The Gold Report: At the Casey Research/Sprott Inc. Summit, you gave a presentation called, "A Crisis of Confidence." After all the government stimulus from the U.S. and the rest of the world aimed at injecting liquidity and keeping interest rates low, why didn't any of it work? Why is the economy still hurting?
Bud Conrad: First, printing money doesn't create wealth. Putting bits in a computer doesn't create wealth. When politicians hand out money, they are the ones who get powerful and the banks get wealthy. The middle class with savings gets hurt. What creates wealth is people working and creating things.
Internationally, the Chinese are papering over their slowing growth rate by providing liquidity, but paper money systems will collapse. That is the reality. The global financial system is supremely unstable. When people wake up to the fact that this is a "king ain’t got no clothes" economy, we will see a run to the exits.
TGR: It seems like we are saying that the currency is going to fail because of debt to gross domestic product (GDP), not because governments can print money. If governments were disciplined, then would printing money be a problem?
BC: When the U.S., and therefore every other country, went off the last vestige of the gold standard, we were placed in a fairyland. That is even more important than the debt. It is linked. Debt is the result of the ability to print money. If there were redeemability, the U.S would have stopped issuing debt when it ran out of money. Without fiat currency, the country wouldn't have reached the current level of debt.
No government is disciplined. My question is: "Why are people letting them get away with it? Why aren't people out protesting in the streets?" Thousands of bankers should be in jail right now. There is an attitude of resignation in young people today that dismays me. Maybe they know they can't fight city hall.
TGR: If we are all resigned that whatever is going to happen will happen, how can people protect themselves?
BC: A lot of people probably believe that everything will be okay. When we have a financial collapse and people stop getting their payments and they see bankers and government contractors getting rich, maybe people will take matters into their own hands. It could be dangerous to be in the streets because people who are hungry will rob you.
TGR: If the bubble has already broken in the U.S. stock and real estate market and is getting ready to burst in China, are there any upside opportunities?
BC: In a paper money/fiat currency collapse, the things to hold are real assets—gold and oil will look like you are making money. Gold doesn't change. It is just gold. When the price goes up, the metal isn't any different. Only the dollar is going down.
There is also a moral component to the question. A lot of people are getting out of the country. This is where I was born and where my family lives and I am an American so I probably won't go anywhere, but a lot of people are considering moving out of the U.S. to protect themselves and their assets.
TGR: What is your biggest fear for your children?
BC: That the government has turned it into a totalitarian state where the people don't have personal freedoms to assemble, think and live their lives without surveillance, over-taxation and subservience to the state. I worry that my children and grandchildren could be impoverished by conflict, by a society that dissipates it resources in wars that only destroy wealth, rather than creating anything.
I also worry about how they will fuel their economic growth. Fossil fuels created the abundance of our generation like humanity has never experienced before. We have used half of the dinosaur remains out there. If we use it all up, then we will have to reduce the number of people on the planet. Now we need to start thinking about what is next. I don't know how my grandchildren will live in an abundant society when energy becomes so expensive and scarce that we have big wars over it. It's already happening. Energy explains the conflicts in the Middle East more than religion ever could.
TGR: You have said we are entering Cold War II. Can you explain that?
BC: Everyone is uncomfortable with the role we played in the Middle East. They fear we could enter a World War III. But a cold war is not a conflict between the main parties. We didn't battle with the Russians directly. We fought in Vietnam. The same is going on with China in an economic war over resources. The U.S. bombs the place in hopes that a new government will come in and give us cheap oil while China is busy winning contracts for the access to resources in many far-flung regions from oil in Africa to soybeans in South America. China is building cultural centers and roads to mines in an attempt to gain the favor of the people while gaining access to resources. Our approach of bombing people just makes enemies and is very expensive. It is another example of the stupidity of a late-stage empire.
TGR: You have referred to the fight over access to oil, but I hear the U.S. is the Saudi Arabia of natural gas. Can that replace oil in the future?
BC: Like any extractive resources, we have to approach this new technology with care. Fracking can leave a messed up underground and contaminate water. But natural gas is abundant and affordable and it can make a difference.
TGR: What about uranium?
BC: The problem is not just the radiation and the bad design of the early plants revealed by Fukushima. The problem is that it isn't price competitive. We can build nuclear plants safely, but it isn't cost effective compared to oil or natural gas. There will still be a uranium mining business in replacing spent nuclear fuel, but not in building new plants for a while.
TGR: You mentioned we will soon have two retirees collecting benefits for every one worker. What is the solution for the imbalance between workers and beneficiaries short of older people wandering off into the desert so they won't be a liability on their families?
BC: The government will continue to print money to meet its obligations to retirees, but the problem is that those dollars won't buy as much in the future. That is why people are trying to find protection for their retirement assets. Those relying on Social Security will find it difficult.
TGR: We have heard about a possible economic slowdown or collapse in China, but it has one of the highest personal savings rates in the world. Wouldn't that mitigate some of the economic turmoil of a real estate bubble bursting?
BC: China is strong because it has gone through so many revolutionary problems during the lifetime of people who can still remember. The Chinese know how bad it can be so they fight to avoid returning to economic subsistence levels. What China has done economically puts Japan's economic miracle to shame. The country has overbuilt during the last few years, but it has a lot of people and the one-child policy is being dismantled. It will manage any bubble bursting well. We, in the U.S., have an arrogance of wealth and that blinds us to possible problems. That is why we are unwilling to take the strong necessary steps to right our economic disasters of too much debt, too much government and little concern for concentrating on economic development.
TGR: You said you are expecting a recession next year and a weaker economy or "stagflation." Will that be limited to the U.S. or will it impact the entire world economy?
BC: The U.S. economy will suffer greatly because we are unprepared for how serious the situation will become, but this is a worldwide phenomenon. Inflationary central bank printing is going on in Europe and China so they will be impacted as well. The world is interconnected so what happens in the U.S. does spill over into other economies and the other way around. The European weak countries failing will cause several big European banks to fail, be nationalized and cause debt crisis for U.S. banks as well. International contagion is particularly true when the U.S. starts wars to divert people from thinking about the economy. Wars damage productivity of personal consumption and therefore the perceived wealth of individuals.
I think of the U.S. as a late-stage empire. There are lots of ways to collapse. The Third Reich collapsed cataclysmically. The British Empire wound down in a gentlemanly fashion. I think the U.S. is headed to Roman type of collapse where the internal dissipation was as big a problem as the external conflicts. We have a culture of corruption with no accountability. In this most recent crisis, no bankers have been indicted, never mind convicted, compared to the Savings and Loan crisis, when thousands went to jail.
TGR: How are you protecting your wealth?
BC: I have some precious metals and energy. I expect interest rates to rise.
TGR: You are predicting a weaker economy. When are interest rates going to move?
BC: How about now? I warn you, I have been wrong before. I predicted the debasement of currency would require higher interest rates to get people to invest. I didn't give enough credit to the Federal Reserve's ability to manipulate the market. We are now at record low rates and the government deficit is at such extremes that rates can only go up. I don't know how it will all unravel. But at some point people will wake up to this sham and they won't want to keep their money in banks. Then they will go buy physical assets, gold and food and, sometime later, real estate.
TGR: After all this bailing out, what will be the trigger point for a collapse?
BC: We all want to know that. We look at the numbers and I can't see it going on for the rest of the decade. When it goes, it could go very rapidly. The markets feed on themselves more now than at any other point in time. What happened over a period of years in the Great Depression could take weeks this time around. Currency collapse could happen quickly. The collapse is already happening in Europe and more countries may follow Greece.
This is not war; it is merely the collapse of a currency. People aren't wiped out by the thousands. But their savings are. Currency disintegration is not unusual. It happens all the time—about once a generation a collapse happens in every country. The fact that the U.S. dollar is the second oldest in existence today is an anomaly, an anomaly that may come to an end soon.
Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl and Tandem. Conrad, a futures investor for 25 years and a full-time investor for a decade, is also sought after as keynote speaker in Dubai, New Zealand, Vancouver, New York and many other cities. He has appeared on TV on CNBC, FOX, and on many radio shows. As chief economist at Casey Research, he produces original analysis.
For the complete audio collection of the Casey Research/Sprott Inc. Summit "When the Money Dies," click here.
Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.
Disclosure:
From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
Bud Conrad: First, printing money doesn't create wealth. Putting bits in a computer doesn't create wealth. When politicians hand out money, they are the ones who get powerful and the banks get wealthy. The middle class with savings gets hurt. What creates wealth is people working and creating things.
Internationally, the Chinese are papering over their slowing growth rate by providing liquidity, but paper money systems will collapse. That is the reality. The global financial system is supremely unstable. When people wake up to the fact that this is a "king ain’t got no clothes" economy, we will see a run to the exits.
TGR: It seems like we are saying that the currency is going to fail because of debt to gross domestic product (GDP), not because governments can print money. If governments were disciplined, then would printing money be a problem?
BC: When the U.S., and therefore every other country, went off the last vestige of the gold standard, we were placed in a fairyland. That is even more important than the debt. It is linked. Debt is the result of the ability to print money. If there were redeemability, the U.S would have stopped issuing debt when it ran out of money. Without fiat currency, the country wouldn't have reached the current level of debt.
No government is disciplined. My question is: "Why are people letting them get away with it? Why aren't people out protesting in the streets?" Thousands of bankers should be in jail right now. There is an attitude of resignation in young people today that dismays me. Maybe they know they can't fight city hall.
TGR: If we are all resigned that whatever is going to happen will happen, how can people protect themselves?
BC: A lot of people probably believe that everything will be okay. When we have a financial collapse and people stop getting their payments and they see bankers and government contractors getting rich, maybe people will take matters into their own hands. It could be dangerous to be in the streets because people who are hungry will rob you.
TGR: If the bubble has already broken in the U.S. stock and real estate market and is getting ready to burst in China, are there any upside opportunities?
BC: In a paper money/fiat currency collapse, the things to hold are real assets—gold and oil will look like you are making money. Gold doesn't change. It is just gold. When the price goes up, the metal isn't any different. Only the dollar is going down.
There is also a moral component to the question. A lot of people are getting out of the country. This is where I was born and where my family lives and I am an American so I probably won't go anywhere, but a lot of people are considering moving out of the U.S. to protect themselves and their assets.
TGR: What is your biggest fear for your children?
BC: That the government has turned it into a totalitarian state where the people don't have personal freedoms to assemble, think and live their lives without surveillance, over-taxation and subservience to the state. I worry that my children and grandchildren could be impoverished by conflict, by a society that dissipates it resources in wars that only destroy wealth, rather than creating anything.
I also worry about how they will fuel their economic growth. Fossil fuels created the abundance of our generation like humanity has never experienced before. We have used half of the dinosaur remains out there. If we use it all up, then we will have to reduce the number of people on the planet. Now we need to start thinking about what is next. I don't know how my grandchildren will live in an abundant society when energy becomes so expensive and scarce that we have big wars over it. It's already happening. Energy explains the conflicts in the Middle East more than religion ever could.
TGR: You have said we are entering Cold War II. Can you explain that?
BC: Everyone is uncomfortable with the role we played in the Middle East. They fear we could enter a World War III. But a cold war is not a conflict between the main parties. We didn't battle with the Russians directly. We fought in Vietnam. The same is going on with China in an economic war over resources. The U.S. bombs the place in hopes that a new government will come in and give us cheap oil while China is busy winning contracts for the access to resources in many far-flung regions from oil in Africa to soybeans in South America. China is building cultural centers and roads to mines in an attempt to gain the favor of the people while gaining access to resources. Our approach of bombing people just makes enemies and is very expensive. It is another example of the stupidity of a late-stage empire.
TGR: You have referred to the fight over access to oil, but I hear the U.S. is the Saudi Arabia of natural gas. Can that replace oil in the future?
BC: Like any extractive resources, we have to approach this new technology with care. Fracking can leave a messed up underground and contaminate water. But natural gas is abundant and affordable and it can make a difference.
TGR: What about uranium?
BC: The problem is not just the radiation and the bad design of the early plants revealed by Fukushima. The problem is that it isn't price competitive. We can build nuclear plants safely, but it isn't cost effective compared to oil or natural gas. There will still be a uranium mining business in replacing spent nuclear fuel, but not in building new plants for a while.
TGR: You mentioned we will soon have two retirees collecting benefits for every one worker. What is the solution for the imbalance between workers and beneficiaries short of older people wandering off into the desert so they won't be a liability on their families?
BC: The government will continue to print money to meet its obligations to retirees, but the problem is that those dollars won't buy as much in the future. That is why people are trying to find protection for their retirement assets. Those relying on Social Security will find it difficult.
TGR: We have heard about a possible economic slowdown or collapse in China, but it has one of the highest personal savings rates in the world. Wouldn't that mitigate some of the economic turmoil of a real estate bubble bursting?
BC: China is strong because it has gone through so many revolutionary problems during the lifetime of people who can still remember. The Chinese know how bad it can be so they fight to avoid returning to economic subsistence levels. What China has done economically puts Japan's economic miracle to shame. The country has overbuilt during the last few years, but it has a lot of people and the one-child policy is being dismantled. It will manage any bubble bursting well. We, in the U.S., have an arrogance of wealth and that blinds us to possible problems. That is why we are unwilling to take the strong necessary steps to right our economic disasters of too much debt, too much government and little concern for concentrating on economic development.
TGR: You said you are expecting a recession next year and a weaker economy or "stagflation." Will that be limited to the U.S. or will it impact the entire world economy?
BC: The U.S. economy will suffer greatly because we are unprepared for how serious the situation will become, but this is a worldwide phenomenon. Inflationary central bank printing is going on in Europe and China so they will be impacted as well. The world is interconnected so what happens in the U.S. does spill over into other economies and the other way around. The European weak countries failing will cause several big European banks to fail, be nationalized and cause debt crisis for U.S. banks as well. International contagion is particularly true when the U.S. starts wars to divert people from thinking about the economy. Wars damage productivity of personal consumption and therefore the perceived wealth of individuals.
I think of the U.S. as a late-stage empire. There are lots of ways to collapse. The Third Reich collapsed cataclysmically. The British Empire wound down in a gentlemanly fashion. I think the U.S. is headed to Roman type of collapse where the internal dissipation was as big a problem as the external conflicts. We have a culture of corruption with no accountability. In this most recent crisis, no bankers have been indicted, never mind convicted, compared to the Savings and Loan crisis, when thousands went to jail.
TGR: How are you protecting your wealth?
BC: I have some precious metals and energy. I expect interest rates to rise.
TGR: You are predicting a weaker economy. When are interest rates going to move?
BC: How about now? I warn you, I have been wrong before. I predicted the debasement of currency would require higher interest rates to get people to invest. I didn't give enough credit to the Federal Reserve's ability to manipulate the market. We are now at record low rates and the government deficit is at such extremes that rates can only go up. I don't know how it will all unravel. But at some point people will wake up to this sham and they won't want to keep their money in banks. Then they will go buy physical assets, gold and food and, sometime later, real estate.
TGR: After all this bailing out, what will be the trigger point for a collapse?
BC: We all want to know that. We look at the numbers and I can't see it going on for the rest of the decade. When it goes, it could go very rapidly. The markets feed on themselves more now than at any other point in time. What happened over a period of years in the Great Depression could take weeks this time around. Currency collapse could happen quickly. The collapse is already happening in Europe and more countries may follow Greece.
This is not war; it is merely the collapse of a currency. People aren't wiped out by the thousands. But their savings are. Currency disintegration is not unusual. It happens all the time—about once a generation a collapse happens in every country. The fact that the U.S. dollar is the second oldest in existence today is an anomaly, an anomaly that may come to an end soon.
Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl and Tandem. Conrad, a futures investor for 25 years and a full-time investor for a decade, is also sought after as keynote speaker in Dubai, New Zealand, Vancouver, New York and many other cities. He has appeared on TV on CNBC, FOX, and on many radio shows. As chief economist at Casey Research, he produces original analysis.
For the complete audio collection of the Casey Research/Sprott Inc. Summit "When the Money Dies," click here.
Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.
Disclosure:
From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
