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Guest: Chris Martenson – Visit Website: Peak Prosperity
See the new Crash Course 2014
Dan @ FMT: Greetings, and thank you for joining us at FutureMoneyTrends.com. I’m here with Chris Martenson of Peak Prosperity. You may have, and have likely, seen his video The Crash Course originally released around 2008. it’s been seen by about 15 million people now, translated in to several languages. And it’s had a big impact on people, because it’s kind of like we all had this feeling, and then maybe we saw a few things, took some different ideas from different people, and included our own ideas. And then here Chris comes with just the avalanche of data, and puts the whole thing together with the economy, energy, and the environment. Chris, thank you for joining us.
Chris Martenson: Daniel its a real pleasure to be here.
Dan @ FMT: Well Chris, I just wanted to start off the introduction of your videos. You guys have updated these. So now we have the Accelerated Crash Course, and each chapter will be released for the remainder of 2014. With the update, has a lot of it changed, or have you just done some minor tweaking?
Chris Martenson: Well, the answer is yes, both of those things have happened. For instance. we have whole new chapters in 2008. And I hadn’t taken the time to explain quantitative easing because it wasn’t a term that was out in the world yet, and shale gas wasn’t, and oil wasn’t really out there, so we’ve added chapters on that… so and where the context has changed enough, and there’s new data we said, “OK, we’re going to have to really add this”. Of course we updated all of the debt figures and all that. And here’s the interesting part, Daniel, in that process. I put that together after just taking a really, really, deep dive. It was really something of a feat. And this time I had Adam Taggart really baring in, and we went through all the data, and he was really asking this question, which is, “is there anywhere we really got this wrong?” And the good news is no. The bad news is no. So we feel really good that the story is solid, it makes sense, it helps to predict and explain where we are. And honestly a lot of what we see going on in the world, when you wear the crash course hat and say, “oh, let me put resources in to this story,” I think Ukraine makes sense, and Iraq makes sense. And by the way, I think a lot of future events are going to make sense when you understand really where we are in this larger resource story.
Dan @ FMT: Now your website is Peak Prosperity. Now I love the word prosperity, but I hate the word peak in front of it, because I… as a young person and anyone in life, you don’t want to feel like that you’re opportunities are not going to be the same as others. However you’ve made a point in your website to say that your goal is to help people continue to prosper even through this change in our world and our monitary system. So I just wanted to start off with, in this new economy what is your advice to people? First and foremost, educate themselves and understand the problem. But from there, what do they do?
Chris Martenson: Well great questions, and first of all let me put a different spin on the word peak. There’s peak performance, and we think that we actually haven’t hit peak prosperity. We actually think that because of how we run our monetary system, we think that for most people they are far less prosperous than they could be. And so we blow out the word prosperity, it isn’t just how much money you have. To us, you’re really prosperous… you know, you’re safe, you’re healthy, you have a really fulfilling job, you love what you do, you have deep relationships with the people around you. And so what we really help people do is understand that right now financial capital has utility. You can take dollars, you can click on a button on Amazon.com, have the big brown truck of happiness roll up with som product a week later. We can convert our financial capital into other forms of capital. That we think people really ought to be doing this because it will give us resilience. So for example in my own yard, I spend money and a truck rolls up with compost in it, and what I’m doing there is I’m building the living capital of my garden, because I happen to like to garden. But people can spend their time, energy, money building their social capital with the people around them, intellectual capital by learning, experiential capital by doing things. If you are rich in all of these forms of capital, and your financial system goes belly-up on you, you are way better off. You are more resilient, and you’re more prosperous than other people out there. And by the way, we believe, it’s our underlying core financial belief, that the financial claims of our system, this is currency, what we colloquially call money, stocks, bonds, all the paper claims on the larger economy, are just growing exponentially. That larger economy obviously isn’t growing exponentially. The system is geared in such a way that the powers that be are going to continually expand the claims because that’s what they know how to do. But eventually history says, “you know what happens? You get a reset.” And all of those claims suddenly have to get reset against real stuff. People call it wealth destruction, but it’s not, it’s a wealth transfer. We like to help people be on the right side of that so they can be prosperous.
Dan @ FMT: Now lets talk about the word wealth. In the accelerated version that I was just watching now, you do actually discuss the definition of wealth. I know it can, it obviously could be your health, it can be money, but for simplicity, most people when they think of wealth, they think of is dollar bills and currency, or stacks of cash if you’ve ever watched a music video. So what is your definition of wealth in The Crash Course?
Chris Martenson: We believe that there’s only real wealth, and then there’s claims on that real wealth. Real wealth is stuff that comes out of the ground. If you are an owner of iron ore, or iron that’s been manufactured in to steel, you own real wealth. If you own a productive asset that generates cash flows, whether that’s currency cash flows or other forms… I’m using cash flows as a general term. But if you have an asset that produces that produces a stream of income, whatever that source of income happens to be. It could be additional soybeans coming off your land, it could be good will that’s generated, it could be who knows what. We believe that real wealth is the stuff that comes out of the Earth, and the things that humans make with it, and do with it, and deliver with it. That’s what primary and secondary sources of wealth – currency, stocks, bonds, those are claims on wealth. We think they’re real wealth because guess what, you can always trade them at any time to get some real wealth. But if I had a stack of a billion dollars, and I couldn’t use it to buy anything, I would really just have whatever the intrinsic value of the paper is in that billion dollars. So we believe that people need to understand that investing as a concept needs to be brought back and understand. Wall street’s defined it far too narrowly, and wealth is not how much tertiary wealth you have, how much cash and currency and stuff like that. It’s your access to real, solid, producing assets, and tangible wealth.
Dan @ FMT: Yeah, Wall Street’s definition of diversification is owning three mutual funds, right? So let’s talk about fracking. Fracking, it’s kind of like… I’m kind of cheering for the human innovation side. And I’m sure you are too, because obviously we don’t want bad things to happen. So fracking has been claimed as the solution. However, you and I spoke at the Casey Summit, and you made it very clear with great information that, “yeah, the oil production may be rising, but this is higher cost oil.” And the great point to that is that everybody was pointing to the U.S. daily or annual oil production, and it is on the rise. However, gas isn’t going down. Gas in southern California is still over $4. I just wanted to kind of touch on fracking. For those who say it is a solution, why isn’t it a solution?
Chris Martenson: For a number of reasons. You’ve touched on one of the most important ones, which is that fracked oil is expensive oil. So here’s a myth that’s out there. The myth is that because human’s got really creative and clever, all of a sudden we discovered vast amount of oils in the shales. So we discovered horizontal drilling and multi-stage fracking. The truth is that both horizontal drilling and multi-stage fracking have been around for decades. And what we didn’t have though, was oil that was over $80 per barrel. Once oil safely climbed over $80 a barrel, all of a sudden it was economically worthwhile for companies to begin to prosecute, chase, those finds. So what we can now say clearly, however much oil comes out of fracking. The first thing we can say is it will never be cheap. So you say, “why?” In the back end you go down 10,000 ft, tip the drill bit sideways, go sideways for another 10,000 ft typically in a lateral stage, a 25 stage frack off of that. So you’ve drilled four miles, you get an average wealth worth 400 barrels per day, and it starts falling the minute you open that stock pot. And within three years it’s down to maybe 85% is lost, it’s maybe 15% of it’s original production. So it’s just these miniscule amounts of oil for an extraordinary amount of effort to go and get it. And that brings us to the second point about fracked oil, which is that we don’t run our society on the total amount of oil we get. We run it on and how much oil or energy is left over after we go and get oil. So once upon a time we were getting 50, 60, 70, 80… even 100 to 1 returns for our oil exploration efforts. That’s the cheap oil in the rear-view mirror. And today we’re getting returns that are between five to one, eight… nine to one, something like that, explained by that huge 20,000 ft drill well that had to be undertaken to get a flow rate of maybe 400 barrels a day for a few years. We don’t have the net energy coming back. And if you understand that, you understand why all the printing hasn’t taken people off of the food stamp rolls, why it hasn’t led to high-quality jobs, why this economic recovery doesn’t feel like any others. It’s because you need cheap energy to have an economic recovery that would resemble any of the ones prior. Don’t have it, and we’ll never have it. And oh, by the way, the fracked wells deplete quickly, and once we stop drilling because the fields are full, the whole field will deplete really quickly. So it’s incredible – fracking will give us a temporary, wonderful reprieve, and it will be fantastic if we use it as a temporary reprieve to get ourselves in order for whatever the next energy future is. We’re not doing that, we’re using it to go to business as usual and say, “ah, everything’s good. We got fracking.” When really nothing could be further from the truth.
Dan @ FMT: How long can it kick the can? I’m not familiar with how many reserves… or, I know it’s creating these job booms in Texas and Oklahoma and Wyoming. But how long will this last? Is this a ten year fix, or is this a fifty year fix?
Chris Martenson: Well, so here’s what we know. There’s two things we have to discuss separately – fracking for oil, fracking for gas. They’re slightly different processes. There’s a lot of natural gas out there, so that has a multi-decade lifespan in front of it. I think we’ll peak in output somewhere around 2030 to 2040, somewhere in that zone, so there’s plenty of that. Oil is what we actually run our economy on in a much more substantial way. There we’re going to look at a peak in output generously around 2021, according to the EIA. According to private analysts that I trust a little bit more, maybe around 2018 those fields, collectively all of them, begin to go in to decline. So we have collectively between four and maybe seven years to enjoy increased production from shale oil. Now understand that all the conventional oil is depleting very rapidly underneath that as well. So that’s the typical stuff, the offshore stuff, the other wells, that are kicking around. So I’m looking at four, seven, years, something like that. And then we’re right back where we’re started.
Dan @ FMT: And then it could be even worse. Then we’re looking at $150 to $200 barrel oil, I assume?
Chris Martenson: Easily, we got to $150 barrel in 2008. Everybody looks at that in Congress and says “oh, it’s speculators, it’s this and that.” This is really easy to understand. In the six quarters that proceeded that $150 barrel, in five of those world demand either exceeded or matched supply. So whenever demand slightly outstrips supply, the price of oil goes up a lot and very quickly. So right now, for instance, if Iraq’s 2.5 million barrels of export went offline tonight, oil would get to $150 like that.
Dan @ FMT: Is it too simple to just say, “hey, a solution could be just to… these car manufacturers need to produce cars that are double or triple the gas mileage. Wouldn’t that extend it, even if we are paying $4-5 a gallon? Well, we’re getting 60 miles per gallon. Could that be a human solution to the problem?
Chris Martenson: It could be. And it would have been great to started a while ago. And here’s the simple statistic on that – if tonight Obama signed a law, and the car makers had the capability. All we’re selling for cars tomorrow are cars that get 50 miles per gallon or better, in ten years, you’ll have replaced half the fleet. It just takes time. Unless you want to mandate that people trash their cars and just buy new ones, but I don’t know you could do that. It would cost trillions and it wouldn’t work. So it just takes time, Daniel, to switch out using efficiency standards to get to use less. What happens is the price of oil rises and people just don’t burn it. And they don’t take trips, and they don’t do as much shopping because they’re putting more money in to their fuel tank. I’m convinced that one of the pins that pricked the bubble in 2008 was $150 barrel oil, and that is something that we could see again.
Dan @ FMT: On water – the U.S. obviously, especially the western U.S., we have a serious drought. I live in California actually, and we’re in the worst drought on record. Like with fracking we have a temporary fix. Rick Rule recently was telling me that he actually thinks that in California we could actually have city’s the where when they turn on the faucet there is no water. I mean those seem catastrophic, that’s where people would have to leave. Is this something you see that will actually happen, where a migration of people will have to move towards… essentially to Colorado and to states with water? I mean, everybody in Arizona, California, Texas… it can get dry really fast if we have a long drought…
Chris Martenson: Well the good news on this horizon is that if the El Nino kicks in, that typically pretends wetter times for Californians, so we can all hope that actually transpires. Obviously El Nino is not good for other parts of the world, and leads to food issues. But this issue around water, this is one of the more mysterious ones to me, Daniel. Because I look at a place like Phoenix, Arizona, and I look at where it gets it’s water from. When you fly in to Phoenix, you look down and there’s all these emerald jewels which happen to be golf courses. It’s one of the sillier things you can do with water in a desert environment, is maintain a large eighteen hole golf course but we do it. And Arizona is in a position where if the drought continues within six years, there are a number of city’s there that will no longer have access to water at all. And it’s very serious, right? If Lake Mead goes below a certain level, and everybody’s got a claim on it, the downstream claimants on it are probably not going to get those met. It’s really a rather serious thing. So the first thing that should be happening, to tell me people are serious, is they ought to be putting a halt on all water-intensive growth patterns at this point in time. They ought to be, and they are doing this in many communities, starting to take an aggressive recycling on water. Taking gray water not putting it down the sewer, recycling it, getting it out, that’s all useful. But the larger issue is that if we are in a longer, protracted, drought cycle, which is possible, there’s many places in the country that I deem uninhabitable. If you can’t have water, you just can’t live there. It’s just not possible. So that’s an issue as well, no questions about it.
Dan @ FMT: For money, again getting back to human innovation… I want to get your thought on digital currencies. We’ll just throw Bitcoin out there because it’s the big one out there. But could this possibly be human innovation, and a solution to central banking in the current monetary system?
Chris Martenson: Well it could be. I’ve long said, when people say, “well, magic bullet time – what do we do?” Well I say we need multiple currency systems. Each currency system enforces some behaviors, punishes others. If we even had a situation where I could either choose Federal Reserve notes or Treasury notes, even just that slight balancing act, I think would force the Federal Reserve to think more carefully about how it’s going to defend it’s product. They have a monopoly, hey they don’t really care. You either have to take it or leave it, you still have to use it. So I believe that the competitive aspects alone would be great. Bitcoin is very interesting, it’s the market saying, “we like this as money.” It allows people to bypass completely, if the choose, the entire banking system. And that’s a very interesting thing they can do. My concern around it is that if the authorities ever decided to get serious about it, it wouldn’t be that hard to really take that system down. Because while you can’t prevent people from exchanging the coins, you can prevent them from cashing them in. That’s something that the system could do if it chose. But so far the system’s been very tolerant. I haven’t seen the Treasury Department come out against it, and most other countries seem to be OK with it. So it looks like the free market’s got something going there.
Dan @ FMT: Chris, you made the original Crash Course in 2008. We’re in 2014. It looks like within this U.S. depression, we’re going to end up going in to another downturn. With the GDP recently coming out, the number’s down 2.9%. Are you just surprised? I think I asked you this last time at the Casey Summit, I mean this thing just continues to go on. The printing… everything you did in 2008, I’m sure you guys had to double the chart. Because it was probably $8 or $9 trillion, and now we’re $18 trillion and it just continues to go on. What are your thoughts on this? It’s almost as if no one cares. I was talking to Annie Hoffman yesterday about how the Germans want their gold back, and the Fed doesn’t… they gave them five tonnes. But nobody cares.
Chris Martenson: People do care, but its funny. I think that in the United States we have one of the most heavily controlled media or propoganda outlets – I really have to use a term that strong. It’s amazing the amount of spin that we have to consume in this country, in order to try and get at what’s really going on. But the truth is that people all over the world are becoming very suspicious, and why shouldn’t they? We spent how many trillions of dollars, and we just clocked in a -2.9% GDP reading? You average that with the prior quarter and we’re less than flat, we’re negative growth over the past two quarters. And people, I think, right we should be saying, “where is my recovery?” And the answers aren’t forthcoming, because I don’t think there’s anything the Fed can really do. Because it’s not just about the economic and monetary policies anymore. We have to understand where we are in the resource stories. And here’s the thing that drives me nuts, Daniel, we could be doing things that would really stimulate the economy, that would really help us be more efficient in our energy use and would be really good for the environment. We could do all of these things, and instead there is some bizarre fixation on business as usual coming out of Washington D.C., coming out of the banking sector, that’s really preventing us from getting on with the adjustments that we have to make. So you’re right, they’ve doubled down. I was surprised that we were able to double down from 2008. I was surprised that there were so few people who put up a stink about it in the financial community about it. My private conversations with hedge fund managers, they’re very concerned, as anybody is who’s familiar with numbers. This is a really gigantic, bizarre experiment that’s been run, and if you just went by the numbers you’d have to say, “wow, we spent a lot and got a little. That looks a little bit like a failure to me.” And when you widen the lense off, you just got to say, “my gosh, this isn’t working.” And I’m worried, I’m really worried that when this lets go, what we’re going to find is that people’s faith in the institution, and the Fed in particular, has been weakened. And I think the next down track could be extraordinary.
Dan @ FMT: To widen your lens in economics, and really in life, visit peakprosperity.com . You can check out Chris Martenson’s work. The Crash Course, look it was a great video back in 2008, and I know Chris has put a lot of work in to updating it. Again Chris, just to confirm, we have the shorter version, the condensed version is already out. And then we’re getting the new chapters all the way in to December of 2014?
Chris Martenson: That’s right
Dan @ FMT: OK, well great. Everyone should visit peakprosperity.com, check out his work, it is a must. And if you can,and I think that’s what the condensed version is for, you need to share this with your family. It’s important that everybody understands the big picture. Because you’re really, it’s a people strategy. When you come to being prudent and preparing, you need to include as many people as people in your inner circle of friends who can help you. Chris, thank you so much for joining us today.
Chris Martenson: Daniel, it’s been my pleasure