Now, just because they're problems doesn't mean they're solutions.

And I think we pass solutions and the solution is going to be some kind of collapse.

And I don't think it's avoidable. It may already be starting to unwind. I mean, come back to the question.

What is the state of all the fracking loans based on $100 plus barrel of oil? What's the state of those who holds them?

What are the derivatives drawn off on them? What are all the credit default swaps? What is this? What does this picture look like?

And did they think about it when they decided to try to hurt Russia through the oil price.

Or hurt Russia through the rubles exchange value?

Did they think, no, they didn't. They're not smart enough to think about.

They get full of hubris. They're arrogant. I know them, spent 25 years with them, beat myself. I never met 12 intelligent people in Washington.

I love that. I think you're probably right.

Well, I think we've covered it. I need to go now. I'm sorry, I don't have any solutions to give you. The best solution would be to, you know, we don't need a $1.1 trillion military service security complex. The only enemy we have are the ones we create for ourselves in order to keep the military security entitlement going.

It'd be cheaper just to give them a share of the budget and not even have them print, make them make the weapons. That would be a lot safer than having to go around starting wars so that we can take the taxpayers money to give to the military security complex, which we don't need. All the enemies we have, we create look, we've been bombing. We've been bombing and murdering people in seven countries for 13 years. Now. They're picking on Russia, and that's a.

Big fight to pick. So let's hope that we don't do it. Hopefully Obama will just get busy planning his, his library and he'll be on his way out soon.

Yeah, but the military security complex won't be on its way.

They're. They're there. They're there all the time.

All right. Well, I enjoyed speaking to you.

Okay. And I just want to give out your website. It's paulcraigroberts.org, paul Craig, roberts.org and Paul, thank you so much for joining us today. Appreciate it. Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartman media.com for appropriate disclaimers. In terms of service, remember that guest opinions are their own, and if you require specific legal or tax advice or advice in 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.