Mike Gleason: It is my privilege now to welcome in Dr. Chris of PeakProsperity.com, and author of the book Prosper! How to Prepare for the Future and Create a World Worth Inheriting. Chris is a commentator on a range of important topics such as global politicals, financial markets, governmental policy, precious metals and the importance of preparedness among other things. And it's always great to have him with us.
Chris, welcome back and thanks so much for joining us again.
Chris Martenson: Thank you. It's a real pleasure to be with you today, Mike, and all of your listeners.
Mike Gleason: Well, since this is actually the first time we've had you on in 2017, Chris, to get started here I'd like to have you set the stage for us because many of us continued to be confused and bewildered by the resilience of these markets. So, first off, give us your thoughts on the first 130 days or so of Trump's presidency, and then how is it that the U.S. equities market continues to soar to new heights despite what appears to be massive overvaluation? Basically, assess for us what's going on in the political and financial markets here during the first half of the year as we start off.
Chris Martenson: All right. Well, I love how you set that up, because they're actually coincident in my mind. The first four months of 2017, we saw something that has never been seen in world history, and that was central banks across the globe creating a trillion dollars of new hot money. So, if you want to know anything I think about the markets, we have to start with 250 billion thin air hot money base currency units being created and tossed into the financial systems. That really is a large explanation factor. And of course, there was this idea that Trump was coming in and that this could put some sort of a fresh air, a theme here, but let's be clear.
Trump was a surprise victory there, and at about 2:30 in the morning (on election night) with the Dow down 800 points, it rallied and got back to green by open, and no question in my mind, but that was official action, the Plunge Protection Team or somebody like that, and so I think that's the world we're in now, really. That's my setup. The macro setup is the authorities are dumping huge amounts of money into markets to get them to go higher. They're also making sure that markets can't go down at any point. They do what they can. My view is they'll do that until they can't, and then it will break and it'd be very surprising for a lot of people.
Mike Gleason: Expanding the point here, Chris, lately we have been addressing the exhaustion that some bullion investors are feeling. They have spent the past decade watching as the growth in government data's accelerated, something you've been following and documenting for years, all the way back to your amazing Crash Course presentation, which really opened my eyes when I first consumed that amazing material. The Fed and other central banks have abandoned all restraint, zero interest rates, monetizing treasury bonds, and mortgage securities, and other exotic programs. The federal government has been running massive deficits for even longer, for half a century at least, but none of this, to this point anyway, has seemed to matter.
The U.S. dollar appears to be holding up, the bond vigilantes have never shown up, stock prices are making all-time highs and no one on Wall Street seems to be interested in buying safe haven assets. Now, the upcoming webinar that you're going to be doing here very soon, and we'll get into those details later in the podcast, is titled, "The End of Money" and you will be making the case that these fundamentals do in fact matter. Talk for a minute about what you see developing and why you think safe haven investors just need to stay the course despite what appears to be a punishing environment.
Chris Martenson: Well, I'd love to. You have to have a macro view at a time like this. There's no other way to explain, when you're in the middle of the largest money printing experiment, and I use that word carefully, in all of human history. To try and think that what guided us in the past is going to be useful during the most extraordinary money printing of all time is, I think, misguided. What do we do with that? Well, I think we have to understand how much is being printed, what that actually means, what it really tells us about what the Fed is thinking, how scared they are. Listen, you've got your chips on one side of the table than the other.
Either they know exactly what they're doing and they've got this all under control, or they really don't. If you have all your chips on the "they've got this covered" side, I think it's a bad debt at this stage. So that's why we're having this webinar, is to talk with people who have pretty good insights into who the Fed is, how they were founded, how they were organized, what they're thinking currently, and really that means we're in that speculative mode still. Because were trying to figure out, Mike, what's the Fed going to do? It's not very fundamental, but we do know that fundamentally, when we back up even further, there always has to be a balance between the money you create and the stuff you buy with it. In this story, the money we create is both currency and it's debt.
They both operate like money, like if I take out a student loan for $50,000 and spend that money, that $50,000 that went out because of credit expansion. When we look at this story, the world has had the fastest period of credit expansion in the last eight years or so that it's ever had. It has this extraordinary base money creation, largest in all of history by far. It's driven up financial assets like stocks and bonds to ridiculous heights. Quite mysteriously, left commodities pretty much completely off of that particular run since 2011 and QE3. So, when we put all of that in one spot, all I see is that the claims no real wealth are increasing, and that's both the debt and the currency.
With both of these increasing as fast as they are, I know there has to be a correction at some point, and things have gotten really extreme lately, all across the globe but particularly in equity markets, places like that. What can you do? This is a crazy bubble time, you have to sit back and watch, you have to understand where it comes from. In The Crash Course, I make the case, Mike, that we're not dealing with the after effects of a housing bubble that burst in 2007. We've been growing our credit at twice the rate of our income in this story, so total credit market debt compared to GDP. The debt's been growing twice as fast as our income in this story for 45 years. That's what broke in 2008, and it hasn't been able to be fixed because it's just a dumb model.
"Hey, we're going to grow our expenses and our expenditures at twice the rate of our income." You know, you can't do that as a person, so you can't do it as a nation. That's what we've been doing and that's what I think has just gotten to extraordinary levels right here, with what the central banks are now trying to just keep this going a little longer. And we don't have a lot of history to guide us here. We have seen currencies collapse in the past, we've seen economies really struggle. You see that in Venezuela, but there's really nowhere to escape this one, truthfully, because the whole world is involved in this at this point. It's not like you're in Austria in 1918 and you could duck over the border and be in a safe country.
Where would you go, given that it's really the dollar, the Yen, the Euro have all been principally on this train? China caught up really fast in this story. Where would you go? With that, I don't have any great answers besides people need to understand the context and then begin to build resilience in their portfolio, financial resilience, but other forms of resilience around social capital, emotional capital, all of the other things that we talk about in Prosper!, because I personally don't see a way to get out of this without experiencing a lot of pain, economically.
Mike Gleason: We certainly are in uncharted waters. Now, the Fed has had a bit lower profile since the November elections. Trump has decided to stick with Janet Yellen, at least for the time being, and the constant political drama in Washington seems to be dominating even when it comes to investing news. Frankly, the constant obsession over what the FOMC might do at their next meeting had become tedious beyond words, so we've been glad for the respite. However, there will be plenty of attention on this month's meeting, where officials are expected to hike rates again.
Do you agree with the consensus that two to three more rate hikes are coming in 2017? If they keep hiking, it seems The Fed will eventually wind up at odds with Trump who would almost certainly like to avoid holding the bag during the next big economic slowdown. So, what are your thoughts about the Fed during Trump's administration here, Chris, both in the short run and in the longer term?
Chris Martenson: Well, the Fed is really just running its own script at this point in time. It's pretty independent of who's in the White House, and Trump can try and lean on them a little bit, but he won't lean on them in the way that you or I might think he should, which is to tighten things up would probably be a wise course of action. But something that I've written about and I've even produced a short video on recently, is that this dynamic you're talking about of tightening is not actually happening in this cycle. Because in 2008, Congress gave the Federal Reserve the right to pay interest on excess reserves that are held by depository institutions at the Fed.
So, the Fed prints money and of course that creates lots of excess reserves in the banking system, then the banks put that back at the Fed, and the Fed pays interest on that. The last three hikes that we've seen, going from basically a range of between zero and a quarter percent, on up to the current 1% in quarter increments, what we saw is that each one of those moments on the same day that the Fed allegedly hiked interest rates, they also increased the amount they were going to pay on excess reserves. So, now the banks have a choice. Am I going to keep money risk-free at the Fed or am I going to lend it to bank B overnight? Of course, they increasingly just chose to take the safe, sure money from the Fed, and so this is what's different about this particular story, is that now when the Fed raises rates, not only does it not remove money from the system, but it's actually adding more money to the bank system because it pays interest.
Two trillion dollars held at the Federal Reserve right now will generate at current rates, 20 billion dollars of interest income to the big banks on a yearly basis. That's adding money, that's not subtracting. So, it's totally different.
Mike Gleason: Now, you recently wrote a fascinating piece on your Peak Prosperity site about how the Fed, in your view, is destroying America. You've alluded to some of those reasons but talk about this, Chris. Why do you believe this to be the case?
Chris Martenson: Because what they're doing, it's not just printing money, but they're social engineering. They have to pick winners and losers. I know it sounds like the Fed prints money and does these crazy sophisticated things, or buys treasury at an auction, or does a reverse repo, and all these fancy names, but really all they're doing is they're printing money and they're handing it out to the market and taking pieces of debt in return for that. So, when you really look at that dynamic, the Fed has been the engineer of the largest wealth gap that we've ever seen in all of our history at this point in time. It's engineered one of the most, if not soon to be the most punishing income gaps.
It's also purposely driven up the prices of houses which if you think about it, isn't actually good for anybody except the very few people who sell and downsize, and capture that gain. It's not good for first time home buyers, it's not good for existing home owners who have to pay higher property taxes and insurance bills and things like that. But the Fed drove this up and created huge income disparities and really drove up the actual true cost of inflation in all the areas, metropolitan areas particularly, where these new private equity firms like Blackstone came in and just scooped up lots of properties. So, when you look at all of this, what is The Fed really doing?
Well, they've locked out the millennial generation pretty handedly. They've enabled the federal government to go forward with even more aggressive indebtedness, in taking on more debt. They've really encouraged, if not almost forced corporations to engage in financial engineering, because hey, if you're a CFO, you can borrow 1% and retire dividend yield in stock at 2%, do that all day long. Makes total sense, but companies have been doing financial engineering, not productivity engineering. So, all of these things you can lay at the feet of the Fed, and listen, if they wanted to run six months, maybe 12 months of emergency interest rate cuts, back in 2008, early in 2009, I would have said okay.
But how long are we into this now, right? Depending on how you count it, we're at least eight years into this thing, maybe nine, and that's a pretty long emergency don't you think? And all that's happening during this emergency is we're watching those things I just described, just get wider and wider, and wider. More financialization, less investment. Harder starts for students and millennials and other young people coming in, not easier. Really low business formations, because a trillion dollars of interest income didn't go to people who are the traditional savers, the moms, the pops, the dads, grandmas, who then take their interest income, that trillion missing dollars and use that to help their sons and daughters and granddaughters and grandsons start businesses.
So, we're seeing all of these effects, and of course, just the big mystery is that really it's not talked about all that much yet, but it should be.
Mike Gleason: In terms of the metals, Chris, it's been a decent but unspectacular year, despite what appears to be the ongoing price manipulation schemes of these bullion banks. What are your thoughts on the gold and silver markets?
Chris Martenson: Well, I'm just going to deviate slightly into the Bitcoin market, and noticed today, I think it's around $2,300 or so. It's been gyrating a bit, and I know it was higher recently, but just watching how those prices are actually behaving, that to me looks something like a free and fair market, right? You can actually watch and make sense of the movements in those markets. As you and your listeners really well know, that once the leverage paper market gets wrapped around any market, it's now open to the players who want to control those markets to do what they will.
So, in my mind, really important article for everybody to read, two weeks ago roughly in the Wall Street Journal, we had that article about how the quants, all these people who have the math skills who can come in and write the algorithms that now run Wall Street. Those algorithms have access to huge amounts of capital, most of them are really trading at millisecond, maybe microsecond speeds, and they're running around doing things in various markets, including the precious metals markets. I think those have been under basically the direct control of the bullion banks for quite a while, and it's been their own personal piggy bank, if you will. And hey, that all makes sense, right? But as you know and as I know, those gains can't go on forever, and at this point, I think gold and silver have found what feels to me like a base here, hopefully.
I have a strong sense that when this next financial crisis or paralysis comes along, that people are going to want safe haven assets at that point, and the safer the better. That's because I think there's institutional risk, possibly even sovereign risk. Things could really get hammered. Once you understand how extraordinary the leverage is in the system, and where the debts are distributed, and who is, who what, it really doesn't add up well. So, if that gets called into question, guess what? Having precious metals is going to be a really important thing to do, and as we've discussed before, you're going to either have them before that moment comes, or you probably won't have them after. That would be my guess, seeing how quickly those markets can dry up.
Mike Gleason: Your website Peak Prosperity focuses on preparedness and self-reliant living. You can find communities there with interests ranging from investing to living off the grid. Are there any particular topics that members there are focused on at the moment? What are people interested in these days? We assume it isn't all Washington D.C. politics all the time, so what are people in your sphere concentrating on these days, Chris?
Chris Martenson: Oh, good question, but we've been talking about a variety of things, all across the spectrum, really. At this particular juncture, we're not spending nearly as much time on politics as you might think. What we're pretty interested in is where the market's going, what's really happening across certain geopolitical areas, not U.S. politics, and interestingly, a third and growing area on our website is talking about how would you simply be in this world today?
Like, how we conduct ourselves, how are we living into the stories that unfolds, because these are brand new times. Increasingly, Mike, I'm running into people who get it. They're like, "Ah, something is off in this story. We know it." Some people understand it, some just feel it, it doesn't matter. That's really what a lot of us are talking about at Peak Prosperity now, is how do we stay focused? How do we stay in the game? How do live in a way so that we're really enjoying ourselves today? But we're also prepared for tomorrow, and so increasingly, I think it makes sense. This has been a fairly long, slow, topping process that we're in right now, and I think there's a sense here that we don't know how much this can continue, right? It's just tiring to be on alert all the time. What we're talking about is how not to be on alert all the time, yet be prepared at the same time, if that makes any sense.
Mike Gleason: Well, as we begin to wrap up here, and before we get into some more of those details on your upcoming webinar, give us your thoughts on this period of calm before the storm that we appear to be in right now. Many were calling for a tumultuous year in 2017, coming off of the chaotic year we had in 2016, with Brexit and the crazy U.S. election and so forth, but to this point it hasn't really materialized. What is it going to be that throws us off course, derails this historic rise in equities, and changes the economic landscape and then ultimately gets precious metals back into the consciousness of the investing public, Chris?
Chris Martenson: Well Mike, a lot of things could do it, of course, but what will do it is hard to say. This is a complex system. After the fact, people will point back and say, "Oh, it was when the German Finance Minister said that" or something, right? We'll try and identify, but we have giant bubbles at this point in time. Nobody knows when bubbles are going to burst, and they always do it in a surprising way. It's part of their definition. I've been thinking that this can't go on much longer for a while, and it has, so Iím adjusting accordingly, and understanding, "Yeah, they've really got a pretty good sense of control on the system, but look how much it cost us?" Again, rewind. I think the most important information people can have is a trillion dollars had to be put into the system to basically hold everything elevated.
Slight gains, but really honestly, mostly just bumping along. That's a really astonishing situation. I like to follow what the central bankers are doing, not what they're saying. They're saying everything's great, but they're doing emergency measures in the highest amounts ever. So, given all of that, I think it just makes a lot of sense for individuals to take action based on that, to make themselves prepared, make themselves more resilient, and thereís lots of things people can do. By the way, almost all of these things that we would recommend, if not all of them, are going to make your life better today. People will not look back on getting ready in the way we suggest, and say, "Gosh, I shouldn't have got in shape. I probably shouldn't have saved so much money. It's too bad I have this functioning house."
Nobody's going to say that. So, I think this calm before the storm is the time that we use as the gift that it is. It's still very easy, relatively speaking, to take whatever steps you want to take, and becoming prepared while things are really unraveling is a bad strategy. It's hard to be efficient, it's hard to be calm, it's hard to be rational if you're in the middle of all that when it happens. That's been our advice, it's been our advice for a while. Hasn't really changed and I honestly, I don't know how much longer this can go on. It's surprised me every month of the way so far.
Mike Gleason: Yeah, youíve got to fight that complacent, and then also like you mentioned, when things are unraveling, that's not when you want to be just now starting to think about what you're going to do in those situations.
Well Chris, thanks so much for your time and your wonderful insights. Now, we've touched on it a bit already, but talk about this upcoming webinar. When it is, who's involved, and then share a little bit more about what you'll be discussing, and then of course how people can registered for that, because it will undoubtedly be very worthwhile and informative. Give us the info there, if you would.
Chris Martenson: Sure. So, the structure is it's a webinar, it's about two and a half hours long. We have three special guests on there. Each one of those guests is going to speak for a period of time, and also there will be an opportunity for live Q&A for the participants who've registered for this webinar. The cost is $50 and the three guests we have are G. Edward Griffin, he wrote the book on the Federal Reserve, so he's the author of The Creature from Jekyll Island, which I'm sure many of your listeners have read. We've got David Stockman, former head of the Office of Management and Budget under Reagan. Was a U.S. representative and a pretty frequent commentator on the macro conditions in the markets. He's going to be helping us understand those conditions. Also, what's happening in Washington D.C. because the politics here are probably going to shape Fed policy as they have for a while. Will the Trump tax cuts go through? What's the infrastructure plan looking like? We're counting on David for that.
And then, Axel Merk heís the person who knows more Federal Reserve officials than anyone else I know. Both current and former, he just came back from a whole two or three day event where I think there were 20 Fed officials at, so he got to talk with them, and read the tealeaves and read the body language, so hopefully he'll be given us some insights into what comes next.
Again, so this is on June 7th, it's at noon, and it's going to be a live webinar. So people who signed up for that also will be able to download and watch that later.
Mike Gleason: We've got a link to the webinar registration page from this podcast page on our site, and we urge people to sign up for that. It's a truly great lineup of participants and it should be fantastic.
Well, excellent stuff as always, Chris. It's been great to talk with you again and thanks for being so generous with your time today. Much success with the upcoming webinar, continued success with the book, and I hope you enjoy your summer, and I look forward to catching up with you later this year. Thanks very much, Chris.
Chris Martenson: Thank you so much.
Mike Gleason: Well, that will do it for this week. Thanks again to Dr. Chris Martenson of PeakProsperity.com and co-author of the book Prosper! How To Prepare for the Future and Create a World Worth Inheriting. Check out the site for information on that, as well as next week's webinar on the ďEnd of Money,Ē which is June 7th at 12 noon, Eastern Time. Just go to PeakProsperity.com/webinar for more information.
Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.