Federal Reserve

The Global Economic Trends: Surviving The Crisis, Part 2 With Richard Duncan

TWS 41 | Global Economic Trends

 

 

In the past, government debts were not paid and just piled up with interest rates that increase every year. In today’s economic crisis, is America facing another era like that of World War II? What is the federal reserve doing to cope with these economically disruptive times? In this part two episode with professional economist Richard Duncan, he joins Patrick Donohoe to touch on the government policy response towards the economy during the pandemic. They also exchange thoughts on the global economic trends and where things can go given the involvement by the Federal Reserve and how banks will be affected in this massive pivot.

 

Get a 50% discount off a Macro Watch subscription by visiting https://www.richardduncaneconomics.com. Hit the subscribe button and use the discount coupon code: June.

Watch the episode here:

Listen to the podcast here:

The Global Economic Trends: Surviving The Crisis, Part 2 With Richard Duncan

I hope you enjoyed part one of the two-part episode with Richard Duncan, who’s a professional economist. You can check him out at RichardDuncanEconomics.com. He has a fascinating video newsletter. You can use the code, JUNE, to get 50% off. I congratulate you for being here. This is a topic and information that very few people understand. I’m hoping you have taken the time to understand where Richard is coming from and what he sees from his perspective. That’s going to help you to be aware of what’s going on and understand where things can go given the involvement by the Federal Reserve and the government as they tried to stimulate the economy.

One final thing before we get to part two, my good friend, Mike Dillard, has a new community that he is launching specifically to help individuals as they go through a significant change when it comes to employment career work. It’s going to be huge. Mike is the foremost expert on everything digital, anything that has to do with online marketing, sales and creating value. This is a great opportunity. Go head over to TheWealthStandard.com for more information on that. Enjoy part two with Richard Duncan.

This is how I look at it. Does debt have a new definition? Debt in the past was something that was ultimately paid back. Is this debt that’s going to be created, never paid back and continues to pile and pile? Does that change? Looking at what you’re alluding to where you use this type of stimulus to invest in innovation in all sectors, mainly the ones that you talked about where clearly whoever wins the race is going to have dominance over certain sectors, case in point, China.

That could be deflationary at some point because ultimately, if you have no cancer or very low rates of cancer, you have a lot of efficiency when it comes to transportation or energy because of that innovation. Isn’t technology in that sense deflationary? Is there ever a pivot? Maybe this is a time to bring in the debate with Ray Dalio and John Mauldin. That was a question I wanted to ask. I’m not even sure if I’m articulating that well. At what point do the tides turn or do they ever turn?

You started off by saying, “Will the debt ever be paid back?” Government debt increased by five times in four years. That would be the equivalent now of US government debt jumping from roughly $20 trillion to $100 trillion in over four years. That’s the magnitude we’re talking about. That government debt in World War II was never repaid. It was rolled over and the economy grew. At the end of the war, there was a consumer boom, borrowing boom and also they have saved during the war. The same governments generally don’t pay back the money. The economy grows and they grow their way out of it. The level of government debt was about 115% in 1946. It came down below 40% because the economy grew. This was despite big budget deficits and a lot of the time starting in the ‘60s and going on afterwards particularly during the Reagan administration, the largest peacetime budget deficits in history.

Looking up ahead though, there are various ways of investing on a scale that I would like to see our government undertake. They could do it the way they did with NASA under one big roof, which worked out pretty well and manage it all by themselves. Most people don’t like that idea these days. Alternatively, the government could undertake these investment programs and invest in these new industries in the following way. The government could act as a big venture capital company and set up joint venture companies with the 10,000 most promising American entrepreneurs, Jeff Bezos, Bill Gates and all the younger ones as well. The government provides lavish funding for these ventures and these industries of the future. It keeps a 60% equity stake. In other words, the public owns 60% of these companies. The entrepreneurs keep 40% and manage the company.

When one of them comes up with a vaccine for cancer, you’re listed on NASDAQ for $10 trillion and the taxpayers keep $6 trillion and this thing pays for itself many times over. In that case, the debt would be repaid and we cure cancer. We cure all the other diseases as well. We stop aging and hopefully, reverse it. People live decades longer, which solves our Social Security and Medicare problems. It makes everyone much happier, healthier, rightly improves the world and everyone lives happily ever after for a very long time in a prosperous and useful world under US leadership.

Maybe transition now to the debate is appropriate. Our monetary policy the way that it exists right now is it’s set up to do what you talked about to make that type of pivot. I know they’ve talked a bit about quantitative infinity, which is even being open to buying equities, not just government securities but corporate securities. When does it pivot to the point where now it takes equity position into companies and goes down this path? Does something have to change on the aspects of how the Federal Reserve operates and the power that it’s given? Can it operate that way and make that impact without changes?

It would continue operating exactly the way it does. It would only be necessary for it to create money and buy the government bonds that the government sells to finance these investments. It would be government debt, government ownership, and fed financing. You referenced Ray Dalio. A few months ago, he published a number of articles on his LinkedIn account and elsewhere called MP3, Monetary Policy 3, which were spot on. He said Monetary Policy 1 was the traditional monetary policy where when the economy overheated or when the economy got weak, the fed would cut interest rates and provide stimulus to the economy that way. That’s traditional monetary policy.

Once interest rates hit 0% during the crisis of 2008, that wasn’t effective. They couldn’t cut rates anymore. They moved on to Monetary Policy 2, which was quantitative easing where the fed would create money and buy long-term government bonds where the yields were above 0%. By buying the long-term government bonds with the newly created money, they can push up the price of the bond. They can drive down their yields to very low levels, in fact, at any level they will want it and stimulate the economy that way. He said we’ve reached the point where even the long-term interest rates are very close to zero.

The government does not pay back the money. The economy just grows its way out of it. Click To Tweet

Monetary Policy 2 is also losing its effectiveness and also has some undesirable consequences and side effects as well. He said, “In the next economic downturn, we’re going to have to move to what he called Monetary Policy 3, which would be a combination of increased government borrowing financed by increased paper money creation by the fed. That’s exactly what we have now, MP3. It’s going on such an enormous scale. You could call it MP3 cubed because it’s on such an enormous scale. There was a lot of debate about that at the moment. In particular, John Mauldin, someone I admire who publishes a newsletter called Thoughts from The Frontline. He’s a very intelligent and nice man that I’ve had the pleasure to meet. He argued the complete opposite. He said, “That’s wrong.” What the government needs to do is to raise taxes and pay down government debt. Government debt is way too high already and we need to go back to some austerity through higher taxes and get the big debt levels down. With all due respect, that would be absolutely disastrous. That would cause credit contraction. That would cause a severe recession, that would get worse and worse until they stopped doing that and reversed it entirely.

I published a number of macro watch videos called The Great Debate, laying out the arguments of both sides and siding with Ray Dalio. Now that the crisis has struck, no one could have anticipated this, but even after a brief period of resistance, John Mauldin is now all in with MP3. He said this is the right policy. You have to have increased government spending. It has to be financed by the fed. This is what we have to do. The debt is going to be a lot higher. We’re going to have to learn to live with it. That debate is over. Thank heavens it was decided in the right direction because if we had gone the other way, we would now be in a world with lots of people who were very hungry and desperate.

I have a few more questions because this is a deep conversation, maybe not for you, but for our audience and me as well because there’s so much that our economy and world is built on. If you were to pivot to something different, going this direction as opposed to the direction we’ve been going for 60, 70 years, that may be catastrophic. Looking at the vulnerabilities that the economy has, what I’m hearing you say for all of this is whether it’s sensitivity to disruption like the COVID-19 impacting productivity and markets being sensitive and selling off. That would exist if there was a gold back where there was a dollar that was backed by something tangible. There would be so much restriction there that there wouldn’t be as much expansion.

All things being equal, whether you have this type of monetary system or that type of monetary system, there’s never going to be a utopian perfection. Where we’re at right now, the best way to continue to grow in the way that we’ve been growing is to maintain the same idea but potentially scale it up and be more directive toward it. That’s where you stand as far as if you were in Jerome Powell’s seat or maybe a policy or lawmaker’s seat and wanted to make a difference. It would be using our reserve status as well as the ability to monetize debt and direct it toward the innovative technologies that are going to make life better for everyone.

We need to get past the economic orthodoxy that was appropriate for the previous economic system we lived under when dollars were backed by gold. You could call that system capitalism. I tend to call our new system creditism because it’s driven by cryptic growth. We need to understand we have a different kind of economic system now and the rules are different. It works differently. We need to understand what these rules are. We need to understand how the economy works now. We need to master the rules and make the most of it.

What we will find is that this creates an unprecedented opportunity in human history where it is possible as we’ve seen over the last several years where the government borrowed trillions and trillions of dollars and have the fed finance what was the third of that with newly created money without causing inflation. It has given us the opportunity to invest trillions of dollars in the years ahead in the industries that will enable us to do some new technological revolution and radically improve human happiness and well-being.

It’s useful to put this into historical context a bit more even looking at what happened when we’re living under the rules of our previous economic system when gold was backed by money. Let’s start with World War I. The world was on a gold standard. The war broke out in Europe in 1914 and all the European countries went to war. They couldn’t finance that on a gold-back monetary system so they started printing a lot of paper money. The US didn’t enter the war until 1917. Up until that time, the United States sold war materials to both sides, lots of them. They insisted on being paid with gold so there was a huge surge of gold inflows into the United States.

The monetary base expanded radically. The banks could lend a multiple of the amount of gold deposits they have. We’ve entered the war in 1917. The war ended in 1918. Government spending went up during the war. All that created a big economic boom in the United States. After a little while, the boom turned into a bust. The famous depression of 1921, which the Austrians economist and libertarians often referenced as being an example of how things should be managed. That depression didn’t last very long.

It was quite severe, but it was short and sharp. The government didn’t do anything effectively. What the Austrians don’t mention is that the reason we pulled out of that depression of 1921 so quickly was because that was the decade the consumer credit and consumer financing was born. The consumers had almost no debt in 1921, but they started buying automobiles on consumer credit, sewing machines, refrigerators and everything else that you could buy on consumer credit.

More and more of them got mortgages and moved into houses out of the city in the suburbs. There was an explosion of consumer credit that occurred all during the ‘20s that pulled us out of the 1921 depression. In 2008, that wasn’t possible to repeat that playbook because the consumers were already heavily indebted. They weren’t going to pull us out of anywhere except down into a depression. In 1930, the consumer has reached the point in the US where they had too much debt. They couldn’t keep repaying their debt. The consumer credit bubble of the 1920s hopped.

TWS 41 | Global Economic Trends

Global Economic Trends: Government debt increases five times in four years.

 

At that point, everyone was a capitalist and believed in laissez-faire and market forces. That was ingrained conventional wisdom in everyone. President Herbert Hoover was the President. He wasn’t an enormously talented individual. He wrote a three-volume autobiography, which I read all up. The man was an extraordinary individual, but he believed in market forces as everyone else did, laissez-faire and he didn’t do very much of anything.

By the time Franklin Roosevelt took office in March 1933, the economy had collapsed into a depression and a third of the banks failed. At that point, the fed was not free to create as much money as it wanted because it had enough gold to back the dollars that it created. It wasn’t free to do quantitative easing because they can only do quantitative easing by creating money. You can’t create money back then if you don’t have gold to back the money. They didn’t have enough gold to back the money.

On top of that, the government didn’t do very much in terms of fiscal stimulus. They didn’t triple their government debt over the next decade the way that we did after 2008. In 2008, the government had trillion-dollar budget deficits, the fed finance them. That’s why we didn’t collapse into a great depression this time because we weren’t constrained by the rules of the gold standards anymore. We had a bubble. We managed to keep the bubble inflated. We’ve kept the bubble inflated for several years.

Imagine if things have collapsed, we wouldn’t have iPads. We would have never seen the Game of Thrones. A lot of good things have happened in the years that wouldn’t have happened if the economy had flattened into a depression like during the 1930s. We never came out of the depression of the 1930s driven by market forces. We came out of the Depression because of World War II and the massive expansion of government debt. Government debt expanded five times in four years and that ended the depression. The fed financed a significant amount of that government debt by creating money and buying government bonds under emergency powers. The Federal Reserve Act had to be changed to allow the fed to create more money during the war. It wouldn’t have been able to do as the Federal Reserve Act of 1913 was originally written.

The Act has been amended a number of times.

Numerous times and every time making it easier to extend credit. One of the amendments to the Federal Reserve Act is called Section 13(3), which essentially allows the fed to lend money to institutions that normally wouldn’t be permitted to lend to. In other words, all kinds of institutions like brokers and dealers, mutual funds, and essentially anyone in the financial industry who wants to borrow from the fed can now do so. Whereas originally the fed could only lend to commercial banks and member banks of the Federal Reserve System. Now they can essentially lend to anyone against any collateral practically. They’re using these emergency measures now very aggressively. At last count, they’ve used this Section 13(3) emergency rule in ten different cases of how they’re extending loans to every corner of the financial system.

I have a few more questions. It’s been enlightening for me because in the end, the way in which we came out of 2008 and 2009. I look at the school of thought that’s bailing out banks or stimulating the economy using monetary policy. People defined what happened in a few different ways. I look at what happened, as you alluded to the innovation that occurred, unemployment at low levels. There were unintended consequences, but they would have been there anyway where individuals, businesses overextend themselves. When they overextend themselves, when there is a blip or a black swan, it throws them off. Whether they had debt or not, they would have been thrown off. I look at what’s going on with what the fed is going to do in the future.

To you, it’s probably not surprising and continuing to happen to prop everything up. Those are the tools that they have. Those are the tools they’re going to use. Looking at a few other elements which I’m curious about because I don’t know a lot about it. I know that there is an element of that which is the credit swamps. I know a big part of what happened in 2008, 2009 was the result of insurance being purchased on assets that if they declined in value, these insurance policies would pay off.

They were both swaps of those that owned the underlying security than those that didn’t. I know that it’s grown on multiples as far as these types of contracts as it relates to credit defaults. The businesses are flailing. You have Virgin Atlantic that’s begging for money. The airlines need money. A few of them have already been downgraded. What role do these derivative contracts have in influencing what the fed can do? In essence, interest rates are interest rates. They’re all in a sense have some interdependency.

The derivatives market is such a black box. No one knows what’s going on inside there. One of the largest banks, I was looking at the balance sheet or the annual report by chance. If I recall correctly, their notional value of derivatives exposure was $46 trillion. Most of those are nets-off in their ideal world. The exchange value is $50 billion or something like that. That assumes that none of the counterparties go bankrupt. The number of derivatives for 2008 were expanding so rapidly that we would have quickly hit quadrillion dollars’ worth of notional value of derivatives in total that suddenly stopped in 2008.

Back then, you cannot create money if you do not have gold. Click To Tweet

Banks don’t go bankrupt unless the government declares them bankrupt. Without all the government intervention that we have, all the banks would be in the process of failing. If banks fail, everyone’s deposit evaporates unless the government prints money and replaces the deposit guarantees. If you’re going to do that, you might as well save the bank to start with, it will be cheaper. My point is that they have to keep the banks alive. If they’re massive problems in their derivatives position, they’re not going to make it public. They’re going to cover them over and try to re-flight them.

Fannie and Freddie had very large derivatives positions when they failed. Why didn’t the government completely nationalize them or why didn’t the government nationalized Citi and Bank of America when they had to have large equity injections from the government? If you’d nationalize these things and look very carefully, who knows what might end up being the negative net worth of these things given their derivatives position? No one knows. You don’t want to own them. You don’t want to be responsible for the negative losses that could potentially come out of these things.

I said earlier that the government manages the economy. That’s not the same thing as they are planning what’s going to happen. Things happen and then they respond to what happens. They made many big mistakes along the way. One of them was deregulating the banks too much and allowing them to run out of control and buy up stockbroking companies and insurance companies. In other words, they repealed Glass-Steagall, which separated stockbroking from commercial banking.

Another thing is they allowed the derivatives to go unregulated, which was completely insane. Things happen in a democracy. Many people talk about conspiracy theories of this or that. From what I’ve seen of Washington, no one is in control. There are certain groups and individuals who are pushing the lobbyists to get individual things that they want. This is far too complex for anyone to control. The bank lobbies push for deregulation. They gave the congressmen and the senators enough money that they got what they wanted in terms of campaign financing.

They were deregulated. Now, they’re too big to fail and can’t be allowed to fail. That’s how we got here. That’s all very unfortunate but that’s the way things have evolved. We can’t allow the banks to collapse. It’s hard to project out into the future what would be the ideal policy. Given the fact that we need credit to keep expanding. If you were to nationalize the banks, what are you going to do with them? I don’t want to speculate too far, but perhaps we should do you think more in terms of not allowing buybacks by the banks or other corporations and capping executives’ salaries. Not only at banks but in other major industries and make them all take a much more long-term focus. Rather than basing all their compensation on their share price performance over the quarter. That’s certainly something that needs to be well thought through before anything radical can be done. That can wait until after we’re out of this potential catastrophe.

The last question I was going to ask relates to the stimulus that happened as well as what’s most likely to come, which is probably more stimulus in relation to getting people back to work. Who knows what’s going to happen with employment once they reopen states and economies? You look at other stimulus programs, whether it’s real estate related. If you’re the audience reading these different points about the economy and how our economy works right now, what the fed is likely to do as things unfold based on the pandemic, what would you be paying attention to you? What are the signals? What are the signs? What news are you watching and paying attention to in order to tell you what is going to be some of the opportunities available? What are going to be the end results of the government’s involvement? What that’s going to do to the economy, interest rates, investments, assets and so forth?

The most important thing that’s going to determine whether this is a recession or a very bad recession or a depression. It’s still hands-on the size and the speed of the government’s policy response in terms of how much the government supports the economy through these rescue bills and how much the fed creates in terms of paper money creation, so far so good. There was a very alarming piece of news that I read. Senate Majority Leader Mitch McConnell said, “Hold on here, that’s getting too high. Let’s wait. We’ll take a look and see how things are going before we have more government rescue programs. More government deficit spending.” If that sentiment spreads and we slowed down on the amount of support the government deficits are providing to the economy, everything’s going to collapse. Mitch McConnell will own this depression and will be vilified throughout history for such stupid policies.

We can deal with the debt. We can’t survive an economic collapse. Perhaps we could survive it but we won’t look the same when it’s over. That’s the main thing. What we want to see for a positive outcome is more and more support programs so that the economy doesn’t collapse. We don’t know how long the virus is going to collapse. We don’t know how long we’re going to have tens of millions of people unemployed. As long as we do, the government is going to need to keep sending them checks. We’re going to continue to need to keep our small and medium-sized businesses in business and even our major corporations and the banks. We have to prop up the economy no matter how much it costs or how long it takes. We can afford this. We must do this. That above everything else is a signal you want to watch for.

If that goes the wrong way, look out below. You can’t see how far we could fall. Other than that, I don’t know. Do you want to buy stocks? I don’t give specific investment advice. Even in good times, stocks are very risky. My personal experience, I started off working in stocks in Hongkong in 1986. The first twelve months I was in Hongkong, the stock market went up 100%. The Hongkong economy that year was growing by 13% GDP growth. Everything was rosy. I woke up one morning and Wall Street had fallen 23%. In October ’87, the Hongkong stock market was closed for two weeks, but when it reopened it fell 50%. My stocks, which were especially speculative, fell at about 90%. Even in a booming economy, bad things can happen to good people when it comes to stocks. If you’re feeling lucky and you think the fed is going to prop up the stock market, then roll the dice. If things go wrong, stocks are very expensive going into this crisis now that earnings are collapsing, they’re still very expensive based on any PE valuations so don’t ask me.

It’s one of those things if there is stimulus, that’s a signal. That’s a sign. If there isn’t, that’s also a sign. It can go a few different directions. We haven’t seen the extent of the economic disruption. There’s been zero productivity for almost a month and a half going on two months most likely. We’re getting quarterly earnings, who knows what going to be in the second quarter given all of this disruption?

TWS 41 | Global Economic Trends

Global Economic Trends: Monetary Policy 3 is a combination of increased government borrowing financed by increased paper money creation.

 

The stock was bought on the day the fed announced QE Infinity and then it rebounded 25% or so. That’s the reason the government support. Who knows what will happen next? I do think the fed will try very hard to prevent the stock market from falling more than 25%. They’ll pull out all the stops. They’re already buying junk bonds. If push comes to shove, they will buy stocks directly. They will not let the stock market fall 50% or 75% in my opinion even if they have to jump in the market and buy them directly. Asset pricing deflation has been the supplement to credit growth over the last several years.

Our economy depends on asset prices staying high. They’re going to work very hard to try to keep them high and they’re going to work very hard to keep them from completely evaporating. Even if that means the Federal Reserve Act has to be completely revised once again to allow direct purchases of stocks. If that’s what it takes, that’s what they’ll do. It’s a very dangerous game. Personally, for individuals who want security and control over their own lives owning land with houses on top to rent out is a good approach.

Land, they’re not making any more of it. You can generate rental income from having a house and renting it out. You can grow food on top of the land. No one’s going to steal your land from you and it’s going to be there when you wake up in the morning. Like gold, perhaps all this money creation will cause gold to keep moving higher. If gold moves higher, land prices will also move higher for the same reason. If gold falls a lot, the land will probably fall a lot as well. At least you’ll still have rental income and you won’t have to pay anyone to store your land. You won’t have to worry about someone coming in your house and stealing your land. For security approach toward developing a portfolio of rental properties, not in condominiums, which can be built forever, but land with houses is a secure long-term approach for people who want to have income insecurity over the long run in my opinion.

It’s one of the assets that is easiest to leverage. Leveraged assets are the ones that fall in line with what our monetary policy is because asset prices go up because of leverage.

You have more danger there as well. You have to realize that if rents can fall a lot more than you might imagine more than we’ve ever seen before if this crisis persists, all the rental contracts are going to be torn up. Too much leverage then you can fail. It’s a matter of striking the right balance. Everyone has their own risk tolerance levels, but you do have to be aware of the risks that you may not be receiving the rent you anticipate.

With leverage, you could be over-leveraged. You can be under-leverage. You can have no leverage. There’s always going to be some downside and upside to each. It’s the balance that makes sense. Looking at where the economy goes, the influence whether it’s the Federal Reserve or whether it’s the government. You look at the Treasury secretary and you look at this being an election year, they seem to know what they’re doing. The response was quick. I look at whether Mitch McConnell is saying what he did. There’s always going to be those voices that have differing opinions. At the same time, you’ve caused me to realize that if there isn’t a continuation of the monetary policy that we have, there is an alternative, but it is not pretty at all.

There are a lot of things to be concerned about. If there is intervention and it gets to different levels, those are the signals to know that if this happens, this is likely where the economy is going to go. This is likely where the opportunities are. Maybe say one additional thing, Richard, in regards to the perspective you have when it comes to governments taking a different turn and making an investment in innovation. What have you seen to lead you to believe that is a potential direction that the United States would take?

I’m glad you asked that. In November 2019, there is a publication by the National Science Foundation. It comes on once every two years called Science and Engineering Indicators. When it was published in November, it indicated that for the first time in history, China had invested more in research and development than the United States did. If that trend continues, they would invest 40% more by the end of this decade in research and development than the US. Around the same time is when China rolled out 5G in 30 Chinese cities, which is no doubt is many more Chinese cities. Senate Minority Leader Chuck Schumer made a speech in Washington before a conference of the defense establishment.

The conference was on artificial intelligence and what the US policy should be. Everyone there was alarm by these developments and China getting ahead of us. He proposed in a short speech he made there. He said he was going to propose that the United States government invest $100 billion over the next five years in artificial intelligence and the other industries of the future. He named several of them, robotics, quantum computing, and the usual ones you would imagine. That was the first indication where the policy establishment in Washington was waking up to our new Sputnik moment where we needed to radically change our thinking about the desirability of government investment.

That was the first step and an encouraging one, but $100 billion, I’m sorry to say, is not going to do it over five years. That would be $20 billion a year. China would still be miles ahead of us. There’s no point for the United States to be talking in terms of billions of dollars. We need to be thinking in terms of trillions of dollars. As we have seen, in the last couple of months, we’ve spent $2 trillion coming up $3 trillion. This is the thinking we need to apply to our national security because it is a threat. We are in danger. We are going to be surpassed. The consequences with China may be a benign sovereign. They may not be.

The economy depends on the asset prices staying high. Click To Tweet

Once they’re in the lead, we will never get it back. I’m not anti-China. I’m certainly not anti-Chinese. I’ve lived in Asia for most of my life. They’re great people. I want the United States to be a global leading power for generations to come and there’s no reason we cannot be. We can afford it and that’s what we need to do sooner. One possible good thing that could come out of this crisis is to demonstrate that it is possible to spend trillions and trillions of dollars and finance it with trillions and trillions of dollars of paper money creation without creating lots of inflation in a very short period of time. If that proves to be true, we need to jump on that and start investing trillions and trillions of dollars in our future and our national security. Along the way, as I’ve said several times, cure all the diseases, expand life expectancy, make the world a much better and happier place for everyone.

Now is one of those prime times because you have a shift in the generation that has governance, whether it’s over businesses, other leadership or into positions where it’s a younger generation. The older generation is retiring and taking a step to the side. The younger generation now can take that type of investment capital and know what to do with it as opposed to an older generation that may not have had the wherewithal to do anything with it. That’s also an interesting coincidence. There is that type of threat. I know Schumer is older, but that’s a good sign. I didn’t know that he had said something like that. This is like a distraction. Hopefully, they can keep on that trajectory.

That’s a good point. A lot of young people now are very much in favor of Medicare for all or free university education. Those are certainly admirable goals. My concern is that we can spend enormous amounts of money treating diabetes, heart disease, and other diseases or we can cure those diseases with the same amount of money forever. We can cure all the diseases if we invest. If we spend this money treating the diseases for everyone, we may not have enough money to cure them. My focus would be we need to have social safety nets for as many people as we possibly can. We’re so far behind most civilized countries in that respect. We have to do better. We can afford to invest on a scale large enough, not just to treat everyone with diseases, but to cure all the diseases.

That’s a conversation for another day as far as the wealth gap and how it was one of the consequences associated with how much prosperity there was over the last decade. It was only amongst those that owned assets. We can go down that road next time. Maybe that next time is when your new book comes out. It sounds like you’ve postponed it a little bit. Do you have a date or a timeframe in which that’s going to come out?

This is the first interview I’ve ever talked about this book other than I got very brief mentioned. I don’t have a timescale. We’re going to have to wait and see how large the government debt becomes and what the consequences are. The book was in my mind was pretty much ready to go, 21 chapters written and rewritten. It was nearing completion at long last. With my business is Macro Watch, which is a video newsletter. Every couple of weeks, I upload a new video, essentially me doing a PowerPoint presentation, discussing something important happening in the world and how that’s likely to affect asset prices, stocks, bonds, commodities, currencies, etc.

Because of this business, Macro Watch, I can do research for my book, turn them into videos and upload them for Macro Watch along the way. Much of what this book contains can already be found in the Macro Watch archives over the last couple of years, which contained well-over 50 hours of videos and a number of courses including one on monetary policy, one on China’s economic crisis, one called Capitalism and Crisis, and another one called How the Economy Really Works. I hope your audience go visit my website at RichardDuncanEconomics.com and check out what’s there. If you’d like to subscribe to Macro Watch, I’d like to offer them a 50% discount. If they use the discount, go to the Richard Duncan Economics, click on the subscribe button when prompted and they can use the discount coupon code, JUNE. At the very least, they could sign up for my free blog and follow my work that way.

We also have an overview of what Macro Watch is. These are 10, 15-minute videos. They are very concise and easy to understand. At the same time, because of how quickly things are going, not having an understanding of basic fundamentals of economics and specifically how the monetary aspect of the global society works, it’s going to be hard to know what people were talking about and what direction things are being taken. You can sit on the sidelines or be a deer in the headlights or you can step up and learn about economics, understand and think intelligently about it, and understand the implications of it one way or the other. The direction that helps you and benefits you as opposed to the one that doesn’t.

People want to understand how the economy works and this new economic system that we have. Macro Watch will teach them. It’s not very complicated. I use lots of charts. It’s all very clear. I highly recommend it.

You make it easy to understand the way in which you approach it. The graphs are not these incredibly insane and difficult to understand graphs. It’s very well put together. Richard, I greatly appreciate this time. It’s helped me to think through a few things. When you get closer to having the book launch, let’s get back on the horn or maybe even earlier as things unwind, unravel and start to piece back together. I’d love to have you back on.

I’d love to do that. I’ve enjoyed our conversation. Congratulations on your success. You’ve seemed to be doing very well with this show and your other businesses.

TWS 41 | Global Economic Trends

Global Economic Trends: The government policy response through rescue bills determines a recession or an awfully bad depression.

 

I’m one of those naturally curious and if there’s business there, great. If not that, there’s so much opportunity. In our day and age when we have an incredibly easy way to communicate with people. You’re in Thailand, but yet you have videos that you post and you get revenue from that. It’s is an amazing world that we live in. I appreciate you saying that. It’s been a fun ride. It’s lonely because I have nobody in my office and a bunch of people on my team. We’ll make this work too.

If you think of opportunities that we can both participate in, let me know. If you can recommend me as a speaker to other shows or friends or any way support the growth of Macro Watch and finance my books, that would be very much appreciated.

I planned on it. I have some connections in areas that would benefit from understanding your perspective. Thank you so much for reading. Thanks for all of your support and we’ll talk to you next time.

Important Links:

About Richard Duncan

TWS 40 | Global Economic TrendsRichard Duncan is the author of three books on the global economic crisis, including the international bestseller “The Dollar Crisis: Causes, Consequences, Cures,” which forecast the global economic crisis of 2008 with extraordinary accuracy.

Since beginning his career as an equities analyst in Hong Kong in 1986, Richard has served as global head of investment strategy at ABN AMRO Asset Management in London, worked as a financial sector specialist for the World Bank in Washington D.C., and headed equity research departments for James Capel Securities and Salomon Brothers in Bangkok. He also worked as a consultant for the IMF in Thailand during the Asia Crisis.

He is now the publisher of the video-newsletter Macro Watch.

Love the show? Subscribe, rate, review, and share!

Join The Wealth Standard community today:

Chris Martenson on How The Money Works In The System, The Economy, And The World

TWS 9 | How Money Works

 

There are some remarkable people who never let their curiosity die even as the world fails to provide them an answer. Chris Martenson, the co-Founder of Peak Prosperity, kept on seeking the answers to how the money works in the system, how it was created, and how the economy works. In this episode, we peel back some of the layers on the knowledge and insights gained from his perspective of the world as he taps into how we can create a world worth inheriting, not only from the economic side but the personal and natural side as well. Take a deep dive with Chris as he talks about reconciling the advances that have been made in the oil and energy sectors, the geopolitics with other countries, the system of unfairness that perpetuates in this world, and more.

Watch the episode here:

Listen to the podcast here:

Chris Martenson on How The Money Works In The System, The Economy, And The World

I have an individual who I’ve known for several years. His name is Chris Martenson. He’s the Cofounder of PeakProsperity.com and also the co-author of the book, Prosper!: How to Prepare for the Future and Create a World Worth Inheriting. We get into some interesting topics. We peel back some of the layers on his perspective of the world. Please welcome my guest for this episode, Chris Martenson.

Chris, it’s awesome to have you on. Thank you so much for taking the time. I imagine some of our readers know who you are. For those who don’t, would you mind telling your story and what led up to what you and Adam are doing with PeakProsperity.com?

This is a story. If I’m favorable to myself, I’ll call it enlightened self-interest. I was a genius like everybody, investing in the 2000 stock market. I was a corporate guy at that point in time. All of a sudden, my portfolio got shredded. I’m a curious guy, I started asking questions my broker couldn’t respond to. My background is a scientist, so I like data. I like digging around and forming hypotheses. One thing led to another. Soon, I was asking him uncomfortable questions that he couldn’t respond to. I read this book called The Creature from Jekyll Island by G Edward Griffin. It talks about the money system and how it works, which surprised me. I’ve got a PhD in biological science and an MBA. Somehow, in all that education more than anybody should go through, I hadn’t learned how money works in the system. I was taught how to compete for it and all that stuff, but not how it was made. This seemed like I discovered the headwaters to the Nile like, “A lot of important stuff happens here.” That led to this inquiry. Within a few years, I lost my passion for my job. I exited that carefully. I spent two or three years in sabbatical, trading the markets and developing other ideas.

I ran across this idea of how money was created and how the economy works. I was looking at macroeconomics and at debt levels. I came across energy, peak oil and all those issues. The environment wrapped in as well. I put all these pieces together and said, “I have to tell people about this.” It became a mission of mine. I was down in church basements talking to anybody who will come. It’s bad presentations when I started. These are terrible. For anybody reading who sat through those, bless you. They were awful. It was such a big amount of material, it took forever to figure out how to distill it. That’s what I did. I went through this distillation process. Somebody in the audience said, “You should put that online. A hundred people a pop are not enough.” I couldn’t figure out how to do that and struggled. I started putting it online. This thing is called The Crash Course. The last chapter was finished in October of 2008. Things fell apart and people were interested in the message. It got this thing called The Crash Course, which should be a disaster. It’s some guy speaking over about three hours of slides.

I remember it coming out. It was a voiceover PowerPoint.

It’s just a voice. I don’t even think I used my face, maybe on the first slide and that was it. It ended up catching on. People were ready for something to explain a little bit larger about the world. I’m an educator at heart so it was a very educational material. People came to me saying, “I learned something. I feel smarter. I feel like I understand something. Why isn’t anybody else talking about this? Why didn’t my teachers explain this to me?” It caught on and got translated into twelve languages. I ended up, through that experience interacting with and meeting my business partner, Adam Taggart. He’s got all the skills that I needed because I was running a one-man show. He’s got all this business and marketing savvy. He was the Vice President of marketing for North American Mobile Yahoo. He was ready to leave that. We joined forces and created this thing called Peak Prosperity, which is our website. That’s the short version of how we got here.

You used the word surprised when you read The Creature from Jekyll Island. That’s a monster of a book. What was the single most important surprise that you’ve identified?

It’s that this is an ongoing pattern of bailout and trouble. I understood that this system of capitalism we’re in is not capitalism. You have this creative destruction by Schumpeter. Businesses undergo that process quite frequently, but not the banking system. They’re shielded for everything. It’s a heads-they-win, tails-you-lose. G Edward goes through many years of history. It’s savings and loan, the railroad crisis and all these different crises to show that the banks made all this money while they were busy inflating, doing dumb things and taking risks they shouldn’t. Things crash and they got bailed out. Heads they win, tails you lose. Wash, rinse and repeat. When I read that, it was almost as eerily prescient as 1984 by George Orwell. Once I had read that, I understood the blueprint for what was going to happen from the crisis onwards. Everything that he wrote about happened again. That was surprising to me that it’s this well-known, this obvious, this repeated and it’s still not talked about. It surprised me to find it in his book. I had to go and research it. I thought, “This guy must be wrong.” It turns out he wasn’t wrong.

When I had a chance to interview him a few years ago, I let off with a question. I said, “Your Wikipedia opening paragraph says, ‘G Edward Griffin is a noted American conspiracy theorist.’” It said all this denigrating stuff. The Creature from Jekyll Island came out somewhere back in 1996. I said, “Many years have passed. How many people have come to you with a concrete thing saying, ‘Here’s where you got this wrong in your book because it’s all names and dates and it’s all sourced?’” He said in the entire time it’s been out, he hasn’t received one single piece of counterfactual information. He hasn’t had to issue any retractions. He hasn’t had to correct anything. Still, he’s the conspiracy guy. What he did was he touched a nerve. He showed how the banking system operates. That’s a no-no in our culture. Thanks to him for doing that. The biggest surprise is, “How did I not know about this?” You’d think about all that education, going through all this system and getting to the level. I made it to vice president of SAIC. I’m not an unaccomplished person and I’d never even heard this information before. To be hidden in plain sight is a shock.

A lot of the information he goes through isn’t part of the typical narrative of what finance is and what politics is. You have that book that’s written and you have a lot of people still speaking about not exactly what that book alludes to. There’s more they’d understood in what led up to the 2008 crisis and maybe more of what’s going on with where we’re at. Yet, the typical American is not aware of how banking works. They’re also not aware of what history shows us in regards to how intervention leads to unintended consequences. Peak Prosperity is a podcast and a blog. You write a tremendous amount. What is its mission and vision? Does it carry what you have discovered over the years due to more people or is there something different?

It’s two big parts. One is problem definition and education around that. Without appropriate context, the other part of our mission, which is about helping people become more resilient and more prepared on the solution side, you can’t even start with a solution until you understand what you’re up against. We ask everybody to start with the context. You don’t have to agree with us. Look at it. You have your own opinions. Say we’re completely wrong. That’s all fine. For people who look at the world this way, it’s a lot of data. Look at all three E’s in the story: economy, energy and environment. When you look at them from a systems perspective, you go, “This is unsustainable. It’s going to change.” The big question is, “How and how do we prepare for that?” Those are the two big pieces.

It’s a little bit like Hidden Secrets of Money by Mike Maloney. He’s doing an incredible job about money, but we’re also layering in this ecological context that’s necessary. The energy context is also necessary. You get that in one spot. It gives you this point of view of where the world is going to head. What do you do about it? That’s part two. This is why we exist. Our mission at Peak Prosperity is to create a world worth inheriting. I’m pretty convinced based on all the data and trajectories I’ve got, we’re on the wrong path. We’re not doing that. I wake up every day. I’m actively trying to figure out how to create that world worth inheriting. It means, mostly, we have to change the narratives that people hold so they can align their actions with that new narrative.

You can’t start with a solution until you understand what you’re up against. Click To Tweet

First off, explain what the data is telling you about where we’re at. Going to your mission, how is the context and the narrative that you see the world differently than mainstream?

Narratives are hard to change, even at the individual level. They get even, in order of magnitude, harder to change at the cultural level. At the cultural level, you might have something like, “Here’s a statement. Be fruitful and multiply.” That was a great guiding principle 2,000 years ago. It’s a little bit less obvious that’s the biggest challenge before us or the thing we should be focused on, but there it is. What we’ve had is this narrative that said humans are at risk. We’re at war with nature. Even 100 years ago, people are still battling with nature. Now we’ve hit the edge of the globe. The data is all parked there. When you look at the number of fish declines in the ocean or seabirds, the disappearing insects, what’s happening with the soils, their disappearance and the fact that glaciers are disappearing at this point in time. You can say, “We don’t have that same narrative of 100 years ago,” which our imperative is to grow as fast as possible. That’s the story we all live by. Every portfolio and every investment is geared for infinite perpetual growth. That might happen, but the data I have says, “Let’s look at that imperative for growth.” All growth comes from energy. You would know this if you were an organism and your primary source of energy is food. If you deprive an organism of food, it gets stunted. At worst, it dies. The question is, “Where is all this energy going to come from?”

When you wander with me over to the energy field, look at where we are in terms of global oil discoveries. We’re tapping more stuff in the shales place, but they’re not tasty like the old ones. They’re a little harder. It’s still worth getting but not the easy stuff. It’s like we’ve eaten through the fat on the seal. Now we’re on some ribs. That’s fine. The question is, “What’s after the ribs?” In this story, there’s nothing. The ribs in the story are the basement rocks. There are no pre-basement rocks. This is the source of stuff. We don’t have a plan for what we’re going to do when those run out. This isn’t super far in the future. This is within our lifetimes that they’ll probably tip over and go backward. The EIA itself in the United States thinks that shale grows until about 2025 and then it’s in permanent decline thereafter. 2025 is like tomorrow. Particularly if you’re a parent, you’ll realize, “These years pass quickly.” The amount of changes we’re going to have to make to live in a world where we have slightly less oil instead of slightly more oil is enormous. It impacts jobs, careers, portfolios, hopes and dreams, pensions and everything you can imagine. It touches that.

The truth is energy is the dominant thing and everything else is a subset of that. If you don’t have this energy, you get none. That’s the part I’ve been trying to alert people to is to have this bigger perspective. What I’m trying to do is teach fish about water. We’re so surrounded by this water, this energy that we don’t notice. I’ve got lights on me in 71 degrees. All this stuff that’s the equivalent of having hundreds of energy is bringing me this amazingness. That’s something to appreciate and have gratitude for. Don’t take it for granted. Think through what happens when that begins to go away. Our country is not prepared for this at all. There’s zero preparation for that.

How do you help people reconcile the advances that have been made in other energy sectors? I look at the things you’ve been saying regarding peak oil for a number of years. There have been lots of innovation and different alternatives. How do you help leaders reconcile this idea that we’re going to run out of oil and there isn’t an alternative to it?

It’s hard because the average person reading this doesn’t have almost to become an expert in it to understand it. The headlines that you might read about it are always geared towards puffing up the current narrative. I get these all the time. People say, “Look at this. The scientist took something and here’s a beaker of it,” or, “They’ve got this new battery that can do extra. Look at these ultracapacitors.” Every time I scratch at it, they go, “It’s on a bench somewhere.” They’re using rare materials so it won’t scale possibly or it’s wicked expensive. In many cases, people are confusing a source of energy with a store of energy. Once you start picking at that a little bit, you discover that the time to scale the cost in the story is extraordinary. Let’s imagine we all want to drive electric cars. What do you have to do? In the United States, we need a whole new electrical grid. We’re going to supply that amount of electricity. We need to discover new sources of electricity, which is going to be a challenge all on its own.

TWS 9 | How Money Works

Prosper!: How to Prepare for the Future and Create a World Worth Inheriting

Is there enough lithium and cobalt? Not right now, but maybe if the price went up a lot. Are there enough plants to build this? Not yet. Do we have enough engineers? We don’t. Once you start looking at it, it’s hard in this consumer culture. I go on Amazon. I click a button and the big round rolls up. What I’m unaware of is the incredible logistics and supply chain that had to be in place for that to be true. That’s all equally true in the energy space only. We don’t have that Amazon warehouse built yet. We don’t have the supply chains. We don’t have the infrastructure in place. None of that has been done yet. That’s the thing I keep coming back to people with. It’s like, “I’m as hopeful as the next person,” but we’re not putting our attention there yet. We will. I hope not before it’s too late. Nowadays, our attention is creating trouble with Iran or pumping more money into the stock market so it goes higher. We’re doing things that are buying us time but we’re not using the time. That’s my prime complaint we’re around this.

The way in which we process information these days is superficial. We only go one or two levels deep. As I’ve followed you over the years, you could look to those innovations. They’re there. When you start to go into the third to sixth layer and see how integrated the oil world is, whether it’s in the supply chain or in the plants or the origination of the actual energy, it’s fascinating. You’re still seeing a problem even though there have been innovations and improvements on that first or second level. In those deeper levels, there are still some pretty significant issues.

It’s fairly complex, but not really if you think it through in a little bit. People say, “What about renewable energy?” Nate Hagens re-termed it for me and it stuck ever since. It’s replaceable energy. Let’s look at a solar panel. The cost has come down a lot. They can create electricity at a fairly cheap rate when the sun is shining. The question is, “How did the panel get there?” Some workers showed up. What did they eat? Food. How did the food get there? It was grown on a field. Once you find every single thing involved in getting that panel there, there was oil involved somewhere from the mining of the silica to the manufacturing plant. We have this many examples so far where we have a replaceable energy system, be it a wind tower, a solar panel or electric car where that entire thing is created using only the energy from that same system.

We understand it intuitively with farming. The sun is the energy in the system. If a farmer can’t grow more crops using that energy in calories, they’re expanding. They’re going to go into deficit. If a cheetah spends 1,000 calories catching 800 calories of gazelle, they run into trouble. The question is, “Can we create these replaceable energy systems using only their own energy?” The answer is we don’t know. That would be a great experiment instead of another $500 billion to the bankers, let’s put $10 billion towards creating a model place where that’s exactly what happens. Put up panels. Build them only with electricity using electronics from panels and create more panels. Watch what happens. Do that one or two turns of the cycle. That would be a good experiment. There’s so much hidden fossil fuel subsidy in that whole part. It’s a mistake to think that you click the button and the panel shows up. There’s a lot in between those two steps.

Especially with what’s going on in the Middle East, the turmoil is increasing. No one knows what’s going to happen. Typically, it’s always associated with oil to some degree.

If you don’t understand where we are in the oil story, none of the geopolitics makes sense. It has nothing to do with Iran. We don’t like their leaders. There are horrible leaders all over the world that the United States never says anything about. They don’t happen to be sitting on any oil. I’ve been to China. I’ve talked with people that are fairly high up in the Chinese leadership structure. There are a lot of scientists there. They got a lot of PhDs. One gentleman there said to me, this was when Obama was president. He somewhat caustically said, “We don’t have any community organizers at the top.” That’s Obama’s background. He was a community organizer. “What do you mean by that?” He said, “To get anywhere in China, you have to have managed at least 100 million people for a couple of years. You break your way up and you work through. Everybody has an advanced degree.” They don’t have lawyers. That’s not a specialty that they revere. Compare that with Washington, DC. Almost all are lawyers.

Unfairness is one of the worst social sins you can commit. Click To Tweet

When I talked with them about the resource stuff, they get it. They said, “The business of China is business. The business of the United States is war.” That’s fine. We think we’d rather go about this with our magic checkbook. They understand where they are in the oil story. They admitted to themselves when their own peak of oil was going to happen, which was 2018. It’s in the rearview mirror. China has publicly announced that. They know they’ve got big issues. They also know they can walk to the Middle East, which is a distinct advantage to countries that have to sail there. They’ve got their eye on the prize. That’s the larger game that’s happening here behind the scenes. You want to know about Russia and why the United States is so at odds with Russia. You have to understand the power Russia has, given that it’s very few people have massive eight times their own property with a lot of natural resources. It includes oil and gas, which they’re supplying to Europe and increasingly to China. That’s an important lens to have in the story.

I’m assuming your audiences are not just domestic. You have audiences that are around the world. What are you seeing them take away from what you’re teaching them regarding these points and the other things you write and talk about?

In the English-speaking countries, primarily the UK and Australia, I’m noticing a lot of people who are gravitating to this message saying, “We’re on the same path.” There’s no, “Here’s how we’re doing this amazingly over here.” There’s almost a resignation that it looks like things are going to have to get worse before they get better. This is noted in every English-speaking country. Most of Europe too is on the same path, which is increasing totalitarian age. It means the organization of their society. It’s more oversight, fewer civilian liberties as it were and an increasing neoliberal event, which means very few people are getting most of the gains. The pyramid is getting tall and top-heavy. Italy broke that model. We’re all starting to see that rise of populous pressure as the unfairness of that. In the tippy top of this pyramid, these people didn’t get there because they built more awesome stuff for the most part. Most of them got there because they siphoned money out of a system that creates money. They’re skimmers. That’s fine, but it’s a very unfair thing. We’re all primates. We don’t like unfairness. Unfairness is one of the worst social sins you can commit. It was Plutarch, all the way back. He said, “The oldest and most fatal ailment of all republics is the gap between the rich and the poor.” If that gap is created out of thin air at no work and no risk and handed to a small crew of people, it’s where the unfairness builds.

The strong narrative regarding media and news is you still have a huge influence from that top. Do you see that going away?

They’re working harder at it. They’ve gotten a lot better at that control as well. This is something that myself, and a number of people I consider colleagues, are observing very much. We get heavily throttled on places like Twitter, Facebook, Instagram and other places where they have algorithms. As soon as you say something about the system and about the unfairness of it, you’ll notice that you put that tweet out and it’ll get maybe 8% to 9% of the engagement that would be typical. It was throttled in some way, shape or form. That ability to shape the narrative is critical. There are two ways about that as well. One is the sin of commission. They lie and make stuff up. There’s omission where they don’t talk about stuff. One of the biggest omissions I saw has been the yellow vests movement in France. There are hundreds of thousands of people and lots of injuries. It’s got blood, violence and gore. It wasn’t picked up. It wasn’t talked about. There was almost a virtual ban on that in the US media. I talked to people all the time. They’re like, “I didn’t hear about that.” It’s one of the biggest things ever. That’s the sin of omission, where they leave stuff out.

It’s a horse race where social media and the internet for a while was allowing people to go out and find that new information. There are throttles on it. You’ve seen YouTube say, “We’ve got algorithms. We’re going to ban anything that they consider hate speech, a conspiracy theory or whatever. These things always start with one thing you could justify. It spreads rapidly. If you wanted a better definition of fascism, it’s a merger of corporate and state. The so-called progressives in this story are engaging in some of the most fascist behavior I’ve seen, which is, “We’re going to burn books.” That’s the equivalent of burning books when you’re like, “We know which ideas are harmful.” I grew up at a time when ideas, even if they were harmful, you were free to go, “I don’t like this one.” You could encounter them and wrestle with them. I don’t agree with this idea that there are harmful ideas and if you expose people to them, it ruins them. I don’t fall under that. For the many state people, they do. They think they hold the right views and they have to protect other people who aren’t as sophisticated as them. It’s a very patronizing I’m-better-than-you thing.

TWS 9 | How Money Works

 

The funny part is a lot of people who are ideologues on both sides are some of the most misinformed people I know about. They get their own little echo chambers around things. That polarization is strong. I never thought I’d find myself here in the United States as quickly. I understand the seeds of civil war now. I never quite got the Balkans and what happened. Now I get it. What happens is you have powerful people who splinter groups and stand them up against each other. What I’ve been trying to do is to get those two groups to understand, “You’re fighting the wrong people in the story.” Police and protesters are on the same side of the story. These protesters are usually saying, “I’m getting screwed somehow.” If the police understood what was happening with their pensions, they’d understand that this is where the problem is. Everything that can be done to prevent that discussion of the top, it’s what I see going on. It’s a shame on those in the media who are complicit in that, whether overtly or covertly, whether they understand that or not. They ought to be asking questions about freedom of speech and providing appropriate context so we can have the right conversations. The trend we’re on ends in a bad future that I want to avoid. I’m not dark, gloom and doom. I’m a very hopeful guy, but we don’t have a lot of time to wrestle the ship to a new direction.

What do you see as some signs of hope out there? It sounds like, from your perspective, there may not be any. Do you see any reasons to be optimistic?

There are plenty of reasons. A lot of the young people in the story have a surprising amount. All revolutions start with the young, in some way, shape or form. This is setting up to be a generational thing. I do talk to a lot of the older generation because they have the wealth they want to preserve. I get that. You don’t want to spend your whole life building up. There’s the brass ring. Now would be a bad time for it to all go away. The young people are looking at the story increasingly and saying, “I don’t have anything to gain from preserving the status quo.” We’ve seen the million-plus student marches against climate change in Europe.

Young people I talked to are out there doing incredible and creative things around farming, in a way that’s regenerative and not disruptive or extractive. It’s hard work, but you have to understand systems on a whole different level. It’s different from saying, “I know exactly when to apply the roundup and the Unix.” It’s a different story. I see people wanting to do the right thing. I see people doing the right thing. The enemy in the story, if there has to be one, is the keepers of the status quo. They don’t want anything to change. They want to keep their power. They’ll do increasingly desperate things to keep that power locked in. The more they do, the more this gets compressed. The hope that exists for me is there will come a time when it breaks again. We can then have the right conversations. It’s only if people have the right understanding, the right context and are ready to take the right actions.

Going into the way in which you analyze things, which is very quantitative, where do you see the role of the entrepreneur? Sometimes it’s difficult to put into an equation. Do you see that there are those that are young or maybe even aware of these issues and trying to do something about it?

A couple of things are nested in there. First is the role of the entrepreneur. I’ve trained all my kids to be entrepreneurs. I don’t believe in working for a paycheck anymore. I haven’t for a long time. You need to have multiple sources of income. Lots of people have been forced into that regime anyway. You’ve got to be an Uber driver on the side to make ends meet or the so-called gig economy thing. An entrepreneur is saying, “There are needs out there. I can meet those needs in some way, shape or form. Here’s what I’m good at. Here’s what I’m not good at. I’ll get a team together. We’ll go and do that.” That is the way to the future. Anybody who’s just sitting there and relying on a single source paycheck is exposed. In the next big downturn, it could go away. I don’t care if you’re a highfalutin lawyer at a white-shoe firm or you’re a driver for a long-haul trucking company. If all you got is that one paycheck, you’re at risk. Everybody needs to understand assets and understand the system, as it exists. I get to talk with and hear a lot of stuff from Robert Kiyosaki of Rich Dad Poor Dad. He keeps drawing the same grid. He keeps pointing out that the people who draw a paycheck are tax donkeys. They get hit the hardest.

All revolutions start with the young in some way, shape, or form. Click To Tweet

If you’re a small businessperson, you’re the so-called entrepreneur. If you have a practice, a CPA firm, dentistry or something like that, you’re the worst. They’re crushing you. It’s 60% marginal tax rates when all is said and done. For people who are out in real estate or the investor class, the taxes go away. When I came in contact with them, they’re like, “Where was this information? Where was my dad with this information? Where were my schools?” It’s like this hidden secret. It came out into the fore when Hillary Clinton, during the primary debates, asks Trump, “You pay zero in taxes.” He said, “That’s because I’m smart.” It’s true if humans respond to incentives. There are incentive structures out there that entrepreneurs find out about faster. Everybody should learn what the system is, how it works, what it punishes and what it rewards. I came to that story late in life. Once I found it out, I’m like, “I’m going to use the system as it exists.” It’s not something that’s widely talked about.

That’s an example. You said, “What are the narratives that have to be changed?” Do you know how hard it is to convince somebody that the whole narrative of, “I go to a good school. I got to Harvard and I’m working for McKinsey on a partner,” even in that job arc, it’s still a job. Nobody ever got rich working for a paycheck. Those people are still plugged into that system of, “I have to give the right answers and do the right things to earn this paycheck.” It takes time to back people away from that, deconstruct the narrative, help them understand what the tax code looks like. Help them think about where their value is. Help them think about what wealth is and how you generate it. Not all things can be measured in dollars. There’s a lot of unpacking. It has to be done before somebody is ready to step off, bite the bullet and go down that particular path. The future is going to belong to people who can be nimble, be flexible and add value to whatever situation. The way I waggishly put this is I tell people, even if you were in Leavenworth supermax prison, there’s an economy in there. You can get whatever you want. Humans will always have an economy. Don’t worry about that. The question always in any circumstance is, “What’s an offer? What do I have to offer? How do I get what I want?” Those are the pieces that entrepreneurs figure out earlier and faster.

I’ve heard you speak about this before and you’ve written about it as well. You have those entrepreneurs that are naturally driven, that will take the initiative, see problems and come up with solutions. Normally, the process is there is some extreme pain. There’s extreme adversity where the narrative changes. The context and the way of doing things change. Speak to that. You have been writing a lot about potential Black Swan events. Can you comment on those two things?

If you’re an entrepreneur, you’re out taking risks. You’re going to fail. Things are going to go wrong. With entrepreneurs, you need to learn quickly that failure is another way of finding out more rapidly what doesn’t work. That took me a lot of deprogramming. If we’re thinking about, “What’s a new campaign? How can we reach more people?” I’m going to try and plot this whole thing out. There’s something to be said for the fail early, often fail and fail quickly. Try something. Learn from it and keep going. Our school system punishes that behavior. Everything is supposed to be the next right step. Entrepreneurs, you need to find out very quickly what you’re good at, what you’re not good at and who are people you can rely on. Build your team. Do all of that stuff and figure out how you can move quickly. Some people are wired for that. They end up being entrepreneurs. They drop out of Harvard because they have to start something called Microsoft. For other people and for me, it’s a learning process. How can I be okay with that? I know people who changed me because I watched them. They’re excited by their failures like, “That bidded early.” I would be a little bit more hesitant around that.

Even though with everything that’s going on in the world, as you and I are talking, I don’t know that a tanker didn’t get sunk in the strait and oils are about to triple in price, which could blow up a million business plans. You need to be aware that these Black Swan events can happen. For people reading, the Black Swan event is coined by Nassim Taleb. He’s a quantic economist guy. A Black Swan event has three characteristics. One is nobody saw it coming. It’s rather unanticipated. It has a big impact. Afterward, all the experts are going to tell you why it happened. They’ll explain it post-facto. It’s because they didn’t see it coming, they probably didn’t have a good understanding. Black Swans are a feature, not a bug. They’re a feature of complex systems. All the scene was trying to say is in a normal bell curve of possible outcomes, the tails are fatter than we’re wired to believe. These things happen more frequently. We need to plan for them. How do you plan for something that you can’t anticipate? You have to have resilience and buffers. You have to be ready to change your operating methods very rapidly if something happens.

China decides they’re not going to trade with the US anymore and shuts their ports down. A million companies are screwed because their supply chains are entirely linked to that. The ones that survive are going to be those that spent zero minutes worrying about that and saying, “That’s a done deal.” They found a new supply chain. These things happen. You’ve got to be adaptable and flexible. What we found though is that this is almost entirely a psychological process. It’s not something you can teach at a martial arts studio like, “Do this. Wave your hand like that and you’ll be good.” Instead it’s like, “Can you train yourself to be flexible so that when something comes, you’re able to have something other than a tunnel vision still?” “I’m ruined.” That’s a point of view. “I’m not going to be ruined. Other people will. I’m moving. I’ve got to keep skating in this story.” The psychology of it is very important. That’s why we talk about eight forms of capital people can build up. That’s on the solution side. We didn’t spend a lot of time there.

TWS 9 | How Money Works

The Crash Course: The Unsustainable Future of Our Economy, Energy, and Environment

The most important form of capital is not financial capital. It’s your emotional capital. If you fall apart at the first sign of trouble, I don’t care how much money you have. That’s what we learned from all these crises that you study how and why people thrived if not beyond survived. They thrived in Zimbabwe. Even now, certain families are making their new fortunes down in Venezuela. You see all the chaos and the people who are screwed. Their tunnel vision is too tight. Russia broke apart in the USSR into Russia and the satellite states, fabulous fortunes were made. The difference in every single time was there were people who looked at that breaking moment, saw the opportunity in it and skated into it as hard and fast as they could. Luck plays a little bit of a role, but chance favors the prepared. That’s how we’re looking at this. It’s to understand the context so that you aren’t surprised. You can spend the least amount of time being surprised. You can keep moving. There’s going to be a lot of opportunity in the story and a lot of loss too.

The catalyst for those that win in the end is preparation.

I like what Scott Adams, the creator of Dilbert, says about this in a book. He says, “Goals are for losers. It’s systems.” The example he says is if you say, “I want to lose ten pounds. That’s my goal.” Almost nobody achieves that goal. You put a system in place, which is, “I’m going to wake up fifteen minutes earlier. I’m going to eat like this instead of that.” You put your system in place. Your system runs. Before you know it, you’ve achieved all these other goals.” The question is, “What are your systems of mental preparation? How are you taking the time in any given day to make sure that you are as balanced and have as much mental space in your life?” It’s that you’re appropriately charged, recharged, looking at the right things, asking the right questions and not being afraid to ask the hard questions, which is, “Am I doing the right thing or should I even be doing this at all?” Those are the successful practices that are going to separate those who thrive from those who don’t.

What are some of the things that you are paying attention to? You’re focused on it as information that’s worthy of what you have learned about the past, whether it’s stuff that’s going on in the Middle East, whether it’s the political environment, the economic environment in some of those micro sectors? What are you paying attention to that you’re assuming is going to tell you about what’s to come in the future?

Nobody can predict Black Swans. They come when they come. Afterward, we’ll all try and figure out what happened. I’m fortunate to have this job that I do, to call it a job even. It’s to read all day. I’m probably reading close to eight to ten hours a day and then writing and synthesizing. I spent about a quarter of that on world events. I’m not a geopolitical specialist or analyst. That’s most likely where we’re going to see a Black Swan event come. I spent about a quarter there. I spent maybe 40% on watching the financial markets. We have this theory. It’s called from the outside end. Troubles are always going to start at the periphery. Everybody’s talking about the stock market, “Did you see what the NASDAQ did?” I’m watching the edge of this thing. I’m looking at the triple C junk debt. I’m looking at funding that’s happening at the margins. I’m watching the weaker countries. This is where you’re going to see the first warning signs that something’s gathering steam towards the center. I spend the rest of it stretching my mind out.

I’m checking out a full lecture series by a Stanford professor on human behavior. I’m trying to understand how humans are wired. There’s a biological side. That’s fun. You can get a Stanford education for free if you have YouTube. There are great lecture series there. I’m reading a lot of books about things like NLP, human psychology, trauma and things like that. I’m trying to understand how we’re wired and how that comes together. What I care about is not that people have information but that they take actions. There’s always a gap between those two things. Understanding belief systems and how we’re wired are critical things to understand. You give somebody all the information in the world, but they may still not make the right decision. Marketers have known this for years. People make decisions based on an emotional. This is not denigrated. Emotions have steered us well for many millions of years of evolution. They’re finely tuned. I tell people to trust their intuition a lot. The question is, “Is there a way to hack into that system and understand how I can change my own belief system even faster?” If I find that, I’ll share that.

Failure is another way of finding out more rapidly what doesn’t work. Click To Tweet

There are lots of books out there that discuss our unique way of looking at the world and our decision-making process, which you’ve alluded to is, for the most part, done through our emotional and instinctive reactions to things. You find people very seldom that are able to create that system of making a decision, where they’re able to balance or mitigate their emotion. Oftentimes, emotion doesn’t do the best outcome. Have you read Robert Greene’s new book, The Laws of Human Nature?

I have not.

He wrote The 48 Laws of Power and a few other New York Times best-selling books.

I’ve read that one. That was a great one.

I haven’t commented that much but this is what we’ve been discussing on the show. It’s a lot of these topics. It’s interesting to see the alignment. I see a lot of others that are speaking to these things as well. Hopefully, this convergence of theory around what’s to come in the future allows there to have some breakthroughs by people to take control. In the end, the theory and the strength of that theory aren’t one person. It comes down to a larger group of people that are able to help to combat the status quo, which is also in a sense gaining power.

I love the topic area. I’m learning a lot about it. It’s a little bit of art and a little bit of science. I love where science is going with this. Once upon a time, you had this crude ego, id, Carl Jung, great giants. We’ve learned more since then. We understand the neurobiology and the neuroendocrinology. We understand the sympathetic and the parasympathetic system. We understand our amygdala. We understand the wiring a little bit. Even with that, understanding is nice but insufficient. We can understand how to take our associate thought trees and begin to use those to rewire things. Our brains are more plastic than we thought. This is a dialogue between the emotion and the cortex. There are ways to get to change that more rapidly.

Seeing how that’s advanced and how that’s developed and you’re watching all these bright people start to put some pieces together, here’s my operative model. It’s mind, body and spirit or energy. If you get all three of those in alignment, I’ve seen people make changes in minutes, including people who have been stuck in so-called talk therapy or pharma therapy for years if not decades. In minutes, with the right combination, those changes happen. Most of those things are found at the edges. That’s why I told you I spend my time at the edges. It’s a mainstream orthodoxy. Go get your main clinical psychology degree out of Case Western. They’re many years behind, what’s out there on the forefront. It proves into putting. It’s to work or not work. I’ve seen with my own eyes and my own experience that these things work. That’s good enough for me. I’m a pretty skeptical guy.

I would love to go off on that tangent about all of what you said. I’m assuming you’ve written about that on your blog and talked about that in your podcast.

It’s smattered around. It’s there, but I have all these big areas that we’re looking at. I’m trying to synthesize them into some coherent story. It’s a lot to look at. We live in the information age.

We’re overwhelmed with it. How can readers learn more about you, Peak Prosperity, your podcast and what you’re up to?

There are lots of ways. PeakProsperity.com is the main website. It has a public and also a subscription newsletter service. The subscription side is for people who want to go a little deeper into these topics and have these conversations one-on-one in a commentary behind the scene. We’re on Twitter, @ChrisMartenson. We’re also on YouTube, @ChrisMartensondotcom. You’ll find lots of people who want to start somewhere. The first time they’ve heard of me, they haven’t watched anything. Start with the Accelerated Crash Course. It’s 53 minutes. It takes the entire body of the three E’s and plunks it down into one spot. That will change your life if you haven’t watched it before. It has for a lot of people. Start there. Our book, Prosper!, on Amazon is the solution set. We go into each of those eight forms of capital, financial capital and emotional capital. There are six others. We break each one of those down with the hypothesis that if you’re rich across all eight, you’re going to be resilient, happier, healthier and more ready for whatever’s coming in the future, whatever that is and whenever it comes.

Chris, it’s been an honor to have you on. Thank you so much for sharing your wisdom.

Thank you.

Important Links:

About Chris Martenson

TWS 9 | How Money WorksChris Martenson, Ph.D. (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of PeakProsperity.com (along with Adam Taggart). As one of the early Econo-bloggers who forecasted the housing market collapse and stock market correction, Chris rose to prominence with the launch of his seminal video seminar: The Crash Course (also published in book form, Wiley, March 2011).

It’s a popular and well-regarded distillation of the interconnected forces in the Economy, Energy and the Environment (the “Three Es” as Chris calls them) that are shaping the future, one that will be defined by increasing challenges to growth as we have known it. Of course, such warnings need solutions, which is why he and Taggart published the manual Prosper! How to Prepare for the Future and Create a World Worth Inheriting.

In addition to the analysis and commentary he writes for millions of readers at his site PeakProsperity.com, Chris’ insights are in high demand by the media as well as academic, civic and private organizations around the world, including institutions such as the UN, the UK House of Commons and US State Legislatures.

 

Love the show? Subscribe, rate, review, and share!
Join The Wealth Standard community today:

How You are Affected by Monetary Policy and the Federal Reserve

You may be asking yourself, “What do the Monetary Policy and the Federal Reserve have to do with me and my personal finances?”  The answer to that question is – Everything!  Looking into what has occurred over last 5 years and how it has changed the Micro and Macro economic landscape, one needs to be aware of and understand the Federal Reserve and its monetary policies. The reason being is that our global, national, state, local and personal economies can (and often do) follow the will of monetary policymakers.

In this episode of Infinite Banking Radio,  Patrick Donohoe and Brad Gibb will discuss many topics associated with economics, business owners, entrepreneurs and personal finance and why it is vital to understand monetary policy and how it can affect you, your family and/or your business.

For more information about Paradigm Life and Infinite Banking, visit our resources page or contact us at info@paradigmlife.net or by phone at 1-800-870-8670.