On this Flashback Friday episode, Jason Hartman hosts James Dale Davidson, co-founder of Agora Publishing, Founder of the National Taxpayer’s Union, co-editor of Strategic Investment for the Sovereign Society, and founder of Newsmax. They discuss James’ latest book, The Breaking Point: Profit from the Coming Money Cataclysm. James gives his thought on how Obamacare is a disaster. He also discusses Chinese ghost towns, money printing, and other terrible economic policies.
Announcer 0:00
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy. This show is produced by the Hartman media company. For more information and links to all our great podcasts visit Hartman media.com.
James Dale Davidson 0:25
Welcome to the holistic survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The holistic survival show is your family’s insurance for a better life. Jason will teach you to think independently to understand threats and how to create the ultimate action plan. sudden change or worst case scenario. You’ll be ready Welcome to ballistic survival your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.
Jason Hartman 1:12
It’s my pleasure to welcome James Dale Davidson to the show. He is the co founder of a Gora publishing, the founder of the national taxpayers union, co editor of strategic investment for the sovereign society. He’s author of the best selling books, blood in the streets, investment profits in a world gone mad. The sovereign individual mastering the transition to the information age, the great reckoning protecting yourself in the coming depression and the new book, the breaking point, profit from the coming money Cataclysm. James welcome. How are you? I’m great. You too. I Oh, yes. Yes. Well, we’ve we are we are talking post election and you are my first post election guest. That was quite an amazing victory for Trump. It seems as though the silent majority has spoken and the mainstream media has lost a lot of credibility. What are your thoughts?
James Dale Davidson 1:58
Well, they should I’ll tell you I, I sent Donald Trump a congratulations for winning the White House the day before the election. You just miss the Russia? Yeah. Because I thought it proved he’d done a fantastic campaign. And I think he says sussed out, the basic fact that I try to analyze in detail and the breaking point, which is that the whole business model of Western civilization is to put and almost necessarily the consequence, the social contract, which underwrote and supported that business model, is also could put, and I think we’ve seen in Brexit, and then the election of Donald Trump as president of the United States. There’s strong evidence that my basic thesis is correct.
Jason Hartman 2:47
So tell it tell us why you say why why is the western business model complete? Are you when you say that are you referring to the welfare state, the massive debt spending, government entitlements, issue or something else
James Dale Davidson 2:58
with a whole list of issues But they’re combined into what was basically described has been described over the years as big government, which was principally an invention of this of the last century, the 20th century. It’s a reflection of a system which has evolved in a way from its the advantages it once had. There were, there was a time when the welfare state paid its way. And you needed a gigantic, one size fits all system in order to manufacture the weapons that you needed at a mass scale in order to preserve your prosperity slash independence. But that is sort of gone. Sometime in the middle of the last century, there was an inflection point where it was no longer an advantage to have what Napoleon described as the big battalions. He said that famously the guard was always on the side of the big battalions that as from about nine In 50, Gods seaside with the big battalions, and more frequently than not in an asymmetrical conflict between a ragtag group of terrorists like ISIS and a nation state like Iraq, the terrorist one, we saw the the Vietcong defeat the US in the rice paddies of Vietnam, we saw the absolutely ridiculous expense in the war in Afghanistan, which has gone on forever. Donald Trump, correctly, in my view, analyzed and disputed the value of spending six or $7 trillion in ceaseless wars in the Middle East that accomplish nothing, just to make the world less safe. We have it
Jason Hartman 4:44
Okay, so so when when you say Western, the western business models could play, just to help let me just kind of help understand that here if I can. It’s the idea of the big one size fits all concept to a more customized table. approach or
James Dale Davidson 5:01
tell us more. Here’s what I think goes along with, as I said it was a whole hornet’s nest of issues. Part of it is that there was a time when government big government could efficiently provide a certain amount of welfare benefits to people. And this kept the system lubricated, paid its way, there was a little bit of, or there was some effective stimulus from doing this, which led to more purchases, and the economy sort of sped up as a result. So it made its way but it seeks to pay its way. And this is evident in the fact that every government in the Western world is running chronic deficits at a level that make it almost a heart attack country if you try to imagine how these debts could be paid. with normal interest rates. That’s why the interest rates have tripled in visibility, which is wiped out grandmother’s pension Other people’s pensions as well, and the left the world
James Dale Davidson 6:04
in a deflationary stall.
James Dale Davidson 6:08
And this is part of the whole, the whole story, we lost the impetus of growth, which existed in great measure in the 20th century. And which really began to get going in the early 19th century after the industrial revolution in England. We had our own industrial revolutions in the last half of the 19th century. And we really cooking with gas as I say, after a while, there was a huge increase in life expectancy. People were doing better. Now, one of the reasons I think Donald Trump was elected president is because life expectancy among white middle class people in the United States has been fine. It’s sort of the same kind of indicator that you saw before the collapse of the Soviet Union, when life expectancy for Soviet citizens began to plunge, which happens when you have poverty and the lack of effective job They’re no effective. The most people that really know no financial reserves. I think 70% of Americans couldn’t pay an emergency $500 which is what made it I know that’s mind boggling, which is what made Obamacare so disastrous because as Donald Trump was emphasizing in the election campaign, the deductibles are through the roof. So if you have a $15,000 deductible on your Obamacare insurance policy, that means you can ever use it. If you’re one of the 70% we don’t have $500 even $500 deductible will make it useless. That 15,000 makes it and puts it on another planet. It just doesn’t work. And I think that’s why the social contract is fraying because basically what has happened is that we’ve moved away from mess. industrialism, which gave unskilled people jobs. I’m different from Donald a bit in this feeling that you can make America great again by bringing back jobs. Now, it’s true that many factories have moved to Mexico, China all over the place, and many of them are close. But it’s not just the Chinese and the Mexicans who are undermining the demand for unskilled labor is also technology. You can look one of the most prevalent high paid jobs in the United States is truck driver for unskilled or low skilled people.
Jason Hartman 8:29
But as you may know, Mercedes Benz and others have developed driverless trucks and in train transportation. Well, they’re going to displace a lot more Oh, yeah. It’s going to displace a lot of people transportation itself in all its forms, not just truck driving is a giant industry, one of the largest in the world. So yeah, we’re in for quite a change with automated, you know, robotics and automation.
James Dale Davidson 8:50
Yeah, no question. Do I think we’re sort of stuck in the midst of a very important global development, probably the biggest one in centuries. The kind of revolution because the industrial period began with a bit of discomfort about the change away from the agricultural social contract, which involved most people being peasants on biggest dates. And you know, that was always a great divide between the United States or North America and Europe. In Europe, people were peasants. They couldn’t own their own land. They work for the Lord on the estate. And that’s why they seem so attracted to cross the ocean and go even to Chile spotlite, Minnesota, where you could get your own hundred and 50 acres with a mule or something and
Jason Hartman 9:41
ended up being a landowner and an independent person. All this was great. That was the American dream. Absolutely. You can control your own destiny, and that’s the way that’s the way it should work. Free people and free markets, no question. So, talk to us a little bit about your thoughts on a Trump presidency and the economy. I mean, what’s next what What can we expect in the first hundred days? The first six months that you know, the first year?
James Dale Davidson 10:04
Well, I think one thing that is next is that he’s going to repeal and replace Obamacare. That is definitely, definitely on the horizon. And I would think that if you wanted to know more about what the replacement law will look like, you probably need to drill into what the republicans have proposed in the House of Representatives, and have tried to pass during the last years of Obama’s presidency. Obviously, it wasn’t going anywhere. I couldn’t pass the Senate with a veto implied by the filibuster. And it certainly would not pass an override on Obama’s veto. That would have happened if he if legislation had gotten out of Congress. But I think some of the details may well be there because it’s going to take a while to replace the law as big as Obamacare, which as you probably know, was devised by the pharmaceutical industries Association. Gave billions in support of it and actually wrote the legislation in many, many parts.
Jason Hartman 11:05
Tell us what what the pharmaceutical industry what what’s their motivation on Obamacare?
James Dale Davidson 11:09
Well, its purpose perfectly obvious they were getting subsidies that they were forcing people to buy, to enable others who previously may not have had the wherewithal to buy their medicines to get prescriptions, and through the Office of Obamacare, presumably their prescriptions would be filled. And you’ve got this, the system one of the things that we look at in the breaking point is this horrible, symbiotic relationship between the drug industry, the medical profession, and the food industry, which is then busily creating patients for the medical cartel. Yeah,
Jason Hartman 11:52
that’s just that’s just really sad. It’s a cycle. I know. But but then then then you have Michelle Obama, you know, as First Lady talking about how Food and having a garden and all this stuff, but it’s just the complete opposite seems to be happening. I mean, the obese, obesity epidemic and diabetic problem is massive, no pun intended.
James Dale Davidson 12:10
And it gets worse because, you know, one of the things that the drug companies do is they push the statin drugs, which has adverse effects on your heart, because they end up screwing up your coenzyme Q 10. energy sources for for the heart. And it’s been shown that they increase the propensity to diabetes. And so the, the satin drugs are very profitable. They prescribed people who take them stupidly, like the people who listen to the media, who are then told, well, Hillary Clinton is going to win, you better arrange your portfolio along those lines, and then hit the middle of the night you have to get up and try to sell them sell or buy in Tokyo or something to do off the risk that has been created. Because they were misled about everything. And this is what happened in Brexit. You know, the huge market fallout from Brexit reflected a lack of proper discounting of the actual situation. And the news media do everything they can to persuade people, not of what is actually going on, but to persuade and what’s not going on, you know, it’s not as somebody said, it’s not what you know. It’s Mark Twain said it’s not that you know, that you’re just what you know, it’s a cup that you don’t know that’s whenever do what you know, that isn’t true. With Gil, you do anyway, we have what has been described as the curtain of Oz pulled up in people’s eyes with the Wizard of Oz behind the curtain and we’re not supposed to look at it. But we’re, we have to look because the illusion of growth is sort of over. Donald Duck, he’s going to revise it, revive it. I’m not sure how easy it will be. the breaking point I make the point that the the buildup of regulation since 1949 has apparently, according to quotes, studies have reduced the GDP so much that the average person has $125,000 less to spend annually than he would do without the regulation. No, no. So maybe something get rid of some of that we could see.
Jason Hartman 14:26
We shall see if he’s able to reduce regulations. Well, this is the first time in a long, long, long time that we’ve had an outsider step into the Oval Office. It’s the first time in a long, long time that we’ve had an actual business person, step into the Oval Office. And I believe it’s the first time ever and I say this because a lot of my listeners are real estate investors, as am I, that we’ve had a real estate guy in the office. What do you think about that, that does that? Do do? Do those things hold a lot of impact for people. Well, I would Say that there’s one thing that holds him back, which is that Donald Trump is a man who understands the political process well enough to circumvent it. Because the whole process is designed to stop development and prevent people doing things. And he’s managed to do many things. That was all impossible because he got through got the permissions, just went ahead and did it. And we need some kind of
James Dale Davidson 15:27
business savvy, I think, to improve the quality of decisions made in politics. I’m not sure whether he’ll be able to do as much as he hopes he can do, but I think you’ll do something and will have a much, much more separation and there was forgotten. Man will be forgotten the longer right Yeah,
Jason Hartman 15:50
bye. I had Amity shlaes on the show before the the author of The Forgotten man this great book, it seems like Trump is really going to get something done and I mean, you know, we the Right now has control of two branches. So and you know, he’s probably gonna point to maybe even three supreme court justices. And you know, with the Senate on his side, that’s going to happen. This presidency is going to have a lot of impact, isn’t it?
James Dale Davidson 16:14
But one thing he’s going to do, I think it’s definitely cut taxes. And I hope he does something that George W. Bush backed away from, they had a consideration of actually revising this horrible tax code that the lobbyists sort of sat on that so they said, Oh, no, let’s just cut the rates and leave the the whole architecture of the tax system as it is. And Donald Trump has the good sense to know that you can’t compete effectively. In a world where we have high costs anyway. And we then have the highest tax rate in the world as a corporate version of taxes. 35% you’d have to go to some really remote Third World hellhole to find a tax rate higher than if it is one And I think he knows that this is definitely helping to drive business out of the country. And it’s reducing the amount of investment here we have a large portion of our stock market that capitalizes sales and activities outside of the United States that are owned by US companies that are under the ambit of a specific trading symbol, but their business is going on someplace else. We have all the trillions of dollars that have been parked offshore, for good reason, because if you bring it back, you feel you get killed on taxes. Yeah, so the the counterintuitive thing that the left has to remember is that, you know, if you do an amnesty or you reduce tax,
Jason Hartman 17:37
the stuff comes back, the money flows back and the jobs flow back with it and and the GDP comes back with it. So that that’s
James Dale Davidson 17:45
thinking that the lot of the nuts are interrupted, I will. I think a lot of what he’s looking to in the way to at least begin the financing of the infrastructure rebuild that he has in mind will come from the 10% tax, but he’s The books imposing on the repatriation of money that’s been parked offshore and basically forced offshore by the tax laws. It’s always been amazing to me, James that liberals just do not understand. Or at least they pretend like they don’t understand
Jason Hartman 18:19
that. You know, people in the marketplace react. You can’t you know, I mean, you listen to people like Bernie Sanders especially, I mean, he just drives me nuts. It his his views were so immature, you know, oh, we’re gonna just tax the rich, we’re gonna do this. We’re gonna do that. Well, what do you think they’re gonna do? Just sit by and let you do all that. I mean, they’re gonna react, they’re gonna do thing.
James Dale Davidson 18:39
Well tell you something. Listening to Bernie Sanders made me nostalgic remarks. March wasn’t the video. Yeah. You read Marx, which I actually did, because I went to Oxford, where I had to read. He had a lot of deep insights into the way the world works. And one of the things one of his insights that I take advantage over in the the breaking point is he said you can’t make the country rich with fictitious capital, by which he meant quantitative easing. Money just spun out of thin air. Marx believed in the gold standard. He was not a complete moron about the.
Jason Hartman 19:17
That’s interesting.
James Dale Davidson 19:18
Yeah. And I see this whole frame your dream.
James Dale Davidson 19:24
Very, very
James Dale Davidson 19:27
instructive about the liberal views. But I wanted to give you an example of a liberal did understand, at least under certain certain under the right circumstances, how incentives mobilize activity. Al Gore remember when he sold his useless television network to Yes, I do. Yeah. Right. Yeah, he had to get the deal closed before the end of the year because the Bush tax cuts were going to be repealed in the next year. Typical leftist hypocrite.
Jason Hartman 19:57
They all they all take advantage of everything when it’s in there. savor but spout a different message to the the hoi polloi.
James Dale Davidson 20:03
Well, they understood it when he knew that he was going to pay this, this amount of millions if the deal closed when the tax laws were more punitive than they were in the previous year, so that they really scurry to get the deal closed, so he wouldn’t have to pay the extra Obama tax on his lottery winnings.
Jason Hartman 20:25
No surprise. It’s just unbelievable. In the in the breaking point book, which can be pre ordered. Now, by the way, you know, in the in the table of contents, you talk about the idiot principle of deflation, and you also talk about the next next stage of capitalist development, two consecutive chapters or 20 and 21. You know, with the Trump presidency, inflation, deflation, sort of status quo, you know, Fed policy, Danny, anything their thoughts that you have?
James Dale Davidson 20:54
Well, my honest opinion about the Trump presidency is that it in some way indicates an inflection. About in fight against inflation. If you go back to the Volcker days in the 1980s, when he hiked the interest rates to the sky, because they recession and also launched the greatest bull market and bonds and history of the world, where they went for the interest rates on US Treasuries went from 18 19% of visibility. I think this is the moment that you take your profits in bonds, if you’re holding them. It’s an opportunity to get out with a strong bid. Since I think that what Trump is doing is he is embodying the protest on the part of the 90% of the population against wage deflation, and one of the biggest ways that the system works has been through
James Dale Davidson 21:57
opening the
James Dale Davidson 21:59
US Political ecology to competition from abroad, which implicitly brings the end of unskilled labor in the United States into competition with billions of people working for pennies elsewhere. And this has had the effect of keeping wage costs down to all the gains that have come from that have flowed to the owners of capital, or most of them had, along with the hangers on in the education system, and the legal system, were sort of parasites on the whole deal. There was a time when there was in the high water period have been done part of fixed industrial capitalism, say when Henry Ford was building this giant plants that were, you know, at 30 miles of railroad track and one plant and they were making steel and glass and everything else in the world, but they’re leaving even wanting to have his own rubber plantation in Brazil. So this was All encompassed in one entity was all rolled up into a giant business which had ultimately was shown to have diseconomies of scale, things have gotten too big. Stalin and Hitler were really totally turned on by Henry Ford’s factory system, because it to them was a way of circumventing the free market. They didn’t want to have to have the various processes of production bid up to the market to different contractors. So you could have Stalin send somebody to Detroit to order a version of Henry Ford’s factories, to build
James Dale Davidson 23:42
tractors in Gorky, Russia. He did, he did. And what happened was that that’s
Jason Hartman 23:46
fascinating. I have
James Dale Davidson 23:46
no idea. Well, it’s really built them and they did build them. So it was, you know, the difference between the gigantic capitalist enterprise and this what Lenin called state capitalism, which is what we call communism during the old Cold War, the whole Cold War was, huh. It was a fine distinction. It didn’t, it didn’t work as communism versus the state capitalist system really did work. And we’re converting our own autonomy into a state capitalist system with instead the pullet Bureau, hiring a group of planners to orchestrate the five year plan. We have a group of clueless idiots in the Fed, meeting every once in a while, and creating the de facto five year plan where they hike interest rates and change the capitalization of everything in society based on their own whims. And they also do what Marx told us never works, which is you’re creating this fictitious capital that raises the price of every thing that they can bid it on. But you know, this is also another reason why people were offended and upset with the status quo. You Because they remember from 2008 2009, that the banks were bailed out to the tune of billions. But little guy on Main Street wasn’t bailed out to the tune of even thousands. He got no bailout. When they create the money out of thin air to fictitious capital, it goes to whom it goes to people with collateral they can borrow, and they get the money at zero, or nearly zero interest costs. And it’s created a whole ricochet effect of assets being created around the world and what’s known as a carry trade where if you had any sense at all, you could see that you can borrow money next to nothing and take it to another country and invest it at a high interest rate. You could make a fortune. In my newsletter strategic investment, we show people how to make hundreds of thousands of dollars by the Brazilian government bonds that were paying 12% interest. So what was the interest rate on the on the US borrowing practically nothing. If you had if you Got a collateral if you had a good balance sheet you could borrow money at almost nothing. And I know from specific experience I’m a founder of a company called Newsmax, which is a media operation has a lot of financial newsletters a very good company. But we had at one point a partner who is now deceased unhappily who lives in Mellon. And I’m not giving away too many close secrets to say that because he had a portfolio of hundreds of millions of dollars, because a lot we could borrow money for practically nothing on the front of his portfolio. And anybody else who had a portfolio like that could have borrowed money for almost nothing. So if your costs are less than 1%, for the borrowing, you can take a risk of going to Brazil and buying a zillion government bonds that are paying 12 or 13% interest. You got to That’s a huge margin to work with. And in the beginning of that trade, the Brazilian real actually rallied against the dollar. So that’s why our gains were so stupendous. You’d have to move on, though as soon as the reality starts to go down. And that’s why all these things have their self limited. And this is part of what I think is going back to this idiot principle of deflation, I don’t think it’s an idiot principle. I think it’s a it’s an inevitable consequence. As fa hyack told us long ago, when you have the inflation, you’re basically making a decision to have the deflation and the only way it will be prevented even more inflation if you layer over the previous inflation.
Jason Hartman 27:40
Right, right. But, you know, it seems as though the inflation business plan, if you will, is a very good deal for governments that have massive amounts of debt and governments that want to basically lie to the population and and keep them happy. So why can’t they just always make when you have a reserve currency and the biggest military in the To keep it that way, you know, not lose your reserve currency status, of course referring to the US, why not just just kick this can down the road forever. I mean, who’s to say when it will end?
James Dale Davidson 28:10
The first thought is that there’s a financial reason why you can’t do it. And I would point to what happened with the mortgage backed securities, Fannie Mae, Freddie Mac securities, which were construed as triple A critics when the year 2008 began, but somewhere along the way, who was contrary, Hillary Clinton is not a moron at all, realized that this was completely untenable. So he get Russia. He had Russia, the Russian banks and everything, sell all of their mortgage backed us securities and Fannie and Freddie paper, and the Chinese saw the kootenay done and they did the same thing. So the value of this paper collapsed, but previously it had been the foundation For a lot of lending for these investment banks that didn’t have enough capital to support their portfolios, which is even worse today in Europe, with Chuck bank, like Deutsche Bank
James Dale Davidson 29:13
$70 trillion
James Dale Davidson 29:16
revenue portfolio, which is, you know, some huge multiple of the German economy, way that it could be supported. So where’s the capital from the capital right now and for supporting Deutsche Bank is borrowed mostly in the form of collateral, which has to be usually government securities, government bonds. These government bonds are hypothecated and rehypothecation. We think of them being used over and over again. It’s like if you were you, you and I went to Las Vegas and decided to bet on things that we had. We wanted to know how much money we could bet. And we look at our profits and we say, Well, we’ve got together $2,000, so we’ll get the $2,000 together, and we’ll put the chip on the table we’ll use the 2000 as collateral. To borrow more chips that will borrow $60,000 just for the sake of argument, and that are a hell of a lot of things. Well, if our bets go bad, they’ll seize the federal handle, daisy chain will collapse. This is what happened with the Freddie and Fannie paper. They were using it to fund Lehman Brothers. But when putting in the Chinese so that paper was seen no longer to be as good as treasury bonds, even better for treasury bonds when the point of view the owners because it had a higher yield. But what happened? Well, Bush got busy and tried to get a government guarantee for the explicit guarantee for the Freddie and Fannie paper, but it didn’t come through in time so they could no longer price those debts as triple A paper, and then there was no longer enough money in the system and no longer enough collateral to support this massive effort. edifice of debt and it collapsed. The same thing can happen again, in Europe now because the collateral is used on average of 30 times each bond that’s on deposit in a bank is used to support 30 times the transactions that come with this one, because it’s borrowed by somebody, he put it up as collateral and then it’s borrowed out of that account and put to use someplace else. And this ricochets along an average of 30 times for each bond. That tells you how fragile and unstable the old system is. So that’s one reason it can’t go on. Because the color it destroys the collateral, it doesn’t create new collateral. It has the new bonds that are being created when the government’s borrowing wildly or bonds, they’re paying no interest rates. So the yield is really low. The the new bonds are not as useful as the old bonds. Then there’s another side Which is what do they do with the money that is borrowed. And I’ll just use this example in China because it’s the most extreme. But it says a lot about what’s gone wrong and why it can’t keep going on. Because they create effects in the real world that are unsustainable. The Chinese use from 2011 to 2013 more cement than the United States did in the entire 20th century.
Jason Hartman 32:25
That’s, that’s mind boggling from 2011 to 13. Did you say?
James Dale Davidson 32:29
Yes? 2000 in two years, 2011 to 2013. And that was post boom time. That was, you know, coming out of the greatest boom, yeah, it was it was the height of their boom. I mean, they were booming in 2005, though, weren’t they? They were they were going crazy. back then. Building everything’s been booming. Ever since the dump, jump in, turn the switch and said, okay, it’s good to be right. Because the Chinese are basically mercantile people. And he just took the handcuffs off of them and the way they went, I mean, they weren’t completely baffled about what to do. You know, they wanted to make money and they were hard workers. You know, they, if you have a peasant who’s trained to get up in the morning and tend to the rice paddies, he’s a hard working chap. And that’s putting that same hard effort into finding a way to open a factory and sell something. They’re good at it and they did a good job. But the biggest cause of this huge surge was the fact that the vast amounts trillions of money, dollars of fictitious capital, were created by the banking system in China and were imported from the banking system in the United States. A lot of that was financed by quantitative easing, because they had what are known as non bank banks, which in some cases, they were shipping companies, they fertilizer companies, you can name it. The non bank banks were using we’re getting say they got some money from someplace. for dollars, they could use the dollars to create more new Remember, you went and they had more of those and they lent the money out at very high rates. They created all these trusts and gimmicks that disguise that. And, you know, there was a time when the Chinese central authorities were trying to curtail the huge expansion of credit. So they put limits on what could be borrowed off your business accounts. In other words, if you, if they’re just looking at your receipts and your expenditures, your cash flow, you can borrow on that. But they said it was still okay to borrow on the collateral of solid projects like you could mortgage land and you could mortgage copper. There was a big push among pig farmers in China to develop as much expansion as they could. They want to they want to make a lot of sausage and send it around the world. But the government said no more lending to pig farmers, but you could still lend On on the collateral of a bunch of copper ingots. So pig farmers in China bought up about a fifth of the world’s supply of copper and use it
Jason Hartman 35:11
as collateral to expand the operation of the sausage business. This all happened. One of the things that you said really early on in this discussion today was that the people that that have the collateral get the cheap money. And so this goes back to the old saying, This is why the rich get richer, quantitative easing QE makes the rich richer, and it impoverishes the poor even more because it ultimately causes inflation. You You’re welcome to pick up that statement, but that’s my that’s what my feeling
James Dale Davidson 35:43
is still I think it’s true. But I want to highlight to you a little more about how disastrous this whole inflation is in terms of what it does, to supply creates depth creates supply. You have all this money that invested in real estate, we’re talking about real estate earlier and Chinese real estate. Do you realize that they’ve built the equivalent of 27? Empty New York cities in China? With all this money? That’s mind boggling. I know I hear about the ghost cities, and we’ve done reports on them on prior episodes, and it’s just mind boggling. But one thing people should know, is the rule. And that’s why you’re gonna get deflation. Because if you have, let’s say somebody gave you Jason is we’ve got a deal for you. I’ve got an entire empty New York City. I’m signing it over to you. Now how you going to make money operating an empty New York City when you have all this, all these apartments that are empty? Well, you can wait for the what’s called the passive progress. In other words, wait for the population to catch up and meet all that supply. But it could take a while. It could take a long time. Do you think that you could live in a 27 empty in New York City, there’s millions and millions of housing for millions of people. And my point is that this is not going to work every time in the history of the world that you’ve had these drugs. expansions, they collapse. And part of the reason they collapse is that not only do good people get misled into mal investing in the buildings, but the part of the supplies that produce the buildings like more summit in a couple of years, then the the US used in the entire 20th century to build the Hoover Dam and all the skyscrapers in New York and Chicago and Los Angeles. And everyplace else. That is a tremendous amount of cement. So that summit came from someplace, and then they had to ship it. So people built a lot of extra ships to carry raw material.
Jason Hartman 37:35
Yeah, it’s just a big cycle. Right. And I remember when, when the shipping companies bill Bonner, you know, your partner wrote a lot about that. And, you know, in the in the daily reckoning, and, you know, probably in the books that the two of you wrote together, so
James Dale Davidson 37:47
no, no question. Well, he’s, he’s so right. I mean, so all I’m saying is, that when, when they they create malinvestment, the malinvestment has consequences. The one thing that debt drives drives production.
Jason Hartman 38:00
It has just like QE, just like pretty much everything just like fractional reserve banking. It creates a ripple effect. It has a multiplier to it. Yes.
James Dale Davidson 38:10
And you know you can’t get you just look at this. Look at the copper. We talked about copper and all the copper that was hoarded by the farmers in China. All this copper also went into the buildings of the 27 ft in New York City. Did you think of all the copper that’s in the wires in the wall, the copper that’s there’s a tremendous amount of copper in each unit. So that copper had an effect on the whole copper mining industry. If you look at the big source of copper in the world, the biggest source was from Chile. And there, there is a basic problem with declining marginal returns from any type of fixed resource like copper, because the asset the copper in the ground is mined off first and the most accessible and the cheapest areas. But as the veins go down into the ground. It requires more investment, the return fall. So it’s the Chileans seeing this dizzying increase in the demand from for Chinese, from Chinese for copper, they got busy. Yeah, right. It’s just busy, deeper holes and expanded their production. And now, there’s no use for this copper. I mean, it’s not at the price that it’s going out now. So I think one of the best, the better shorts in the long run that’s going to be covered. Right, right.
Jason Hartman 39:28
Hey, we’ve got a wrap up. But one thing you didn’t say about the Chinese Ghost cities that I’d love for you to just address before we wrap it up, is, you know, overall, even though there’s been this, like mass migration to cities by you know, from from rural China, no question about that. There’s still as a percentage of the overall population, there is still a massive rural population in China that could migrate into the 27 New York cities right the ghost cities. Now granted they have to have jobs there. That’s another question. But, you know, is the ghost city thing really as bad as it sounds on the face? Maybe it is. I don’t know, you know, just asking
James Dale Davidson 40:09
if it is. And here’s another point that you need to bear in mind. How many jobs you have to ask the question how many jobs have been created in factories, since China moved out of the Stalinist production mode into the more capitalist way of doing business? Does anybody have any idea? Oh, no, not many. Yeah, okay. Not many, because you start over hire, you know, there used to hoard labor in the Chinese. When it was last week, Trump was running the deal. He wasn’t interested in efficiency of production. Everybody had to have a job. So they had all these jobs in the state industries. And then they move to a more market driven economy, they had need to needed to hire many fewer people in each activity. So their productivity went way up. But the number of people hired in these cities was not substantially greater than it was before. And the fact is, you’ve got all these million People lying out in the countryside in the rice paddies the facts there that they would be better off if they had an industrial job and modern plant doesn’t give that job life just as the fact that the voters in along the Ohio River in those counties that voted overwhelmingly for Donald Trump. The fact that they would be better off if they had coal mining gods or gods in the field Mills that used to try there doesn’t mean that that there are such jobs. So looking at the world as it is, I see the prospect of a very severe crack up probably the biggest in history, because it always happens that way. When you have a gigantic artificial credit, expansion and the Chinese has been the greatest one in history. You get a gigantic amount of malinvestment, 27, empty New York cities. And eventually the people who are holding those investments go broke. Yeah, this is this is why government needs to many It’s interference in the economy because it creates massive malinvestment government and central bank, I should say both of those entities, regardless of what the government is, but and I agree with you looking at the math, yes, I totally get it. I totally get what you’re saying. I just wonder, you know, the question is always when it’s all it always comes down to a question of timing. And, you know, how long can they keep kicking the can down the road? I argue that it could be for decades. And, you know, what do we do now? Do we plan for the end of the world now? Or do we just keep going along. And, you know, as as governments and central banks keep kicking the can down the road because no one knows when the jig is up. Nobody knows what the limits are. But let me give you a thought. I think that the length of time they can continue to kick the can down the road is much shorter than they have anticipated, which I think it’s going to come to an end soon. It’s not something that will happen at the crack of doom. It will happen in our lifetimes. If we’re healthy, and this is going to come to an end, and it’s going to have great reverberations. And that’s why I think it’s important for people to understand really what’s going on so they can begin to plan a new life in the new environment. The fact that this funky business of having a system based on huge amounts of debt, to try to paper over the lack of growth, and the death price that nothing and mine created out of thin air, despite the huge budget deficit. So look at Obama and his term, we’ve had more debt created from bigger deficits than in all the Presidents that preceded him combined. Now, how long can you keep going on like that? Yeah, you
Jason Hartman 43:45
can’t you can’t do it forever. There’s no question about it. Yeah,
James Dale Davidson 43:48
very close to the end. And I believe that people who think this through will be much better positioned to survive and thrive and I give examples in books that show that you could survive even in the most united medieval economy, some people made money. It wasn’t an easy thing to do. It wasn’t like there was, you’re just sitting in your easy chair and you’re floating down the river, on a sea of red ink. So you could easily make it. But you could make it. And the people who think are the ones who will survive and prosper in the world is changing dramatically.
Jason Hartman 44:26
Absolutely. James, give out your website and tell people where they can learn more about your work and your fantastic writings.
James Dale Davidson 44:30
Well, one thing you can do is go to Amazon and order the breaking point, you’ll get one of the first copies hot off the press. And we have a newsletter called strategic investment, which I think you can look up online. And we have these probably seen me on many of these on online advertisements talking about the danger of an economic collapse, which I believe is high and growing. And I hope that Donald doesn’t get the blame for what’s going to happen because it’s all baked in the cake.
Jason Hartman 45:03
Yeah, it was baked in a long time ago. Yeah, no question about that. But then I’d like to thank you for your talking to me and I hope your listeners get something out of it. The pleasure is all mine and James Dale Davidson, thank you so much for joining us today.
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