CW 468 – Paul Craig Roberts – America vs Russia & China with Co-Founder of Reaganomics & Creators Syndicate Columnist

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing. Fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating wealth show. This is your host, Jason Hartman and we are at episode number 468. I can hardly believe it myself. By the same token, I can't wait till I get to say we're at episode 1217.

We'll keep going and keep this content coming. We got a lot of great shows coming up too, but today is going to be no exception. Even though it's on the pessimistic side. Well, you know, yeah, I think that's fair to say. You, you be the judge. Maybe realistic, I don't know, I don't, I don't even think that. But it's Paul Craig Roberts. Now you probably know who that very well known man, nationally syndicated columnist, assistant secretary of treasury in the Reagan administration and the co founder. This is probably the biggest thing the co founder thought of, widely thought of as the co founder of Reaganomics. So I think Reaganomics works. I, I think it makes sense. I think the opposite is socialism. And you know, you could say that trickle down economics was a bad deal for some. You know, that that's debatable. I, I think overall the Reagan presidency was pretty awesome. Few major glaring mistakes, one being the war on drugs. That a disaster of epic proportions. You know, that's sort of another topic. But yeah, Reaganomics. I mean, I remember I got to meet Arthur Laffer of the Laffer Curve and I still want to get him on the show for you. I got to meet him several years ago. I mean, it's pretty amazing really what they did. Clinton obscured them a bit. But Clinton had some really lucky forces occur during his presidency, most notably the Internet, which just changed everything and increased the velocity of money and increased resources and commerce. And that, by the way, is Why I am overall, as much as the government is trying to mess things up, so incredibly optimistic about the future. I just finished the audiobook of. Well, it's not even on audiobook. It's a Nightingale program and it's Peter Diamandis Get Abundance now. As you know, his first book with Steven Kotler, who we had on the show, was entitled Abundance the Future Is Better Than youn Think. And it was fantastic. And this Get Abundance program was sort of a casual talk about some of those topics. And then his new book coming out is called Bold by Peter Diamandis. I've pre ordered that one already. It's not out yet, but it should be phenomenal. And I know that maybe throughout history people have viewed things as oh, you know, so and so thing coming will save us. And maybe it's an excuse not to be responsible or careful or cautious about the future.

And the famous last words of every investor and economist is here they are, you ready for this, folks? This time it's different.

This time it's different. Those are the famous last words. So you look at the country, right? And you look at the world and I mean, there are huge geopolitical problems, radical Islam. And you look at the debt, you look at the, the welfare state, the unfunded mandates, the unfunded entitlements, you know, the possible spread of disease, the idea of superbugs where doctors, they say, have been over prescribing antibiotics and because of this all these bugs are getting very resistant, right? And so, you know, that's a problem. I mean, there are all these problems we face, but we are at a stage. And I really got to tell you, I believe this of course, could be wrong. There's my disclaimer. But we are at a stage of exponential technologies and largely because of the Internet and because of the communication and the way computing power and intellectual capital can be crowdsourced and you know, crowdfunding. I'm not saying you should engage in crowdfunding yourself necessarily, but certainly if you go and you look at Kickstarter or Indiegogo and then some of the investment oriented crowdfunding websites, a lot of ideas that formerly couldn't get off the ground, I mean, they're getting wings nowadays. You know, just, it's truly an amazing time to be alive in so, so, so many ways. A truly amazing time to be alive. You know, you balance that with what we talk about with today's guests, which are the harsh and scary economic realities of the debt bubble, the entitlement bubble, the welfare state, and then the geopolitical things with, you know, Russia and so forth. And by the way, I've got a fantastic, I mean, I've got so many fantastic episodes in the can coming up for you. But one of them that I just recorded a couple of days ago, which was the second time with this guest that I had back on the show, and that's Jim Norman, who is an oil industry expert. He wrote a book called the Oil Card. Had a fantastic interview. I mean, it was a really good discussion with him. Although I think that he's way too bearish on things like Houston because he had a personal experience there in the 80s that I don't think is the same dynamic today. You know, when that economy was far less diversified than it is now. But again, speaking of Houston, I did issue a yellow light warning on Houston and that's why we've stopped recommending it. You know, I'm not selling my property there. You know, it's. I think owning properties there is fine as long as they're stabilized. I just wouldn't want to enter that market now. And some of the non diversified, really oil only type of areas, those areas, you know, you need to be careful, Very, very careful, not the least of which is North Dakota. And I'm very glad that we did not jump into that in the fray when everybody else was, because I think there will be a, as the stock market people like to say, correction, doesn't that sound a lot better than a crash or a disaster or everybody losing their money? You know, a correction. I love how they sanitize these words, you know, and words, they're pretty meaningful, you know, that it really does change the impact and the meaning when you change the words. So be careful of that and watch for it. A couple more things before we get to our guests. One is that a listener gave me a challenge. Okay, Hit me with a challenge a few weeks ago, and I just didn't really know how to respond to this. So what I did is I stripped the listener's name off of it. And I have a real estate mastermind group that I'm in. I pay $15,000 a year, plus travel and event expenses to be in this group. But I gotta say, it's well worth it. I'm in a couple mastermind groups and, and they're expensive, but you know, in an era of exponential growth opportunities and exponential networking opportunity, mastermind groups are just well worth it. I mean, it depends on the group, obviously, but these two groups in spending, I don't know what am I Probably spending on both of these groups, maybe $50,000 a year, $45,000 a year or something like that. I'd say being involved in these two mastermind groups I'm in, you know, they've been very worth it to me. So what I did is I stripped off the listener's name and any identifying material and I posted it in the forms for my real estate mastermind group. And so here's what the email said that I got it said when I posted this. I said, hey, members, I need help responding to this because I don't exactly know how to respond. Okay, so the listener says, hello, Jason, I'm writing you with a challenge. I've been an avid listener of your podcast, of your Creating wealth show for the past two years. I get it, I understand. But here's the rub. I don't have the down payment dollars to get started buying properties. So the challenge to you is to find a way through creative financing via private lending, et cetera, to allow me to buy my first rental property and more. I want to, of course, have a solution that follows your 10 commandments of successful investing. And I'm not looking for partners just to get started. What has inspired me to get off the sidelines and find a solution was listening to two recent podcasts, episode 459 with Fernando and 458 with David Porter. My motivation is my wife and children. I want to have them financially set if anything happens to me. In addition, I'm looking forward to my own freedom day so I can quit my job. And that's he's referencing back to Fernando saying he had his financial freedom Day. Okay. In conclusion, it is my hope to be invited in the future on your show to tell my success story. I look forward to hearing from you and your ideas. Thank you. And I again stripped off the listener's name and then I posted this to get some feedback and some ideas. And the first person said, seller financing. Well, you know, obviously. Okay. The second person in my mastermind group who commented said, jason, this challenge is bs. Most every one of us started the same way, broke, with massive ambitions, looking for you to find a way. Is looking for a shortcut totally different than I'm looking for a way and would love some advice add to that, I don't want partners. My first question would be, if you don't bring the money, knowledge, experience, or massive committed desire, what exactly are you bringing to the deal? Trying to skip the process the journey and get the reward is a proven failing strategy for someone getting started. Maybe Your response should include a dose of reality. You can do this and it's not going to be easy. But remember the process of grinding through it, getting knocked down again and again, and still getting up and brushing yourself off and finding a way is beyond monetary value. Now, that one, I have to say, got a lot of likes. Many people in the group put a like on that comment. Okay. The same person continued, we call it earning the right, and only you can do that for you. In other words, speaking to the. The listener. And then the next person said, wow, that's right on. I'm editing names out as I read these. Okay. And then another person said, I couldn't agree more. So, you know, the, the vibe is, look, I mean, we've all got to earn our way, right? My first two property investments, I didn't have any money either. I mean, Look, I was 20 years old. I was going to college part time. I was selling real estate part time. I borrowed the money from my grandmother, okay? Basically to do my first two deals. And that's what you got to do. I mean, you've got to either bring. If it's a family member or a very good friend, they might just help you out of goodwill, okay? But if it's a business partner, you got to bring something to the table, you know, and this is just me talking here, obviously, you've got to bring some experience, some knowledge, some massive committed desire, as the person says. And I would say effort, you know, for example, are you finding the deals? Are you going to manage the deal? What are you going to contribute? You've got to contribute something, right? Just one more comment here that I got on this post was Good question, Jason. I would tell him to go back to the drawing board and figure out, what does he bring to the table. Well, that's what I was just saying, right? If he does not bring any value, why would anyone want to even partner with him? Him or lend him the money? I guess they're assuming this is a him, by the way. Oh, well, yeah, he referenced that in the email. Okay. He seems to have goals that are not smart. And you know that SMART goal acronym? You know, specific, measurable, attainable, realistic time with time limits. Okay. Smart. Smart is a goal format. You can Google that. Sometimes these people need to look at themselves in the mirror and face reality. You have to know where you come from in order to map out a plan on where you're going. A seed must first go down into the ground and break. Break that ground before it can grow to be a huge Oak tree. Okay, so, you know, that's good. I think that's reasonable advice. Okay, so it's seller financing, saving money.

Borrowing money from a friend, relative, or a hard money lender. And a hard money lender is not, probably, probably not a smart one is not going to loan you 100% loan to value. Okay? So you're probably not going to be able to do that. But maybe you can assemble the money between family member or a, you know, very good friend that's willing to do a hundred percent deal with you, convince them the deal's good enough. That's how you get your start. I mean, look, that's how I got my start. Everybody has to start somewhere. You know, again, we have some listeners who invest with our company who are very wealthy and they don't ask a question like that. And we have some people who are just starting out. The difference is some will do it. They'll get past that point where they break the dam and they start. And others will be those dreamers. They'll be those seminar junkies. Maybe nowadays the better word for it is those podcast junkies. And so don't be the person who's just sitting on the sidelines and listening to this stuff. Don't be the person who's going to events and spending a, a bunch of money on these kinds of things. You know, be the person who takes action. There is wisdom in action alone. Even if it's not good action. There's always wisdom in action. Okay, so the next thing I want to do just before we get to our guest, is talk to you for a brief moment about what a weirdo I am. So I'm driving back from San Diego. I don't really eat here often at all. But you know, it's funny, whenever I'm on a road trip, I do tend to eat at In N Out Burger. I used to be a vegetarian for six years. Not a very strict one, but I gave that up. I just didn't think it was ultimately healthy. And I'm not a huge, you know, burger eater by any means, but I, you know, they're good. And I stopped it. In N Out Burger. And while I was inside waiting for my number to be called, I noticed on the wall and those of you back east who don't have In N Out Burger and in the Midwest who don't have In N Out Burger, I know if you like burgers, you're jealous because it's very, very good. So I noticed one of their pictures on the wall had the picture of an old In N Out burger. And in front of it, it had a sign. And this is goes to what a weirdo I am, right? Because I have, like, nothing better to do. It had a sign and it showed the menu. It said, by the way, this, this rendering, it wasn't a picture. It was a painting. Was from 1948. Okay? It was a painting of a 1948 in N out burger. And it said burgers 25 cents, cheeseburgers 30 cents, french fries 15 cents, and cold drinks 10 cents. And you know who was my first teacher about inflation when I was growing up? Because I've told you this before, it was Wimpy, the character on the cartoon Popeye. And Wimpy, he is the one who really made me understand at a very young age the time value of money. What was Wimpy saying? I'll gladly pay you Tuesday for a hamburger today. So Wimpy was always mooching off people. I'll gladly pay you Tuesday for a hamburger today. He would say, okay, and I'm of course not doing his accent right, but what I did is I just pulled out my iPhone and I did some inflation calculations. See what a weirdo I am. This is why I'm probably single, because, you know, I'm just a strange person. Okay? So I took a picture of this picture of the 1948 in N out burger. And then I took a picture of the menu today. And today a hamburger is $2.05. Now, if you look at the stats on the Federal Reserve, which was formed back in 1913 over a hundred years ago, the stats will show you that the. The dollar has lost 96% of its value since the inception of the Federal Reserve. And I think central banks are a scam. I think we should do away with them. I do not like the idea of central banks, at least not privately held ones. I think if we're going to have them, I think they should be run by the government. And listen, you're hearing that from someone who doesn't think the government should be doing much of anything. Minimalist government is my favorite kind of government. You already know this because you listen. But adjusting for inflation, let's see what happened here. I think this is pretty telling because I went to a CPI inflation calculator and of course the CPI is understated, blah, blah, blah. But it probably didn't really become very understated until the late 70s and the late era of the Carter administration because that presidency was such a disaster. That's when they started really manipulating me and Inflation numbers the most. But a 194825 cent hamburger today is $2.05. Now one of the things about In N Out burger is that it's, it's really inexpensive. I mean, it's a much better deal than going to McDonald's or Burger King or any of its competitors. And the food quality is far better too, I would, I would submit. And so interestingly, In N Out has beat inflation from this survey. Basically, it is now cheaper to have a burger than the inflation rate because that burger, according to my calculation, should cost $2.46 today, and it only costs $2.05 today. Now granted, the other problem is we have this problem of substitution. That's one of the ways they manipulate the consumer price index. And so substitution in this case wouldn't apply to whether it's a beef burger or not because it's still beef. You know, the substitution rule says that, you know, if the price of beef goes up, everybody will just switch to chicken. Well, you know, maybe they don't like chicken. I mean, I'm not a huge fan of chicken. I think chicken's a dirty bird, okay? So, you know, maybe they don't want to switch. So that's, that's what they do. And how they manipulate, manipulate the consumer price index. One way substitution, another way is waiting and another way is hedonics. And we've talked about those before, but here we don't know if it's the same burger, right? Well, obviously the 1948 burger probably wasn't pumped full of hormones. The cow wasn't eating genetically modified food like it probably is today. And who the heck knows what that's going to do to us in the future? The cow was probably treated much better. It was probably a free range cow going around grazing on grass on a big farm. Now it's, you know, probably very poorly treated. Okay? And listen, I'm an animal lover, okay? I really am very much against that kind of thing. But on the same token, I'm not saying that the government should regulate it. I think the private sector should regulate this type of stuff. Another discussion, okay? So I will not get off on one of my usual tangents, I promise. And so, you know, is it the same burger? Is it the same size? Does it weigh the same thing? Is it the same number of ounces? We don't know that, okay? But assuming it is, and it's probably not, In N out has actually beat inflation. And that's why probably one of the reasons that the lines are so long there. I mean, you walk into any other fast food type restaurant, burger joint, you will get served much faster than you get served at In N Out. In N Out is almost always crowded. It's an incredibly successful company. I just wanted to point out the way it seems to have slightly beat the rate of inflation.

So this is what I do in my spare time. In N Out Burger. I can never stop thinking about inflation rates. Probably one of the reasons I'm single. Okay, just a thought. Anyway, let's get to our guest, Paul Craig Roberts. But before we do, actually, you know, there's always one more thing, right? The one more thing is I have. How many of those do I have? I think I've got like 26 of them. And then they will be gone forever. Of our best of Meet the Masters physical product. And by the way, we shipped a bunch of the Creating wealth products last week to all of you. Thank you for buying them. That one is completely, completely gone. Totally sold out. There were actually two orders we couldn't fulfill. We are offering those people either the digital product or a refund or a different product. Totally ran out of those. They're completely gone. And these will be completely gone too soon. And that is the Creating wealth home study course. Just to do a total blowout sale. Because if I do end up moving to San Diego, part of the socialist Republic of California, which I may do, as I discussed on a few episodes ago, I've got this big tax break there that I can't take unless I re establish California residency for about a year. I am not taking these things with me. Okay? I am selling them. If you want to buy the very last of these Meet the Masters home study courses, I had Brittany lower the price. They're now $197. Mind you, that I don't know how many, but probably over a hundred people have purchased the digital product. That's the same product. This is the physical. That's actually cheaper than the digital. And you know, that's bass ackwards, as they say, right? It never happens that way. It's just because I do not want to store these. Okay? I'm doing a physical product blowout on our last physical product. They're only $197 versus the digital product, which will cost you more than double. $497. So it's less than half the price of the. You get the atoms, that's the physical product, for less than half the cost of the bytes. That's the digital product. Bytes versus atoms. Usually atoms are much more expensive than bytes. This is one of those incredibly rare exceptions that the atoms are actually less expensive than the bytes. So go to Jason hartman.com and pick up one of the last remaining copies of that and we will ship it out to you. Shipping is actually free. We'll pick up the shipping within the continental US and that cost us right there about 20 bucks. I think we are pretty we're probably making $30 on each of those that you buy. Terrible profit margin. We don't lose money. Well, you know, it's like that saying, we almost lose money by the time you put in time. We lose money on everything we sell, but we make it up on volume.

As that funny old saying goes. Anyway, let's dive in and get to Paul Craig Roberts. You can go to jasonhartman.com click on the store and take advantage of that great deal. Here's Paul Craig Roberts.

It's my pleasure to welcome Paul 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 End the Tyranny of Good Intentions, 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.

Part of the year on the Gulf of Mexico and part of the year in the Blue Ridge Mountains, Fanta.

Oh, that's a beautiful area. Blue Ridge Mountains are gorgeous. Well, good. I don't know exactly where to start, but I would definitely like to talk about the economy and most 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 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, some real impact on Russia, right?

Well, it would have more impact on, on the United States because the cost of producing oil in Russia is below the cost of the United States. Average cost of Russia is less than here. 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 I mean your view, would you agree that your view is somewhat counterintuitive or at least count counter to popular opinion nowadays that 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 with you. So is it, I mean, you know, 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, take advantage of the system. Do you think that will last or do you think the reserve currency status will go away?

I think it's, 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 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 and 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 and the currency market drops. 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 and they don't use the dollar. So I think you'll see such a.

Strong drop in the use of the dollar that 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 that 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 or 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 monetary 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, it's 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 than to go to war.

Well, compared to going to 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 Europe, 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.

They're American, so what would that do to the us?

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 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 any.

So I'm not sure that what's 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, Russia is a dying country, quite literally. And China, with this one child policy 10 years from now, has got a major demographic problem starting to hit it. Whereas the US Granted, it's not through birth rates of European Americans, but 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 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 long have middle class.

Well, the middle class is diminishing.

All the middle class jobs are 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, they were 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 that 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 has 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's not going to last 10 years. It's the house of 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 molehills in China and Russia.

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 state 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.

Yeah. If you use the 1990 official methodology, the inflation rate is over 5% annually. If you use the 1980 official methodology, it's called close to 10%. And if you talk to anyone 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 cost of 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 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 type 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%. But 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 and 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, 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 is dropping. That you can have a situation, this is what people understand. You can 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 just a smoke and mirrors illusion that we've been living maybe since 1971, possibly, I don't know.

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

Well, actually 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, 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 for 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 and 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 wins.

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, I mean, what, 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 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. 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 the, did it with the stock market. It's like they move from bubble to bubble, these people. 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 of cards standing on the dollar, which itself is a house.

I think we've 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 it. 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. But the best solution would be to, you know, we don't need a $1.1 trillion military 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 his 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.

You're certainly welcome. Goodbye.

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