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Ask The Expert - John Rubino - November 2021

ATE with John Rubino

 

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John Rubino is the author of The Collapse of the Dollar and How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets (co-written with James Turk), How to Profit from the Coming Real Estate Bust: Money-Making Strategies for the End of the Housing Bubble, and The Money Bubble: What To Do Before It Pops (also co-written with James Turk). A former Wall Street financial analyst and columnist with theStreet.com, he has written for Fidelity Magazine and CFA Magazine. His blog can be found at DollarCollapse.com

In this edition of Ask the Expert, John answers seven of your listener-submitted questions, including:

  • Does President Biden’s choice to lead the Fed really matter?
  • How will a dollar collapse impact the average person?
  • Plus:  the best assets to hold after a “black swan” event

For the answers to these questions and more, listen here: 

Announcer: You're listening to "Ask The Expert" on Sprott Money News.

Craig: Well, hello again from Sprott Money News and sprottmoney.com. It's time for your monthly "Ask The Expert" segment. I'm your host, Craig Hemke. Joining us here in November of 2021 is John Rubino. John, many of you are probably familiar with John, actually. He runs a fantastic website that should be part of what you check on a daily basis, called dollarcollapse.com. And man, we've been collecting questions for John all month long. Got a whole bunch from John. Thank you so much for joining me.

John: Hey, Craig. Thanks for having me back on.

Craig: As I mentioned, this is the "Ask The Expert" for November. We do these every month. John and I are recording this here on the 17th of November, which means here in the U.S. it's only a week until Thanksgiving. We're that late in the year, which means it's also the holiday season, John. John, hey, first question, you got any favorite Christmas song you like?

John: Well, you know, by the end of Christmas, I'm tired of hearing all the Christmas music.

Craig: All of them.

John: You know, can you imagine what it would be like for somebody who works in a department store or something like that, where that is playing continuously? Because, you know, they're all cute songs, but the 30th time you hear them, they get kind of frustrating.

Craig: Right. Right. Mrs. Hemke...

John: I can't say I have favorite songs.

Craig: And that's what...Mrs. Hemke won't even allow me to play that stuff until Thanksgiving. But it's only a week away, which means it is almost time for the holiday season, and that of course brings always a favorite at Sprott Money called "The Holiday Gift Guide." That's something that I know lots of folks look forward to every year because you'll find all kinds of unique Sprott Money gift ideas, stocking stuffers, rare coins.

In fact, Sprott Money's even running a special price on a one-half-ounce Gold Maple. I mean that's a nice gift, man. That's probably $1,000 deal right there. That'd be a heck of a gift. And you want to get kids, grandkids, spouses, anybody, started interested in hard assets, sound money, it's a great way to do it.

Go to sprottmoney.com and check out the catalog, and you'll find that unique gift for your friends, colleagues, family, like I said, just about anybody should be interested in sound money. And that's a great run-up for speaking with John Rubino, because John is certainly interested in sound money. That's what Dollar Collapse is all about. So John, we've been collecting questions all month at Sprott Money. I've got seven of them for you. Ready for number one?

John: Let's do it.

Craig: All right, my friend. It's been an interesting couple of weeks. I wrote about this first question at Sprott Money, gosh, two weeks ago. The dots seem to be connecting that Biden may shift gears and go away from Jerome Powell, and perhaps nominate Lael Brainard as your next head of the federal reserve. That decision apparently is coming in the next week or so. The question to you, John, does it matter? Would that impact, would you think at all, if we shift from Powell to someone like Brainard?

John: Actually, no. I don't think it much matters who's in charge of anything anymore, whether, you know, we have a different president or different people in Congress or different people at the Fed. They all have the same problem, which is we've borrowed so much money over the last 30 or 40 years that we are left with basically just two options, either collapse under the weight of all of it, have a 1930s-style deflationary depression, or try to inflate our way out.

And you know these guys are gonna choose the inflate our way out option, right? So it doesn't matter who's in charge. We will have, you know, little tiny stabs at tapering, and maybe even a couple little tiny interest rate increases, and then the stock market will tank, the Fed will backtrack, go back to the, you know, the easiest imaginable money.

And I think this next capitulation, which probably happens in 2022, when the Fed takes it all back and says, "Oh, did we say we were tightening? Never mind. We're going to ease. You know, we'll put all interest rates in negative territory and increase QE massively." You know, when that happens, I think people are gonna interpret it as kind of the final one. You know, they'll finally recognize that there is no adult supervision in the financial markets anymore. It's gonna be easy money to the horizon, even if that means rising inflation from here, and you're gonna see shoppers and investors start to act accordingly. In other words, they'll start to react to the reality of inflation forever, and that's gonna be a very different world from today's world.

Craig: Yeah. You know, John, that makes me think of the last time the Fed tried to keep the plate spinning. I mean, they ran that charade for almost three years, from '13 to '18, you know, trying to maintain confidence in the dollar. Man, if they turn around and reverse course in three months this time, or five months, oh my goodness. Because isn't it about confidence in the end?

John: Well, in a fiat currency system, that's all there is, because the money doesn't mean anything. You know, it's not based on any real thing like gold during, for instance, the classical gold standard that we had for 200 years, or Bretton Woods, which only lasted a couple of decades.

So, as soon as you lose faith in the guys managing the currency, the currency goes to its intrinsic value, which is zero, you know, and we're heading in that direction at an accelerating pace. So I think, you know, it is very possible that this tapering lasts less than a year before the financial markets start to blow up.

And then we enter the final stage, which is a really good stage for most real assets. You know, this sounds like a gloom-and-doom prediction, but it's actually an investment thesis, that is a very positive one for people who own the right stuff. You know, so that's the intellectual challenge. We gotta figure out how to structure our finances so we protect ourselves and possibly take advantage of what's coming.

Craig: Well, my friend, you put question number two right on a tee for me. That is pretty funny, because this is a great segue. The second question is, again, your website is dollarcollapse.com, so, "How will a dollar collapse impact the average person?"

John: Well, the average person who trusts the government and holds lots of dollars in a bank account and lots of dollar cash and bond funds that pay dollars, they suffer for trusting the government, because when the government dramatically devalues the currency, all of those things that are dollar-based lose value.

You know, so a lot of people, a lot of regular people who do not deserve to be hurt by this, because they're just, you know, paying attention to the government and following the rules and doing what they think they ought to be doing, they're gonna be impoverished by their bank accounts and their dollar cash, and their bond funds will all get much less valuable.

And the people who do not trust the government will be the ones who make out. You know, the people who buy real assets, like farmland and well-chosen rental houses and gold and silver will see the assets that they own go up in value in dollar terms. They'll either hold their own or they'll actually make a lot of money when outside capital starts flowing into those relatively small real asset markets.

So we're kind of gonna divide the system or we'll divide the country into two groups again. You know, right now it's rich and poor. Pretty soon it'll be holders of financial assets and holders of real assets. And the guys owning the real assets are gonna be the ones who, you know, we want to be in that group definitely when the time comes.

Craig: And not unlike, I guess, the 1970s, right? Or at least a latter part of the '70s when we got into kind of a similar period.

John: Yeah. The '70s is a pretty good analog for this, because we had geopolitical turmoil and we had energy crises and we had rising inflation. And then we saw real assets like gold and silver go through the roof right at the end, with one big difference between now and then. Back then, we actually had pretty solid finances. You know, we didn't have that much debt. Government debt was minuscule by today's standards, and most people hadn't figured out how to max out credit cards and take out all kinds of personal loans and student loans at the time.

So it was relatively easy to recover from the currency crisis in the 1970s. We just raised interest rates dramatically, up to literally 15% or 20%, depending on the instrument that you're talking about, and that restored faith in the dollar and set the stage for another few decades of, you know, reasonably low inflation in consumer products. Can you imagine trying to do that today? Trying to stop today's inflation with 20% interest rates? We would blow up the world.

You know, so the Fed and the other central banks of the world don't have the tool that they used to fix things back in the 1970s any longer. And I think that's...part of the big psychological change that's coming is when people realize that there's no way to fix this stuff, you know, all this stuff that's going on out there that seems completely crazy, and we're looking to the government for a solution. The government has no solution.

They cannot raise interest rates in the face of rising inflation now without blowing up most of the leveraged speculated community, which is to say most of the world now. So they're just gonna have to let it ride. And then I think when people figure that out, there's gonna be absolute panic across society.

You know, whether you're a shopper and you're out there just panic buying everything you can get ahold of, whether you're an investor, trying desperately to get through these tiny little doors that take you to gold, silver, and possibly cryptocurrencies and possibly rental houses. And everybody can't get through there because the door is too small relative to the amount people and their capital that are trying to get through.

Craig: Yeah. Yeah. Well, and okay that leads us to question three, which might be just kind of a continuation of what we've been discussing already. But this person wrote in and said, "Okay, when the next black swan event arrives, whatever, you know, however you wanna define that, what assets will be best to hold?"

John: Well, we have definitely lined up a lot of black swans that are possible now, right? Because geopolitics is terrifying out there. You know, we're inches away from a shooting war with China, either over the South China Sea or over Taiwan, and Russia is massing forces outside of Ukraine right now. And of course, the Middle East is always, you know, Israel and Iran are always one missile away from some kind of a shooting war, and the U.S. could be sucked into any of this stuff. So, that's just geopolitics.

And then you've got stocks at absolute record highs, inflation accelerating. You know, gas just went to an all-time record high in Los Angeles this week? It's now six bucks a gallon. And, you know, if you know anything about Southern California, you know it's a car-centric society, where you have to drive a long way to get wherever you're going, and working people have to drive a long way to get to work, so high gas prices affect different parts of Los Angeles society differently, and it hurts working people most. So it's a tremendous problem, like a gigantic tax increase for their economy.

And, you know, that, an energy crisis, that doesn't have to be much more extreme than what we've got right now, could be a catalyst for a market crash. And that feels like we're almost right there. You know, and then lots of other kinds of inflation are spiking. Most industrial commodities are way up. And then we've got, which might be the main catalyst, I think, for the next crisis, is labor inflation.

The stories coming out of the business world of companies doing really desperate things to try to get new workers, it would be funny if it wasn't so scary because, you know, take UPS for an example. They normally take two weeks to hire somebody between first contact and final offering. Now they do it in 10 minutes on the phone, because they know if they don't hire, you know, if this person is reasonably okay in most ways, if they don't hire them on the spot, somebody else is gonna snap them up.

And, in a market that tight, that means wages are going up, too. And the Fed, it doesn't care about stock, bond, and real estate inflation. It thinks those things are good things. It doesn't even consider them inflation, but wages going up scares the Fed. They consider that to be something they have to act on.

So they might face a lot of pressure to at least try or pretend to tighten in the face of, say, 10% or 15% wage inflation, and that might be the catalyst that blows everything up. So yeah, there's lots of black swans out there. Maybe call these gray swans, because they're not that big of a surprise. You know, they're just right there, waiting to happen. And, you know, there are those and then there are many more, and any of them could blow up a financial market that is this fragile and this over-leveraged.

Craig: I mean, for me, I mean, it's just like, okay, that makes my stack even shinier. I mean, that back part of that question is what assets are best in that kind of environment?

John: Yeah. You know, gold and silver tend to go way up in this kind of an environment, whether it's a war overseas or whether it's raging inflation here, that is forcing the central bank to act. You know, interest rates went up all the way through the 1970s, and gold and silver had their best year right at the end.

And the reason for that is when interest rates are going up in response to rising inflation, gold and silver, and other real assets, tend to focus on the rising inflation part of that story, and ignore the rising interest rate part. So we could easily see the markets forcing interest rates up despite the Fed trying to restrain them, at the same time, gold and silver are rocking, because inflation is really raging from here. And again, we're, you know, kind of right there. You know, that's not something where a lot of crazy things have to happen in the future. That's just a continuation of current trends, and not even that extended a continuation, just another year like last year and we're there.

Craig: John, question four is kind of of a personal nature, I suppose, in that you run the website dollarcollapse.com, and the question is, "What was your personal moment when you realized that dollar collapse was inevitable?"

John: Well, actually it came quite a while ago.

Craig: I would imagine, yeah.

John: Yeah. I wrote a book on the real estate bubble back in 2003, which was fairly early. The real estate bubble didn't burst until 2007, but that kind of plugged me in to the over-leveraging of the financial system.

When I wrote that book, I kind of thought we were basically a healthy economy except that some sectors had gotten out of control, and real estate was the biggest example of that. So I figured real estate, the bubble would burst, and then we'd go back to normal. But the more I dug into it, the more I realized that basically every sector of every major society in the world is leveraging itself to the hilt. In other words, everybody's being encouraged to borrow way too much money by governments that need artificially-low interest rates in order to manage their over-indebtedness. And that we as a society were in really deep trouble, and the only solution was gonna be a major devaluation of the dollar, because the only way you get out from under massive amounts of debts is to pay those debts back in cheaper currency.

And that has happened dozens if not hundreds of times throughout human history, when countries, you know, take on too much debt and then they devalue their currency somehow, and get themselves out from under it that way, which, you know, as I said before, hurts the people who trust the government, helps the people who don't trust the government. The difference being this time, it's global. Every major country is making exactly the same mistakes. So that led me to believe that all the fiat currencies, and fiat currency as a concept, were fatally flawed.

And so, this time around, we were gonna see a huge, huge financial crisis that ended with probably the repudiation of the whole concept of a currency that is just run by the government with no real thing backing it, and which the government can create on an unlimited printing press. You know, that just sounds like a recipe for disaster, knowing what we know about human nature, and it turned out to be true. You know, we are basically in that process. And it's taken way longer than I thought it would, but as these numbers grow exponentially, you know, that cliff that we're gonna fall off of gets closer and closer.

Craig: So, John, you did it again, unwittingly. You teed me up for question five perfectly, and the question is, "It seems to me that it is more about a fiat currency collapse than just a dollar collapse. And if that's true, what comes next?"

John: Well, yeah, it definitely is worldwide. I mean, the Euro is not gonna survive a system in which the dollar is collapsing. Same thing with the Yen and Pound Sterling, and maybe even the Chinese Yuan. Yeah. So, all the big currencies are in the same kind of danger because all their countries are making the same mistakes.

So what comes next is some kind of a...well, the positive, the best-case scenario for what comes next, because there are a lot of horrible, worst-case scenarios, involving global thermonuclear war and stuff like that, but get past that. Say we avoid a gigantic shooting war with other nuclear powers, and the scenario that makes most sense is a currency reset, in which all the governments of the world, or they do it piecemeal and they do it together piecemeal, not clear which, decide that henceforth their currency is just gonna be a name for a certain weight of gold or a certain fraction of a Bitcoin or something like that.

You know, we're gonna find a real thing, and we're gonna link our currencies to that real thing, and make the currencies exchangeable with that real thing, so that the number of new Dollars or Euros or Yen that can be created by the central banks of the world are limited, because they can't exceed the supply of that real stuff that the central banks own.

And that'll give us a sustainable monetary system going forward, and allow us to go back to growing, you know, organically, growing without taking on way too much debt. And that'll be a brutal process for, again, anybody who owns a bunch of those fiat currencies, but it's the only way to get from here to there, other than just letting all the debt go bust and just collapsing. You know, if we want to come out of this in reasonably good shape, with only a few years of turmoil as opposed to a decade, like the great depression, a currency reset is what we're gonna have to do.

Craig: Yeah, definitely.

John: And what that means is we have to set... Let's say we do the gold standard idea, which is the most familiar and probably the most probable. Well, we have to set the price of gold at $10,000 or more dollars per ounce to make it work, which means your gold becomes vastly more valuable in that kind of a scenario, if the government lets you keep it. So then the question becomes, how do you hold onto it? That's a topic for an entire new show, really.

Craig: That's probably right. That's probably right. If the current system is a system of confidence, and if confidence then fails, you've gotta reestablish confidence one way or the other, and that's, would be one way to do it.

John, you fancy me as a bit of a historian. You almost have to be to do what you do. So, our next to last question is just simply this, "Is the end of the American empire comparable to other eras in history?"

John: In a lot of ways, yeah. If you look at, say, the Roman empire, they were immensely powerful and far-flung, and they extended their reach all around the world, and they found that it was very expensive to support that kind of a system at the margins.

So they ended up having to basically eat their seed corn. And they got more and more indebted, they had a hyperinflation, where their currency became almost worthless, and they had lots of political turmoil flowing from all of this, and gradually, they got weaker, weaker. And then, of course, as most people know, barbarians invaded and the empire was kind of snuffed out.

Well, we're in kind of that position now...

Craig: Yeah, I'll say.

John: ...where, you know, we're overextended, we're having to devalue our currency, we've got political turmoil, and it's not clear how we maintain our power at the margins of this empire.

You know, if China wants to take Taiwan, what are we gonna do about it, really, right? That's right next to China. If Russia wants Ukraine, same thing. I mean, it's right on the border of Russia. Are we gonna fight a nuclear war over Ukraine, that 99% of Americans could not find on a map if they had to? No, we're not gonna do that.

So, you know, as we get financially weaker and weaker, and it gets harder and harder to maintain overwhelming military power, naturally, the military empire side of the U.S. empire is gonna shrink. And with it will go a lot of our economic power in the world. So yeah, you know, we're 5% of the world's population. The idea that we were gonna dominate the world forever was always unrealistic. And we borrowed insane amounts of money to try to maintain that system, and the more we borrow, the closer the end of that system comes.

Craig: Yep. Yep. All right. So finally, I guess the last question, we'll go back to that whole inflationary, deflationary argument, in that when the dollar collapses, and some folks also call that the big reset, when that moment arrives, how do you think it plays out? Will it be inflationary or deflationary? What's your best guess?

John: Well, when you take on the amount of debt that we've taken on, that's very deflationary. You know, there's so much bad paper out there in the world, it wants to fail, you know, like what's happening in China right now with Evergrande and the other real estate developers. They want to go bankrupt, but they're being propped up by the government and by some other factions in the bond markets.

And if just left to itself, today's economy would go that route. You know, we would have a gigantic debt-driven collapse that would take us back to the 1930s, but the governments of the world have unlimited printing presses, and they're standing in the way of that. So they're gonna try to inflate their way out. So, assuming that the unlimited printing press trumps the huge but limited debt collapse, then we go the inflationary route, which means your currency becomes less valuable.

And, you know, I think that's highly likely just because these guys, you know, with the Fed and the ECB and the, you know, the Bank of England and the Bank of Japan, for them this is all just play money. I mean, you can type an extra zero on the end of a number, hit send, and then that money, that trillion dollars or whatever, goes to JP Morgan's account, and then they can give it to their big customers, and then the economy can continue to sort of, kind of function, like a zombie.

And they can do that until nobody wants that currency anymore, so that's probably how it goes. So it's probably inflationary when all of this plays out and we end up with some kind of a big reset. There's no guarantee, because the debt in today's world really wants to collapse and wants to instigate a deflationary collapse, but I think central banks will win out, "win," you know? They'll create their version of the crisis that we have to solve, and it'll be an inflationary crisis.

Craig: Yeah. John, before we go, tell everybody a little bit about your website.

John: Well, I run dollarcollapse.com, which is a continuously updated gloom and doom financial site that covers a lot of the stuff we just talked about. You can go there, click on the "Join Our Email List" button and put your email address in there, and then I'll send you whatever I write for free, going forward.

Craig: And you said continuously updated. What do you mean by that?

John: Well, there's a links list, for instance, that has all these stories of the day, on the dark side of the financial world, and as things come in, I just pop them up on that list. So, it'll change during the day, so you can stop back three or four times in a given day and find different stuff there.

Craig: Sounds to me like dollarcollapse.com should be on everybody's favorites list, as you click around, you know, places you hit for news and the like. And again, just dollarcollapse.com, correct?

John: Yes.

Craig: Okay. Now, one more thing, sprottmoney.com, again, is the provider of all of this great content, and they hand it out for free, but boy, I think there are certain things that people can do to thank them. Go, of course, visit sprottmoney.com, check out the holiday gift guide, and buy some sound money gifts for your loved ones.

But it doesn't even have to be that. Just, on whatever channel you're listening to, whether it's YouTube or a podcast channel, just click the like button or the subscribe button. It really does help in getting the word out, getting the message out, casting a much a broader broadcast network, to get this message to people about not only Sprott Money, but about all these changes that are coming, this dollar collapse, the big reset, everything else. And we gotta get the word out there, so please help Sprott Money to do that as well. John Rubino, dollarcollapse.com. John, thank you so much for your time. It's been very, very informative.

John: Thanks, Craig.

Craig: From all of us here at Sprott Money News and sprottmoney.com, thanks for listening. We'll have another "Ask The Expert" segment for you next month.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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