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Interviewer: Greetings and thank you for joining us at FutureMoneyTrends.com, I’m here with John Rubino. He is the Editor-in-chief of DollarCollapse.com. Anybody who is looking for daily news and you know you hear the title DollarCollapse.com and it’s a lot more than that. There’s a lot of news, there’s news about your civil liberties, about Congressman Ron Paul, about alternative energy, alternative technologies, real estate, and of course there’s the precious metals and overall macroeconomics news. John, thank you so much for being with us today.
John Rubino: Good to talk to you again, Dan.
Interviewer: John, I want to start off with this recent news. It’s about Germany. They want to repatriate their gold. I just want to kind of throw out there as what your thoughts are on, you know, Hugo Chavez wanted 211 tons last year and he got it in six months from London. Germany wants 300 tons, and it looks like they’re going to wait seven years to actually receive that.
John Rubino: Well this is a potentially big story, because you’re right. The amount of gold that they want does not take up that much space. It weighs a lot, but that’s something that can be shipped in a couple of dozen trucks or one big tanker ship could take it across the Atlantic Ocean with no trouble. So, there’s something else going on here, and there are two possibilities that come to mind. And one is that the Bundesbank really doesn’t feel it needs its gold back, or it has cut deals that prohibit it from taking its gold back. Um, but it wants to get everyone off its back. So it makes an announcement that says, “Hey! We’re getting our gold back.” And then in small print, “…in seven years.” And so the hope is that people will see the headline, and then stop paying attention. And then things can go back to normal. The other possibility, which I think is far more interesting, from a gold bug’s point of view, is that the gold’s not there anymore. That, uh, over the years the US has leased out so much of its gold by giving gold to a bullion bank like JPMorgan Chase and then sells it in the open market to depress the price of gold. Um, that there really isn’t that much left, and that they uh, they don’t want to be handing what they have out back to anybody else. And so that it’s not really feasible for Germany to get its gold back in the short run. Um, and that opens up all kinds of interesting possibilities cause if, if a huge amount of central bank gold has been leased into the marketplace, in effect that means there’s a huge short position out there in gold. In the sense that the bullion banks, at some point, have to buy back the gold that they’ve um, dumped into the market in order to give it back to the central banks according to the lease contract. And that means there’s a lot of buying pressure out there, prospectively that might happen in a hurry if we get a short squeeze. Frequently, when there’s huge short positions, one of the short will panic, try to close out their positions in a hurry, and that’ll cause the other shorts to panic and close out their positions at any price, which spikes the asset in question and causes it to go parabolic. And the idea that something like that out there is waiting to happen for gold is pretty exciting.
Interviewer: Yeah.
John Rubino: You know it’s bad, bad for the world in general because a world with $5000 gold is a very unstable world, but it’s great for people who have seen this coming and who have been accumulating precious metals, like you.
Interviewer: Yeah. Now you kind of answered it just now with as far as Germany, maybe this is just for the headlines and to give people peace of mind. But this is interesting, wouldn’t you say that it’s a Western Central Bank. Cause it’s always could’ve been, you know, Western Central Banks, they’re kind of in charge of manipulating and suppressing the gold price in the East. And the Eastern Central Banks have been buying gold. This is interesting though that there seems to be a divide on the Atlantic, wouldn’t you say?
John Rubino: Oh it really does. And that’s also interesting, why Germany has decided to do this. If they’re in on the game, then they’re risking exposure of the game by doing this. And so it’s not clear why it’s happening. It could be that not everybody within the power structure in Germany is in on the game or willing to play anymore. And it could be that the public pressure has become intense enough to get them to something, and I really don’t know. But the fact that it’s happening is one more piece of the puzzle of, you know, the system breaking down at some point because you’re seeing the tools of manipulation, one by one, cease to work. You know, fiscal policy used to be a lot more effective than it is. In others words, you could borrow a lot of money if you were a government, and you could use it to smooth out the pathologies that come from your other bad behaviors. And you could print huge amounts of new currency in order to maintain the debt you were taking on. Well, those strategies are starting to break down now as we accumulate more and more debt. And so, the gold leasing into the market in order to depress the price of gold, which makes paper currencies look stronger than they really are, is something else that may be hard to pull off going forward. So as you get these strategies for fooling us breaking down, the truth becomes closer and closer to being visible to more and more people. And at some point, you get the system spinning out of control, because nobody trust the guys in charge anymore, and that day is coming. There’s no way to know when it comes, but it sure does feel like more and more of the scams that the “powers that be” have been running are starting to come to life.
Interviewer: Now with people, you know, food stamps, 48 million people. You’ve got pretty high energy prices considering people are kind of almost in a recessionary, at least people feel like they’re in a recession, if not a depression. Unemployment number, long term unemployment numbers at a record right now. Do you think we can just grind, Bernake can just manage to grind this out for 20 years, kind of like Japan? And is that, do you think that’s actually their plan? Is their plan just to do a soft crash landing?
John Rubino: Oh, their plan is to get through the next week. They don’t have any plan beyond that. You know, they’ve reached the point where their old ideas, their old philosophy no longer works, because their old philosophy depended on taking on more and more debt each year. And they’re seeing and end to that. And they really don’t have anything to replace it with, so our guys should not be thought of as these “super geniuses” who are managing the system according to some arcane theory. There’s nothing like that going on. They’re just trying to get through the next week and then the next election. Um, but the Japan situation is kind of interesting because they have been able to take on more and more debt, year after year after year. Um, to the point that they owe a lot more at the sovereign debt level than the US does, as a portion of the economy. But they were kind of a unique situation because they had an extremely high savings rate domestically, and they ran a trade surplus, so they had a lot of money coming in, and their people were willing to use that money to buy government bonds at extremely low rates. And that allowed them to finance gargantuan budget deficits for years and years. But those two things are ending now. Their trade balance is turning negative, which means they don’t have a lot of money flowing in from outside in order to finance their deficits. And their people are starting to retire. They’re a very old population, and retirees are starting to outnumber kids in the country. And retirees tend not to save, they tend to spend. So you don’t have that big pool of savings anymore to soak up their government debt. And there’s a hedge fund manager named Kyle Bass who’s been making a really compelling case that Japan is nearing the end of their debt accumulation process, and that soon they’re going to have to start borrowing externally instead of financing themselves internally. Which means they’re going to have to pay interest rates that are comparable to what the US and Europe pays, which means two or three percent for long term bonds. And right now they pay much less than that, so if they have to pay two or three percent and refinance all their existing debt at that rate, their interest cost will exceed government tax revenues, which means they’re dead meat. They’re totally toast at that point, because they won’t have any money left over to spend on anything else, and so the Yen will go into a death spiral, and their yields will spike, and you’ll see the system just crater.
Interviewer: Yeah, I think, John Mauldin, and I think I saw it on DollarCollapse.com, The Year of the Windshield. He was saying Japan was a bug in search of a windshield, and he thinks this year they…they’re gonna find it.
John Rubino: Yeah, and you can never call the timing of something like this, because things tend to go on, especially when someone is armed with a printing press. You know, bubbles tend to go on a lot longer than you expect if you’re just apply rational analysis to the process. So, it’s possible Japan holds on for a bit longer, but the numbers are really turning against them. And so the question then becomes, when does the market recognize this reality and act on it. And there’s no way to know when markets will do this, when everybody heads to the exit, but the numbers are so compelling…compellingly bad, that at some point it’s gonna happen. And it could easily be 2013, could be 2015, but it could be a lot sooner than that. And when it does, Japan will have the mother of all bond crises, and the mother of all currency crises. And they’re a big enough economy that they could easily pull down the rest of the developed world’s financial system one dago. And alternatively, they could go and they could scare everyone else into heading for the exits, and in that way pull down the global financial system. So, it could happen directly, or it could happen via Japan’s effect on the confidence of the rest of the system. And either way, it’s bad news for us. Because once people start looking honestly at our numbers, and start demanding correct accounting methods from our government, then it’ll be clear that we’re functionally bankrupt too. And forget about Europe, they’re, uh, that they’ve survived as long as they have in the current form in the Eurozone is really shocking. So, we’ve created a complex global financial system that is prone to catastrophic failure. And the only question is when does it fail catastrophically? And there’s no way to know that, because it’ll more than likely be that it’ll be something that isn’t immediately predicted. That uh, that sets it off. So many big events in history have happened because something that “nobody expected” happened, and then that had a chain reaction effect. And so, um, it’s impossible to predict what the catalyst will be, but you can say with certainty that we’ve created the conditions in which some catalyst is going to come along and set off this huge, raging financial fire that consumes a good part of the developed world.
Interviewer: When this happens, John, a lot of people, the first thing they do is, “Ok, we buy some physical gold and silver.” Maybe some storage companies, like Gold Money, have some gold offshore. And uh, you know you pay off your debt, you prepare for hard times, you do everything you can do, and at that point you kinda still want to make some investments, you want to better your life, and possibly your children’s lives. Let’s just first, before we talk about investments, let’s just touch on the stock market, and through your research, if there’s a bond crisis and a currency crisis, does that necessarily mean there’s a stock crisis?
John Rubino: Um, probably, cause confidence exists across the board for investors. If your bond portfolio just gets crushed, then you’re going to be less likely to take risks in stocks. Um, although, this is a tough one, because bonds are clearly a horrendous place to put your money, and the stocks of certain companies are less horrendous. So, I think that buying the broad indexes in the US would not be a good way to play the coming crisis, but certain sectors might do well. For instance, if we have a bond crisis and a dollar crisis, the dollar goes down in value, that’s good for our exporting companies. So you can buy some of our big multinationals and maybe make out. And you, obviously you could buy precious metals mining companies, because if gold and silver go through the roof because the dollar is falling, then the gold in the ground that is owned by these mining companies will become a lot more valuable, and so will their stocks. Real estate is trickier in this situation, because you’ve got a lot of REITs out there, as you mentioned before we started, that have really nice yields. And it’s conceivable that real estate, as a hard asset, goes up in dollar terms when the dollar goes down, and that the uh, in that way they’ll be able to maintain their dividends or increase their dividends, and so they’ll be decent investments. But this gets very tricky when things start to spin out of control, cause it gets harder and harder to predict, with any certainty, what happens in any given sector because you’ve chaos out there, and so I think precious metals bullion would be the most restful place to be. And then farmland would probably be the second most restful, because we’re always going to have to eat, doesn’t matter what the currency market’s doing, or what the bond market’s doing, is we will tend to eat the same amount each day if we can. And we’ll tend to cut back on other things before we starve our kids, so you’ll see the value of good, quality farmland hold up. And so it works its way down from the hardest assets to the most paper based assets. And, as you go down, things get less and less attractive until you’re out of long term government bond level, which is the worst place to be in this kind of a scenario. So, if you were structuring a portfolio, you want to stay on the hard asset side of the spectrum as possible. And if you’re really aggressive, you want to short things, cause there will be some phenomenal shorting possibilities out there. In other words, betting against a given asset, and hoping it goes down in price. So, the people who short the long term Treasury bond market, at some point, are going to make a fortune, but that’s been something that looked interesting for four or five years and has been a losing bet all of that time. And at some point it’s going to be a huge winner, but again, timing is tough, so if that’s not something you want to speculate on, that’s something you want to give up the first ten or twenty percent move to be sure that it’s actually happening, and then jump in.
Interviewer: Yeah in closing, I just want to talk to you about the Police state. A lot of people are rushing out to buy guns right now, and I’ve spoken to a few Libertarians, and I know you’re friends with them, as well as people who’ve moved out of the country like Jeff Berwick, Doug Casey, um and I don’t even want to mention the other guy’s name. I think you know who I’m talking about, he’s our Bitcoin friend, but he’s so low-key that I’m not going to mention his name. But uh, what are your thoughts on the police state in the US? Is it gonna get a lot worse? I mean is this just a trend that we’re just, I mean, it’s of rough, especially if you have kids, cause it’s like, I’m willing to take a lot of shit from government John, to say…I don’t know another way to put it, because I don’t want to be separated from my children. I’m not going to go against them. Is this a trend that the government’s just going to continue to take advantage of? We like our lives, so, you know what? They’re going to keep taking inches and inches every year.
John Rubino: Yeah, well we’re clearly creating the conditions in which a police state could be born. I mean, thanks to the Patriot Act and the recent National Defense Authorization Act, the government can arrest us, without warrant, and hold us indefinitely. And uh, they can monitor all of our electronic conversations. Now they could be listening in on you and me right now, um, without a warrant, which is blatantly unconstitutional, but for some reason we’re able to do that now. And uh, they’ve got really draconian controls on foreign investments now that no other country in the world imposes on its citizens, but the US imposes those controls on us. So, basically, the Bill of Rights is being shredded already. You know, we haven’t even descended into chaos yet, and we’ve got various aspects of the Police state setup. Oh yeah, and we’re importing military drones all over the country for use by local police forces. So we’ve militarizing our police forces. So yeah, this is all scary stuff. And on the social policy side, we’ve now, thanks to the new healthcare bill, we’ve given the government the right to force us to buy stuff, which it never had the right to do before. So now, they can theoretically force us to use our retirement funds to buy treasury bonds, or, you know, other things equally as scary as them. And, so yeah, we’re definitely creating the conditions in which a future dictator can just flip a switch and be a dictator. Turn from a constitution of an elected president, into somebody who basically has absolute power over US citizens.
Interviewer: Well, you had a great article on that. I think it was called “Turnkey…”, um what was it? “Turnkey Totalitarianism”?
John Rubino: Yeah, something like that.
Interviewer: You wrote that. I think about six months ago.
John Rubino: The guys in charge now may not be “would-be dictators”. They might be honest, good people who are just trying to solve our problems without having very good tools with which to do it, but this is a country that’s elected a lot of questionable people, and so, the reason that you limit the power of government is because, even if there are good guys in charge today, there probably won’t be good guys in charge later. Because, the greater the government’s power, the more it tends to attract people who want that power. And those tend not to be good people, or corrupts the people that are in power, because they’re able to do things that they can’t do in normal life. And, so eventually you end up with a dictatorship if you allow the government to have the power to impose something like that. That was the point of the Constitution, to limit the power of government so we didn’t reach this point. But we’ve basically shredded the Constitution now. The government has unlimited powers to do pretty much anything it wants to in the realms of economics and the military and the Police state that we’re setting up. So, yeah I’m worried. I’m a father of two sons. A 15 year old and a 19 year old, and I’m very worried that we’re gonna embark on the next big war out there to try to protect the global military empire that we’ve built up. And that we’re gonna institute Draft. We’re just gonna start picking up 19-20 year olds and say, “Okay, from now on you’re gonna spend your life fighting in Iran.” Or fighting in the China Sea, trying to protect Taiwan from mainland China, or some other crazy thing like that. And so, I get the impulse to have some property overseas, so that if you have to bug out, that you’re able to do it. And, you see a lot of people out there doing things like that. They’re setting up what they call “Galt’s gulches”, after John Galt, from Ayn Rand’s “Atlas Shrugged”. And, um that’s only going to increase as time goes on. And there’s also the idea of the “American Redoubts”, which is Wyoming, parts of Idaho, and Montana, where people are moving to as the last potentially free, potentially defensible part of the US, where they’re setting up small towns, compounds, and basically trying to hunker down and weather the storm. And I hate that we have to talk about this, because it didn’t have to happen, but it definitely is happening, and we should all be aware it.
Interviewer: Yeah, very scary times indeed. Um, John, thank you so much for your time. If anyone would like to learn more about John, please check out his site DollarCollapse.com where you can subscribe for free. Sends about one to two e-mails a week, I believe. And you’ll get his analysis and thoughts, as well as checking the site daily for daily updates. John, thank you so much for your time.
John Rubino: Thank you, Dan!
