361: Jim Rickards on The Death of Money, Aftermath, Currency Wars & The New Great Depression

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com.

Welcome to the AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

It is my great pleasure to welcome someone who I've been following for many, many years and that is none other than Jim Rickards. I'm sure you have seen his work there. Maybe you've read his books? I've read several of them. He is the editor of the Strategic Intelligence Newsletter, the best selling author of several books including Seven Secrets of Wealth Preservation and the Coming Chaos Currency wars, the Making of the Next Global Crisis, the Death of Money, the Coming Collapse of the International Monetary System, the New Case for Gold, the Road to Ruin, the Global Elite's Secret Plan for the Next Financial Crisis and the new books, the New Great Depression Winners and Lose in a Post Pandemic World and the how to Prepare for and Profit from the Turbulent Times Ahead. And he co authored that one with Robert Kiyosaki who's been on the show a couple of times. Jim Rickards, welcome. How are you?

I'm fine, Jason, thank you. Great to be with you.

It's good to have you on, you know. By the way, I'm curious, I don't know where you're based. Where are you located?

I live in Portsmouth, New Hampshire. So that's our motto here is Live free or die.

Excellent. Well, that's a good libertarian motto. I like it a lot. And you know, when I see your interviews, sometimes you're in a different environment. Do you have like a cabin somewhere or something? Where I see.

I have a farm in the mountains. We go back and forth.

Excellent. Good stuff. Well, just give us your overall kind of macro view, if you would, Jim, as to what is going on in the world. It is certainly a turbulent time. No one would deny that. You know, every crisis leaves open many opportunities at the same time. We'll take a deep dive into that today, I hope.

Sure.

Well, that's exactly what the book's about, the New Great Depression. And when I was first discussing it with my publisher, my ed last April when the idea came up, of course by then we were in lockdown, the economy was collapsing, the stock market had just dropped 30%. I said, Jim, we want a book on this. There'll be a lot of interest in it. You know, the economy, you know markets, you know, capital market. You're just the guy to do it. And I said, thank you. And we got going on that. And they said, but keep away from the pandemic and the epidemiology because you're not a doctor. And I said, no. I said, that's like asked me to write about property damage in New Orleans in 2005 and not mention Hurricane Katrina. I said, you cannot understand the economy. You cannot dive into the new Great Depression without looking at the pandemic and what caused it. They agreed that that made sense. I know I'm not a doctor, but I said jokingly, I did go to Johns Hopkins, so I'm not intimidated by natural science. I was able to read, I did read over 100 peer reviewed academic papers on the immunology, the epidemiology and the virology. That doesn't make me a doctor, but the science was very accessible when I started. I thought to myself.

There'S going to be a whole bunch of conspiracy theories and fringe theories and everything over here and there's going to be good science over here. So all I need to do is keep away from this and focus on the science. The first part was easy. You can discard the fringe theories. But when I got into the science, what I discovered is that the scientists don't agree with each other. And that's a much bigger challenge because you hear certain politicians and it's a shame the way this has all been politicized. That's really unfortunate. But politicians will say, believe the scientists. Well, anyone who says that doesn't know anything about science. I mean, scientists argue with each other all the time. They debate, they challenge each other's assumptions. New research comes along and the science as such evolves. But it's never settled.

By the way, just to comment on that, you're so right, Jim, because if we believed the science in the old days, we would still think that everything revolves around the Earth. I mean, that was the science of the day.

Exactly. The sun revolves around the Earth. Even when Copernicus said that wasn't true, that the Earth revolves around the sun, that it took Kepler and Tycho Brahe and others 100 years to change the consensus. So yeah, even bad science and there's a lot of it around doesn't change overnight. So that's exactly the issue I was confronting. And I can show you PhD peer reviewed articles that say you have to wear a mask. You're a fool if you go out without a mask. It's the only way we're going to stop the disease, et cetera. I can show you other PhDs who say, no, masks don't work. If you understand the virus, the virus particle, the virus itself is smaller than the weave and the mask. Masks are not well constructed. People don't wear them correctly. They're mostly for show. So take a pick. I lean a little bit to, you know, I wear a mask. I'm not going to fight with the greeter at Walmart. If he says, you got to wear a mask, I'll put a mask on. But I think we are right to be skeptical that they do very much good at all. Washing your hands helps. Social distancing helps. So I spent several chapters on that, including the origin of the virus and the effect of the lockdown. The lockdown was the segue into the economy because the evidence is very clear that lockdowns don't work. I know that may not be a popular view, but that's been true. The scientific consensus around that has been true for a long time. Lockdowns are what politicians do when they don't know what else to do. This guy Fauci, I don't have a lot of time for him. He's an over the hill bureaucrat. You know the old saying, if you're a hammer, everything looks like a nail. If you're an immunologist, everything looks like a lockdown. But the fact is, lockdowns don't work. If you have an island someplace and you can only get there by boat and you close it off and nobody.

Can come, and nobody then, then a lockdown works.

That'll work.

But try the United States of America, North America, Europe, with 300 million people, or 400 million people in the case of Europe, it simply doesn't work.

One thing I want to say though, on this is, you know, if we try to put this video on YouTube, there is a high likelihood it will be taken down. Having this blasphemous conversation, I just, you know, want to.

Well, no, you're right about that.

I always hope you can fly onto the radar screen a little bit. It's one of the reasons I like writing books. I think books are the last thing that are not being censored. You're right. YouTube will take it down. Twitter will take it down. Facebook will take it down. I applaud my publisher.

My publisher may have other authors who.

Disagree and they'll publish them also. And that's the way it should be.

But Jim, we should be outraged at this. This is insane. I mean, yesterday the president of the United States was banned from social media. This is. I mean, I can't believe we're living in these times. It's likewellian nightmare.

Imagine you were in the Soviet Union in the 1960s.

It was the same thing, but here we are.

Well, in some ways. But they survived. They had Samizat, which were kind of handwritten manuscripts, and they would secretly copy them on a Xerox machine and pass them around in envelopes at cafes or whatever. Boris Pasternak got Dr. Zhivago out and turned into a pretty good movie. But you have to fight back. I agree with you. The censorship is oppressive. It's not scientific based. It has nothing to do with civil liberties or the First Amendment. It's just Silicon Valley trying to control the dialogue. And when they ban somebody and it's kind of high profile, of course you've.

Shut down one voice.

But that's not the worst part of it. The worst part of it is millions of other people who are intimidated. It's like, oh, gee, I better say the right thing or I better not speak up because they'll do, or I'm.

Going to get sent to a re education camp, which means I'll be banned from Facebook. Yeah.

And by the way, in China, they're doing that. They have concentration camps in China, real ones, and they're removing organs from political dissidents without anesthetic and then cremating the body. So where are we seeing that? But we're not that far from China. I agree that we're heading in the wrong direction. As far as what went on in Washington, it's interesting. I absolutely, unconditionally condemn the violence. I don't think there's a place for violence, property damage, et cetera. But having said, said that the behavior, just as an analyst, leaving aside the politics, that is very much the kind of behavior to be expected as a result of the lockdown. And I would say the same thing about the riots last summer. You know, a lot of people condemning the attack on Capitol Hill, and they should. I don't disagree with that, but they were pretty silent all summer when people were burning down Kenosha, Portland, Seattle, parts of New York, Brooklyn, etc. If you're going to be against violence, be against all of violence, not just the ones you agree with or disagree with. But the point I make, and this is in chapter five of the book, there's been Enough talk. And some science and publicity has said around the physical effects of the virus and the pandemic. But I don't underestimate the mental health aspects of this, by the way. This is another reason lockdowns don't work. Lockdowns kill more people than they save. You could probably find somebody who got locked down and say, well, she'd be dead today if she wasn't locked down. I mean that person probably exists. But what about the fact that the suicide rate has tripled, the murder rate has doubled, alcohol abuse, drug abuse, domestic abuse, people who skipped cancer treatments and heart treatments died of heart attacks because of the lockdown. So and the evidence, and this is not just speculation, a lot of data is out there. We didn't necessarily, I didn't have the data, not all of it anyway, last April and May when I started writing the book. But over the course of the summer the data came in and it bears out what I'm saying. So the lockdowns have killed more people than they've saved. They have not stopped the spread of the virus. And what you do, you, you lock the place down maybe for a very short period of time, you contain the spread a little bit, but then what do you do? You're going to martial law. You're going to be locked down the rest of your life. So then they ease up and all of a sudden there's this huge outburst and explosion of the virus and you're back where you started from, probably worse. And then you lock it down again, like wash, rinse and repeat.

And you didn't mention that people's immune systems become weaker too. That's another part of it.

That's right, I mentioned that in the book. You're right, I haven't mentioned that yet. But there's more than one virus and bacter floating around. And by just going outside and interacting, going to a bar or whatever, we get exposed to those other viruses and bacteria. And then of course they're not as lethal as coronavirus, but they can make you sick and you build up immunities to those. Well, when you're locked down, maybe you're avoiding the coronavirus, but you're weakening your immune system relative to all those other pathogens. And so that's another problem coming out of the so called lockdown, which is you'll probably get sick of something else. So look, it just doesn't work. And in the book, in chapter two, I go through the history. Well, where did this lockdown idea come from? Well, it was in a paper in A study in the Centers for Disease Control. Where did that come from? I traced it all the way back to 2005 during the avian flu, when George Bush was president. And he read a book on the Spanish flu, a very good book by the way, called Great Influenza by John Barry. But Bush kind of freaked out a little bit. He said, we need a plan. Well, they came up with a plan that was devised by a guy who was a modeler at the Sandia National Laboratory in New Mexico who didn't know anything about disease and a toy model that his 14 year old daughter had come up with. She won a high school science, junior high school science project prize. Great. But that then morphed into this study. It was carried on through the Bush administration, the Obama administration, and then when the Trump administration needed it, they pulled it off the shelf. Well, it was an instant return to the Middle Ages. There's a very prominent scholar, D.A. henderson, he passed away a few years ago, but he was credited with leading the a movement to eradicate smallpox. We did eradicate smallpox in the 1970s and DA Henderson is given most of the credit for that. He won the national, sorry, the Medal of Freedom, which is the highest civilian honor, kind of equivalent to the Congressional Medal of Honor, and was dean of the Bloomberg School of Public Health at Johns Hopkins. So you sort of can't get any more credentialed or accomplished than that. And he said lockdowns don't work. And I quote his study in the book, so that's clear. But they're not good at stopping the spread of the virus, but they're very good at destroying the economy. And that's what we did. But they caused all these other. Even if you don't have the disease, even if you are immunized or you had it and you recovered and you got the antibodies, the lockdown still affects you mentally. It causes depression, anger, anxiety and ultimately violence. So I trace some of the, not all, not the sole cause, but some of the violence we saw last summer in all these antifa riots and the violence we saw yesterday on Capitol Hill in part because people's anger levels so high because of the lockdown.

Sure, one thought about it. I don't know if you've thought about this or really anybody has much. I've never heard anybody say it. But if you look back to the spark that ignited this, you look back to George Floyd, just think of his situation. So he was arrested for counterfeiting and he lost his job because the place he worked as a bouncer was closed okay, that business was closed.

Right.

And so he had to have money. And that was before any of the stimulus. I think I could be wrong on that, but I think it was. And so he was counterfeiting and there we go. That led to the whole thing. Right. It may have never happened if he had been able to keep his job. Right.

So, yeah, the police officers were arrested and they've been charged with a second, one of them charged with second degree murder. They're going to go in trial, some, you know, innocent until proven guilty and let justice take its course. But these riots, many of them were justified in the name of George Floyd.

Well, I could see peaceful protest.

You want to call your congressman, you want to have a peaceful march, that's fine. That's the American way. That's the First Amendment. Not smashing the windows and burning downstairs. I don't care what.

Yeah, and billions of dollars worth of damage, nothing compared to what happened.

The timing had a direct economic impact because you go back to, okay, so margin March, April, May was the first lockdown. The George Floyd death was the end.

Of May, and the riots broke out.

In June, July and August. Now what else was happening in July? Well, that was right around the time when the mayors and governors were saying, okay, now we can reopen. The worst is over. Looks like we got the virus contained, et cetera. We can reopen. Well, no sooner did the bodegas and the coffee shops and the restaurants and the bars reopened, here come the riots and they're getting the windows smashed and.

They'Re, they're burned out and they're police.

In the streets and they're boarded up. So imagine you're a small business person, you've just gone through three months, half of them are bankrupt. But they have to survive and try to reopen. Now you got a crowbar smashed through.

Your window, and then now today you.

Got a second wave, which is worse than the first wave. Again, more evidence that lockdowns don't work. And there you get into this difference between perception and reality. So you look at the stock market. So the stock market indices are at all time highs. I think the S and P had a new all time high today. The Dow Jones and Nasdaq, they're all close to their all time highs. And so people say, well, it went down 30% in March, but it's come back 70%. It's a new all time high. My 401 is restored. What's the problem?

It looks all good.

Well, the answer is that the stock market no longer bears any Relation to the real economy. The s and P500. It is the S&P7.

And the reason is that's a cap.

Weighted index, meaning your influence on the index is a function of your market capitalization. Well, there are seven stocks. We know what they are. I mean, it's Apple, Amazon, Netflix, Google, Facebook, Microsoft and Tesla. Okay, those seven stocks are 40% of.

The market cap of the entire S.

And P. So it's best understood as the S&P7. By the way, those companies are also the least least affected by the pandemic. They're not bricks and mortar, they're telecommunications.

They'Re digital, they're advertising.

Their online shopping, et cetera.

So seven companies are 40% of the S and P market cap. They're least affected by the pandemic, and yes, their stocks are going up and their earnings are going up as well.

But that means the S and P.

Doesn'T reflect the economy because that's not the real economy. How are the other 493 stocks? Well, the answer is they're not doing very well. They're flat to down.

And what about the real economy?

When I say real economy, I mean restaurants, bars, nail salons, gyms, dry cleaners, bodegas, boutique retailers, et cetera.

It's interesting that you're calling that the real economy. And I'm not disagreeing with you about this at all. But just one of the terrible, I think, side effects of this whole pandemic is the massive consolidation that is occurring toward the top. The bigger getting bigger. And everybody else is going to need UBI Universal Basic Income to survive because, and this may well be very engineered or it's just a massively helpful coincidence to the central planners who like this idea.

Yeah, that's exactly what Mark Zuckerberg wants. Mark Zuckerberg gave, I think, a commencement address at Harvard. He never graduated, but he got an honorary degree and as a commencement speaker. And he talked about ubi. But that's what they want. They want a world where 10 or 20 or maybe a couple hundred people control everything. And the rest of us are just getting welfare checks. And they say, hey, stay home, watch football, play video games. Here's your check.

Bread and circuses.

Yeah, correct. Except maybe, I guess you get bread and circuses if you count the NFL. So the point being, yeah, that is what they want. And Rahm Emanuel famously said, never let a good crisis go to waste. Well, this is a good crisis and they're not letting it go to waste.

But getting back to the people look.

Down their Noses at small and medium sized enterprises. They say, well, you're a restaurant with 20 employees, big deal. You're not Boeing, you're not Apple Computer. Well, I knew to you those small, medium sized enterprises make up 50% of all jobs and 45% of GDP. So individually they may be small, but in the aggregate they are half the economy. And you've just crushed half the economy.

Okay, so Jim, say that again, if you would. I just want to make sure people really get those numbers in those ratios.

Small and medium sized enterprises again, your bars, restaurants, salons, et cetera, are 50% of all jobs and 45% of GDP.

Okay, so that's half of all jobs and almost half of the entire country's gdp.

Correct. And we've just crushed it.

And then you got people like Larry.

Kudlow running around last spring. Larry Kudlow is a nice guy, decent person, but worst forecasting record of anyone I can think of other than the Federal Reserve.

And he's saying pent up demand.

Pent up demand. The economy is going to come roaring back in July, et cetera. Well, there's no pent up demand.

My wife and I were, we were.

Locked down just like everybody else in March, April and May. And usually we go out to dinner on a Friday night. And we didn't during that time period, the restaurants were closed and we didn't want to go out anyway. But by July, some restaurants reopened, so we went out to dinner. Well, we didn't order nine dinners. I just ordered one like I usually do.

Right.

There was no, there was no pent up demand.

I didn't get nine.

I got one. So that was the other nine dinners. That's a permanent loss. That's not a temporary loss.

I mean, people are thinking maybe you go out to dinner a little more often because it's like the Roaring Twenties, you know, you've been locked up and now you, you're out more, you know, but it's never gonna be the equivalent.

Yeah.

First of all, that's not.

I know people.

Some people may suggest that Larry Kudlow did, but that's not true, number one. Number two, by the way, even if the restaurant is open and you feel.

Like going out, a lot of people.

Are not going out.

Right.

Say the restaurant's open, but you know, hey, the people are so afraid that I'm afraid.

I don't know, I'm not criticizing anyone's.

Behavior, I'm just describing it for purposes of economic analysis.

So.

And that, by the way, I said the restaurant reopened. Some of them Did. A lot of them are permanently closed.

It's not, first of all, they will never reopen.

Yeah, correct. Now these businesses again I started, listen, all the data is in the book.

That they have got work, they've got.

You see how much working capital do they have? What varies by sector but the answer is 10 weeks, 20 weeks. These people don't have $5 million in the bank.

They've got, you know, they have gross.

Revenues, they pay their payroll and their suppliers and their taxes and they make a little profit, that's it. They don't have working capital. But if you're locked down, you still have to pay the rent, you still have to pay the utilities, you know, you might have some benefits, et cetera. And so you're running negative cash flow and a lot of them are just going bankrupt. So you go up and down, I don't care where you live, up and down the streets, you'll see every fourth or fifth store, four lease closed, they're not coming back, there's jobs not coming back, the equipment suffered at fire sale prices. And by the way, they're not paying the rent because they broke the lease. That's the first thing you do when you file for bankruptcy.

But a lot of places, New York.

City is one but not the only.

One, they have rent abatement, they've told.

People you don't have to pay the rent and they've got anti eviction laws that say and by the way, if you don't pay the rent you can't evict the person until further notice. Well that seems like, you know, okay, that's an accommodation to the economic distress. What about the landlord?

Yeah, well then the commercial mortgage backed securities they're defaulting on. Yeah, I mean, and all those people.

Yeah, and who wants them?

Well, your listeners should look at pension plans. Is it wealthy? Well yeah, pension plan. It could be your pension plan. Not you personally, but your listeners should look in their 401ks. You own a high yield commercial real estate fund that was dumped on you by Morgan Stanley or Goldman Sachs. Maybe. Or maybe you have an index fund that's in the index and you don't even know. The point is there are ripple effects of this and it'll go from tenant to landlord to lender to security holder and it's going to take a year to play out. So we're nowhere near the bottom of this.

Yep, I agree. I think that's a huge thing. So the government and the central banks all around the world have created an unprecedented. Absolutely mind Boggling amount of new currency. Jim, what does that mean to us? You know, it's like money printer go burr, as the saying goes. Right, sure.

It actually means nothing. And let me explain what I mean by that. And by the way, you're Austrians and your monetarists and your Keynesian, they're going.

To say inflation, right?

Inflation.

Well, they've been wrong for 13 years. That's how long this has been going on. In 2008, the Federal Reserve balance sheet was 800 billion. Today it's about 7.5 trillion. So they point they printed over almost $7 trillion of new money. Where's the inflation? There's no inflation.

Well, there's a lot of, you know, I mean, I don't want to lose, like, belabor the point, but some would say there's more inflation than is disclosed. Of course they'd say the indices are misleading, but that's fine. But then others would say, look at the asset inflation. I mean, there's a lot of inflating of assets.

Right.

Maybe not consumer prices.

Yeah, but that's not inflation. I mean, asset prices are up there, bubbles all over the place. I agree with that. Bitcoin, stock market, some sectors of real estate. Not all those are asset bubbles. That's not inflation. Inflation is what is the consumer Price index or the ppi, the purchasing index, Producer price index, rather. And you say, well, I've got my own definition. Well, fine, good for you. But you're not going to be able to forecast policy if you're making up definitions. You got to look at it the.

Way the Fed does.

And I'm not saying that there are no problems with it. I'm not saying the models are right. They're not. But if you're trying to forecast Fed policy and forecast markets, which I do, you better look at it the way the policymakers are looking at it, because that's going to guide their actions. If you want to stay ahead of the curve in terms of policy changes, you have to look at it through their eyes, whether the models are.

I know the models are wrong.

I get that. I do my own modeling. But you can't just make up your own definition. If you're talking about. Well, the official. The inflation benchmark that the Federal Reserve uses is pce, price deflator, personal consumption expenditure, price deflation. That's the one that's used to determine GDP. And their target for that is 2%. And they've hit that target about two months in the last 13 years. In other words, they don't know how to cause inflation, and we don't have inflation. But just to come back to your point, Jason, so we printed the $7 trillion, over $7 trillion we talked about, and the monitor said, oh, all that money, you're going to cause inflation. We have not. Money printing does not cause inflation. What causes inflation is the velocity of money.

It's the turnover.

So I go to dinner, I tip the waitress, she takes the taxi home, tips the taxi driver, taxi driver puts gas in his car. So in that example, my dollar tip had velocity of three. There was the waitress tip, the taxi tip, and the gasoline. $3 of goods and services for $1. That's velocity of 3. But if I stay home and watch TV and don't spend any money, my money has velocity of zero. Sorry. A nominal GDP is money supply times velocity. What's 7 trillion times 000, right? If you don't have velocity, you don't have economy. So you can think of the money print. There is money printing for sure. But think of the money printing as piling up wood. Piling up. Piling up, piling. A big pile of wood doesn't start a fire. You need a match, you need a bolt of lightning, you need a blowtorch, you need some catalyst. So if you're worried about inflation, and actually right now deflation is a bigger problem. But if you're worried about inflation, don't worry about the $7 trillion pile of wood. Ask yourself, where's the spark?

Okay, so could that spark come at any time? Right. Could it just suddenly create a lot of velocity? And also is the lack of any significant inflation in the system, how do we know that it's a result of velocity versus just technological progress? That technology is deflationary. I think we'd all agree with that because it just makes things better, faster, cheaper, which is it? And could that spark come at any time?

Well, it can come at any time, which begs the next question, which is, okay, what could it be? And am I looking for it? Do I see any signs of it?

So I'm not saying. I'm not saying let your guard down about inflation.

I'm just saying there's no inflation right now and there's nothing on the horizon that's going to cause inflation. You're asking a good question. Is there something that could. Yeah, I can tell you what it is, actually. I tell it.

I tell the reader in the conclusion.

Of my book, what could cause inflation. In fact, I recommend it because we've got another problem, which I just explained, why monetary policy does not work. Fiscal policy does not work either. You can have deficit spending, but stop calling it stimulus because it's not stimulus. And why is that? That you have to look at another metric, which is the debt to GDP ratio. So how much government debt is there and what's gdp?

And simple example, let's say, and these.

Are not the right numbers, but I'm just an example. Let's say a $10 trillion in debt and $20 trillion of GDP. On that example, the debt to GDP ratio is 0.5. It's 50%. The debt's 50% of the. Sorry, the debt's 50% of GDP. Well, what are the actual numbers? The actual numbers today are about 25 trillion of debt and about 22 trillion of GDP. In other words, the debt to GDP ratio is actually around closer to 130%. Now, what's the significance of that other than the fact that it's a bigger number? This research, this is from number sources, but Kenneth Rogoff, a professor at Harvard, Carmen Reinhart, who was a professor at Harvard, she's now chief economist at the World bank, and others in the collaborators, in books, papers, studies numerous time periods, emerging markets, developed markets, all markets, et cetera. And they show very conclusively that your Keynesian multiplier works up to a debt to GDP ratio of about 90%.

And we're at about 130%, I believe. Right?

Correct.

Japan is at 230% somewhere around there.

Correct. All right. Japan's a special case, and I can explain that.

But just to come back to the.

Other research, so what's the Keynesian multiplier? Keynesian multiplier is when you're in a liquidity trap and you want consumption and people won't spend, they save. That's what they're doing today. The stock market was up today because.

Okay, so Biden's going to be president.

So the Democrats control the Senate. So that means we're not going to get $600 checks. We're going to get $2,000 check checks and more. So the stock market, which usually gets things wrong, by the way, but they said, all right, well, all the stimulus people are going to get the money, they're going to spend it. Here's your inflation, kind of what you were asking about, Jason. Here's your inflation. So interest rates are going up. That's not what people do with the money.

They will get the money.

I agree with that. And there will be more deficit spending, but they're not spending it, they're saving it. They're either paying down debt, which economically is the same as saving, or they're actually saving.

And look, if you lost your job.

Of course you're going to save money. You're not going to, you know, you'll.

Pay the rent or whatever, but you're.

Not going to go spend it on a, you know, vacation or whatever. But even people who haven't lost their jobs worry that they might be next. Maybe their neighbor lost their job, so they're more.

They're raining and they're pulling in their horns.

And savings. Correct. There's a name for that. It's called precautionary savings. Savings, just in case.

Well, so if you get savings, you're.

In a liquidity trap. Nobody's spending the money. So what Cain said is, well, well, the government can spend the money. If people won't, the government will. And so you borrow a dollar and you spend a dollar and you get $1.25 of GDP.

And it works for a while, priming the pump.

The question is, when does it not work? And the answer is, it does not work at 90%.

Why is it so, Jim, my question is, why does it, you know, like the economy turns into sort of this zombie economy with too much debt. Right. It stops working. It's sort of like maybe a metaphor would be, look, you know, I woke up, I didn't sleep well, I had a cup of coffee. It didn't do the job like usual. You know, one cup is usually good enough. Well, I had three cups and, you know, I have 10 cups. It's not going to make me 10 times more awake. Right. It's going to actually hurt me. So what happens with the economy, though, when you do that?

It's the same thing. The concept is a diminishing marginal return. So at very low levels of development and productivity, one guy has a bright idea. You got a bunch of farmers 5,000 years ago in China, and guy says, if we got together and build an irrigation canal and brought the water over here, we could all grow more rice.

Oh, yeah, good idea.

And guess what? That works. But pretty soon you need an irrigation commissioner and he hires an assistant, and your bureaucracy builds up and the cost. So for each new investment, okay, you still get gains. You still have gains, but the curve goes up very steeply at the beginning. Beginning. Then it flattens out and then it starts to go down, and then it actually goes negative.

Yeah, because you sort of collapse under your own weight without all that bureaucracy.

That's exactly right. It's complexity theory and scaling metrics. But that's where we are now. We're in the negative return. That's what happens when you go past 90%. The Keynesian multiplier drops below 1. Now you borrow a dollar, you spend a dollar and you get 90 cents of GDP. Not $1.25, but 90 cents or 80 cents and progressively less. But look at the math. What's happening? Your debt is still going up by a dollar, but your GDP is only going up 90 cents. So what's happening to the debt to GDP ratio? It's getting worse. That means the return of the next dollar is lower. This is why you cannot borrow your way out of a debt crisis. You cannot print your way out of the liquidity crisis. You need other solutions. And I talk about the solutions in the conclusion of the book.

Okay, so I want to ask you about, you know, what people should do. But before we get into that, you, I believe, correct me if I'm wrong, are bullish on gold and silver. Is that correct?

Yes, that's right.

And most people would think, and maybe your, your ideas is more counterintuitive or there's some distinction. Most people would say, well, you know, people buy gold or silver if they're worried about inflation or they're worried about a general crisis. Crisis or collapse of any flavor, I guess.

Why are you saying inflation isn't the worry? But still buy gold and silver because.

Gold does very well in deflation. Also, you're right about the inflation. That's pretty intuitive and most people understand that. But again, just to give concrete data and concrete models, I don't make claims without backing them up. The greatest period of sustained deflation in US history was the Great Depression between 1929 and 1940. In that period, gold went up 75%. It started at $20 an ounce, $20.67 an ounce, and it went up to $35 an ounce. In dollar terms, that's a 75% gain. The best performing stock market, sorry, the best performing stock on the New York Stock Exchange during the Great Depression was homestake mining out in South Dakota, which again, because they were producing gold. So gold does very well on deflation. Kind of counterintuitive. The answer is governments cannot afford deflation because you can't tax it. You can tax inflation all day long.

Governments love it.

But you can't tax deflation. If I don't get a raise, but the price of everything goes down, my standard of living just went up because my same amount of cash has higher purchasing power. So my standard of living goes up. In deflation, but the government can't tax it. So they want inflation because they want me to get more nominal dollars so they can tax it. So if governments can't stand deflation, and they can't and you deflation, how do you get out of it? The answer is raise the price of gold. Raise the dollar price of gold. Not to reward gold holders. In fact, FDR did it and he confiscated all the gold first. So the government, it was the ultimate front running, the ultimate inside trade.

That was an absolute scam in 1933.

It was a scam, but it worked. It was a scam that worked. The reason it was a scam was the government got all the profit, not the individual investors. But as economic policy at work, because what Roosevelt was saying is, I don't want to reward gold holders. In fact, he took all the gold. But what I want to do, I want the price of everything else to go up. In other words, if gold. I expect gold to go to $15,000 an ounce over the next several years. But let's just take $5,000 an ounce, which would still be a big jump. The world of $5,000 gold is also the world of $400 oil, $100 silver, $20 wheat. There's your inflation. The price of everything else goes up. I tell people, if the dollar price of gold goes up, if you have gold, that's fine. You made a profit. Don't pat yourself on the back. Because what's really happening is that the dollar is devaluing. People say gold's going up, okay, but that's not really what's going on.

And now it's the measuring stick. It's the keeping pace.

I think of gold by weight, I think of gold by weight. And an ounce of gold is still an ounce of gold. If you stick it in a drawer, go away for a year, come back, guess What? It's not 2 ounces. It's still an ounce of gold. But if the dollar value is higher, what really happened is that the value.

Of the dollar went down.

That's inflation.

My listeners get that. So they're in tune with you there. No problem. Okay, so before we get to what to do and then we'll wrap it up, that question I asked you about bitcoin off air before we started, I found it very interesting that you said on another video I saw you on, that bitcoin will not become. Well, you're not a fan of bitcoin, right? Is that fair to say?

Yeah, I have no interest in it. Tell us why because it's not going anywhere. It might go down to $200 a coin or whatever. But here's the thing with bitcoin. I know where it is. It's around $35,000. So I did an interview in December 2017 with Sarah Silverman, who's a journalist. And at the time, bitcoin was going up about $1,000. Well, certainly $1,000 a week was almost a thousand dollars a day. So it was gone at the time. It was about $8,000. So we had gone $5,000, $6,000, $7,000, $8,000.

It's highly speculative and very volatile. So be careful, folks. If you're doing it, be really careful.

Well, yeah, but yes, I agree, but there's more to it than that. Sarah asked me the same question you just did. I said, look, Sarah, here's what's going to happen. It's going to go to $20,000 and then it's going to crash. And that's exactly what happened. It went to $20,000 in early January and then it crashed about 80%. All right, so now it's at $35,000. It's another bubble and it's going to crash. But a lot of people say, well, bitcoin's going to take over the dollar. Bitcoin's going to replace the dollar as a global reserve currency, and it's the place to be and it's the new gold, et cetera. It's all nonsense. And here's why. When people say the dollar is the leading reserve currency, and it is. 60% of global reserves are in dollars. And by the way, about 30% of global reserves are in euros. A little bit less. So the dollar and the euro together make up almost 90% of global reserves. All the other currencies combined, sterling francs, Canadian dollars, Australia. Together they add up to maybe 40%. No, not 40%. 10% or 15%. The dollar and the euro make up.

Oh, got it. I thought you were talking everything but the dollar.

Almost 90%. Correct. So those two currencies of the whole show. But it's not as if the people. So when you say China has $1.4 trillion in their reserves in dollars, which they do, it's not as if they have pallets of $100 bills sitting in the basement of the People's bank of China. They buy securities, they buy treasury bills, notes and bonds. So they're denominated in dollars. Yes, but they're not dollars. They're treasury notes or 10 year treasury notes or 5 year treasury notes, etc. In other words, the thing that makes you a reserve currency is not the.

Currency, it's the, the securities, the liquid.

Securities market you can invest in. You need something to invest in. You can't just pile up printed money. So where's your Bitcoin bond market? It doesn't exist. Where's the Chinese yuan bond market? It's small time, but it essentially doesn't exist. Chinese yuan is not going to be reserve currency. Bitcoin's not going to be reserve currency because there's nothing to invest in. You think the Chinese yuan is going to replace the dollar? Fine. Where are your bonds? Where are your primary dealers? Where's your payment system? Where's your repo, your options, your wallet issue trading, your futures, your hedging, your settlement and clearance? None of that stuff exists. And even if it did, which would take 10 to 20 years to build, which they don't have, there's no rule of law. You wouldn't invest in a Chinese bond if they can wake up and confiscate it just like that. So the only bond market. So it's not about the currency. I mean, the currency, it's a numerator, it's a way to count. But it's not about the currency, it's about the bond market. And yes, the treasury market is the largest, most liquid bond market in the world. By the way. There is no such thing as a euro bond in terms of. There are dollars denominated bonds issued in London. They're traditionally called euro bonds. But when I say euro bond, I mean an instrument denominated in euros backed by the full faith and credit of the European Monetary System. That instrument does not exist. If you want to invest in euros, you buy buns, Italian government bonds. Good luck with the Italians. You can buy Greek government bonds if you want to. They're in euros. But there's no unified euro denominated bond market. So how many German Bundes are there? Not enough to absorb the savings of the world. So when I went to Washington, the first thing I learned, I was a lobbyist. My wife hates me to admit it, but I was. And the first thing I learned is you can't beat something with nothing. In other words, if you really dislike something. I hate this.

It's awful.

Get rid of it, et cetera. Fine, but you need something to replace it. You can write apez and rant and yell and scream on TV be. But if you don't have something to replace it, you're not going to change things. And Right now, there's nothing to replace the dollar.

Well, I agree that the dollar has a much better future than many would say. But are we asking the right question, Jim? I mean, we kind of went from is Bitcoin an investment or is it going to become the reserve currency of the planet?

No and no.

Okay. But I think everybody listening, I don't know if they care about it being a reserve currency or not. They just care if they can make some money. Right.

I guess. When I was in junior high school, there was a popular dance song. I think it was Dion and the Belmonts. The song was called Shout and the refrain was shout, shout, Knock yourself out. Well, if you want to buy bitcoin, knock yourself out. I mean, it's a free country, you can do it. But it's never going to be a reserve currency because there's no bond market.

Right. Okay. Okay. So what should we do with all of this? Sum this up for us and give out your website. Any action steps people can take in these absolutely turbulent times.

Thanks, Jason. It's all in my new book, the New Great Depression. And my editor said, Jim, you can't write a book about a pandemic and a depression and not have a happy ending. What she meant by that was, let's have some constructive advice for investors. And we have that, that at the end of the book in chapter six and the conclusion. So specifically, I like gold. I recommend that for 10% of your portfolio. People always want to put words in your mouth and say, Jim Rickards says sell everything and buy gold. Never said that. Don't believe it.

10%.

10%.

Okay, what else?

But there's 10 to 20% in 10 year treasury notes, interest rates are going to go negative. The yield to mature, not the Fed policy rate. That's different. I think the Fed policy rate will stop at zero. But 10 year treasury notes in secondary market trading, the minute you pay me a premium greater than the present value of the strip of coupons in principal, then you have negative return, you have a negative yield of maturity. Those could go negative. Right now they're about 1%. Take that down to negative 50 basis points, they're going to have huge capital gains on your 10 year treasury notes. I like cash. People say, oh well, cash has no yield. Okay, but in a world of deflation, cash can be your best.

Cash becomes more valuable.

Well, so they could actually be your best performing asset. The other benefit of cash that people overlook, it has huge embedded optionality. So, meaning there's a lot of uncertainty right now. I Don't dispute that. And if you put a stake in the ground, you go all in any asset class, which should never be all in one asset anyway. But you make two or three bets on some private equity or some real estate or whatever, then a year from now you say, that was a mistake. I ought to go over here. You might be locked up in. I mean, good luck getting your money back from Henry Kravitz. If you invest, he's a good guy, but he's not going to give you your money back.

Not soon, but. So the benefit of having cash is it's like an at the money call option. On every asset class in the world, you're the person. When we get better visibility, you can pivot. You're not locked in. It also reduces the volatility of the portfolio. Help you sleep at night. There's room for equities, sure, but be selective. Like defense stocks. The world's not getting safer. Natural resources, for sure. Agriculture, water, oil is going to do a lot better. It's had a bad year. Well, that doesn't tell you much about what's going to happen in the year ahead. And I like residential real estate. Do not like commercial real estate. Commercial real estate has not hit bottom. You can look at it.

Couldn't agree more.

Wouldn't touch it until late 20, probably 2022 at the earliest. Residential real estate's different people. There's a mess. When I say mess, I'm talking about millions of people migrating out of the cities and they're going to either the suburbs or other cities. So where are they leaving? They're leaving Los Angeles. San Francisco. Portland, Seattle, Philadelphia, New York, Chicago and Baltimore and a few other cities. Where are they going? Miami, Red hot. Nashville, fastest growing city in America.

Phoenix.

Scottsdale. I don't like the heat, but it's a lot of people do. So they're going there. Boise, Idaho.

Idaho.

So figure out where people are leaving. Figure out where they're going.

They're going to the suburbs. I call it the suburban tsunami.

Right, There is a suburban tsunami, but to the extent they go to suburbs of cities, you're right. There are particular cities. And I would put Miami, Nashville and Phoenix at the top of the list. But there are other places. Austin is another one.

The only problem is that in that equation you've got to be able to make the rent to value ratio work in in a lot of the cities. Even if there's a migration in pattern. You're speculating on buy low, sell high, rather than buy low, sell high. And have cash flow.

Some of those are two things. I agree completely. Look at real estate the way we just described it. There's some simple formulas. To me the differentiating factor is the management. Find a management company or an investment company or a private limited partnership where people know what they're doing and have experience. It's easier said than done, but there is opportunity there. Website yeah, jamesrickersproject.com, but I also encourage people to follow me on Twitter amesgrickords. I use my middle initial G Rickards as R I C K A R D s so @jamesgrickords and the book is the New Great Depression. Available on Amazon, Barnes and Noble and be in the bookstores on Tuesday.

Good stuff. Well, Jim Rickards, thank you so much for joining us. Appreciate having you on the show and hearing some of these insights.

Thank you.

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, hartmanmedia.com 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 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.