CW 497 – John Rubino – Advances in Material Science, The Sharing Economy & Money Bubbles with Editor of DollarCollapse.com

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Hey, welcome to the Creating wealth show. This is your host, Jason Hartman with episode number 497. So 500 is coming up quick and as you know, that's a 10th episode show I think we're gonna do Guy Kawasaki on that show. As you know, he was one of the early, early people with Apple. He's known as the chief evangelist. He's a really fascinating guy, written a zillion books and I think he'll be episode number 500 coming up. So stay tuned for that. But today we have got a great show for you too. Our gu be John Rubino, who's going to talk about the money bubble and what to do when it pops. And there are so many people that say stuff like that, I'm not even really sure what they mean anymore. Sometimes I think they used to mean inflation, dollar debasement, etc. And we've certainly explored that topic incessantly on this show and explored deflation as well. But we will see. And you know, that kind of reminds me of another thing I was in last time I talked to you. I don't think I mentioned it in my intro portion of last episode, but I was actually in Austin, Texas and I was looking at some properties there, also attending an event there. It's really interesting because now I happen to be in San Diego. I know I hardly ever sleep in my own bed anymore, which, you know, it's kind of an adventure to be traveling but, and get sold. I'm sure, I'm sure a lot of you listening know that. So I don't know. It's a love hate thing. I kind of love it, but I kind of hate it too. Anyway, I will say I'm very grateful for the, the fact that nowadays, with technology being as good as it is, at least we have the choice whether we love it or hate it. You know, at least we can do it. At least we can work from pretty much anywhere. We have all these modern conveniences, and it's great. But the thing I noticed in Austin and last time I was in San Diego just maybe four weeks ago, is the sharing economy. And we've talked about the sharing economy many times before, and we've talked about whether the future will be inflationary, stagnationary, or deflationary. The jury is kind of out. I think ultimately we're going to see some severe inflationary pressures, but at the moment, you know, I don't know. The pressures are there, but technology is changing things so fast. And technology is obviously a deflationary force, as I've mentioned before. Want to just talk about the sharing economy for just a moment and what this means to us as investors and what it means to us just as people, because all of us as people play a part in the economy. And this is why economics is such a. You know, they call economics the dismal science. The dismal science that was created to make astrology look credible. And by the way, I kind of think astrology, interestingly, is a little bit credible. I'm not saying it's a lot, but it's sort of interesting, you know, when you read that stuff. I'm not saying I'm like some huge believer or anything, but it is interesting how it can be seemingly so accurate sometimes. I don't know, just, you know, look, I'm a Libra. And if you read about me, not the daily entertainment crap that you read in the, you know, the newspaper or whatever, you know, the overall characteristics of that sign. Right. It's kind of accurate. And other people with other signs kind of accurate about them, too. Just like the Myers Briggs temperament sorter. I also happen to be an entj, for better or worse, love me or hate me, but that's pretty darn. That's really accurate. Okay. As a personality assessment. So, okay, tangent alert. There we go. So I think I was talking about the sharing economy. Yes, that was it. And. Oh, economics. The dismal science created to make astrology look credible. Yes, that's the topic. You know, with that, it's very hard to predict the movements and actions of basically 310 million people in the US and 7 billion people around the world. And it's not just the actions really of people because it's also the actions of companies. And of course, Companies are run by people, obviously, but when they're translated into a corporate environment, they act differently than individual people do. For sure, boards of directors and CEOs will act differently than they will as individuals. And so that's one of the reasons I don't like investing in companies run by other people. You know, I don't like Wall street because these other people don't have aligned interests. Their interests aren't aligned with their investors, obviously. Right. So it's just interesting. So, the sharing economy. Today, for my Jetsetter podcast, I recorded an interview with a woman who created a company called Ilike Local. And it's an interesting concept because basically you can go on a trip to many places around the world and there are many websites like this and businesses like this out there. She's not the only one. And it's kind of like Uber or Lyft, but for tours. And so instead of going to a tour company, when you visit China or, you know, wherever you go, you can have a local person give you a tour or host an event for you or do something with them. With Airbnb, you can stay at an individual person's house rather than a hotel. And by the way, I think that is gonna. That's really making some competition for hotels. And you see this with the legislation in these different cities. So, you know, if you were to own a hotel, that would be something to watch out for, the Airbnb trend. Right. If you were to own a taxi company or an individual taxi. Obviously Uber and Lyft and the ride sharing companies have changed that. What about rental cars? Well, deflationary pressure on them. Because now there are businesses, websites where you can just share your car. In fact, when the self driving car comes out and I get a new car, I'm actually considering, rather than selling my car, if for nothing else than just an interesting social experiment or economic experiment really, I might just put my car into one of these rental fleets run by private people. I just kind of want to try it and see how it works. So, you know, we're individual people, just rent the car directly from me. I'm in Austin and I see all these bike stands around. I don't have a bicycle with me. I don't need one. I just put my credit card into one of these little bike stands, take a bike, ride it wherever I want, and then drop it off at one of a zillion locations that are all visible on that company's iPhone app. Okay. And then I decide, well, you know, I want a car. So there's a company called Car2go. Okay? And I've got that app and I joined Car2go. And I open the app and I see where the little smart cars are with Car2go. And I just walk over to the car. I hold my card up to the little reader that's on the windshield and boom, the car unlocks. I jump in, take off, go wherever I want to go and drop the car off wherever I want. I mean, think of how deflationary some of these things are, right? Technology is huge. Some of you listeners, by the way, I love your contributions and your questions and your engagement with us. One of you, and forgive me, I can't remember who it was offhand, sent me a thing about 3D printed homes. I talked about that before, I believe, on just the last episode or the one before that. And the thing the 3D printing does is it is deflationary when it comes to labor, obviously. But still, these homes have to be made out of materials. They take actual material. Well, look at the technology of materials science. Pretty darn fascinating. Now remember, you heard it here first, okay? There is an amazing new material called graphene. G R A P H E N E Look it up. It's unbelievable. It's going to change the face of many things they think, including smartphones and materials for everything. It's amazingly strong. It can be electrified. It can become a bendable circuit board. It's incredibly thin. And one of the things they say if you had a sheet of graphene and an elephant stood on a pencil, in other words, to illustrate how pointy it would have to be, it would not pierce the graphene and it would. It's just like the thickness of a sheet of paper. It's an amazing time to be alive, right? Yes. It's an amazing time to be alive. So all of this amazing stuff is going on, and it's hard enough to predict the actions of people and companies. And then you add to it this exponential growth in technology, which is nothing short of amazing. One of our clients, Bill, by the way. Bill, thank you for sending this. I appreciate it sent this really interesting chart that talks about the. It tells. The title says this chart tells the entire story of the US Housing recovery. And it's a Business Insider article. And it basically shows that since 2005, up until, I guess it goes till 2014, it looks like the last year stated is 2013, but it kind of looks like it's going past that actually to 2014. It shows the cumulative percentage change in number of households based on Three categories. The overall change, the change in owner occupied houses, the change in renter occupied houses. Now this should really, really make you happy as a real estate investor. Okay, you ready for this? Investors, you listening? You're gonna love this. It's great. So, Bill, this was an awesome chart, so thank you for sending it in. Basically, it shows that owner occupied households are down by nearly 2% in the past, you know, 9ish years. Okay? And overall households are up about 5% in that same period. But guess where renter occupied households are? Renter occupied households are up by about 17%. Did you hear that, listeners? Renter occupied households have increased by 17%. So it says all households created during this recovery are renters. Now, did I not predict that? Yes, I did predict that. I predicted that because what did I say to you? I talked about Generation Y. I talked about all the factors affecting them. But, but I also talked about what I call the recycled homeowners. These are people who owned their own home during the housing crisis, during the economic crisis, during the Wall street crisis. And they went into foreclosure, they lost the property, and then they recycled into the rental market. And these people are our tenants. Nowadays, a lot of these people are our tenants and their credit is dinged up and it takes a long time to fix that. As you know, these people are renting. And also there's an issue of just psychology. You know, when someone gets burned, they don't usually come back for more punishment too soon. Now it's debatable whether they really got burned at all because as I've talked about on past episodes, you know, a lot of these people got to live in a much nicer home than they could ever afford. And a lot of them got to live there for free for a few years because they weren't making their payments. So I don't know if they really got burned. But oddly, with how screwed up the logic of our society is, many of them think they got burned when they really got a free ride. Okay, so that's kind of interesting. Let me see, what else do I want to talk about? A couple other things before we get to our guests. Number one is in the remaining things here, the Venture Alliance. The Venture alliance is really humming along. This is the Mastermind group. Neil, thank you for processing your membership fee. Really appreciate that. And we are going to do some awesome stuff. We've got our two and a half members so far. See, I give the true stats even when they're completely unimpressive. But actually, I think they are kind of impressive because, you know, we've done virtually no marketing. We don't even have a website. We don't even have a plan. So thank you for your faith in me. But we do have an event coming up June, what is that? June 12th and 13th, that weekend in San Diego, California. And I'm working on planning that now, but it's going to be nothing short of awesome, let me tell you. And we're going to talk about partnering together on deals. We're going to talk about starting businesses together potentially. I'm very interested in starting a crowdfunding company because I have a huge amount of deal flow, which is the thing that crowdfunding companies generally lack is deal flow. We're going to talk about some stuff like that. We're probably going to have a facilitator come in and facilitate some things. It's just going to be phenomenal. So more to come on the Venture alliance. If you're interested, just talk to your investment counselor or talk to me at the company and you can reach us through the jasonhartman.com website. It's really all of my friends that I've talked to in the world of mastermind groups, you know, friends that have, you know, many of them are members of various mastermind mastermind groups. They all say, you know, Jason, I have yet to see a mastermind group like yours, like the Venture alliance that is built around the concept of doing real estate deals together and doing business deals together. Many other mastermind groups are how to groups, they're adventure groups. They're all of this stuff. But yours is truly unique in the concept of doing ventures together and through an alliance. That's why it's called the Venture alliance and the tagline is your financial friends. So more to come on that if you're interested in the San Diego event June 12th and 13th, let us know because you can also come check us out as a guest. It'll probably be $2,000, I'm thinking, is the guest fee, but we haven't got that totally worked out yet. So more to come on that. And we will. We do actually have the Venture alliance. You sign up now, there's absolutely zero copy, but it is on the jasonhartman.com website in the products section or the store section, so you can see it there. And one of the things we're going to talk about on the upcoming Memphis property tour and of course Adventure alliance, if any of you are interested in partnering with me, yours truly, on deals, I would be very interested through our client Jesse, by The way. Thank you for researching this, Jesse. I appreciate it. Jesse is a CPA in corporate finance. A corporate cpa. She really found out some good stuff. That some of these finance companies that are doing more unique financing options, not the traditional Fannie Mae stuff out there, they will allow 19% partners who are kind of silent partners who don't go on the loan. And it's not complicated like it usually is. If you want a partner and have your partner on the loan and all of this stuff, it's really complicated in the traditional lending field in the conventional world where those, those are the agency type loans, Fannie Mae, Freddie Mac type loans, you know. So if any of you are interested in having me as your partner, you want me to buy in at a 19% partnership level, let us know. Let your investment counselor know and we'd be totally interested in talking to you about that. I put my money where my mouth is. I love this investment. I'm pretty much happy to buy 19% of anything that we're selling in our network. Those properties@jason hartman.com. i really doubt I'd say no to any deal. You know, I reserve the right to, but I really, you know, would probably just say yes to anything. You know, I'd basically put up 19% of the down payment, 19% of the closing cost, and I get 19% of the good and the bad. If we have positive cash flow, I get 19%, you get 81%. And if we have negative cash flow, we share it. That way I pay 19%, I get 19% of the tax write off, you get 81%. That's basically how it works. These real estate partnerships are pretty simple. I've done a lot of them over the years. I mean, a lot, a lot, a lot of them. They work out pretty well. You know, the only thing you've got to have in a real estate partnership is an arm's length transaction. You can't have one partner living in the property. Okay, so no real estate partnerships where you've got someone living in the property. It's got to be arm's length. Okay, so you're only renting to third party, unrelated tenants. I guess that's it. I'm going long as usual. Let's get to our guest. Just keep on listening. Looking forward to hitting episode number 500 is just three episodes away. And I think we'll have Guy Kawasaki on for that one. All right, here's our guest, John Rubino. It's my pleasure to welcome John Rubino back to the show. He is editor of $he's the co author of the Money Bubble, what to Do When It Pops. John, welcome. How are you?

Great, Jason, how are you?

Good to have you back on the show. And where are you located?

I'm out in Idaho, a little college town called Moscow, which is about three hours below the Canadian border.

Is that spelled like Moscow, Russia?

It is, yeah. Except for some reason we pronounce it Moscow. I don't know why.

And not to be confused, there's no Vladimir Putin there, huh?

No, no. We are not a fascist.

He has messed things up, I'm gonna say. Maybe we can talk about that during the interview. Gosh, you know, there is so much going on in the financial world. It is fascinating right now, not the least of which I guess you're just about to write an article on how Germany is now paying negative interest rates on bonds. I don't even know if that's the right way to say that because they're not paying. So what's that all about, John?

Yeah, well, in a growing section of the world now, if you want to lend money to somebody, you have to pay them rather than them paying you. And there's about $2 trillion of bonds outstanding in the world that have negative yields right now. And this is really extraordinary. But the background, the general.

Let me ask you before you go on, has it ever happened?

Never on this scale. There have been brief instances in the past of certain bonds having negative interest rates or negative yield.

So when you buy a bond, you're effect becoming a lender, you're lending money. And so in this case, what dynamic is happening? Your German bondholders are basically paying to lend money.

Yeah. To understand how this happened, we have to take a couple of steps back to understand how we got here, though. And basically what happened was in 1971, the world went off the gold standard effectively. And at that point we broke the link between all our currencies and anything tangible. So currencies just became fiat currencies, which means they exist by government decree or government fiat, and they are valued at whatever level the government says they should be. And so this basically gave the governments of the world an unlimited printing press. They were able to create as much new currency as they wanted and they didn't have to prioritize anymore. They didn't have to decide between guns or butter. They just went for every everything all around the world. And so we ended up taking on more and more debt year after year after year and creating more and more currency to cover the debt. And so we ended up with a globally grossly indebted society. Every major country owes way more money than it can ever hope to pay off. And that is deflationary because this debt has to be serviced, which means you have to get money in order to pay the interest on your debt, which creates demand for currencies like dollars, which is how most debt in the world is denominated. And that forces down interest rates because everybody wants currency. So that means if you have it to lend, sorry, if you're borrowing, if you're a good borrower, everybody wants to lend to you. So now people are terrified and they are looking for safe places to put their money because all this debt out there is scaring the people who have capital to invest. And so they're deeply attracted to the few solid places left to put money, which are the German economy is considered safe. The US economy is considered safe. A few other countries and a few major corporations. So these guys, because everybody wants to put their money with these entities, are able to borrow money at more and more attractive rates year after year. And it's going negative now, like for instance, to invest in Swiss francs to open a bank account in Switzerland. So many people want to do that that the Swiss are able to say, well, we're not going to pay you, you have to pay us if you want to put money in our banks. And so that's spreading around the world in the safe havens. So what's happening is that we now have about $2 trillion of various kinds of paper out there that trades with negative yields and that's historically unique and it introduces all kinds of distortions in the financial markets. Because to take just one of the big ones, there are whole industries out there that depend on positive interest rates to function. You know, a money market fund, for instance, that's a huge industry, multi trillion dollars. And it is based on the fact that if you give a money market fund some of your money, they pay you a little bit back in return for your funds.

And people should understand too, since you're bringing this issue up, that money market funds are not insured.

No, no. They own short term corporate paper.

You can lose money in a money market.

Yeah, but see, the money market fund doesn't want you to know that. They want you to think of an investment in a money market fund is the same thing as owning cash, but it pays you a little bit. So it's like a bank account, but a little bit easier to get to because you can use a money market fund to transact and stuff. And so that requires, though, that the money market fund be able to make some money on the money that you give them. And if rates are negative, which means money market funds actually have to pay in order to invest that money that you're giving them, then they can't pay you. And all of a sudden they're worse than cash. If you have your cash just sitting under the mattress, it's not losing any money, it's not cash flow negative for you. But in a money market fund, in a negative interest rate environment, it is. So that industry just implodes. If that happens. Pension funds take in money from teachers or firemen or whoever with the idea that they'll invest it and then build up a nice big account and then pay back the teachers when they retire. Well, that requires positive interest rates on bonds for the pension fund to invest in. And if that's not the case, if the pension fund can't earn anything on its bond portfolio, then it can't build up a nice big account to pay out when its members retire. And that's the case for a lot of pension funds. Now. They can't find any place to invest their money. So what they're doing is they're doing going after riskier and riskier investments. If they can't invest in bonds, which are fairly safe, then they're going into stocks which go up and down and they're going into junk bonds which are very risky. They can go down 30 or 40% in a year. In a bad year, all of a sudden these pension funds that are guaranteeing money for future retirees can't make that guarantee anymore. That industry, when it's understood that that's the case, is going to have to change radically. And that's a multi trillion dollar industry. And insurance companies is the other one. If you're an insurance company, you take in money from your premiums of your customers, invest it, and then you keep that money in order to pay out when your policyholders need to cash out their policies for whatever reason. Well, if you can't earn any money, you can't satisfy those obligations either. And so your industry implodes. That's what negative interest rates will do to big sections of the financial services industry. It's very, very damaging for a lot of people.

Okay, but why does this situation really exist anyway? I mean, I don't know if we really got the understanding of that. So people want to park their money. People, companies, institutions, whatever, they want to park their money and they're basically paying for the privilege of parking it. I Mean people, that's just a mind boggling concept.

Well, let's approach it in a macroeconomic sense. We've taken on all this debt and a lot of it shouldn't have been taken on in the first place. It's what's called malinvestment. It's bad paper that is going bust. Greek debt, much of Europe's debt, a lot of what was borrowed by China, a lot of the debt in the U.S. now this is paper that wants to default and that's very deflationary. So the world's governments, in order to keep this bad paper from defaulting because of their past mistakes, they're pushing interest rates down and creating huge amounts of new currency that's just flooding the market. In order to paper over their past mistakes. Well, interest rates have been pushed down year after year after year and it hasn't worked. So what the world's central banks are doing now is pushing interest rates beyond zero. You know, they're going to negative interest rates in order to keep the global system, financial system system from imploding. Because that is what happens when you borrow too much money. If you make money too easy. Too many people start borrowing and they tend to borrow for things they shouldn't have borrowed for. They invest in things that they shouldn't invest in. Those things don't work out.

Everything has value based on its scarcity. That's the general principle of economics right there. And when you make it plentiful, the value declines. Obviously. I mean this would seem like economics 101. Really before that.

Yeah. And so what we're doing now is creating so much new currency with quantitative easing, with governments buying bonds on the open market with newly created currency, that just creates a flood of new currency.

So why haven't we had just massive inflation yet? In fact, until about a year ago, I mean we had, you know, some inflation. It's always understated. But now even those who understand the shadow stats, like John Williams, it's, they'd be hard pressed to argue that there's a lot of inflation right now. Can the government, you know, of the US and even some other countries, not all, but can they just defy gravity like this forever? And how are they doing it?

Basically the, the huge amount of debt that we took on in the past, a lot of it is going bad. And that's very deflationary because for instance, when a company can't make its payments and it defaults on that debt, that in effect takes money out of the global financial system. The money that that company had borrowed just evaporates. It ceases to exist. That's deflationary. And so we've got this huge debt bubble bursting out there. We've never taken on this much debt. We've never seen this much debt go bad. And that's very deflationary. At the same time counteracting that, we've got the world's central banks with unlimited printing presses just shoveling money out the door. And so those two very powerful, unprecedentedly powerful forces are kind of contending out there. And it's been swinging back and forth for a year or two. It looks like deflation is winning. That was 2007, 2008, 2009, when we looked like we were going to tip into another 1930s style deflationary depression. And then the central banks opened the floodgates and money came out of everywhere. And then it looked like we were going to tip over into some kind of inflationary spiral. And now the pendulum is swinging back to deflation. But through it all, we're taking on more and more debt. We're creating more and more currency, so we're not fixing anything. We're just borrowing more and more money to try to prevent a catastrophe occurring because of our past mistakes. We're making new and bigger mistakes right now. But that gets us through the next election cycle or the next corporate reporting period or whatever. But it does not fix anything. So that's why it feels like, it doesn't feel like it should feel based on these statistics, when you see the amount of money that's created or the amount of debt that we're taking on, yeah, we should be in an inflationary spiral right now. But you have to look at the old debt that we took on and watch what's happening with that. And that's very deflationary. So I think eventually the unlimited printing press trumps the huge but finite debt collapse. And so we do get some kind of currency crisis where that's a good.

Way to put it. See, the printing press is unlimited. The deflationary forces are by definition limited. I mean, they, they have to be. I, I guess the only deflationary force that's not limited. I mean, all the monetary deflationary forces, they are quantified. Well, maybe they're not even quantifiable. Exactly, but they are limited for sure. They, they're, they, they are, they are finite. They, there's no question about it. But the only one that is maybe not finite would be the deflationary effect of technology. And you know, we've Certainly seen that in our lives in so many ways. I mean, it's. We are in an amazing era of technology. I'm sure they thought that when the steam engine was invented, maybe too, but I don't know. You know, like I want to say, John, the famous last word words of any person who's about to get themselves into trouble is this time it's different.

Yeah, well, this time it's qualitatively and quantitatively different, I have to say, because, yeah, past technological revolutions have been extraordinary, but this one is amazing what's coming. I mean, artificial intelligence and solar power and robots and 3D printing and they're going to change the world in really unpredictable ways. And yeah, technology is deflationary because it allows us to get better at doing things and enables us to make things more cheaply.

Okay, so that's true on the first. That's like the phase one of a technology. The phase one of a technology is it comes into play and it makes things easier, less expensive, more efficient and better. Right, we both agree with that. But maybe phase two of it is that ultimately that leads to a higher expectation of consumers and a higher quality of life. And, you know, I'm trying to. I'm wrestling with this idea, but, you know, that would seem to me inflationary, ultimately. And then we have to look at the employment issue with especially robotics, because that one's a whole nother Pandora's box, but go ahead with that.

So inflation and deflation are really monetary events. Okay, if you have stable Money, for instance, 200 years of the classical gold standard, before World War I, we had no inflation for 200 years. In fact, we had a little bit of deflation each year. Money got a little more valuable year after year. Prices went down just a little bit year after year. And that was because one.

The value.

Of money stayed the same in terms of its supply. You know, the amount of gold in the world went up about the same rate as the human population, so the supply was in balance. And at the same time, new technologies were making things a little cheaper year after year. So we had a little bit of deflation. And that's the normal situation for a healthy society. And so now that we've got all these, you know, inflation one year, deflation the next year, that instability comes from the fact that we don't have stable money anymore. So we're seeing prices of things bounce around in really strange ways. But that has to do with the fact that the supply of money and the velocity of all the distortions that come from Extremely easy money and really variable government policies with regard to how much they print and stuff like that. That's just destabilizing. So if you look back when money was stable, you see that steady small amounts of deflation are the normal way for a healthy society to operate. So to the extent that we've drifted away from that, that's because we're making policy mistakes. It's not anything to do with the nature of money or anything. It's just that we're screwing up. And so we're reaping the. We're reaping the whirlwind. Whirlwind right now of really stupid economic and monetary policies of the past 30 or 40 years.

Yeah, no question about it. So, so where are we going? This wouldn't be a complete conversation at all without many issues, but certainly one big one is reserved currency status of the dollar. I mean, you know your book is called the Money Bubble, what to do when it Pops. So what are your thoughts there?

Yeah, well, the, the term money bubble refers to the fact that over the past 30 years we've had a series of financial bubbles. Junk bonds and tech stocks and housing, and those have all been fairly localized bubbles that have happened on a bigger stage, which is the money bubble, which is fiat currencies being created in huge quantities and government debt being issued in unprecedented amounts. And that's the big bubble on which these little bubbles have come and gone. And when the big one, when the fiat currency bubble pops, then everything changes. Because then we lose faith in the past. We lost faith in junk bonds one year and tech stocks a decade later, and housing. But we're going to lose faith in our money at some point in the not too distant future. And then that changes everything because that means your bank account, the stocks in your stock brokerage account, every kind of financial account that you've got, everything's affected by that.

But why do we have to lose faith in our money? I mean, it would seem that when you do the math, you're absolutely right. But as we've talked before, I'm sure at least my listeners have heard me say before, it's about a lot more than just math, right? Because when you've got the world's largest military, when you've got the world's largest economy, granted it's built on a house of cards, but you've got all these advantages. Do we ever lose faith in our money? Or does this can just get kicked down the road forever, indefinitely?

Take a few statistics first to kind of set the stage for this. If you add up all the debt in the US financial system right now, and that is government debt and mortgages and the unfunded liabilities of Social Security and all the rest comes to about $2 million per family of four. And that's not mythical, it's not make believe. We as American citizens have to deal with that in some way, either by paying incredible amounts of taxes or by directly writing the checks for it, whatever. And so we've already reached the point where it's hard to see how we manage that because that's just more than vastly more than the average family can handle. And historically, see, there's nothing really unique about what the US is doing in a historical sense. Big powerful trading countries and military empires have been this way before. You know, they get overextended, they create too much currency, they can't protect their borders anymore because their military is stretched too thin.

We don't even want to protect our borders. That's even scarier.

We want to protect the whole world, our interests in the whole world. We've got military bases in 100 countries, we've got boots on the ground.

Yeah, but a lot of those interests are false. They're just basically interests that are invented because central bankers want to profit from war.

Well, see, but this is what empires do, though. They assume that their interests, because they've been all powerful for a long time, they assume that their interests are much greater than they actually are. And they take on responsibilities that they can't handle, that they can't pay for. Then they destroy their currency in an attempt to finance things that they can't manage. And so we're in that sense no different from the Roman Empire, which seemed eternal at the time. You know, it lasted for 1000 years and then it had a hyperinflation and then descended into corruption. And then the barbarians took over. You know, and you can go through almost any other major military and industrial empire that has ever existed, and it's all gone the same way. And we're making all those mistakes. You know, we're borrowing too much money. We're taking on commitments both at home in terms of the entitlement state which grows year after year, and overseas in the military empire, which leads us to intervene everywhere in the world. We think everything is our business.

I know it's a complete absurdity. We got to just get out of everybody else's business.

But we're not. We're digging even deeper and paying even more. And so see, eventually, to get back to your question, about how that affects the dollar. Eventually the numbers become overwhelming. We will have borrowed so much and, and cause so much instability at home and around the world that people won't see dollars as the safe haven anymore. So it's not a question of when or it's not a question of if, it's a question of when.

I say that you're right when you're doing the math, but I don't know if you're right when we talk about issues like, well, we can just force them to have the dollar as their reserve currency because we've got the bullish power to back it up. You know, I'm not saying it's right or fair. I'm just saying it is.

But see, the stuff that allows you to get to the point where something is a bubble is frequently pointed to as the thing that will keep the bubble going, but it's frequently not the thing that can do it. You know, you can go back and look at why they thought tech stocks would keep on going up forever, but really that was the. Those were the reasons that tech stocks had gotten to the point of being above in the first place. But they didn't keep it going forever and so on with all the other bubbles. Well, the US Is, or fiat currency in general is kind of the same thing. Yes, the US can project military power around the world and insist that somebody like Saudi Arabia only accepts dollars in return for oil. But can they do the same thing with Russia? Can they do that with China?

Yeah, they can, actually. I think so, because I'm not saying we're going to launch the ICBMs in Russia or China, God forbid we do that. But number one, China is not going to go too far wrong because we're its biggest customer. Russia's almost out of business, and we're probably doing that as a weapon of warfare with our oil price declines, basically. I mean, you know, I had one of my guests on Jim Norman, who wrote a book called the Oil Card, that basically his theory is that. And you know, he's got a lot of experience in the oil industry, and his theory is that oil, the price of oil, is basically determined by the futures market. And the US is doing this to just destroy Russia and to hurt China a little bit and to destroy Venezuela. And boy, if you look at, I don't know about China, I don't have a comment on that one. But if you look at Russia and Venezuela, God, it's working.

Well, yeah, I mean, we've used oil historically as a weapon against Russia. We Used it to break the Soviet Union back in Ronald Reagan's day when they cut oil to tender. Well, we're trying it again. At the same time, Russia is setting up a bank settlement system that is separate from the current swift system that the world's banks use.

But so what, what does that really mean?

I mean it means they can operate with their own currency, currency without having to use dollars. They're cutting deals with China right now to ship energy, see, to China and Russia who are basically emerging powers. Our ability to use our military power, which is financed with the world's reserve currency is a huge problem for them.

And the boots are probably made in China by the way.

But see, this to them is not the appropriate way for the world to operate. And they're accumulating enough power, power, especially in the case of China and to an extent India and Russia to be able to push back. And so it doesn't happen tomorrow, but it's moving in that direction because we're abusing our power. How many times do we get to force down the price of oil to punish a somewhat powerful, but not as powerful as this country and get away with it before they take steps to do something about it? And so they are taking steps. You know, they're cutting bilateral trade deals where they use their own currencies. There's no reason why China and India need dollars to trade. You know, they each have currencies that they can do a swap where they each hold some of the other's currencies and then just send them back and forth in return for goods and services.

You know, really, really fascinating and complicated stuff. Did you want to mention anything, you know, else about like say Switzerland for example, because they had some big news. What was it about four months ago maybe?

I want to say yes, Switzerland is a really interesting kind of canary in the currency war coal mine where the Swiss have historically managed their finances pretty well. And the Swiss franc therefore has been a safe haven currency. It's where you put your money if you want it to be stable and don't want to worry about it depreciating or anything else. When the US aggressively started buying back bonds and doing QE and then the Eurozone started doing the same thing because they were mismanaging their economies and borrowing too much money and having to push down interest rates and monetize their debt, doing all the things that an over indebted country does, money started flowing into Switzerland and that pushed up the price of the Swiss currency to an extent that really hurt Swiss Exporters, because they price their stuff in Swiss francs. If they're selling it to the rest of the world, Swiss franc goes up, that makes their stuff more expensive. And it was really hurting the Swiss economy. So they had to peg their currency to the euro, which means they're going to adopt eurozone levels of inflation going forward. Now, that means that they basically have just given up. Now, people in Switzerland responded to that because they didn't like the idea of them just inflating away their currency. So they responded to that with a referendum that would call on the Swiss central bank to start buying a lot of gold and to back their currency with gold. Basically, there were a lot of provisions, but that was the basic one. And so they had an election about that. And the Swiss government and the Swiss national bank just went after these proposals because it would really tie their hands and make it harder and harder for them to operate the way they want to operate. And so the proposals lost. But still, it was an interesting experience to see the Swiss people attempt to bring gold back into the center of their financial system.

So the fact that that didn't pass, I mean, what's the take on that? Is it that this. The Swiss people would have to make sacrifices and be more responsible, and they didn't like that because of the instant gratification. What's the vibe on that?

Well, there were a couple of things. One is that there were several referenda all on the same subject, more or less, and there were a lot of different parts. So there were. There was so much out there that there was something in there for anybody to dislike. Everybody could find something in this list of new rules that were proposed that they found disturbing. So it gave them a reason to vote no. If it was a much simpler referendum that just said, okay, we're going to buy back this much gold, and that would have been simpler and it would have worked, probably would have passed. So there were things that were easy to criticize from almost anyone's point of view. And the other thing is that, yeah, if you tie your currency to gold, which would make it much more stable and much more rock solid than the other currencies in the world, your currency would go up in value. And that's a problem for any country when there's a quote, unquote currency war going on when everybody's trying to force down the value of their currencies. If you don't participate, your currency goes up versus those other currencies. The stuff you're trying to sell gets way more expensive. And your export sector drops down into a depression. And that's what Switzerland was kind of looking at if they backed their currency with gold and didn't participate in the currency war. So the export sector, all the big industrialists and bankers in Switzerland were terrified of that. And I guess with good reason, because it's not clear that you can just surrender in a currency war. If everybody else is, is devaluing, you kind of have to play along. And so that's the big lesson from this, which is that nobody can opt out of this. The whole world is going to have to aggressively devalue their currencies because that's what happens when you borrow too much money.

Yeah, it's crazy. So do you agree with my thesis that technology could save us all? I mean, it's kind of like you accumulate all this debt, be totally irresponsible for like five plus decades, and then you get rescued by technology. I mean, it's certainly debatable that we've been rescued by technology all along the way. I mean, fracking rescued us from much higher oil prices, I'd say, and gas prices. Right. You know, we've been rescued in a million ways. China rescued us with lower consumer product prices, globalization, I mean, all these things really that are enabled by technology at one form or another.

Well, Jason, on the one hand you could say, yeah, it rescued us in the sense that it stopped a collapse that would have happened earlier. But in another sense, you can say it enabled the worst of our natures. It allowed us to continue to increase borrowing year after year after year. To make the problem even worse, when it blows up, it's going to be much, much bigger than if we'd have had had our come to Jesus moment in 2000, right after the tech stock crash. We possibly could have restructured the global economy back then to avoid a protracted depression, but we didn't. And in that time we tripled our debt. Since then, we've just kept on borrowing more and more. And if technology was the thing that allowed us to do that, then it wasn't a net benefit for society. All the new things that have come along, if they kept the depression, that really had to happen because that's the only way to get out of debt historically, then it just made it bigger out there in the future. And it's continuing. We're still borrowing huge amounts of new money. McKinsey Co. Just came out with a study that said that since the 2008 crash, the world world has taken on $57 trillion of new debt.

It's insane.

Yeah, it is. And so there are only a couple of ways to get out of that much debt. One is to have a collapse where everybody just stops paying and they all default. Or you inflate away your currency so that you're paying back your debt, but it's in currency that's worth a third as much as the original currency was. And so one way or another, that's our decade ahead. We got to choose one of those two things.

Yeah, we shall see. We shall see. So you talk about inflation coming in the future, how it must come, and I agree with you, by the way. Any idea as to when you mentioned the next decade? I mean, how are we three to five years away from seeing some significant inflation or what?

I thought this game had to end in 2005. So I'm a decade late with my prediction now. But yeah, it just seemed like the numbers didn't work a long time ago and we've been able to keep it going. And there, there are, you know, and.

They keep getting worse.

Yeah. Oh, the numbers. Yeah, Keep getting much worse.

It's like we're doubling down, doubling down on a bad business plan over and.

Over, you know, or, you know, a more down home analogy is that, you know, we're a family who, you know, one of the breadwinners lost a job. But instead of cutting back and, you know, adjusting our lifestyle, yeah, we max out credit cards, cards now. And so we still got all the stuff. We still look just as good to the neighbors as we ever did because the SUV is still in the driveway of our big house. But our credit card balance goes up year after year after year. And pretty soon those teaser rates are going to jump up to 21% or whatever. And at that point it's over. And so that's the question. When does the teaser rate jump up to a more realistic interest rate and bankrupt us? And we can't know that because it's probably due to some external event. Something happens somewhere that sets off a chain reaction and then everything falls apart. But we can't know what that thing will be. You've probably seen Jim Rickards.

Oh, of course. I've read all his books. Yeah, he's great. He's great.

So his analogy is the snowflake on the mountainside. When there's a mountainside that has seen a lot of snowfall on it, it's ready for an avalanche. But you can't know what snowflake is going to fall on what part of the mountainside to set off the Avalanche. And there's nothing special about the snowflake. You know, it just hit at the right time in the right place. And so that's the way it will be with us, where something will happen. You know, Greece is an example of a possibility or some bank somewhere going bust all of a sudden or some other country. All kinds of things could happen. There's lots of catalysts out there and one will happen at some point and then everything will change.

Yeah. Give out your website, dollarcollapse.com dollarcollapse.com you can get the book there or on Amazon, of course. The thing I want to say as much as all this bad news sounds, is that the strategy is long term fixed rate debt attached to commodities. If the inflation comes, inflation's basically going to pay down that debt for you. It's inflation induced debt destruction. But if it doesn't come and somehow we continue to defy gravity, then we live in a world where the only thing you can expect is yield. And that's why I still love income property, you know, so that's, that's my thing, you know.

Yeah, well, well chosen real estate tends to do well.

You got to have it with income though. You can't do the, these high priced markets that are risky, that don't have cash flow. You know, you got to be able to outsource your debt to your tenants first and inflation second. Yeah.

And you have to be able to manage the property. You know, a lot of people I've noticed, I have friends who, who get entranced with the idea of rental houses and things like that without quite thinking through the idea that when the toilet breaks, it's their job.

You know, it takes a little bit of attention but you know, the return you can earn is so much more significant. I mean, because it's multi dimensional. You know, it's not just about, you know, buy low, sell high. It's not just about even dividends. It's, you know, tax benefits, control expenses you can write off. You know, it's like having a little side business and then, you know, you get the leverage and that historically low fixed rate debt. I mean, when are interest rates? Well, you know, it was arguable certainly a couple of years ago that interest rates, we were already in a negative interest rate environment with home mortgages, but now I don't think so. I think you're actually paying your mortgage. Although, you know, rental property or income, property owners don't pay their mortgage because their tenants do. You know, if you just buy a home in which you live, then you're you're paying because I do think you're borrowing at higher rates than inflation. Right. Right at the moment. But certainly that's been debatable in recent years.

And in general, the intellectual challenge of investing in this kind of market is both interesting and really scary because we've never really been here before. And so it's fascinating to try to manage money in this kind of environment, but it's also kind of a minefield. So I don't envy professional money managers on the one hand and retirees on the other because they both face some really tough decisions where there aren't extremely clear answers like there used to be. There was a time when a mix of stocks and bonds and cash would get you through pretty well, and it's not like that anymore. So these are really fascinating, very scary.

Times coming well, hey, thank you so much for joining us again. We'd love to have you back. You're always interesting guy to talk to folks. That's John Rubino. Thank you so much.

Thanks, Jason.

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