532 FBF: Breaking Point: Profit from the Coming Money Cataclysm with James Davidson

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Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It's my pleasure to welcome James Dale Davidson to the show. He is the co founder of Agora Publishing, the founder of the National Taxpayers Union, co editor of Strategic Investment for the Sovereign Society. He's author of the best selling books Blood in the Investment, Profits in a World Gone Mad, the Sovereign Mastering the Transition to the Information Age, the Great Protecting Yourself in the Coming Depression and the new book the Breaking Profit from the Coming Money Cataclysm. James, welcome. How are you?

I'm great, and you too, I hope.

Yes, yes. Well, we are talking post election and you are my first post election guest. That was quite an amazing victory for Trump. It seems as though the silent majority has spoken and the mainstream media has lost a lot of credibility. What are your thoughts?

Well, they should. Well, I'll tell you, I. I sent Donald Trump a Congratulations for winning the White House the day before the election.

You just wanted to miss the rush, huh?

Yeah, because I thought he produced, he'd done a fantastic campaign and I think he has sussed out the basic fact that I try to analyze in detail in the breaking point, which is that the whole business model of Western civilization is kaput. And almost necessarily as a consequence, the social contract which underwrote and supported that business model is also kaput. And I think we've seen in Brexit and in the election of Donald Trump as President of the United States, a strong evidence that my basic thesis is correct.

So tell us why you say why is the Western business model kaput? When you say that, are you referring to the welfare state, the massive debt spending, government entitlements issue?

Or something else, nest of issues. But they're combined in what was basically described, has been described over its years as big government, which was principally an invention of this, of the last century, the 20th century. It's a reflection of a system which has evolved away from the advantages it once had. There was a time when the welfare state paid its way, when you needed a gigantic one size fits all system in order to manufacture the weapons that you needed at a mass scale in order to preserve your prosperity, independence. But that is sort of gone. Sometime in the middle of the last century, there was an inflection point where it was no longer an advantage to have what Napoleon described as the big battalions. He said famously, that God was always on the side of the big battalions. But as from about 1950, God ceased to side with the big battalions. And more frequently than not, in an asymmetrical conflict between a ragtag group of terrorists like ISIS and a nation state like Iraq, the terrorists won. We saw the Viet Cong defeat the US in the rice paddies of Vietnam. We saw the absolutely ridiculous expense in the war in Afghanistan, which has gone on forever. Donald Trump correctly, in my view, analyzed and disputed the value of spending six or seven trillion dollars in ceaseless wars in the Middle east that accomplished nothing except to make the world less safe.

Okay, so when you say Western, the Western business models kaput. Just to help, let me just kind of help understand that here if I can. It's the idea of the big one size fits all concept to a more customized, tailored approach or tell us more.

Well, here's what I think goes along with this. I said it was a whole hornet's nest of issues. Part of it is that there was a time when government, big government, could efficiently provide a certain amount of welfare benefits to people. And this kept the system lubricated, it paid its way. There was a little bit of. Or there was some effective stimulus from doing this, which led to more purchases, and the economy sort of sped up as a result. So it paid its way, but it ceased to pay its way. And this is evident in the fact that every government in the Western world is running chronic deficits at a level that make it almost a heart attack country. If you try to imagine how these debts could be paid with normal interest rates. That's why the interest rates have fiddled to invisibility, which has wiped out grandmother's pension and other people's pensions as well, and left the world in a deflationary stall. And this is part of the whole story. We've lost the impetus of growth, which existed in great measure in the 20th century and which really began to get going in the early 19th century after the industrial revolution in England. We had our own industrial revolutions in the last half of the 19th century and we were really cooking with gas, as they say. After a while there was a huge increase in life expectancy. People were doing better. Now, one of the reasons I think Donald Trump was elected president is because life expectancy among white middle class people in the United States has been falling. It's sort of the same kind of indicator that you saw before the collapse of the Soviet Union when life expectancy for Soviet citizens began to plunge, which happens when you have poverty, lack of effective jobs. There are no effective for most people. There are really no financial reserves. I think 70% of Americans couldn't pay an emergency of $500, which is what.

Made, I know that's mind boggling.

Which is what made Obamacare so disastrous because as Donald Trump was emphasizing in the election campaign, the deductibles went through the roof. So if you have a $15,000 deductible on your Obamacare insurance policy, that means you can't ever use it. If you're One of the 70% who don't have $500, even a $500 deductible would make it useless. But 15,000 makes it puts it on another planet. It just doesn't work. And I think that that's why the social contract is fraying. Because basically what has happened is that we moved away from mass industrialism which gave unskilled people jobs. I differ from Donald a bit in his feeling that you could make America great again by bringing back jobs. Now, it's true that many factories have moved to Mexico, China and all over the place, and undoubtedly many of them have closed. But it's not just the Chinese and the Mexicans who are undermining the demand for unskilled labor. It's also technology. You can look, one of the most prevalent high paid jobs in the United States is truck driver for unskilled or low skilled people.

But as you may know, Mercedes Benz and others have developed driverless trucks and transportation. Well, they're going to displace a lot more.

Oh yeah, it's going to displace a lot of people. Transportation itself in all its forms, not just truck driving, is a giant industry, one of the largest in the world. So yeah, we're in for quite a change with robotics and automation. Yeah, no question.

So I think we're sort of stuck in the midst of a very Important global development, probably the biggest one in centuries, a kind of revolution, because the industrial period began with a bit of discomfort about the change away from the agricultural social contract, which involved most people being peasants on big estates. And, you know, that was always the great divide between the United States or North America and Europe. In Europe, people were peasants. They couldn't own their own land. They worked for the Lord on the estate. And that's why it seemed so attractive to cross the ocean and go even to a chilly spot like Minnesota, where you could get your own 150 acres with a mule or something and end up being a landowner and an independent person. All this was great. That was the American dream.

Absolutely. You can control your own destiny. And that's the way, that's the way it should work. Free people and free markets, no question. So talk to us a little bit about your thoughts on a Trump presidency and the economy. I mean, what's next? What can we expect in the first hundred days, the first six months, the first year?

Well, I think one thing that is next is that he's going to repeal and replace Obamacare. That is definitely on the horizon. And I would think that if you wanted to know more about what the replacement law will look like, you probably need to drill into what the Republicans have proposed in the House of Representatives have tried to pass during the last years of Obama's presidency. Obviously, it wasn't going anywhere. It couldn't pass the Senate with the veto implied by the filibuster, and it certainly would not pass an override on Obama's veto that would have happened if the legislation had gotten out of Congress. But I think some of the details may well be there because it's going to take a while to replace a law as big as Obamacare, which, as you probably know, was devised by the Pharmaceutical Industries association, who gave billions in support of it and actually wrote the legislation in many parts.

Tell us what the pharmaceutical industry, what's their motivation on Obamacare?

Well, it's perfectly obvious. They were getting subsidies that they were forcing people to buy to enable others who previously may not have had the wherewithal to buy their medicines to get prescriptions. And through the office of Obamacare, presumably their prescriptions would be filled.

And you've got this system. One of the things that we look at and the breaking point is this horrible symbiotic relationship between.

The drug industry, the medical profession and the food industry, which is been busily creating patients for the medical cartel.

Yeah, that's just. That's just really sad. It's a cycle. I know, but then you have Michelle Obama, you know, as first lady, talking about healthy food and having a garden and all this stuff. But it's just the complete opposite seems to be happening. I mean, the obesity epidemic and diabetic problem is massive, no pun intended.

And it gets worse because, you know, one of the things that, that the drug companies do is they push these statin drugs, which have adverse effects on your heart because they end up.

Screwing up your coenzyme Q10, energy sources for the heart. And it's been shown that they increase the propensity to diabetes. So the statin drugs are very profitable. They prescribe them. People who take them stupidly, like the people who listen to the media, who are then told, well, Hillary Clinton is going to win. You better arrange your portfolio along those lines. And then in the middle of the night, you have to get up and try to sell them, sell or buy in Tokyo or something to hedge off the risk that has been created because they were misled about everything. And this is what happened in Brexit. You know, the huge market fallout from Brexit reflected a lack of proper discounting of the actual situation. And the news media do everything they can to persuade people not of what is actually going on, but to persuade them of what's not going on. You know, it's not, as somebody said, it's not what you know. I think it's Mark Twain. So it's not what you know that you hurt you. It's what you know. It's not what you don't know that's going to hurt you. It's what you know that isn't true that's going to kill you. So, anyway, we have what has been described as the curtain of Oz pulled over people's eyes.

The wizard of Oz is behind a curtain and we're not supposed to look at it. What we're. We have to look because.

The illusion of growth is sort of over. Donald says he's going to revise it, revive it. I'm not sure how easy it will be in the breaking point. I make the point that the build up of regulation since 1949 has apparently, according to close studies of it, reduced the GDP so much that the average person has $125,000 less to spend annually than he would do without the regulation.

Yeah, yeah.

So maybe if Trump can get rid of some of that, we could see it.

Well, we shall see if he's able to reduce regulations. Well, this is the first time in a long, long, long time that we've had an outsider step into the Oval Office. It's the first time in a long, long time that we've had an actual business person step into the Oval Office. And I believe it's the first time ever. And I say this because a lot of my listeners are real estate investors, as am I, that we've had a real estate investment guy in the office. What do you think about that? Do those things hold a lot of impact for people?

Well, I would say that there's one thing that holds impact, which is that Donald Trump is a man who understands the political process well enough to circumvent it, because the whole process is designed to stop development and prevent people doing things. He's managed to do a good many things that we thought impossible because he got through, got the permissions, just went ahead and did it. And we need some kind of.

Business savvy, I would think, to improve the quality of decisions made in politics. I'm not sure whether he'll be able to do as much as he hopes he can do, but I think he'll do something and we'll have a much. I think we'll have much more consideration and care or the forgotten man who will be forgotten no longer.

Right? Yeah. I had Amity Schlaise on the show before, the author of the Forgotten Man's great book. It seems like Trump is really gonna get something done. And, I mean, you know, the right now has control of two branches, and, you know, he's probably gonna appoint two, maybe even three Supreme Court justices. And, you know, with the Senate on his side, that's gonna happen.

This presidency is going to have a lot of impact, isn't it?

Well, one thing he's going to do, I think, is definitely cut taxes, and I hope he does something that George W. Bush backed away from. They had a consideration of actually revising this horrible tax code, but the lobbyists sort of sat on that, so they said, oh, no, let's just cut the rates and leave the whole architecture of the tax system as it is. And Donald Trump has the good sense to know that you can't compete effectively in a world where we have high costs anyway, and we then have the highest tax rate in the world as a corporate business tax of 35%. You have to go to some really remote third world hellhole to find a tax rate higher than that, if there is one. And I think he knows that this is definitely helping to drive business out of the country, and it's reducing the amount of investment here. We have A large portion of our stock market that capitalizes sales and activities outside of the United States that are owned by US Companies that are under the end of a specific trading symbol, but the business is going on someplace else. We have all the trillions of dollars that have been parked offshore for good reason, because if you bring it back, you get killed.

You get killed on taxes. Yeah. So the counterintuitive thing that the left has to remember is that if you do an amnesty or. Or you reduce tax, the stuff comes back, the money flows back, and the jobs flow back with it, and the GDP comes back with it. So that's good.

I'm just thinking that a lot of the. Not to interrupt, but I will. I think a lot of what he's looking to, in the way to at least begin the financing of the infrastructure rebuild that he has in mind will come from the 10% tax that he's imposing on the repatriation of money that's been parked offshore and basically forced offshore by the tax laws.

It's always been amazing to me, James, that liberals just do not understand, or at least they pretend like they don't understand, that, you know, people in the marketplace react. You can't. You know, I mean, you listen to people like Bernie Sanders especially. I mean, he just drives me nuts. His views were so immature. You know, oh, we're gonna just tax the rich. We're gonna do this, we're gonna do that. Well, what do you think they're gonna do? Just sit by and let you do all that? I mean, they're gonna react. They're gonna do things.

Well, I'll tell you something. Listening to Bernie Sanders made me nostalgic for Marx because Marx wasn't an idiot. Yeah. If you read Marx, which I actually did because I went to Oxford where I had to read him. He had a lot of deep insights into the way the world works. And one of the things, one of his insights that I take advantage of in the Breaking Point is he said, you can't make a country rich with fictitious capital. By which he meant quantitative easing. Money just spun out of thin air. Marx believed in the gold standard. He was not a complete moron about the economy.

That's interesting. Yes.

And I see this whole thing is being.

Very, very.

Instructive about the liberal views. But I wanted to give you an example of a liberal who did understand, at least under the right circumstances, how incentives mobilize activity. Al Gore, remember when he sold his useless television network to.

Yes, I do. To. Yeah, right.

Yeah. He had to get the Deal closed before the end of the year because the Bush tax cuts were going to be repealed in the next year.

Typical leftist hypocrite. They all take advantage of everything when it's in their favor, but spout a different message to the hoi polloi.

Well, he understood it when he knew that he was going to pay this huge amount of millions if the deal closed, when the tax laws were more punitive than they were in the previous year. So they really scurried to get the deal closed so he wouldn't have to pay the extra Obama tax on his lottery winnings.

No surprise there. It's just unbelievable. Hey, in the Breaking Point book, which can be pre ordered now by the way, you know in the table of contents you talk about the idiot principle of deflation and you also talk about the the next stage of capitalist development. Two consecutive chapters there, 20 and 21 with the Trump presidency. Inflation, deflation, sort of status quo, Fed policy. Anything there thoughts that you have?

Well, my honest opinion about the Trump presidency is that it in some way indicates an inflection point about in the fight against inflation. If you go back to the Volcker days in the 1980s when he piked the interest rates to the sky, caused a recession and also launched the greatest bull market in bonds in the history of the world where they went for the interest rates on U.S. treasury went from 18 19% to visibility. I think this is the moment that you take your profits and bonds, if you're holding them, it's an opportunity to, to get out with a strong bid. Because I think that what Trump is doing is he is embodying the protest on the part of the 90% of the population.

Against wage deflation. And one of the biggest ways that the system works has been through opening the US political ecology to competition from abroad, which implicitly brings the unskilled laborer in the United States into competition with billions of people working for pennies elsewhere. And this has had the effect of keeping wage costs down. So all the gains that have come from that have flowed to the owners of capital, or most of them have, along with the hangers on in the education system and the legal system were sort of parasites on the whole deal. There was a time when there was in the high water period of fixed industrial capitalism, say when Henry Ford was building his giant plants that were 30 miles of railroad track in one plant they were making steel and glass and everything else in the world right there. He even wanted to have his own rubber plantation in Brazil. So this was all encompassed in one Entity. It was all rolled up into a giant business which had ultimately was shown to have diseconomies of scale. Things had gotten too big. Stalin and Hitler were really totally turned on by Henry Ford's factory system because it to them was a way of circumventing the free market. They didn't want to have to have the various processes of production bid out to the market to different contractors.

So you could have Stalin sent somebody to Detroit to order a version of Henry Ford's factories to build tractors in Gorky Russia.

He did. And what happened with that? That's fascinating. I had no idea.

Well, that's where they built them and they did build them. So it was, you know, the difference between the gigantic capitalist enterprise and this, what Lenin called state capitalism, which is what we call communism during the whole Cold War. The whole Cold War was.

It was a fine distinction. It didn't work as communism. The state capitalist system really didn't work. And we're converting our own economy into a state capitalist system with instead of the Politburo hiring a group of planners to orchestrate the five year plan, we have a group of clueless idiots in the Fed meeting every once in a while and creating the de facto five year plan where they hike interest rates and change the capitalization of everything in society based on their own whims. And they also do what Marx told us never works, which is they're creating this fictitious capital that raises the price of everything that they can bid it on. But you know, this is also another reason why people were offended and upset with the status quo. Because they remember from 2008, 2009 that the banks were bailed out to the tune billions. But the little guy on Main street wasn't bailed out to the tune of even thousands. He got no bailout. When they create the money out of thin air to fictitious capital, it goes to whom. It goes to people with collateral. They can borrow it and they get the money at zero or nearly zero interest costs. And this created a whole ricochet effect of assets being created around the world and what's known as the carry trade, where if you had any sense at all, you could see that if you borrow money at next nothing and take it to another country and invest it at a high interest rate, you could make a fortune. In my newsletter, Strategic Investment, we showed people how to make hundreds of thousands of dollars out of Brazilian government bonds that were paying 12% interest. So what was the interest rate on the US borrowing? Practically, if you had a collateral, if you had a.

Good balance sheet. You could borrow money at almost nothing. And I know from specific experience, I'm a founder of a company called Newsmax, which is.

A media operation, has a lot of financial newsletters, a very good company. We had at one point a partner who is now deceased, unhappily, who was in Mellon. And I'm not giving away too many close secrets to say that because he had a portfolio of hundreds of millions of dollars, we could borrow money for practically nothing on the strength of his portfolio.

And anybody else who had a portfolio like that could have borrowed money for almost nothing. So if your costs are less than 1% for the borrowing, you can take a risk of going to Brazil and buying Brazilian government bonds that are paying 12 or 13% interest. You've got such a huge margin to work with. And in the beginning of that trade, the Brazilian real actually rallied against the dollar. So that's why our gains were so stupendous. You have to move on though, as soon as the real starts to go down. And that's why all these things are self limited. And this is part of what I think is going back to this idiot principle of deflation. I don't think it's an idiot principle. I think it's an inevitable consequence. As FAA Hayek told us long ago, when you have the inflation, you're basically making a decision to have the deflation and the only way it will be prevented is if you have even more inflation that you lay over the previous inflation.

Right, right. But it seems as though the inflation business plan, if you will, is a very good deal for governments that have massive amounts of debt and governments that want to basically lie to the population and, and keep them happy. So why can't they just always make, when you have the reserve currency and the biggest military in the world to keep it that way, you know, and not lose your reserve currency status. Of course, referring to the U.S. why not just, just kick this can down the road forever? I mean, who's to say when it will end?

The first thought is that there's a financial reason why you can't do it. And I would point to what happened with the.

Mortgage backed securities, Fannie Mae, Freddie Mac securities, which were.

Construed as AAA credits when the year 2008 began. But somewhere along the way, Putin, who is contrary to Hillary Clinton, is not a moron at all.

Realized that this was completely untenable. So he got Russia, he had Russia, the Russian banks and everything sell all of their mortgage backed US securities in the Fannie and Freddie paper and the Chinese saw that Putin had done. And they did the same thing. So the value of this paper collapsed. Previously it had been.

The foundation for a lot of lending for these investment banks that didn't have enough capital to support their portfolios. Which is even worse today in Europe with banks like Deutsche Bank, $70 trillion.

Derivative portfolio, which is some huge multiple of the German economy. No way that it could be supported. So where is the capital coming from? The capital right now for supporting Deutsche bank is borrowed mostly in the form of collateral, which has to be usually government securities, government bonds. These government bonds are hypothecated and rehypothecated. Think of them being used over and over again. It's like if you were you. You and I went to Las Vegas and decided to bet on a bunch of things. And we had. We wanted to know how much money we could bet. And we look at our pockets and we say, well, we've got together $2,000. So we'll get the $2,000 together and we'll put the chips on the table. We use the 2000 as collateral to borrow more chips that will borrow $60,000 just for the sake of argument and bet on a hell of a lot of things. Well, if our bets go bad, they'll seize the Federal and the whole daisy chain will collapse. This is what happened with the.

Freddie and Fannie paper. They were using it to fund the Lehman Brothers. But when Putin and the Chinese sold that paper and it was seen no longer to be as good as treasury bonds, and it was better than treasury bonds from the point of view of the owners because it had a higher yield. But what happened? Bush got busy and tried to get a government guarantee for the. An explicit guarantee for the Freddie and Fannie paper. But it didn't come through in time. So they could no longer price those debts as AAA paper. And then there was no longer enough money in the system and no longer enough collateral to support this massive edifice of debt, and it collapsed. The same thing can happen again in Europe now because the collateral is used on average of 30 times. Each bond that's on deposit in a bank is used to support 30 times the transactions. That is one, because it's borrowed by somebody, he puts it up as collateral and then it's borrowed out of that account and put to use someplace else. And this ricochets along an average of 30 times for each.

Bond. That tells you how fragile and unstable the whole system is. So that's one reason it can't go on, because it destroys the collateral it doesn't create new collateral because the new bonds that are being created when the government's borrowing wildly are bonds that are paying no interest rates. So the yield is really low.

The new bonds are not as useful as the old bonds. Then there's another factor which is what do they do with the money that is borrowed? And I just use this example in China because it's the most extreme, but it says a lot about what's gone wrong and why it can't keep going on because they create effects in the real world that are unsustainable. The Chinese use from 2011 to 2013 more cement than the United States did in the entire 20th century.

That's, that's mind boggling. From 2011-13, did you say? Yes, 2000 in two years, 2011-2013. And that was post boom time. That was, you know, coming out of the great. Yeah, it was the height of their boom. I mean, they were booming in 2005 though, weren't they? They were going crazy back then, building everything.

They've been booming ever since. Deng Xiaoping turned the switch and said, okay, it's good to be rich because the Chinese are basically mercantile people. And he just took handcuffs off of them. And the way they went, I mean, they weren't completely baffled about what to do. You know, they wanted to make money and they were hard workers. You know, if you have a peasant who's trained to get up in the morning and tend to the rice paddies, he's a hard working chap and that putting that same hard effort into finding a way to open a factory and sell something. They're good at it and they did a good job. But the biggest cause of this huge surge was the fact that vast amounts, trillions of money, dollars of fictitious capital were created by the banking system in China and were imported from the banking system in the United States. A lot of that was financed by quantitative easing because they had what are known as non bank banks, which in some cases they were shipping companies, fertilizer companies, you can name it. The non bank banks were using, were getting, say they got some money from someplace, dollars. They could use the dollars to create more rent renimba un and they had more of those and they lent the money out at very high rates. They created all these trusts and gimmicks that disguised it. And you know, there was a time when the Chinese central authorities were trying to curtail the huge expansion of credit. So they put limits on what could be borrowed off your business accounts. In other words, if you, if they're just looking at your receipts and your expenditures, your cash flow, you couldn't borrow on that. But they said it was still okay to borrow on the collateral of solid objects like you could mortgage land and you could mortgage copper. There was a big push among pig farmers in China to develop as much expansion as they could. They wanted to make a lot of sausage and send it around the world. But the government said no more lending to pig farmers. But you could still lend on the collateral of a bunch of copper ingots. So pig farmers in China bought up about a fifth of the world's supply of copper and used it as collateral to expand the operation of the sausage business. This all happened.

One of the things that you said really early on in this discussion today was that the people that, that have the collateral get the cheap money. And so this goes back to the old saying, this is why the rich get richer. Quantitative easing QE makes the rich richer and it, it impoverishes the poor even more because it ultimately causes inflation. You, you, you're welcome to pick at that statement, but that's my, that's what my feeling is.

No, I think it's true, but I want, I want to highlight to you a little more about how disastrous this whole inflation is in terms of what it does to supply. Creates debt. Creates supply. You have all this money that was invested in real estate. We're talking about real estate earlier and Chinese real estate. Do you realize that they've built the equivalent of 27 empty New York Cities in China with all this money?

That's mind boggling. I know, I hear about the ghost cities and we've done reports on them on prior episodes and it's just mind bog. But one thing people should know is.

That, and that's why you're going to get deflation. Because if you have, let's say somebody gave Jason, this is what we've got a deal for you. I've got an entire empty New York City. I'm signing it over to you now. How are you going to make money operating in empty New York City when you have all these apartments that are empty?

Well, you can wait for the, what's called the path of progress. In other words, wait for the population to catch up and need all that supply. But it could take a while, it.

Could take a long time. It could take a lot longer than you could live. You know, 27 empty New York Cities is millions and millions of housing for millions of people. And my point is that this is not going to work. Every time in the history of the world that you've had these gigantic expansions, they collapse. And part of the reason they collapse is that not only do did good people get misled into malinvesting in the buildings, but the supplies that produce the buildings, like more cement in a couple of years than the US used in the entire 20th century to build the Hoover Dam and all the skyscrapers in New York and Chicago and Los Angeles and every place else you look. That is a tremendous amount of cement. So that cement came from someplace and then they had to ship it. So people built a lot of extra ships to carry raw material.

Yeah, it's just a big cycle. And I remember when the shipping companies, Bill Bonner, your partner, wrote a lot about that in the Daily Reckoning and probably in the books that the two of you wrote together. So. Yeah, no question.

Well, he's so right. I mean. So all I'm saying is that when they create mal investment, the mal investment has consequences. For one thing, the debt drives production.

Right. It has just like qe, just like pretty much everything. Just like fractional reserve banking, it creates a ripple effect, it has a multiplier to it.

Yes. And you can't get. You just look at the copper. We talked about copper and all the copper that was hoarded by the pig farmers in China, all this copper also went into the buildings of the 27 empty New York cities. You think of all the copper that's in the wires in the wall, the copper that. There's a tremendous amount of copper in each unit.

So that copper had an effect on the whole copper mining industry. If you look at the big source of copper in the world, the biggest source was from Chile. And there is a basic problem of declining marginal returns from any type of fixed resource like copper. Because the asset, the copper in the ground, is mined off first in the most accessible and the cheapest areas. But as the veins go deeper into the ground, it requires more investment, the return falls. So the Chileans, seeing this dizzying increase in demand.

From Chinese for copper, they got busy.

They borrowed billions and got busy and dug deeper holes and expanded their production. And now there's no use for this copper, I mean, not at the price that it's going at now. So I think one of the best, the better shorts in the long run is going to be copper.

Right, Right. Hey, we've got a wrap up. But one thing you didn't say about the Chinese ghost cities that I'd love for you to just address before we wrap it up is, you know, Overall, even though there's been this like mass migration to cities by, you know, from, from rural China, no question about that. There's still, as a percentage of the overall population, there is still a massive rural population in China that could migrate into the 27 New York cities. Right, the ghost cities. Now granted, they have to have jobs there. And that's another question. But you know, is the ghost city thing really as bad as it sounds on the face? Maybe it is. I don't know. You know, just asking.

Yes, it is. And here's another point that you need to bear in mind. How many jobs? You have to ask the question, how many jobs have been created in factories since China moved out of the Stalinist production mode into the more capitalist way of doing business? Anybody have any idea?

Oh, no, I don't.

Not many.

Yeah, okay.

Not many because they used to over hire, you know, they used to hoard labor in these Chinese when it was Mao Zedong was running the deal. He wasn't interested in efficiency of production. Everybody had to have a job. So they had all these jobs in these state industries and then they moved to a more market driven economy. They needed to hire many fewer people in each activity. So their productivity went way up. But the number of people hired in these cities was not substantially greater than it was before. And the fact is you've got all these millions of people lying out in the countryside in the rice paddies. The fact that they would be better off if they had an industrial job in a modern plant, it doesn't give that job life. Just as the fact that the voters in, along the Ohio river, in those counties that voted overwhelmingly for Donald Trump.

The fact that they would be better off if they had coal mining jobs or jobs in the steel mills that used to fry there, doesn't mean that there are such jobs. So looking at the world as it is, I see the, the prospect of a very severe crack up, probably the biggest in history because it always happens that way. When you have a gigantic artificial credit expansion and the Chinese has been the greatest one in history, you get a gigantic amount of Mal Investment, 27 empty New York cities and eventually the people who are holding those investments go broke.

Yeah. This is why government needs to minimize its interference in the economy because it creates massive malinvestment. Government and central bank, I should say both of those entities, regardless of what the government is. But, and I agree with you, looking at the math, yes, I totally get it, I totally get what you're saying. I just wonder, you know, the question is always when it always comes down to a question of timing and, you know, how long can they keep kicking the can down the road? I argue that it could be for decades. And, and what do we do now? Do we plan for the end of the world now or do we just keep going along and as governments and central banks keep kicking the can down the road because no one knows when the jig is up, nobody knows what the limits are.

Well, let me give you a thought. I think the length of time they can continue to kick can down the road is much shorter than they have anticipated or they wish. I think it's going to come to an end soon. It's not something that will happen at the crack of doom. It will happen in our lifetimes if we're healthy. And this is going to come to an end and it's going to have great reverberations. And that's why I think it's important for people to understand really what's going on so they can begin to plan a new life in a new environment. The fact that this pompy business of having a system based on huge amounts of debt to try to paper over the lack of growth and the debt priced at nothing and the money created out of thin air to fund huge budget deficits. Look at Obama in his term. We've had more debt created from budget deficits than in all the presidents that preceded him combined. Now, how long can you keep going on like that?

Yeah, you can't do it forever. There's no question about it. Very interesting.

I think we're close to the end and I believe that people who think this through will be much better positioned to survive and thrive. And I give examples in the book that show that you could survive even in the most united medieval economy. Some people made money. It wasn't an easy thing to do. It wasn't like there was. You're just sitting in your easy chair and you're floating down the river on a sea of red ink. So you could easily make it, but you could make it. And the people who think are the ones who will survive and prosper in the world. It's changing dramatically.

Absolutely. James, give out your website and tell people where they can learn more about your work and your fantastic writings.

Well, one thing you can do is go to Amazon and order the Breaking Point so you'll get one of the first copies hot off the press. And we have a newsletter called Strategic Investment, which I think you can look up online. And we have. You've probably seen me on many of these.

Online advertisements talking about the danger of an economic collapse, which I believe is high and growing. And I, you know, I hope that Donald doesn't get the blame for what's going to happen because it's all baked in the cake.

Yeah, it was baked in a long time ago. Yeah. No question about that.

Well, Jason, I want to thank you for your talking to me, and I hope your listeners get something out of it.

The pleasure is all mine. And James Dale Davidson, thank you so much for joining us today.

Okay. All the best.

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