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Ask The Expert

Ask the Expert - Paul Craig Roberts - February 2017

Headshot of Paul Craig Roberts

This month's Ask the Expert is Paul Craig Roberts, the Assistant Secretary of the Treasury for Economic Policy, confirmed in office by the U.S. Senate from 1975 to 1978 under Ronald Reagan. He has careers in scholarship and academia, journalism, public service, and business. He is chairman of The Institute for Political Economy.

To submit a question for Mr. Roberts, please email submissions@sprottmoney.com by February 24 at 5 pm.


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

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. This is your "Ask the Expert" segment for February 2017. I'm your host, Craig Hemke, and joining us this month is Paul Craig Roberts. Secretary Roberts is an economist. He is a journalist. He is an author and a blogger, but also, maybe more widely known as being one of the assistant secretaries of the Treasury under the Reagan administration back in the '80s.

He still runs, I guess, his own website called paulcraigroberts.org. You can find many of his writings there. Secretary Roberts, thank you so much for spending some time with us here at "Ask the Expert."

Secretary Roberts: Well, Craig, I'm pleased to be with you.

Craig: This "Ask the Expert" segment is brought to you by the Sprott Money Precious Metal Storage program. We have five international storage vaults and the most competitive prices in the industry. So please visit our international storage page, it's sprottmoney.com, to learn more.

Secretary Roberts, as you know, these questions were submitted over the course of the month by Sprott Money customers. We've got a nice list of them here. So if you're ready, I'll hit you with the first one.

Secretary Roberts: Let's go.

Craig: The first one, and then again, the first three actually are more politically based and so we kinda wanna tap into your wisdom and experience there. The first one has to do with the new President of U.S., Donald Trump, and his ideas of draining the swamp, I guess we call. There's a political swamp and there's a financial swamp. The question is, is it realistic to assume, given the list of Trump's cabinet appointees and the kinda the slant towards Goldman Sachs, is it realistic to assume that President Trump will have any success in draining the financial side of the swamp?

Secretary Roberts: Well, Craig, my initial response for that question was that if you actually are going to take on Wall Street and the big banks, you've got to have people who understand that operation. And so, I mean, in other words, you can't get anywhere with a neophyte. He would be chewed up and spit out. So the question, for me, was whether or not the people, the insiders or former insiders that Trump was choosing would actually support his agenda. And if they would support his agenda, then he had chosen well because they would know how the system operates and where bodies were buried and that sort of thing. So I didn't, I say we can't know till we see what happens. So I was hopeful that he had picked people who knew how the system worked but would support his operation of cleaning it up.

What I think now is that his presidency is effectively over. I think it died when he gave in and removed Michael Flynn because the most important issue facing us, I think, is the relations with Russia. This is the first time in my lifetime that, you know, this government isn't working to diffuse tensions with the Russians rather than to increase them. So this has been going on since Clinton. We had Clinton, George W. Bush, and Obama who have reversed the policy of reducing tensions between nuclear powers to increasing the tensions, and therefore, I thought Flynn's department, because he doesn't see the point of tensions, and Tillerson who hasn't any connection to the military-security complex and really would, as a representative of Exxon, would rather be doing business with the Russians.

So I thought they were promising appointments, but I think having been defeated on the basis of nothing and dismissing Flynn, the blood in the water, the replacement of Flynn with a Russophobic guy, so I think, effectively, the Trump presidency is over.

Craig: Well, I think that kinda tease up, actually, the next two questions, as a matter of fact. So I'm gonna steer back toward that Flynn, I guess we'll call it a firing because in the end, I guess that's what it was. The second question that was submitted is specifically in the battle with what's being called "the deep state," can Trump win? And it sounds as if you think maybe he's already lost.

Secretary Roberts: Yeah, I mean, he's already lost, yeah, because you see, already, his vocabulary has changed. He's now said Russia has to give Crimea back to Ukraine. That's fantasy. That's their Black Sea naval base. Crimea has been part of Russia for 300 years. It was never part of Ukraine. That was an administrative thing that happened under Khrushchev when Ukraine and Russia were two socialist republics comprising Soviet Union. So they were all, it was the same country.

So it doesn't make any sense, but Trump can see that. Now, he's increasing the military budget. Now, he said that he doesn't support a new START Treaty. That is the Strategic Arms Limitation Treaty, that United States has to have superiority. Well, all of these are mindless things. I mean, it's telling the Russians that somehow or they're even more in our side.

So I think that he's already defeated. He is appeasing that he'd stay. They may leave him in office but ineffectively, he is no longer in control of this government.

Craig: Well, and then that is a segue to the third question, which sounds like I know what the answer is gonna be to this, and it's something that I have been worried about now, at least specifically, since the Maidan revolution, if you wanna call it that, the Maidan coup almost exactly three years ago. That the third question is, the U.S. seems to be inextricably marching toward war with Russia, Iran, or both. What can be done to stop this?

Secretary Roberts: Well, I don't think we can do anything now that Trump apparently has collapsed. I mean, it's always possible. He's just sort of holding his cards close through his chest and that he's got his CIA director in there trying to figure out who's been carrying on this campaign against him. And then one morning, we're gonna wake up and see a whole bunch of people arrested or fired or under indictment. I mean, that's always a possibility. I mean, sometimes, when you get in over your head before you're ready, you have to kinda back off and play like you're surrendering. And it's possible that he is doing that, but I'm not counting on it.

The real problem that we face is two-fold. One, when the Soviet Union collapsed in 1991, this unleashed the neo-conservative ideology of American world supremacy, that United States was the uni-power and could act unilaterally anywhere on earth. And so it's World Empire. This is the goal of the neoconservatives that have dominated the government and foreign policy since Clinton, and all the wars we've been in are part of their agenda.

So that is an ideological thing. It goes hand-in-glove with the material interest of the military-security complex. The total annual budget of the military-security complex is much larger than just Pentagon's budget because it includes the budget of all the intelligence agencies. There are 16 of them. It includes the Energy Department because that's where the nuclear weapon funding is. It's all of these overseas bases. It's all the support that we give allies, and it's roughly $1,000 billion annually.

So there's a tremendous amount of money and power associated with that budget, and it has to have a threat. You can't justify that type of an annual expenditure. You know, it's essentially a trillion dollars a year. When so many others things are in trouble, like say, Social Security, Medicare, education, infrastructure of the country is collapsing and so on and so on.

So if you're gonna put that kind of sources into the military security budget, you've got to have a good reason, and they haven't had a reason since the collapse of Soviet Union. So they tried to create the Muslim terrorist threat, is not a big enough threat. So they have brought back the Russian threat and they're not gonna let go of it because if they do this, they haven't any justification for this massive budget, all the money, all the power that goes with it.

So when you take the material interest of the military-security complex, which Eisenhower warned us of, what, more than a half century ago, so imagine how entrenched it is now. It scared him then. What was that, 1961?

Craig: Yup.

Secretary Roberts: Yeah. So you've got this material interest. You have the ideology of the neoconservatives who dominate American Foreign Policy and have through the regimes of the last three presidents, so 24 years. So together, this is far more powerful than the President. And it's not that they want war, but what it is, it's constant provocation of countries who resist following our will. That is Russia, China, Iran, and the three of them are allied either objectively or de facto. And so an attack on one really annoys the others. So you've got a situation where the risk of war comes from mistakes.

All during the cold war with the Soviets, there were constant false alarms of incoming ICBMs. Both countries experienced this. We would get false alarms, "The Russians have launched." The Russians will get false alarms, "The Americans had launched." Now, fortunately, since both sides were working to diffuse tensions, no one ever believed that the alarms were real. They said, "It must be a mistake," and so nobody pushed the button.

But when you've got a situation where you convince the Russians that you're after them, that you are preparing your population for an attack on them when you're making constant crazy allegations against them, like calling the President of Russia a thug, a murderer, a new Hitler, carrying out all kinds of provocative military operations on their border, putting antiballistic missile bases on the border, pulling off a coup in the Ukraine, part of Russia for 300 years, when you do this, you make people feel threatened.

And if you're telling everybody here, as the military-security complex and the media and the neocons do, that the Russians are evil incarnate, and they've hijacked our election and put their Trump operative in the White House, and you get everybody all worked up like this, then when you get a false alarm, everybody is prepared to believe it.

And so that's where you get the really big risk right there because these false alarms are unavoidable. And of course, there's another risk and that is Obama has already set in motion a $1 trillion upgrade of our nuclear forces, and there is absolutely no reason for that. And now Trump says, "Oh, it's not enough," and he's upped the defense budget 10%. Just the 10%, 9% upgrade in the current budget that Trump has just announced, that's already 80% of the total Russian military budget for the year.

So if you convince the Russians that you're building up massive forces in order to slaughter them, while they still have the advantage, and they do, their weapon systems are better, their current missiles are better, they're tempted to strike, not sit there until you're about spent them so much and you've built up such fantastic capabilities and all that you attack them.

So this is reckless. This is really reckless. It's telling them, "Hey, look, you know, we're after you. Look at all this money that we're spending. We're gonna get such fantastic weapons you'll either have to submit and do as we say." Well, I just don't think the Russians are gonna sit there and wait. So this is a dangerous situation. It's the most dangerous situation of my lifetime.

Craig: I would agree. Sir, I've got the other three remaining questions that deal more with financial and economic policies and questions. The first one kinda plays into what you mentioned earlier about there's notion of increasing defense spending, and I know President Trump wants to talk about infrastructure spending and all of that. However, before we get there, the current debt ceiling of the U.S., which has been changed from being a number to being just a time period where we can borrow, current debt ceiling expires on March the 15th, just a couple of weeks away. What do you think will happen, if anything, as we approach and get to that expiration date?

Secretary Roberts: Oh, they'll raise it. They'll raise it. And in fact, with all of the increase in the power of executives that Bush and Obama had created, Trump can do it on his own. He can just declare a national emergency.

Craig: I suppose that's true, yup.

Secretary Roberts: And announce the rise in the debt ceiling. So I don't think there's an issue here at all. I know that conservatives and hard money men and things like that worry about these things but that is something that, in my views, have no consequence.

Craig: Fair enough. Now, I know, Secretary Roberts, you've written in the past about, I guess we'll call it manipulation suppression of gold prices and the reasons why central banks and governments do that. This question, though, is specific to silver. So I'm curious to get your thoughts on that. Silver was $18 an ounce back in 1979 and yet, even though it's used in every cell phone and solar panel on earth, it's still $18 an ounce in 2017. Just wondering what comes to mind as an explanation for that.

Secretary Roberts: Well, you know, silver is called the poor man's gold and so they're just as interested in suppressing the silver price as they are in suppressing the gold price. And it's easy for them to suppress both just simply by selling that gets shorts in the futures market. And we see this all the time. I mean, it's constant. Every time the gold price starts rising in Comex, all of a sudden, at some strange time of day, within a few minutes, there'll be massive sales of future contracts. There's a shorts. Shorts will hit the market, and since it's a pay-per market, they can always increase the amount of pay-per-gold just by turning more shorts. So they can dump it all in there and drive the price down. And so if they are driving down the gold price and silver price is rising, it doesn't work.

Craig: Right.

Secretary Roberts: So they have to keep both of them. They're both monetary metals. They've always been monetary metals. And in the Roman Empire, silver was really the means of payment. Their army was paid in silver. Gold is not very often used. It was something really rich people had. So they're monetary metals, and so you can't have one kept under control without keeping the other under control.

Craig: Got it. Well sir, I very much appreciate sharing your valuable time with us. I have just one last question for you. This has to do with what is called "the war on cash." We're seeing that around the world, elimination of physical cash, physical fiat currency. What do you make of that? Will cash eventually be eliminated, physical cash, and will that enable the installation of negative interest rates for the banks?

Secretary Roberts: Well, Larry Summers gave a speech some time back in which he was saying that we needed to get rid of cash in order to force people to spend their money. So they will be forced to spend their money because negative interest rates could be imposed on their balances. So if they didn't spend it, they would be losing the value of it. So his justification for his speech, I don't know what his real motive was, but the justification was that this is the modern application of Keynesianism forcing savings back into the economy and spending in order to maintain the demand. So that type of argument was coming from Larry Summers.

The negative interest rates, I think, actually, we've had them now for about 10 years because I don't believe the inflation measures. They've rigged the way they measured inflation to make it disappear, and this is important to them so that they can report price increases as economic growth. So I think we've had negative interest rates in real terms already.

The real, I think, underlying motive of only having electronic money means that they've got total control over you. You've got no way...you can't take the electronic money and put it in a safe at home or put it in your mattress. You can't make payments that they can't know about. There can no longer be any off-the-books work or payments. Everything is known. They know everything you buy, where you bought it, and they can confiscate it if they want to, or they can just announce arbitrary penalties. So it's a control mechanism. It basically means that you are sort of permitted, maybe, to use your income, but there's no way you can say, "Okay, I think I need several thousand dollars at home in the safe just in case something happens."

So it's mainly a control thing. It basically takes away from people any ability to protect themselves from an emergency or to make payments that they don't want known. It can stop you from being able to help children outside of the inheritance laws. It has all kinds of control aspects. It just takes away your autonomy and independence. So I think that's the real interest that the governments have in it and I suspect they will go for it. They will. And in fact, Craig, you know, most people already, the younger generation, don't use cash. They just use their cards.

Craig: Yup, or their phones.

Secretary Roberts: So to them, maybe it just looks like, "Oh, it's more convenient." And so they probably won't even understand there's a danger to them of this. So I'm not...of course, it can make those who are aware to have gold and silver coins.

Craig: That's exactly right.

Secretary Roberts: Because I think they will always be money regardless of what the government says or bans. That's my take on it.

Craig: Yup, and I think that a lot of folks listening to us feel the same way, and that's all part of why folks continue to stack physical gold and silver, especially those Sprott Money customers who do just that. That's one of the reasons they're worried about or one of the things they're worried about.

Secretary Roberts, it has been a real pleasure to visit with you, and I think everybody that has listened to this has learned a lot and thoroughly enjoyed it. So I wanna thank you again for spending some time with us. And I encourage everybody to go to the website, all spelled out as one word, paulcraigroberts.org, where you'll find all of Secretary Roberts' writings there and learn more about these subjects.

Secretary Roberts, thank you so much for your time.

Secretary Roberts:
You're certainly welcome. I enjoyed talking to you, Craig.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. We'll talk to you again 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.