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On 12 August 2009 I interviewed (mp3) John Rubino of DollarCollapse.com for the 48th episode
of the RunToGold Podcast about
economics versus political dogma, the two paths for the FRN$ currency crisis,
the Fear Index and potential solutions individuals can take to protect and
preserve their wealth during the transition and increase of political risk.
INTERVIEW
Trace: Your book was originally published back in 2004 and the title was “The Coming Collapse of the Dollar” and can you tell me a little bit about why
the title was changed in 2008?
John: Well, that was the publisher’s idea actually. Their sense was
that the collapse of the dollar was not coming anymore but it had arrived.
And so they dropped the “coming”, and just called the book, The
Collapse of the Dollar. And that turned out to be a bit premature cause the
dollar’s holding on still, but not grossly premature. I think the
amount of currency being created is going to cause the imminent currency crisis
that is going to put the dollar on the front page of a lot of newspapers.
We’re going to see headlines that include dollar and collapse in the
same sentence. So, the time is coming.
POLITICAL DOGMA V. ECONOMICS
Trace: Many people are squawking especially the politicians and bureaucrats
in Washington are squawking about how nobody saw this coming, that “we
couldn’t have saw this coming”, And yet, we’ve got a book
here where the title of the book is a coming currency collapse, and then in
2008 we actually had to update it. How has this study of economics versus the
political dogma that comes out of Washington and the bureaucrats affected the
average person and how can people be able to profit from it if they
understand the real laws of economics that are at work?
John: One of the really strange things about big turning points in history
is that the people in charge are generally clueless at the turning point and
this is a prime example of it. All the basic indicators of a coming crisis
were there, you know, we had a massive series of financial bubbles that built
up to the housing bubble which is the biggest of all. And the amount of paper
currency that was being created around the world was through the roof and
debt levels were soaring. And anybody who was able to step back and not be
involved in the day to day operations, such as by making of money from
derivatives and things like that, should have been able to see that we were
heading off a cliff. Everybody in charge in, maybe, 2006, if you had ask them
the consensus would have been that every thing’s fine. You would watch
CNBC and you’d never see anything that would raise an alarm or listen
to C-Span all the people in government were talking about – “How
to expand spending?” and get more tax revenues and they weren’t
worried.
It’s a very hard thing to explain. But to
James Turk and I when we were writing this book back in 2004, it was pretty
obvious that we were in deepening financial trouble and that there
wasn’t really a solution since we borrowed more that we can ever hope
to repay, so that turned out to be true, and its becoming more true everyday.
And so, the people that who are talking about recovery and we’re back
on track and green shoots are again missing the big picture which is that
we’re continuing to accumulate more debt at an accelerating rate, and
we’re creating the conditions for an even bigger crash further down the
road, this time it will be a currency crisis probably in which the dollar
tanks, and interest rates spike and the financial sector once again
collapses, but all due to basically the same process, which is excessive debt
creation.
Trace: It is like they think that the cure for a hangover is more alcohol
and throw in a little morphine.
John: Exactly. We are giving the heroin addict more heroin to fix the
withdrawal symptoms but the eventual effect is that we need even more heroin
down the road and it will kill the patient.
Trace: Right.
TWO PATHS
John: We’ve reached a point where a currency crisis is unavoidable.
There are basically two horrible scenarios:
One is the 1930’s style, deflationary crash
and the other is Weimar Germany style hyperinflation and there is really no
middle road because we’ve taken on so much debt that we only had the
choice of collapsing under the weight of it or inflating it away (EDITOR’S NOTE: I attempt to
merge, academically, these two potential paths into one in The Great Credit Contraction). There’s no other solution so, we have a
very, very difficult ten years ahead of us, or an interesting ten years
depending on your point of view. I guess it depends on how much gold you own?
THE
FEAR INDEX
Trace: Well, there would definitely be a lot of change in which change comes
the opportunity to profit from it. Though, one thing that I have noticed is
that a lot of people are scared of change and the dollar collapse you
mentioned something called the fear index, can you please give a brief
overview about what this fear index is, and how it’s changed from 2004
till the present?
John: Sure. The fear index was an indicator that was created by James Turk,
twenty five or so years ago. It basically measures the relationship between
outstanding paper currency in the U.S. and gold reserves at Fort Knox. And when
the amount of paper is increasing in relation to gold, that means that
we’re basically increasingly afraid of what is going to happen in the
future. And it flashed a screaming buy signal earlier in this decade. The
markets are becoming more and more worried about what is going to happen in
the future and capital is beginning to flow into precious metals, and the
indicator has only gotten more positive over time as we’re printing
more and more paper dollars out there so, the buy signal was flashing,
I think it was 2000, but it might have been 2002,
and it’s still saying buy gold, and short the dollar to this day, and
its even more extreme. It has flashed buy signals about five times since
James Turk created it. And each time, gold has spiked after the buy signal,
and this time was no exception. Gold was, I think, in a 300 range when it
flashed the buy signal in this decade, and since then it’s tripled and
the indicators are still saying buy gold because we are headed for a currency
crisis because the dollar is still be debased. Because it has been such as
reliable indicator its one more reason to load up on precious metals and look
for ways to avoid exposure to dollar or actively short the dollar.
THE SIMPLE SOLUTION
Trace: Yeah and I know a lot of people think, “Oh, gold isn’t
money, because we don’t really use it anymore in this day and
age." But actually last week, I was engaged in a transaction, a six
figure transaction where I settled and extinguished it using physical gold bullion
through GoldMoney. And so, now, when we’re moving into this new
transitionary age, what role do you see these digital gold currencies playing in competition to the fiat paper
franchises?
John.: Well, yeah gold has been societies’ money of choice for maybe
three thousand years, and only in the last 30 or 40 years have we gotten away
from that, and gone to a completely paper money system. That is putting the
politician’s in charge of money creation and is an inherently flawed
idea for a lot of obvious reasons and we’re paying the price for that
now. So, when paper money fails, which it is on the verge of doing, then the
market is going to start looking around again for something to replace paper.
Society needs something to function as money as a crucial tool to modern
society.
We are starting to look again at gold and silver
which are older forms of money which can’t be created in infinite
quantities by government on a printing press. Their rarity and slow
increasing supply of over time means that they hold their value. We will come
back to gold in some form and start treating it once again as money in terms
of exchange as well as storage of value which we always used before. The
attractiveness of a GoldMoney account will rise in relation to a standard
checking account and more and more people will choose to keep their spare
cash in that form, instead of FRN$ cash as the dollar continues collapsing.
And its possible that we just see a gradual migration to digital gold
currencies which turns into deluge, as everybody figures out that this is the
better way to go and society, via the free market, returns to gold because it
is more efficient.
That would be a nice peaceful way for this process
to progress. And a more disruptive way might be that we have a massive
currency crisis that leads to a financial collapse. Then there would be
discussion about what money is and how best to structure the monetary system
of the world. The digital gold currencies which have survived and prospered
throughout the process may become the focus of the discussion and could be
adopted by government decree. We will see. One way or another we’re
gonna have to go back to some form of sound money and gold is the most logical
choice.
Trace: Right. And now with these digital gold currencies as you say, they
can be adopted first as alternative and eventually become a substitute to the
current monetary system. While the situation is serious the prescient can
take preemptive action to order their affairs in a way to minimize
disruption. For example, there is a bank holiday but you could still exchange
your values through the GoldMoney system because GoldMoney is built from the
ground up to be solid, in the sense that there is no fractional reserve and
it is not based on a fiat currency.
John: Yeah. I mean that system has been thought through like you said from
the ground-up to be the opposite of a fractional reserve fiat currency
system. Probably GoldMoney and the other electronic gold payment systems will
keep o0perating even if there’s a disruption in the fractional reserve
banking system. If that happens the publicity will be really favorable for
digital gold because you will see a lot of media articles about how Bob Smith
in De Moines is not having any trouble even though all the banks in his town
are closed because he still has his GoldMoney. He is still be able to
transact and buy food.
Trace: Right, and engage in ordinary daily transactions.
John: Yeah. And once that happens, the system could, via the market, switch
over almost overnight where everybody just flows into these currencies that
clearly work better than the systems that the governments and fractional
reserve banking industry are running.
Trace: Right. And with the speed that it can happen. For example, people
start “Twitting” about it, they go through Facebook, and the next
thing you know we could be seeing quite a revolution. People can fight a
revolution either with the power of the purse or with the power of the gun. I
am not that favorable of the option of trying to fight a revolution with a
gun. But as far as using sound money to protect against these despotic
inroads by government the use of sound plays a critical role and I see gold
playing a key role. These digital gold currencies are rising because of the
negative economic environment and help us protect ourselves. After all, this
currency collapse is the largest in history.
John: Yeah.
THE GOLD CLAUSE
Trace: So while a currency collapse is happening there are solutions.
Another option is for people to build gold clauses into various contracts.
For example instead of a CPI adjustments for rent they can add gold clauses
into their rent or debt issuances. If they rent they could have a gold clause
in there to protect against this currency debasement. [NOTE: If a gold
clause is written into the contract then you may want to include a residual
effect clause for illegality. For example, if gold contracts are made illegal
then the amounts will revert to silver and if silver is also made illegal
then platinum, etc. Of course this is only general advice and not meant to be
neither investment advice nor legal counsel. Consult your attorney for
individual application.] There are many alternatives for people to take to
protect and preserve their capital. They could also buy silver.
John: There is a wild card though. Just because we are painting a picture
of a peaceful market driven transition the governments are not going to like
this transition because it threatens their control over the money supply
which is the main source of power that has been accumulated over the years.
John: All kinds of crazy things could become possible when governments
really start to panic. They could make much of these solutions illegal. They
could go after GoldMoney even though it is domiciled in a very safe place.
They could make gold clauses in contracts illegal like they have done in the
past.
Trace: Yeah. You know, they both made the gold clause contracts illegal and
attempted to confiscate the gold. Fortunately under current federal law gold
clauses in contracts are enforceable and we can legally possess gold. It will
definitely be interesting to see what exactly the governments attempt to do
because their tendencies are to do the exact worse thing possible for their
creators the constituents.
John. Yes. We are at the beginning of one of the all time greatest
government panics [NOTE:
You may be interested in Survivalism
In The Suburbs]. When they find
out that this monetary system is not working anymore then we are going to see
some stuff that will shock even you and I who are looking for this kind of
stuff.
Trace: Right. If we think these criminal gangs costumed in government regalia
that are owned by the banking industry are a rogue elephant on the world
stage now we need only wait until they truly panic.
OTHER SOLUTIONS AND POLITICAL RISK
John: And the solution becomes diversification because there is no one way
of attempting to get your money away from the government to where it is going
to be completely safe. Like we were talking about before this call started
foreign real estate is an option [NOTE:
We were also discussing my other website How To Vanish]. Buy some property offshore and that may put some
of your capital beyond the reach of your home government. Store gold or silver
bullion in another country, open a digital gold account and foreign stock
accounts. There are many things someone can do to insulate their capital.
Then the likelihood that your capital survives the government tactics
increase.
Trace: I agree. Having diversification among political
jurisdictions and an
alternative to the current monetary system, such as GoldMoney, is a wise move. I remember last time at the
Cambridge House Conference event where we had a special get together with
about 50 of us and the main topic for 45 of the 50 minutes was political
risk. I agree that minimizing that political risk is extremely important in
this day and age. I also recommend the listeners read your book The Collapse of The Dollar.
John. Thanks, Trace.
DISCLOSURES: Long physical gold, silver and platinum with no position in the problematic GLD or SLV ETFs
Trace Mayer
RuntoGold.com
Trace Mayer, J.D., holds a degree in Accounting from Brigham Young University,
a law degree from California Western School of Law and studies the Austrian
school of economics. He works as an entrepreneur, investor, journalist and
monetary scientist. He is a strong advocate of the freedom of speech, a
member of the Society of Professional Journalists and the San Diego County
Bar Association. He has appeared on ABC, NBC, BNN, many radio shows and
presented at many investment conferences throughout the world.
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