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The Money Bubble


Future Money Trends: Greetings and thank you for joining us at I’m here with John Rubino. He’s the Co-author, with James Turk, of “The Money Bubble – What to Do Before it Pops.” John, thank you so much for joining us today.

John Rubino: Thanks for having me on, Dan.

Future Money Trends: John, your book was a great history lesson. It also goes over where we are today with people. Things they need to understand of course with how to prepare for the crisis. It even covered the digital currencies, which has been really popular this last year. John, in the second book you have written with James Turk, “The Money Bubble,” I wanted to ask you, what was the difference as far as the environment and your overall thoughts as far as what’s going on right now with central banks and government, as opposed to when you wrote a book pre-2008. How was it different when you wrote this versus, I believe the previous one was “Dollar Collapse,” right?

John Rubino: Yeah, the 2004 book was “The Coming Collapse of the Dollar.” And the difference between now and then, is that everything is bigger now. We’ve made even bigger mistakes in an attempt to fix the mistakes that we made in the past. So this is a lot more of an extreme environment, even though to most people it doesn’t seem like that, but it really is, because all the numbers have doubled. You know back in 2004, 2005, 2006 we were racking up debt levels in the U.S. and most of the rest of the developed world that looked to James Turk and I like it was the end of the road. When that bubble burst it was over for fiat currency, and for big government, and for global military empire. All of the manifestations of fiat currency, of easy money, looked like they had reached the end of the road. We were wrong, that it had one more big iteration left.

And basically after the 2008 crash, the world’s central banks dusted off some theoretical ideas. Some extreme theoretical ideas like quantitative easing, and basically just monetized tens of trillion dollars of debt out there. And that was something that I would have thought would have been impossible because it seemed like with the U.S. Government running a deficit of trillion-five per year, and buying up seventy or eighty or ninety billion dollars of debt per month, that people would figure out that that’s a prelude to a Weimar, Germany style hyper-inflation and then just dump the currency. But it didn’t happen. So instead of fixing things, what this has done is it has allowed us ten years of breathing room in which to pile up even more debt, and make the system even more fragile, and bring about an even bigger crash. So this one is really the fiat currency bubble.

Future Money Trends: While doing the research for this book, where there’s this nine-year gap between your last book, is there anything that you and James came up with that kind of either surprised you, caused you to pick up the phone and call him, or kind of said “wow, we have to put this in the book.”

John Rubino: Oh yeah, so many things have happened in the last nine years that are just extraordinary. And one of the really interesting things is that a lot of theoretical frame works have emerged or been dusted off to explain what’s coming. Because we’ve built up so much debt we’ve created the potential for some form of chaos to come about. But it’s not clear how we get from here to there. So we included a section in the book that details some of the different scenarios that would lead us from where we are today to the chaos to the resolution of the chaos that’s coming. And there’s the Austrian economics crack-up boom, in which everybody figures out at long last that inflation is an explicit government policy. And that the currency is going to get less and less valuable year after year. So they just dump the currency. And so you have a hyper-inflation which is really just a loss in confidence in the currency rather than an over-supply. And then there’s the Currency War, Jim Rickards’ idea, that we’re in a period when over-indebted governments have no choice but to depreciate their currency. But that only works for one government, because it disadvantages their trading partners who then have to respond in kind.

So we get a race to the bottom until they’ve destroyed the major fiat currencies of the world. And then there’s one that I thought of, called the Variable World Rate Death Spiral, in which low interest rates, over a long period of time, convinced basically everybody in the world to either borrow very short, and roll over their debt continuously, or to adopt a variable rate debt structures. Which means if interest rates go back up, everybody’s interest cost explodes. You know the Japanese government, the U.S. Government, most of Europe, of the leverage speculating community in the U.S. and around the world, they all depend on low interest rates. So if interest rates even go back up to normal levels, say 6% on a ten year treasury, the world blows up. And that’s a very very easy to envision scenario. And there are others in that section but basically they should serve as lenses through which you can view the world. None of them are guaranteed to be 100% accurate, but they all give you some insight in to what’s going on and what might be coming.

Future Money Trends: Well, what’s scary about the scenarios that you guys bring up is that you see just how close we are to any one of them happening, or a variable mix of them happening. On the interests rates though, you do bring up something that’s kind of a no-brainer. Like if the interest rates go up, it blows everything up from governments to the individual debt obligations that we’ve committed ourselves to. So, knowing that, won’t the federal reserve and governments worldwide just, won’t they just flood the world with currency before they allow interest rates to go up?

John Rubino: Yes. That’s the box theory, and if they let interest rates go up, their world ends. But in order to keep interest rates down they have to continuously pump new currency in to the system, and that feeds asset bubbles. Because already we’ve got equity prices at record levels, we’ve got high end real estate in most of the attractive markets around the world just blowing through old records. We’ve got art prices setting records, jewelry prices setting records. The super-rich are building storage facilities in Asian airports that are beyond the reach of any given government in order to store all the art and other hard assets that they’re buying with their fiat currencies, because so much new money is being pumped in to the system, and then being handed to their clients of the banks. So we’re there now. And let this go on for another few years in order to keep interest rates down, and you’ll get even more extreme asset bubbles. Which they themselves are destabilizing. They’ll blow up, and then the system will flake out. And so the world’s central banks are really in this box where it’s only one or the other. That’s the only choice that they have, that they don’t just want to collapse in to this deflationary depression, which is what would happen if they just stopped monetizing the debt.

Future Money Trends: One of your chapters did cover digital currencies. This is still early and speculative by definition. But you guys do put it in your book, you kind of leave it up to the person to make their own decision. So I just wanted to ask you, between you and James, who owns Bitcoin? Is that something you guys are using for a wealth diversification plan?

John Rubino: James is very interested in Bitcoin as a business line. His company Gold Money is looking at setting up a payment system that is, and I don’t want to venture too far in to the details because I don’t know them, but it’s going to use Bitcoins for some kind of a payment system. And my take on Bitcoin is that it’s one of the big stories of 2013. The emergence of a fully functioning cyber-currency. But I think we have to differentiate between money, which is a real asset like gold and silver, something you can hold in your hand, and Bitcoin, which is, generally speaking, bits in a database. So it doesn’t have a physical reality, and so it sounds like it’s very very functional as a payment mechanism. But it’s dangerous as a savings vehicle.

If you put your life’s savings on a hard drive in Bitcoins, and then the hard drive crashes, then you lose that. But you can print out the data for your Bitcoins, and that piece of paper serves as money. So you can convert Bitcoins in to a physical form, but that’s not how most people do it. And so I think people who are enthusiastic about Bitcoins should recognize that if it’s not in your hand then it’s inherently risky in a way that physical gold and silver aren’t. So I think that it’s very possible. And we have to see how these things work, if Bitcoin is the final form of crypto-currency or if some successor technology comes along that’s even better, I don’t know. But it’s easy to envision a world in which some form of cyber-currency is our medium of exchange, that’s what we spend. And physical gold and silver are a savings vehicle. That’s where we hold our risk-free assets. The stuff that we can’t afford to lose and the stuff that’s the basis of our financial stability. And those two things completely bypass the world’s fiat currencies, so you would, in doing something like that, become completely internationalized. You wouldn’t have to worry about any one national currency being mismanaged and destroyed. And I like the idea of that world. I think that’s a much better system theoretically than what we have today.

Future Money Trends: Yeah, you know the thing that got me to make the leap to Bitcoin was that I was really thinking about the precious metals and sound money. And I just said to myself one day, “I don’t really want to spend my gold and silver to buy anything as far as daily consumer products. But I don’t mind spending something that’s basically… it’s inherent value is zero, but it has a value because other people will use it as a medium of exchange so we can use it for basically currency.” In the future, do you think any of these digital currencies will try to peg themselves to a commodity?

John Rubino: Oh yeah, I think it’s completely possible that you could have a hybrid digital currency that’s based on gold in some way. And again I wouldn’t even pretend to understand how that would happen technically but it seems theoretically very possible. But what you just said Dan about not wanting to spend gold but being happy to spend Bitcoin, is really crucial to understanding these concepts. Because Bitcoin is a competitor of the dollar, not of gold. It’s complimentary to gold, but it is a direct threat to the other fiat currencies of the world because if we’re smart we spend our dollars, but don’t save them to any great extent. So that’s exactly what you want to do with Bitcoin. So you want to have a balance that allows you to transact, but not your life savings. So yeah, I think it’s completely possible that in a theoretically conceivable, ideal world, that you’ve got hybrid currencies that are based on gold but trade like Bitcoin.

Future Money Trends: John, in your book you guys did discuss solutions as far as individual solutions, and how to prepare and possibly profit from the crisis. As far as an international diversification, what are some of the easy things people could do?

John Rubino: Well, probably the easiest international diversification is just to store some precious metals overseas. And it used to be that that was a very common thing for rich people, at least, to do. You just contact the Swiss bank to buy some bullion and put it in their vault. And then you were as well protected as you could be. The big banks, especially the Swiss banks, have been penetrated by the other major governments of the world, especially the U.S., so they are no longer safe. And they seem to be playing games with their customers’ gold. We’ve seen them more or less default in the last couple of years where big banks said, “no, you can’t have your gold back. We’ll give you cash instead.” So if you’re going to store gold overseas, you’re going to contract with a company that just does that for a living. They aren’t banks, they aren’t in the business of lending things out, and so they’re safer, at least in theory, then a big bank is. And Europe is no longer as attractive for something like that as Asia. Some place like Singapore or Hong Kong are probably actually better because they’re less vulnerable to political pressure from the U.S. Another thing you can look at is overseas real estate. That’s a booming business now.

You can buy a Costa Rica condo or something like that. Now this implies that you have a few hundred thousand dollars to throw around and unfortunately for people with less than that, well there’s good and bad in not having a lot of money to play with right now. And one is that if you don’t have a lot, you can’t lose a lot, when the stock market crashes or bonds go bad. You just don’t have that many dollars at risk when the dollar is depreciated away. And on the other hand you can’t benefit from the coming currency crisis because you can’t place a big bet on something that’s going to go way up. But you can still do things. You can still buy a global commodity fund, or something like that, that doesn’t have a big entrance requirement or anything. And you can buy gold and silver yourself, and that’s not international diversification, but it still is diversification away from the fiat currency that is your environment.

Future Money Trends: John, does 2014 seem like it could be the year, or are we still looking at something that’s got years to play out?

John Rubino: Well, as we talked about earlier I thought 2005 was the year. So my ability to predict what’s going to happen in the short run is kind of suspect after that. But I think that we’re at the point where I predict any year could be the year because we just have such gigantic imbalances out there. So it’s really… you know, in Jim Rickards’ book, he talks about how complex systems can chug along for a long time and seem fine, and then they just blow up. And one analogy that he uses is a snow-covered mountain side. And one snowflake will finally hit and cause an avalanche but that snowflake wasn’t in any way special, and there’s no way to know when it’s going to hit. When the conditions are right, something like that will happen.

A catalyst will come along. And I think we’ve created the conditions now for a catalyst to come along, and it’s just a matter of when the right thing happens. Or rather the wrong thing happens because this is not a pleasant scenario unless you’re diversified in to gold and foreign real estate and stuff like that. But for most of the rest of us this is going to be a really unpleasant time and adding to the scariness is that we don’t know when it’s going to happen, because it could be something innocuous. A small bank going bust, or a government that we normally wouldn’t even care about defaulting on its debt, or some equity around the world crashing. Anything could happen at this point to cause the system to start to spin out of control. So we just have to put ourselves in a position where we’re ready for it when it happens, and then basically just kick back and enjoy the show.

Future Money Trends: Yeah, I think Doug Casey said, “you either got to leave or you’re going to stay here for the entertainment value.” As far as gold and silver, you have mentioned them a few times, people who understand this and kind of get the whole scenario and the risk, maybe they bought gold two years ago or three years ago or last year, and they’ve seen the dollar appreciate dramatically against gold and silver. What are your thoughts on this huge move down that we’ve seen for gold from roughly 1900 to the 1200 value range?

John Rubino: Well gold had a huge run. It went up for twelve straight years. And no boom market is a straight line. You have anything go up for twelve straight years and it’s ready for a nice correction. And this was a little bit of an outlier for the corrections that we’ve had during this boom market, but not way out. I think 2008 was about a 30% drop, this was a 38% drop at the very bottom. So it’s consistent with the kind of things you see in a boom market. So we shouldn’t be surprised that this kind of thing happens. And the strategy that I think the most reasonable advisers have been counseling people to follow, up until now, has been dollar cost averaging. Where you buy a little bit all the time, over time, you don’t just jump in.

So if somebody jumped in with all their life savings at $1900 an ounce, they’re hurting. But if somebody has been buying $1000 a week, or $1000 a month for the last fifteen years, they’re OK. They’re still up, even though they’re down from their peak. And they’re buying more now than they were buying two years ago, so in that sense they’re actually doing a little better. Because they’re able to get this thing they want to buy more cheaply, it’s on sale. And if it goes back up to 2000, 3000, 4000, which I think it will over time just based on the amount of paper money in the world. And you know we’re really talking paper money becoming less valuable rather than gold becoming more valuable. But if it does that, let’s say gold goes to $3000 an ounce, then we’ll look back as just a little squiggle, something that didn’t really matter much. And I know that’s hard to imagine when you’re in the middle of a bare market, when the correction is reaching its most extreme. But that is the way it is in retrospect, in long term boom markets. You look back on the corrections and go, “ha, oh well. I’m glad I hung in.” And I think this will be one of those cases.

Future Money Trends: Yeah, and you know that scenario though, where somebody put all their wealth or something in gold at 1900, it’s definitely, I’m sure it happened to a lot of people. Because I don’t know about you, but when I first kind of said, “you know what? This is definitely going to happen.” I think that was around ’06 or ’07, and I literally put nearly 100% of my wealth in to silver and gold. Because you look at the scenario, people who are going to read your book, I think it’s the prudent thing to do. You get educated, you go out, and you buy some precious metals. You said you kind of just, at the end after you prepare, you kind of just sit around and enjoy life. What are some practical steps you can recommend for people who just pick up your book, they’re just reading it. What’s the first thing they should be doing after they read your book?

John Rubino: Well the first thing you want to do financially is start to look at ways to diminish your dependence on dollars. Because if you have say, a bond fund, your financial advisor probably told you that was a safe investment. But bonds are basically just contracts which pay you a certain amount of dollars each year and then give you back your original dollars at the end of the term. And if the dollar is being aggressively depreciated by the government, then that means the value you get from the profit stream of those bonds is going down. So you don’t want stuff like that anymore. And you don’t want bank savings accounts for a variety of reasons. Not just because the dollars in your banks savings account are going to go down in value, but because banks are getting in to trouble now and the new plan is for them to take money out of their depositor’s accounts, to bail themselves out when the time comes. So it’s not even really your money anymore, if you’ve got it in a financial account with a big U.S. Brokerage house or bank.

So you want to look at the risks inherent in owning fiat currency in a growing credit crisis and banking crisis. And you want to try and skew your asset base away from stuff like that. So buy some physical precious metals. Maybe some really well chosen real estate. Like a rental house or something like that is a lot more stable of an investment then a brokerage account right now. And although you can still buy the stocks of commodity companies, and probably do very well, you know oil stocks, gold stocks, things like that. But you’re taking on an extra risk, besides the risk inherent in a company, and that is that your brokerage account might be looted by the government going forward. So the first thing to do is be aware of all the risks that are out there. These are new risks, things we haven’t had to deal with in our lifetime. And so a new set of risks require a new set of financial strategies, and in this book we lay out some. There are more but we give you the basics. And from there you start branching out in to more exotic stuff, as you get more and more familiar with what’s going on, but I think the most basic thing is to move your finances out of financial assets and in to real assets.

Future Money Trends: John, thank you so much. The book is “The Money Bubble – What to Do Before It Pops.” Where’s the best place for people to go? Do you guys have a special website for the book? Or should they just go to amazon?

John Rubino: Amazon is a good place to start. And it’s available on the other online bookstores. We’ve got the Kindle version out right now, the E-book version, and the paperback should be out by Monday. So if your listeners would like to be put on the list for the blast e-mail that’s going to announce its release, they can email me at, I’ll put them on the list and let them know when it’s ready. In the meantime the Kindle version is ready right now.

Future Money Trends: Alright, John well thank you so much for your time. You guys wrote a great and amazing piece for people. The prudent thing to do, I recommend everybody to read this book. You got to learn the history of what’s going on, and how it’s relevant to what’s going on right now. Which we actually are, in pretty… would you say these are unprecedented times?

John Rubino: Completely. Countries have destroyed their currencies many times in the past, but this is the first time it’s been global. Because normally it’s one country in the context of a sound money world, and this time all the big countries have fiat currencies that they’re actively trying to destroy. And we’ve never seen this kind of debt, we’ve never seen this kind of global fiat currency printing press at work, so this really is uncharted territory. And because of that it’s going to be bigger and crazier than anything the financial world has ever seen.

Future Money Trends: Alright, well John thank you so much for your time again, you have a great weekend.

John Rubino: Great Dan thanks, you too.