Jason Hartman welcomes the author of The New Great Depression, Jim Richards. He shares that The New Great Depression cannot be understood without looking into the pandemic. They discuss whether the lockdowns killed more people than they have saved and if it caused a pent-up demand. Jim also tackles asset bubbles vs. asset inflation, what causes the inflation, and if Bitcoin will have a chance of being a global currency.
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Jason Hartman 1:00
It is my great pleasure to welcome someone who I’ve been following for many, many years, and that is none other than Jim Rickards. I’m sure you have seen his work out there. Maybe you’ve read his books, I’ve read several of them. He is the editor of the strategic intelligence newsletter, the best selling author of several books including Aftermath seven secrets of wealth preservation in the coming chaos, currency wars, the making of the next global crisis, the death of money, the coming collapse of the International Monetary System, the new case for gold, the road to ruin, the global elites secret plan for the next financial crisis, and the new book, the new Great Depression winners and losers in a post pandemic world and the Ravens how to prepare for and profit from the turbulent times ahead. And he co authored that one with Robert Kiyosaki who’s been on the show a couple of times. Jim Rickards, welcome. How are you?
Jim Rickards 1:54
I’m fine. Jason, thank you. Glad to be with you.
Jason Hartman 1:56
It’s good to have you on. You know, by the way, I’m curious. I don’t know where you’re based. Where are you located?
Jim Rickards 2:00
I live in Portsmouth, New Hampshire. So that’s our motto here is Live Free or Die.
Jason Hartman 2:05
Excellent. Well, that’s, that’s a good libertarian motto. I like it a lot. And you know, when I see your interview, sometimes you’re in a different environment. Do you have like a cabin somewhere or something where
Jim Rickards 2:16
I have a farm in the mountains? And they go back and forth?
Jason Hartman 2:18
Excellent, good stuff. Well, just give us your overall kind of macro view, if you would, Jim, as to what is going on in the world? It is certainly a turbulent time, no one would deny that. You know, every crisis is it leaves leaves open many opportunities at the same time. We’ll take a deep dive into that today I hope.
Jim Rickards 2:37
That’s exactly what the books about the new Great Depression. And when I was first discussing with my publisher, my editor last April, and the idea came up. And of course, by then we were in the lockdown, the economy is collapsing, the stock market just dropped 30%. So Jim, we want to book on this, there’ll be a huge lot of interest in it, you know, the economy, you know, markets, you know, capital Ma, you’re just the guy to do it. And I said, Thank you. And we got going on that. And they said, but you know, keep away from the pandemic and the epidemiology because you’re not, you know, doctor, and I said, No, I said, that’s my guess me to write about property damage in New Orleans in 2005. And not mentioned Hurricane Katrina, I said, you cannot understand the economy cannot dive into the great the new Great Depression, without looking at the pandemic. And what caused this today, they agreed that made sense. I know, I’m not a doctor. But I said kind of jokingly, I do. I did go to Johns Hopkins. So I’m not not intimidated by natural science. And I was able to read I did read over 100, peer reviewed academic papers on the immunology, the epidemiology and the biology. That doesn’t make me a doctor, but the sciences are accessible. You know, when I started, I thought to myself, well, you know, there’s going to be a whole bunch of like conspiracy theories and fringe theories and everything over here. And there’s going to be good science over here. So all I need to do is keep away from this and focus on the science. The first part was easy, you can discard the fringe theories. But when I got into science, what I discovered is that the scientists don’t agree with each other. And that’s a much bigger challenge. Because, you know, you hear certain politicians and it’s a shame the way this has all been politicized. That’s really unfortunate. But politicians will say, you know, believe the scientists well, that anyone who says that doesn’t know anything about science. I mean, scientists argue with each other all the time, they debate they challenge each other’s assumptions, new research comes along, and the the science as such evolves, but it’s never settled.
Jason Hartman 4:34
By the way, just to comment on that you’re so right, Jim, because if we believed the science in the old days, we would still think that everything revolves around the Earth, you know, I mean, that was the science of the day.
Jim Rickards 4:46
Exactly. The sun the sun revolves around the earth it took even when Copernicus said that wasn’t true that the Earth revolves around the sun that it took Kepler and, and Cobra and others 100 years to change the consensus. So he has Even the bad science and there’s a lot of it around doesn’t change overnight. So that’s exactly the issue I was confronting. And I can show you PhD peer reviewed articles to say, you know, you have to wear a mask, you’re a fool if you go out without a mask. It’s the only way we’re going to stop the disease etc. I can show you other PhDs to say no masks don’t work. If you understand the virus, the virus particle, the virus itself is smaller than the weave in the mass mass are not well constructed. People don’t wear them correctly. They’re mostly for show. So take your pick. I learned a little bit too. Yeah, like I wear a mask. I’m not gonna fight with the greeter at Walmart. If he says you got to wear a mask. I’ll put a mask on but I think we are right to be skeptical that they do very much good at all washing your hands off social distancing house, but so so I spent several chapters on that including the origin of the virus and the effect of the lockdown. But the lockdown was the segue into the economy. Because there’s the evidence is very clear that lockdowns don’t work. I know that may not be a popular view. But that’s been true that the scientific consensus around that has been true for a long time. lockdowns are what politicians do when they don’t know what else to do. This guy Fauci, I know a lot of time for him. He said, He’s an over the hill, bureaucrat, you know, the old saying, if you’re a hammer, everything looks like a nail. Right? Well, if you’re an immunologist, everything looks like a lockdown. But the fact is, lockdowns don’t work if you have an island someplace, and you can only get there by boat, you close it off, and nobody can come and nobody
Jason Hartman 6:25
Then a lockdown works.
Jim Rickards 6:27
That’ll work. But try the United States of America, North America, Europe, 300 million people or 400 million people in the case your it simply doesn’t work.
Jason Hartman 6:34
One thing I want to say, though, on this is, you know, if we try to put this video on YouTube, there is a high likelihood it will be taken down having this blasphemous conversation. I just, you know, want to
Jim Rickards 6:46
You’re right about that. I always be applying to radar screen a little bit. It’s one of the reasons I like reading books. I think books are the last thing that are not being censored. Your YouTube will take it down, Twitter will take it down. Facebook will take it down. I I applaud my publisher, and my publisher may have other authors who disagree and then publish them also. And that’s the way it should be.
Jason Hartman 7:09
But Jim Jim, we should be outraged at this. This is insane. I mean, yesterday, the President of the United States was banned from social media gets this is I mean, I can’t believe we’re living in these times. What a nightmare.
Jim Rickards 7:28
Imagine imagine you in the Soviet Union in the 1960s it was the same thing,
Jason Hartman 7:32
We are
Jim Rickards 7:33
in some ways, and but they survived. They had some ease out which were the kind of handwritten manuscripts and they would secretly copy them on a Xerox machine and pass them around and envelopes and cafes, whatever they you know, Boris Pasternak got Dr. Zhivago out and turned into a pretty good movie. So but you have to fight back and I agree with you. The censorship is oppressive. It’s it’s not scientific base. It has nothing to do with civil liberties or First Amendment. It’s just Silicon Valley trying to control the dialogue. And you know, when they ban somebody in this kind of high profile question, you’ve shut down one voice. But that’s not the that’s not the worst part of it. The worst part of it is millions of other people who are intimidated, say, oh, gee, I better say the right thing, or I better not speak up, because
Jason Hartman 8:16
I’m going to get sent to a reeducation camp, which means I be banned from Facebook.
Jim Rickards 8:22
Yeah. And by the way, in China, they’re doing that. They have concentration camps in China. Then they’re they’re, they’re removing organs from political dissidents without anesthetic and then cremated the body. So we’re seeing not only so but we’re, you know, we’re not that far from China. I agree that we’re heading in the wrong direction. You know, as far as what went to Washington, it’s interesting. I absolutely, unconditionally, condemned the violence. I don’t think there’s a place for violence, property damage, you know, etc. But having said that, the behavior just as an analyst, leaving aside the politics, that is very much the kind of behavior to be expected as a result of the lockdown. And I would say the same thing about the rise last summer, you know, a lot of people condemning the attack on Capitol Hill, and they should i don’t disagree with that. But they were pretty silent all summer when people were burning down Kenosha, Portland, Seattle, parts of New York Brooklyn, Senator, if you’re going to be against violence be against all violence, such as the ones you agree with or disagree with. But the point I make and this is in chapter five of the book, he has been enough talk in some science and policy is set around the physical effects of the virus on the pandemic. But don’t underestimate the mental health aspects of this and this by the way, this is another reason locked out. Sound work. lockdowns kill more people than they save. You can probably find somebody who got locked down and say, well, gee, she she’d be dead today if she wasn’t locked down. I mean, that person probably exists. But what about the fact that the suicide rate has tripled? The murder rate has doubled alcohol abuse, drug abuse, domestic abuse, people who skipped cancer treatments and heart treatments died of heart attacks because of the lockdown. So the evidence is that and this is not just speculation, the lot of data is out there. We didn’t necessarily I didn’t have the data or not all of it anyway, last April in May, when I started writing the book, but over the course of the summer, the data came in and it bears out with them say, so the lockdowns have killed more people than they’ve saved, they have not stopped the spread of the virus. And what you do you lock your lock and place down, maybe for a very short period of time you contain the spread a little bit. But then when you began martial law, you’re going to be locked down the rest of your life. So then they they ease up, and all of a sudden, there’s just a huge outburst, an explosion of the virus, and you’re back where you started from probably worse than you lock it down again, you know, like wash, you know, rinse and repeat. So,
Jason Hartman 10:47
And you didn’t mention that people’s immune systems become weaker, too. That’s another bird.
Jim Rickards 10:51
That’s right. I mentioned that the book you’re right, you’re right. I haven’t mentioned that. Yeah, but you know, we, there’s more than one virus and bacteria floating around. And by just going outside and interacting, going to a bar or whatever. We get exposed to those other viruses and bacteria. And then of course, they’re not as lethal as Coronavirus, but they can make you sick and and you build up immunities to those. Well, when you’re locked down. Maybe you’re avoiding the Coronavirus, but you’re you’re weakening your immune system relative to all those other pathogens. And so that’s another problem. We’re coming out of this so called lockdown, which is you probably get sick of something else. So look, it just doesn’t work. And in the book and chapter two, I go through the history or where this lockdown idea come from? Well, it was on it was in a paper in a study and the Centers for Disease Control where that come from. I traced it all the way back to 2005. During the the avian flu when george bush was president, and he wrote a book on the Spanish flu, a very good book, by the way called great influenza by john Berry. But bush kind of freaked out a little bit. He said we needed a plan. Well, they came up with a plan that was devised by a guy who was a modeler at the Sandia National Laboratory in New Mexico who didn’t know anything about disease, and a toy model that his 14 year old daughter would come up with him on a high school science junior high school science project price great. But that then morphed into this study was carried on through the Bush administration, the Obama administration. And then when the Trump administration needed it, they pulled it off the shelf. Well, it was nice to return to the Middle Ages. There’s a very prominent scholar, Dr. Henderson, he passed away a few years ago, but he was credited with leading the movement to eradicate smallpox that we did eradicate smallpox in the 1970s. And da Anderson is given most of the credit for that a one day national, sort of the Medal of Freedom, which is the highest civilian honor, you know, kind of equivalent to where so Medal of Honor, and was dean of the Bloomberg School of Public Health at Johns Hopkins. So you sort of can’t get any more credential or accomplished than that. And he said, lockdowns don’t work. And I quote his study in the book. So so that’s clear, but they have, they’re not going to stop the spread of the virus, but they’re very good at destroying the economy. And that’s what we did. But they cause all these other even if you don’t have the disease, even if you are immunized, or you had it and you recover, and you got the antibodies, the lockout still affects you mentally, it causes depression, anger, anxiety, and ultimately violence. So I trace, some of the not all not the sole cause but some of the violence we saw last summer, in all these anti fur riots and violence we saw yesterday on Capitol Hill, in part because people’s anger levels so high because of the lockdown.
Jason Hartman 13:30
Sure. One thought about it. I don’t know if you’ve thought about this, or really, anybody has much. I’ve never heard anybody say it. But if you look back to the spark that ignited this, you look back to George Floyd, just think of his situation. So he was arrested for counterfeiting. And he lost his job, because the place he worked as a bouncer was closed. Okay, that business was closed. Right. So he had to have money. And that was before any of the stimulus. I think I could be wrong on that. But I think it was the right thing. And so he was counterfeiting. And there we go. That led to the whole thing. Right. It may have never happened if he had been able to keep his job, right? So
Jim Rickards 14:18
The police officers were arrested and they’ve been charged with a second one of them charged with second degree murder. They’re going to one trial some you know your best until proven guilty and let justice take its course but but these riots many of them were justified in the name of Jewish boy. Well, I can see a peaceful protest. You want to call your congressman, you want to have a peaceful march. That’s fine. That’s the American way that’s the first amendment not smashing windows and burning downs to it. I don’t care what the first time Yeah,
Jason Hartman 14:47
Billions of dollars worth of damage, nothing compared to
Jim Rickards 14:52
The time it was had had a direct economic impact because you go back to Okay, so March, March, April. May was the first locked down. Enjoy death is the end of May. And the rise broke out in June July and August. So what else was happening in July? Well, that was right around the time when the mayors and governors are saying okay now we can reopen now the worst is over that looks like we’ve got the virus contains said we can reopen. Well, no sooner did the you know, the bodegas and the coffee shops and the restaurants and the bars reopened. Here come the riots and they’re getting the window smashed and they’re, they’re burned out and they’re you know, police in the streets and the boarded up. So imagine you’re a small business person you’ve just gone through through half of them are bankrupt. Okay, but the but they have to kind of survived and try to reopen. Now you got a crowbar, smash the window, then and then now today, he got a second way which is worse than the first way we get more evidence that lockdowns don’t work. And there you get into this difference between perception and reality within the stock market. So the stock market indices are at all time highs in the s&p at a new all time high today, the Dow Jones and NASDAQ. They’re all close to their all time highs. And so people say well, you went down 30% in March, but it’s come back 70% and said new all time high. My 401k is restored. What’s the problem? It looks so good? Well, the answer is that the stock market no longer bears any relation to the real economy. The s&p 500 is the s&p seven. And the reason is, that’s a cap weighted index, meaning your influence on the index is a function of your market capitalization. While there are seven stars and we know what they are a mess Apple, Amazon, Netflix, Google, Facebook, Microsoft and Tesla. Okay, those seven stocks are 40% of the market cap of the entire s&p, right so it’s best it’s best understood as the s&p seven By the way, those companies are also released, affected by the pandemic. They’re not bricks and mortar, we’re telecommunications. They’re digital, they’re advertising, their online, shopping, etc. So seven companies are 40% of the s&p market cap. They’re at least affected by the pandemic and yes, their stocks are going up and they’re taking their earnings are going up as well. But that doesn’t that makes that let me see SMP doesn’t reflect the economy because that’s not the real economy. How are the other 493 stocks doing? Well, the answer is they’re not doing very well. They’re flat to down. And what about the real economy while I see real economy I mean, restaurants, bars, nail salons, gyms, dry cleaners, bodegas, boutique retailers, etc.
Jason Hartman 17:29
It’s interesting. It’s interesting that you you’re calling that the real economy. And I’m not disagreeing with you about this at all. But just one of the terrible I think side effects of this whole pandemic is the massive consolidation that is occurring toward the top, the bigger getting bigger, and everybody else is going to need UBI universal basic income to survive. Because this may well be very engineered, or it’s just a massive, we helpful coincidence to the central planners who like this idea.
Jim Rickards 18:05
No, that’s exactly what Mark Zuckerberg wants. And Mark Zuckerberg Zuckerberg gave, I think, a commencement address at Harvard, he never graduated, but again honorary degree as against the speaker, and he talked about UBI. But that’s what they want. They want a world where you know, 10, or 20, or maybe a couple 100 people control everything. And the rest of us are used to getting welfare checks. And they say, Hey, stay on watch football, play video games. Here’s your check.
Jason Hartman 18:26
Bread and circuses. Yeah,
Jim Rickards 18:29
Correct. Except maybe you get to see, I guess you get bread and circuses if you count the NFL. So the point being, yeah, that is what they want. And, you know, rahm emanuel famously said, Never let a good crisis go to waste. Well, this is a good crisis. And they’re not letting it go to waste. But we’re getting back to be if people look down their noses at small, medium sized enterprises, they say, well, your restaurant with 20 employees big deal, you’re not going you’re not Apple Computer, well, I miss you that those small medium sized enterprises make up 50% of all jobs, and 45% of GDP. So individually, they may be small, but in the aggregate, they’re half the economy, and you’ve just crushed that the economy. Okay, so since Jim see that, again, if you would, I just want to make sure people really get those numbers in those ratios, small and medium sized enterprises. Again, your bars, restaurants, salons, etc. are 50% of all jobs and 45% of GDP. Okay, so that’s half that’s half of all jobs, and almost half of the entire country’s GDP correct. And we’ve just crushed it. And then you got people like Larry Kudlow running around, you know, last spring in light locos a nice guy, he’s in person, but worse forecasting record of anyone I can think of other than the Federal Reserve, and he’s saying, you know, pent up demand pent up demand, the economy’s gonna come roaring back in July, you know, etc. Well, there’s no pent up demand. I mean, my, my wife and I were, you know, we were locked down just like everybody else in March, April and May, and usually we go out to dinner on a Friday night. We didn’t during that time period, the restaurants are closed and you don’t want to go out anyway. But by July, you know, some restaurants reopened, so we went out to dinner. Well, we didn’t order nine dinners. I just ordered one like I usually did, right. And there was no, there was no pent up demand. I didn’t get 90 I got once and that was the other nine dinners. That’s a permanent loss. It’s not a temporary loss.
Jason Hartman 20:21
I mean, people are thinking maybe you go out to dinner a little more often because it’s like the roaring 20s. You know, you’ve been locked up and now you, you’re out more, you know, but it’s never gonna be the equivalent.
Jim Rickards 20:32
First of all, that’s not. I know, people are some people that I suggest that Larry Kudlow did, but that’s not true. Number one, number two, by the way, even if the restaurant is open, and you feel like going out, a lot of people are not going out, right, say the restaurant. But you know, hey, the people are so afraid. They’re afraid. Well, I’m not criticizing anyone’s behavior. I’m just describing it for purposes of economic analysis. So and that, by the way, I said the restaurant we opened some of them did. A lot of them are permanently close. It’s not First of all,
Jason Hartman 21:00
They will never reopen. Yeah,
Jim Rickards 21:03
Correct. Now these businesses, I got started this and all the data is in the book that they have got word in it, that is how much working capital do they have? What varies by sector? But the answer is 10 weeks, 20 weeks, which people don’t have $5 million in the bank, right? God, you know, they have gross revenues, they pay their payroll on their suppliers and their taxes, and they make a little profit. That’s it, they don’t have work yet still. But if you’re locked down, you still have to pay the rent, you still have to pay the utilities, you know, most of benefits, etc. And so you’re running negative cash flow, and a lot of them are just going back up. So you go up and down. I don’t care where you live. walking down the street, you’ll see every fourth or fifth story, you know, for lease clothes, they’re not coming back, there’s jobs not coming back the equipment software at fire sale prices. And by the way, they’re not paying the rent because they broke the lease. That’s the first thing you do when you file for bankruptcy. Well, and but a lot, a lot of places New York City’s mom did not the only one, they have rent abatement. They’ve told people you don’t have to pay the rent. And they’ve got anti eviction laws to say. And by the way, if you don’t pay the rent, you can’t evict the person until further notice. Well, that seems like you know, guess accommodation to the economic distress. What about the landlord? Yeah, landlord
Jason Hartman 22:14
Then the commercial mortgage backed securities, they’re defaulting on all those people. Yeah.
Jim Rickards 22:20
And who also, well, your listeners should mention plans as well. Yeah, pension plan. It could be your pension plan that you personally but you know, your listeners should look in their 401k. If you want a high yield commercial real estate plan that was dumped on you by Morgan Stanley, or Goldman Sachs, maybe? Or maybe you have an index fund and send the index and you don’t even know, the point is there ripple effects of this and they’re going to it’ll go from from tenant to landlord to lender to security holder is going to take a year to play out. So we’re nowhere near the bottom of this.
Jason Hartman 22:49
Yep. I agree. I think that’s that’s a huge thing. So the government and the central banks all around the world have created an unprecedented absolutely mind boggling amount of new currency. Jim, what does that mean to us? You know, it’s like money printer Gober is the saying goes, right?
Jim Rickards 23:11
Sure. It actually means nothing. And let me explain what I mean by that. And by the way, your your Austrians and your monetarist and your Neo Keynesian, they’re gonna say inflation, right? inflation for a while they’ve been around for 13 years. That’s how long this has been going on. In 2008, the Federal Reserve balance sheet was 800 billion. Today, it’s about 7.5 trillion. So they point they printed over almost $7 trillion in new money. Where’s the inflation? There’s no inflation?
Jason Hartman 23:39
Well, there’s a lot of you know, I mean, I don’t want to like belabor the point. But, you know, some would say there’s more inflation than is disclosed, of course, they’d say, the indices are misleading, but that’s fine. But then others would say, look at the asset inflation. I mean, there’s a lot of inflating of assets, right? Maybe not consumer prices,
Jim Rickards 24:00
You know, that’s not inflation. I mean, the asset prices are out there bubbles all over the place. I agree with that, you know, Bitcoin stock market, some sectors real estate, not all those are asset bubbles. That’s not inflation. Inflation is what is the consumer price index, or the the PPI, the purchasing index, producer price index, rather, and and you say, Well, I got my own definition, we’ll find that for you. But you’re not gonna be able to forecast policy. If you’re making a definition. You got to look at it the way the Fed does. And I’m not saying that that there’s no there’s no problems with it. I’m not saying the models are right, they’re not. But if you’re trying to forecast Fed policy and forecast markets, which I do, you better look at it the way the policymakers looking at it, because that’s going to guide their actions. If you want to stay ahead of the curve. In terms of policy changes, you have to look at it through their eyes, whether the models are right I know the models wrong, I get that I can do I do my own modeling, but you can’t just make up your own definition. If you’re talking about one of the official the the inflation benchmark that the Federal Reserve uses is PC price deflator, personal consumption expenditure price deflator, that’s the one that’s used to determine GDP. And their target for that is 2%. And they’ve hit that target about two months in the last 13 years. And that was they don’t know how to cause inflation, and we don’t have inflation. But just to kind of come back to your point, Jason. So we printed the $7 trillion over $7 trillion. We talked about the monitors like all that money is going to cause inflation we have not money printing does not cause inflation. What causes inflation is the velocity of money is the train over. So you know, I, I go to dinner, I tip the waitress, she takes a taxi home, tips the taxi driver, right taxi driver puts gas in his car. So in that example, my dollar tip had velocity of three, that was the waitress tip, the taxi tip and the guest line, right? $3 of goods and services for one dollars, that’s velocity of three. If I stay home and watch TV, and don’t spend any money, my money has velocity of zero. So gross, sorry, a nominal GDP is money supply times philosophy, what’s 7 trillion times 000?
Jason Hartman 26:08
Zero.
Jim Rickards 26:11
Right. And that was if you don’t have velocity, you don’t have economy. So you’ve taken the money, there is money printing, for sure. But think of the money printing as piling up, boys is piling up, piling up, piling, a big pile of wood doesn’t start a fire. You need a match. You need a bolt of lightning, you need a blowtorch. You need some catalyst. So if you if you’re worried about inflation, and actually right now, deflation is a bigger problem. But if you’re worried about inflation, don’t worry about the $7 trillion pile of wood, ask yourself, where’s the spark?
Jason Hartman 26:42
Okay, so could that spark come at any time? Right? Could it just suddenly create a lot of velocity? And also, is the lack of any significant inflation in the system? How do we know that it’s a result of velocity versus just technological progress? that technology is deflationary? I think we’d all agree with that, you know, because it just makes things better, faster, cheaper, we, you know, which is it? Could that spark come at any time?
Jim Rickards 27:13
Well, it can come in any time, which begs the next question, which is, okay, what could it be? And I’m really looking forward to seeing signs of this. I’m not saying I’m not saying let your guard down about inflation. I’m just saying there’s no inflation right now. And there’s nothing on the horizon is going to cause inflation. You’re asking a good question. Is there something that could Yeah, I can tell you what it is actually, exactly. I tell the reader and the conclusion of my book, what could cause inflation? In fact, I recommend it because we’ve got another problem which I just explained why monetary policy does not work. Fiscal policy does not work, either. You can have deficit spending, but stop calling it stimulus because it’s not stimulus. And why is that? You have to look at another metric, which is the debt to GDP ratio, so much government debt is there. And what’s GDP? and simple example, let’s say, and these are not the right numbers. Now, just as an example, let’s say a $10 trillion in debt, and $20 trillion in GDP. On that example, the debt to GDP ratio is point five, it’s 50%. The deaths 50% of the sorry, the other debts 50% of GDP? Well, what are the actual numbers? The actual numbers today are about 25 trillion of debt, and about 22 trillion of GDP. In other words, the debt to GDP ratio is actually around closer to 130%. Now, what’s the significance of that other than the fact that the bigger number is research? This is from number source of the Kenneth Rogoff, a professor at Harvard, Carmen Reinhart, who was a professor at Harvard, she’s now a chief economist of the World Bank, and others and the collaborators in books, papers, studies, and the numerous time periods in emerging markets, developed markets, Amr, etc. And they show very conclusively that your your Keynesian multiplier works up to a debt to GDP ratio about 90%.
Jason Hartman 29:01
Now, we’re at about 130%, I believe, right?
Jim Rickards 29:04
Correct. So 90s inflation,
Jason Hartman 29:06
Japan is at 230%. Somewhere around
Jim Rickards 29:09
Japan’s a special case, I can explain that. But just to come back to the the other research. So what’s the Keynesian multiplier? Keynesian multiplier is when you’re in a liquidity trap, and you want consumption and people want spend, they they say that’s what they’re doing today. You know, the stock market was up today, because Okay, so Biden’s going to be president, the republicans or the democrats control the Senate. So that means we’re not going to get $600 checks, we’re going to get $2,000 checks, and more. So the stock market, which usually gets things wrong, by the way, but they said I will the stimulus, people are going to get the money. They’re going to spend it here’s your inflation, none of what you were asking about Jason, here’s your inflation. So interest rates are going up. That’s not what people do with the mind. They will get the money. I agree with that. And there will be more deficit spending, but they’re not spending it. They’re saving it. They’re either paying down debt, which economically is the same as saving where they’re actually What if you lost your job, of course, you’re going to save money, you’re not going to pay the rent or whatever, but you’re not going to go spend it on a, you know, vacation or whatever. But even people who haven’t lost their jobs worried that they might be nest, maybe their neighbor lost,
Jason Hartman 30:14
So they’re more raining and they’re pulling in their horns.
Jim Rickards 30:18
Correct. Then there’s an evidence, what proportion is sales just in case? Well, so to get savings, you’re in a liquidity trap, nobody’s spending the money. So what Keynes said is, well, the government can spend the money if people want, the government will. And so you borrow $1, and you spend $1, and you get $1.25 of GDP.
Jason Hartman 30:38
That’s and it works for a while. Priming
Jim Rickards 30:42
It works for a while. Question is, why when does it not work? And the answer is, it does not work. 90%. Why?
Jason Hartman 30:46
So Jim’s question is, why does it you know, like, the economy turns into sort of this zombie economy with too much debt, right? If it stops working, it’s sort of like, maybe a metaphor would be look, you know, I woke up, I didn’t sleep well, I had a cup of coffee, it didn’t do the job, like usual, you know, one cup is usually good enough. Well, I have three cups, and you know, I have 10 cups, it’s not going to make me 10 times more awake, right? It’s going to actually hurt me. So what what happens with the economy, though, when you do that?
Jim Rickards 31:20
Same thing, the concept is that diminishing marginal returns. So at very low levels of development of productivity, one guy has a bright idea, they got a bunch of farmers 5000 years ago, in China and dessus, you know, we got together and build an irrigation canal by the water over here, we could all grow rice thing. Good idea, and guess what that works. But pretty soon you need an irrigation Commissioner, and he hires an assistant and, you know, there’ll be obviously builds up and of course, you know, investment, okay, you still get gains, you still have gains, but the curve goes up very steeply. The beginning then flattens out, and that starts to go down. And then it actually goes negative.
Jason Hartman 31:58
Yeah, because you sort of collapse under your own weight. bureaucracy.
Jim Rickards 32:02
That’s exactly right. So it’s complexity theory and scaling metrics. But that’s where we are now when the negative return, that’s what happens when you go test 90%, the Keynesian multiplier drops below one. Now, you borrow $1, you spend $1, and you get 90 cents of GDP, not $1.25 at 90 cents, or 80 cents and progressively less. But look at look at the math what’s happening, your debt still going up by $1. But your GDP is only going up 90 cents. So what’s happening to the debt to GDP ratio, it’s getting worse. That means the return of the next hour is lower. This is why you cannot borrow your way out of the debt crisis. And print your way out of liquidity crisis, you need other solutions, and I talked about the solutions in the conclusion.
Jason Hartman 32:46
Okay, so I want to ask you about you know, what people should do? But before we get into that, you I believe, correct me if I’m wrong, are bullish on gold and silver? Is that correct? That’s when most people would think and maybe your your ideas is more counterintuitive, or there’s some distinction. And most people would say, Well, you know, people buy gold or silver if they’re worried about inflation, or they’re worried about a general crisis, or collapse of any flavor, I guess. Why are you saying inflation isn’t the worry but still buy gold and silver?
Jim Rickards 33:28
Because gold does very well in deflation. Also, you’re right about the inflation. That’s pretty intuitive. And most people understand that. But just again, just to give like concrete data and concrete models, I don’t make claims without backing them up. The greatest period of sustained deflation in US history was the Great Depression between 1929 1940 in that period, gold went up 75%. It started at $20 an ounce to I was $20.67 an ounce, and went up to $35 to NASA in dollar terms. That’s a 75% gain, the best performing stock market. Sorry, the best performing stock on the New York Stock Exchange during the Great Depression was homestake mining in South Dakota, which again because they were producing gold, so gold is very well in deflation. No is why is that seems kind of counterintuitive. The answer is governments cannot afford deflation because you can’t tax it. You can tax inflation all day long. Governments love it, but you can’t tax deflation. If I don’t get a raise. But the price of everything goes down. My standard of living just went up because I my my same amount of cash has higher purchasing power. So my standard of living goes up and deflation but the government can’t tax it. So they want inflation does they want me to get more nominal dollars they can tax it. So if governments can’t stand deflation and they can’t and you have deflation, how do you get out of it? The answer is raise the price of gold raised the dollar price of gold, not to reward gold holders. In fact, FDR did it and he confiscated all the gold first and the government was the ultimate front running the ultimate end. So that was an absolute scam in 1933. It was a scam. But it worked. It was a scam that work. The reason it was a scam was the government got all the profit, not the individual investors. But But as economic policy at work because what Roosevelt was saying is, I don’t want to reward gold holders. In fact, he took all the gold, but Well, I want to I want the price of everything else to go up. In other words, if gold, expect gold to go to $15,000 an ounce over the next several years, but let’s just take $5,000 now, which is so be a big jump. The world of $5,000 Gold is also the world of $400 oil, $100 silver, you know, $20 a week, they’re sure inflation is the price of everything else goes up. I tell people, if the dollar price of gold goes up, yeah, if you have gold, that’s fine. You made a profit, don’t pat yourself on the back. Because what’s really happening is that the dollar is devaluing. It’s not that people say Gold’s going up now, okay, but that’s not really what’s going on. And now
Jason Hartman 35:56
It’s the measuring stick, it’s it’s that keeping pace,
Jim Rickards 35:59
I think of gold by weight, I think it’ll go by weight, and an ounce of gold is still an ounce of gold sticking in a drawer go away for a year come back, guess what, it’s not two ounces, it’s still an ounce of gold, but the dollar value is higher. What really happened is that the value of the dollar went down. That’s deflation. And that’s
Jason Hartman 36:16
Yeah, my listeners get that so they’re in tune with you. They’re no problem. Okay. Okay, so before we get to what to do, and then we’ll wrap it up that question I asked you about Bitcoin off air before we started, I found it very interesting that you said on another video I saw you on that Bitcoin will not become Well, you’re not a fan of Bitcoin, right? Is that fair to say?
Jim Rickards 36:41
Yeah. I have no interest in it.
Jason Hartman 36:42
So tell us why.
Jim Rickards 36:45
Because it’s not going anywhere. I mean, it might go down to $200 a coin or whatever. But here’s the thing with Bitcoin I know where it is. It’s around $35,000. So I did an interview in December 2017. with Sarah Silverman, she’s a journalist. And at the time Bitcoin was going up about $1,000. Well, certainly $1,000 a week was almost $1,000 a day. So it was gone. At the time, it was about $8,000 $5,000 $6,000 $7,000 $8,000.
Jason Hartman 37:16
It’s highly speculative and very volatile. So be careful, folks, if you’re doing it be really careful. Well, yeah.
Jim Rickards 37:21
But yes, I agree. There’s more to it than that. And Sarah asked me the same question. You just said look serious, what’s going to happen? It’s going to go to $20,000. And then it’s going to crash. And that’s exactly what happened. It went to $20,000 in early January, and then it crashed. About 80%. Alright, so now it’s that $35,000 it’s another bubble, and it’s going to crash Bitcoin, but a lot of people say, oh, bitcoins gonna take over the dollar, Bitcoin is going to replace the dollar as the global reserve currency as the place to be. And it’s the new goal. So it’s all nonsense. And here’s why. When people say the dollar is the leading reserve currency, and it is 60% of global reserves are in dollars. And by the way, about 30% of global reserves are in euros a little bit less. So the dollar and the Euro together, make up almost 90% of global reserves all the other currencies combined your Sterling francs, Canadian dollars. Together, they’re they you know, they add up to maybe 40%. No, not 40% 10 and 15%. They the dollar, the dollar in the Euro makeup.
Jason Hartman 38:18
Oh, got it. I thought you were talking everything but the dollar
Jim Rickards 38:21
Almost 90%. Correct. So, so those two costumes, the whole show. But it’s not as if two people, so many say China has $1.4 trillion in the reserves and dollars, which they do. It says that they have pallets of $100 bills sitting in the basement of the People’s Bank of China. They buy securities, they buy treasury bills, notes and bonds. So they’re denominated in dollars, yes. But they’re not dollars. They’re Treasury notes, or 10 year Treasury notes or five year Treasury notes, etc. And that was the thing that makes sure reserve currency is not the currency is the securities, the liquid securities market, you can invest in, you need something to invest in, you can’t just pile up, you know, printing money. So where’s your Bitcoin bond market doesn’t exist? Where’s the Chinese yuan bond market? It’s small, they’re small time but it essentially doesn’t exist. The Chinese yuan is not going to be reserved currency. bitcoins can be reserved currency, because there’s nothing to invest in. Oh, you think the Chinese yuan is gonna replace the dollar? Fine? Where are your bonds? Where are your primary dealers? Where’s your payment system? Where’s your repo? Your options? Your when is you trading your futures? You’re hedging your settlement Claire’s, none of that stuff exists. And even if it did, which would take 10 to 20 years to build, which they don’t have. There’s no rule of law. You wouldn’t you wouldn’t invest in a Chinese bond if they can wake up and confiscated just like that, sir. So the only bond market so it’s not about the currency. I mean, the currency is, is a it’s a numerous way to count. But it’s not about the currency. It’s about the bond market. And yes, the Treasury market is the largest most liquid bond market in the world. By the way, there is no such thing as a euro bond in terms of their dollars nominal The bonds issued in London they traditionally called euro bond. So when I say euro bond, I mean, an instrument denominated in euros backed by the full faith and credit of the European Monetary System, that estimate does not exist. If you want to invest in euros, you buy bonds, Italian government bonds, you know, good luck with the Italians. You can buy Greek government bonds if you want to. They’re in euros, but there’s no unified euro denominated bond market. So how many German bonds are there not enough to absorb the savings of the world? So when I was when I went to Washington, the first thing I learned I was a lobbyist. My wife hates me to admit it, but I was. And the first thing I learned is, you can’t be something with nothing. In other words, if you really dislike something, I hate this. It’s awful. Get rid of it so fine, but you need something to replace it. You can write up and rant and yell and scream on TV. But if you don’t have something, replace it, you’re not going to change things. And right now, there’s nothing to replace the dollar.
Jason Hartman 40:54
Yeah. Well, I agree that the dollar has a much better future than many would say. But is that are we asking the right question, Jim? I mean, we kind of went from is Bitcoin an investment? Or should is it going to become the reserve currency of the planet?
Jim Rickards 41:11
No, and no.
Jason Hartman 41:15
Okay. But, but I think everybody listening, I don’t know if they care about it being a reserve currency or not. They just care if they can make some money,
Jim Rickards 41:22
Right, I guess. When I was in junior high school that was a popular dance song thing was Dion and the belmonts the song’s called shell. And the refrain was shout, shout, knock yourself out. If you want to buy bitcoin, knock yourself out. I mean, it’s a free country, you can do it, but it’s never going to be a reserve currency because there’s no bond market.
Jason Hartman 41:38
Right? Okay. Okay, so what should What should we do with all of this, like, sum this up for us, and give out your website, you know, any action steps people can take in these absolutely turbulent times?
Jim Rickards 41:51
Thanks, Jason. It’s all in my new book, the new Great Depression. And you talked to my other son, Jimmy, you can write a book about a pandemic and a depression and not have a happy ending. what you meant by that was, let’s have some constructive advice for investors. And we have that at the end of the book and chapter six on the conclusion. So specifically, I like gold, I recommend that for 10% of your portfolio. You know, people always want to put words in your mouth, as Jim Rickards says, sell everything and buy gold, never said that don’t believe it .10%
Jason Hartman 42:21
10%. Okay, what else?
Jim Rickards 42:23
10 to 20% 10 year Treasury notes, interest rates are going to go negative the yield to maturity not not the Fed policy rate that’s different, the Fed policy rate will stop at zero. But 10 year Treasury notes and secondary market trading many paimio Premium greater than the present value of the strip coupons and principal, then you have negative return, you have a negative yield to maturity. Those who go negative to right now they’re about 1%. Take it down to negative 50 basis points, they’re gonna have huge capital gains on your 10 year Treasury notes. I like cash, people say what will cash there’s no yield, okay. But in a world of deflation, cash can be your
Jason Hartman 43:00
Cash becomes more valuable,
Jim Rickards 43:01
so they could actually be your best performing asset. The other benefit of cash is people are looking at huge embedded optionality. So meaning there’s long uncertainty right now I don’t dispute that and if you put a stake in the ground you go all in any you know, asset class but she’s never be all on one acid anyway. But you make two or three bets on you, as in private equity or real estate or whatever, then a year from now you set you know, that was a mistake, I want to go over here, you might be locked in. I mean, good luck getting your money back from Henry Kravis, if you invest in he’s a good guy, but you know, he’s not going to give you your money back. That not soon. But so the benefit of having cash is second, second out the money call option on every class and every asset class in the world. You’re the person when we get better visibility, you can pivot you’re not locked in. It also reduces the volatility of the portfolio helps you sleep at night. There’s room for equities, assure but be selected, like defense stocks or the world’s not getting safer. Natural Resources for sure. Agriculture, water, oil is gonna do a lot better. It’s had a bad year. And well, that doesn’t tell you much about what’s gonna happen in the year ahead. And I like residential real estate do not like commercial real estate, commercial real estate is not hit bottom. I look at it.
Jason Hartman 44:14
I couldn’t agree more.
Jim Rickards 44:16
I wouldn’t touch it until late 20s, probably 2022. at the earliest residential real estates different people, there’s a mess. And when I say mass, I’m talking about millions of people migrating out of the cities. And they’re going to either the suburbs or other cities. So where are they leaving? They’re leaving Los Angeles, San Francisco, Portland, Seattle, Philadelphia, New York, Chicago, and Baltimore and a few other cities. Where are they going? Miami red hot. Nashville, fastest growing city in America. Phoenix Scottsdale I don’t like the heat but it’s a lot of people do. So they’re going there. Boise, Idaho. So figure out where people are leaving figure out where they’re going.
Jason Hartman 44:54
And they’re going to the suburbs. I call it the suburban tsunami
Jim Rickards 44:57
Well, there’s a suburban tsunami but to the extent they go suburbs of cities, you’re right there, there are particular cities. And I would put Miami, Nashville and Phoenix at the top of the list. But there are other other places. Austin is another one.
Jason Hartman 45:09
That the only problem is that in that equation, you’ve got to be able to make the rent to value ratio work in a lot of the cities, even if there’s a migration in pattern, you’re speculating on, buy low, sell high, rather than buy low, sell high and have cash flow. So you know,
Jim Rickards 45:27
I agree completely looking at real estate, the way we just described it, there’s some simple formulas. To me the differentiating factor is the management. Find a management company or an investment company, or probably a limited partnership, where people know what they’re doing and have experience and you know, it’s, it’s easier said than done. But absolutely, there is opportunity there.
Jason Hartman 45:45
Website?
Jim Rickards 45:46
Yeah, James Rickards project dot com, but I also encourage people to follow me on twitter at JamesGRickards. So use my middle initial G. Rickards is r i c k a r d s. So @JamesGRickards, and the book is the new Great Depression available on Amazon, Barnes and Noble and being in the bookstores on Tuesday.
Jason Hartman 46:04
Good stuff. Well, Jim Rickards, thank you so much for joining us appreciate it having you on the show and hearing some of these insights.
Jim Rickards 46:10
Thank you.
Jason Hartman 46:16
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