Financial Repression, The War on Cash & The War on Gold

well it's a great pleasure to have a another presentation here in Tallinn today the topic which is it's called the topic du jour the topic of today is financial repression and explained probably not very many are familiar with what financial repression is it means and probably a lot more familiar with the war on cash so let's go about it what is financial repression it is an economic in specifically a monetary policy of the government the monetary policy of the central bank of very low or negative real interest rates for the purpose of providing cheap loans to the government in other words you try lending five at five percent to the Italian government the Italian government's gonna be bankrupt right away the Italian government has one trillion of debt to the point if they have to pay five percent the whole government's budget will not be enough just to pay interest on that debt at five percent the Italian government is bankrupt but for it is bankrupt three it is close to bankrupt it needs to have it one or two percent just to survive and just to service the debt itself they've got no chance of ever paying back the principal it's like you're a teacher making fifty thousand euro a year that's a big salary in your 1 million euro ok and on 1 million euro at 4% you're gonna be paying every year forty thousand euro a year on the fifty thousand of income there is nothing left for you to live on and if the interest is 5% all of your income goes to interest and if it's 6% you'll never ever be able to pay all right well that's Italy that's England that's us that's pretty much all countries in the world okay let's in the developed Western world are like that so they need the cheap loans that's the one purpose in the other purposes if interest rates are extremely low this generates a lot of borrowing this generates a lot of inflation and inflation in rising prices the value we say inflates government debt if the government owes let's say of Germany three trillion euro five years from now three trillion euros will be a lot less okay Greece owes three hundred billion dollars three hundred billion dollars will be worth with good inflation only 250 down the road okay so the purpose is number one keep service payments low and inflate the debt so what are the benefits let's summarize them quickly number one cheap borrowing what I was explaining so far and easy and available credit in other words if interest rates are high Greece will never be able to borrow a single penny it will be impossible but now Greece keeps borrowing and borrowing and borrowing next one it inflates the accumulated debt I already explained that it stimulates consumption you can borrow sir dirt cheap maybe three maybe four percent to buy a car to buy phone or to buy a house it supposedly stimulates investment if you're a small business you can borrow it four percent not at eight or twelve so they say oh it's great your consumer can borrow cheap or you're a business you know it generates in your all living through five or seven years a real-estate boom okay and low interest rates are like the ultimate Keynesian green Keynesian love to stimulate consumption they love to stimulate investment it's like a drug addict or you know a Schwarzenegger who just keeps shooting more drugs and getting pumped up okay but Schwarzenegger what we know even those was the biggest strongest man in the world he suffered heart attack very early in his life and had a ruined cardiovascular system had to go through a whole bunch of operations hard operations and surgeries and whatnot despite the monstrous is he okay in the economy gets similarly he gets drugged up and pumped up but at the core it's weak suffer the productive investment is what suffers in the economy and let's see what else well let's take a look at the disadvantages it destroys savers you get 0.1% if you're lucky most get zero it distorts financial markets signaling the bond market doesn't react as well I already showed you some distortions where Italy borrows and a lower interest rates in the United States absurd but that's part of it promotes risk-taking how well you wanna you want four percent return there is not an investment grade bond where it can get 4% impossible not under financial repression you gotta lend it to Zambia or Nigeria or some other poor developing countries okay so you gotta go and take an awful lot of risk even a junk bond in Europe will pay you remember 2% nothing you gotta take an awful lot of risk to get some return it promotes leverage II hey you can borrowed 1 or 2 percent let's say your European corporation borrow ton of money ok so business leverages up it promotes wild speculation people borrowed half percent buy stock borrow half percent buying real estate borrow half percent do whatever any kind of speculation you want to do next one promotes bubbles I made a nice little presentation about the stock market bubble and white is worse than 99 in 2008 real estate bubble already explained the bond bubble I already explained so this is a horrible effect ok next one promotes that did this everybody just gets deeper in deeper in debt ok nothing really good about it it creates an artificial boom and it provides a false sense of prosperity people do in Bulgaria I'm surprised I was just four months ago but people in Bulgaria honestly genuinely believe that the economy is strong that it's healthy that we're doing really well in the kids see and comprehend that it's false signal from the extremely low interest rates and my good guess is that you are having the same sense here in the Estonian economy and it's only a false prosperity ok and crowds out private investment in our government borrowing over the other stuff essentially there is no genuine productive investment like mining or any real it's mostly speculation it's mostly really state borrowing alright next what are the mechanisms in other what's how is it done how the governments do it well number one capping interest rates like ECB capstan just rate like half a percent how they do it they pull the money in and they keep it inside the economy and they lock in domestic investors in other words you're a mutual fund here let's say in the United States US Future Fund or mutual fund Estonian in Estonia it forces the mutual fund to have at least 50% of astiz value of its investments in government bonds if the mutual fund must buy the government bond by regulation the mutual fund will drive the bond price up in the interest rates down so forcing pension funds mutual funds insurance companies banks to buy government bonds is a simple and easy mechanism to drive government bond buying up bond prices up and bond yields or bond interest rates down what else okay that's exactly what I was explained we call these forced Treasury purchases you force all the financial institutions to buy these next capital controls okay you not do not allow two people to get their money out of here and invest in China or invest in Dubai or invest in Bulgaria or invest in some other place you lock in capital in the country and now the capital in the country is looking for outlets it stays in the country so what do you do guys I mean you keep it in the bank from zero no okay so we're gonna do next buy real estate will you buy one you buy two you buy three events you're gonna buy bonds eventually buy corporate bonds in other words as long as the capital stays in the country it will find its way into the bond market and keep interest rates low finally next one is inflationary expectations you keep interest rates super low people we'll think oh I'm getting only half percent or 1 percent on my income and at the same time inflation is through 4 percent I'm losing money if I'm losing money in other words my money loses value at 3 percent but I get barely 1 I'll go and do something with them I buy stock buy bond buy real estate buy something right and that drives asset prices up but essentially what it makes people do is you don't hold cash you don't want to hold cash due to inflation you it's called for flight out of cash you do something else but not cash and again the idea is that money's gotta be at home but they cannot be an escape valve you you know your money is losing value that's fine just like I have in my office in the university now as an Egyptian professor Egyptian professor in finance we sit together it says oh no no no we never keep Egyptian money because the Egyptian man is losing their constellations that well is keeping in dollars or we're always keeping in gold in other words if their local money is losing value let's say euros losing le convert it to dollars but if the dollar is losing value can convert to some more stable currency maybe the Swedish kronor or whatever the Norwegian kroner or you're gonna buy it in gold so if the government wants you to keep government bonds it must prevent you from buying foreign currencies and it must prevent you from buying gold in other words you have no choice you gotta buy stock bond or or real estate nothing else no you can't just keep your money in other stable currencies or gold okay and in the extreme form for the first time in financial history in any civilization ever you get negative nominal interest rates that sort of goes from 2000 fifteen Japan was one of the first to introduce him Switzerland was second Germany would follow and now you pay money meaning you give loan to the government and you get less why would you ever do that you just keep your money in cash if you can that's where the war on cash comes from all right so what's the purpose I've already said it summarize it it reduces debt payments that's fairly clear the negative interest rates erodes the debt value in other words the government owes but owes less and the money loses value so it further deflates or further reduces additionally the day in other words the government gains wins twice even three times in a row this is really really good for the government it's really really good for borrowers but if you're a saver in a lender it's really bad for you and the savers are usually people like you and me and the borrower's are usually the government's big banks and major corporations so it's to their benefit for the loss of the common people and savers so what does that's negative interest rate and financial repression what's the interpretation what does it really mean well it simply means a tax on savings okay you save thousands you lend it to the government the government gives you back 990 the government just taxed you one percent it's just the pure tax it's the same as an inflation tax an inflation tax is when prices go up okay you get your thousand dollars back but now it has a purchasing power 900 only you lost 10% on your purchasing power even though you've got your pool thousand dollars back and it's the same as like a hidden tax like a stealth tax people don't really understand it they don't really know it when they feel they're losing purse but I can't formulate that people don't understand well inflation I do for a reason I understand inflation because in 1993 4 & 5 we I lived through a horrible horrendous hyperinflation in my home country of Bulgaria which was remarkably similar to that in Russia I saw how money sorry prices doubled literally in a couple of weeks my parents and my family got completely wiped out and lost everything okay and I made it not a point for me in my life not simply to live through it for my family to lose everything through it but for me to actually learn study and become scholar and student of inflation okay and that's what I devoted the last 30 years of my life for 25 years of my life on that part so that's something which I understand because I studied for 25 years diligently but most people don't really know and understand what inflation is about yes Keynes says not one in a million understands inflation in its effect and so on all right so it's financial repression is not really a new thing first of all right after World War one meaning between two world wars it was a monetary policy of the governments because they have accumulated extraordinary amount of debt after World War one to have a financial repression in order to alleviate the accumulated debts of Germany France Britain and we whoever else were main participants in the war of course I'm gonna have a financial repression after World War two to inflate the accumulated debt bolt from the World War two and the preceding Great Depression of the third so that was a very long period you know from 1945 all the way to the 60s well that wasn't enough then in the 70s they had to have another in a repression or a policy were interest rate maybe twelve percent in the nominal they'll pay use only five six or seven so you're suffering a huge five six seven percent annual loss on your current income and everything you had saved okay so for example if someone and they gave these examples someone was a millionaire in 1970 they earned income and interest and whatnot and at the end of 1980 they have 1.1 million that 1.1 million would have a purchasing power of two hundred and fifty thousand dollars in other words you lost three quarters of the purchasing power of your money essentially the government stole three quarters from you through inflation and you kept barely one quarter of your own money and that was for the 1970s post 2001 Greenspan slashed interest rates close to zero that ignited the stock market real estate boom that led to the crash but again the post 9/11 was a massive you know 1% sorry a massive lowering down to 1% when inflation was 2 or 3% so it resulted in a negative interest rate well the crash came in 2008 again massive bailouts huge amount of that interest rates went down practically to zero the range of monetary policy was 0 to 0.05 in the real world most rates were pegged down to 0.1% and if inflation is 2 3 4 percent whatever it is that's exactly how much you lose on your money and of course post-battle Japan an example will be the bubble in Japan went in the 80s the bubble burst in 1990 that's 27 almost 30 years ago and for 27 years the Japanese central bank has held interest rates close and down to zero while inflation was a little higher and for 27 years people are losing purchasing power on their money despite the fact that they say that Japan has a deflation not true they have a deflation in the stock market have a deflation in the real estate market but when it comes to milk and cheese and gasoline or electricity it's not really deflation ok so these are some examples of death she's 3 let's summarize very quickly and very easy if there is a deflationary policy who are the winners in blue sari a repression arey I misspoke financial repression you have bonds bonds lose value because you're gonna get your thousand dollars back ten years from now worth only half or a quarter stocks lose relative they're your stocks in the seventies or could not keep up with inflation of course cash is losing value during inflation but gold is by far the safest in any inflation or in repression or environment especially when interest rates are negative keeping your money in cash and keeping your money in deposit is not worth it you'd better just hold it in gold or as what is it was recently let's say from 2000 to 2008 and then again from 2011 you just keep it in real or you just keep it in commodities in other words you prefer in financial repression to keep hard assets a table chair copper zinc gold or real estate land hard asset which no matter what the amount of inflation a kilogram of rice is still a kilogram of rice which you can eat okay kilogram of rice cannot be deflated and you lose on your financial assets all right financial repression I already mentioned runs in two forms one is negative real interest rates that was the only way that was used historically until literally two years ago where they give you one or two percent on your deposit and inflation is five or six in other words inflation is higher than the nominal interest rate so we've got a negative real interest rates and cash loses value but now over the last two years they've moved to negative nominal interest rates which is as I mentioned Japan Switzerland Germany and as I showed you before about roughly nine trillion dollars of global debt earns negative interest rates meaning the saver gets punished with a negative interest rates all right so what's the difference the difference between this policy and that policy is cash here cash loses value and cash is trash and you don't want to keep cash because it's losing that but if it's a negative real interest rate now do you lend the government 1000 and get 990 or you put the 1000 under the mattress or in the Box in your lock it up going to safe deposit box the answer is you're better off rather than lending to the German government and lose money let's say minus 1% just keep your money in cash well the German government cannot allow you to do that you will they're mine the German government it's like a crime against the government to do that so the German government as well as the American than any other government that has negative inch nominal interest rate cannot allow you to have your cash and to keep it so they want somewhere or another you know to you know for you not to keep cash so what do they do let's see what did he do so the war on cash becomes necessary when negative in when interest rates become negative because nobody's gonna lend that negative interest rates so holding cash now protects you okay you can hold hundred thousand or two hundred thousand ever money you want cash is good for you but it destroys the government policy okay so somehow some way the government is gotta make you reduce her cash we had 50,000 decisional no no you cannot keep 50,000 gonna keep less okay well and finally somehow the government has gotta make you put that money you still have the 50,000 but now you put it in the bank not in cash well why would you put your money in the bank why would you ever do that if you don't have trust in the back well there is why well let's first say a war on cash this is exactly the same a chart that I showed you a couple of hours ago where there's absolutely zero negative interest rates you see it was a little bit in 14 and then in 15 and then suddenly in 16 and 17 at this point it's close to 9 trillion dollars so suddenly over the last two or three years government's desperately need to eliminate cash from people's holdings and to bring cash into the financial and banking system all right so what's the interpretation well I already mentioned if your own foreign currency it will protect you okay and now the mastic currency also protects you so what is the meaning of the war on cash well war on cash is just an extension of financial repression it's a heavier more forceful policy of financial repression it must extend to capital controls it must extend its control over foreign currencies it must extend control also over domestic currency and as I mentioned before it must extend its control over gold too so the war on cash makes financial repression more effective okay and it also prepares for a monetary reset in other words within three five ten years and Jim Rickards you should know this guy talks a lot about it if all the money's in the banking system and eventually the banking system gets to implode governments can easily reset the financial system by introducing a new currency and then replacing the old currency kind of like what Greece wanted to do to introduce their own drachma and replace the Euro but the exchange rate of three to one and essentially Greeks will lose seventy or eighty percent of their many when they do a monetary reset it is that people lose 50 70 90 percent whatever the government's decide you will lose okay and you can also you lose your money through bail-ins which is something that you also need to understand is when the bank goes bankrupt depositors will lose a percentage of their deposits proportionate to the losses of the bank so the bank lost 20% on their assets depositors will lose 20% on their deposits so one way or another if the money is brought into the banking system you can force people to suffer the losses but if you got your cash in the pocket or your gold in your pocket they can't do that if it's in your pocket they can't force the loss on you okay only on that money which is in the banking system okay so how do they do how the government does it how the government forces you to get your money into the system well transaction limits you want to buy a car for twelve thousand you can't pay with cash you gotta put your money in the bank and then yeah you got a wire transfer the money to the seller so it brings the money in of course propaganda they just say you hold money fifty thousand you got to be terrorists who holds these days fifty thousand dollars fifty thousand euro I mean you must be a drug dealer right right no person who is perfectly legal and safe would hold 50 thousand cash it's only drug dealers terrorists you gotta be some doing something illegal in other words they brainwash people to think that cash is dirty and associated with some sort of a cloud you're probably evading taxes right so somehow again terrorists use cash I've already written oh yeah criminals use tests yeah tax cheats use cash right call them good honest people never do that right we just use a credit card I mean of course if it's buying a coffee for two and of course inconvenient they make cash very inconvenient to the point where you don't want to carry a lot of cash with you okay and of course they make it extremely inconvenient by removing large denomination bills well let's say the following you're in South Korea okay if there's a lot of corruption going on in South Korea I'm gonna and you want to pay the guy million dollars worth okay you think you can just carry a bag and give it to the guy no way the biggest bill go back for a while ago was like $10 one bags not enough two bags are long enough three bags are not enough how do you do a million dollar bribe in South Korea how do you give a bag full of money you know to the guys you know how it's done you go and give the guy nor the bag of money you give the guy a key to a car and the car's trunk is full of money all right so the guy gets the car he gets to keep the car doesn't matter we drop off the car wherever it is with the key inside he gets a trunk full of bribe money so the idea is they remove large denomination you want to stash in a house half a million dollars worth half a million euro if you got now to 500 euro bill you could do that with thousand banknotes you know just a few stacks of money now they are removing already the 500 euro bill right they're not printing it anymore so only gonna phase it out so you'll need two hundredths and then 100's and then 50s we'll try stashing half a million euro with 50 euro banknotes and now a bag is it's gonna take a huge amount so that's a very important way doing it and finally fear they tell you all your cash can be lost it can be stolen it can just burn an accident can happen in other words they use a whole bunch of range of techniques where they force people or induce them or convince them that it's for your benefit to use less less cash like him which one of the best developed cashless society today is Sweden it has the highest number of electronic payment hey you can use a phone for anything here's a credit card for Anna it's so easy and so convenient that Swedes carry the least amount of cash in the whole world it works well so far until they realized that they were trapped let's see what else I got okay I just throw a few transaction of restrictions well the e use restriction is 15,000 u EU wide and they are desperate to get it down to ten well Spain is already ahead you can't buy anything for 2,000 with cash or 3000 we can they've done it got it down to 1,000 anything you want to buy you gotta put your money in the bank and then you got a wire the money now you're the guy the seller you want your five thousand that for the car you got to take it out what are you gonna do with it you can't use it because you can't make a payment for two thousand so you got to keep it back in the bank it forces you to keep the money in the bank whether you're a buyer or a seller okay so that's a very effective France is doing the 1,000 Greece has gone one step in other words the worse the situation is the lower is the limit and even now things are so bad that girl Germany is proposing a reduction I think from 15 down to 5 in there fighting it let's see I think I'm pretty much close and done ok so war on ah war on gold ok so far I was talking about cash and war on cash in the need on cash Warren Gold is not as intensive why everybody's using cash hundred out of hundred but how many have gold one out of hundred probably 200 so gold is not as important so a warren gold is always a later stage of the game as war on cash war on gold is just as necessary for the government and governments do have a war on gold as Howard I was telling me in 1934 FDR president rules will band gold in the United States for 40 years because it was a very effective way against their policy of currency the dollar devaluation which they did in 93 is actually the bear 94 was the devaluation okay and gold becomes a true genuine protection in other words these days gold is your best protection against the financial repression that's been going on since 2008 or 2009 so the government's will have to eventually have a massive war on goal they can just make it illegal they can just tax it big time okay they can just do a whole bunch of range and techniques okay so what is it that they can do just prohibition okay you cannot own it or propaganda yeah this is great this is great I have left with my brother so I was in 2002 95 to 2004 got my PhD in the United States and economics and in finance and back then in 2001 2/3 was buying some gold and some silver and I left some silver when I left the United States with my brother okay and he's a business it highly educated guy and eventually you know when in 2011 silver prices like went up 5 or 10 times and I decided to do it you know to sell hey brought her go in and sell he wouldn't want to touch it she said no way he's never gonna go he's never gonna sell it he's gonna do that only criminals deal with gold and silver he's highly educated he's got a PhD in physics I mean he understands perfectly the physical properties phenomenal properties I said but it wouldn't touch it he said no way they're gonna do I had to hire one of my closest friends from Ohio drive all the way to Washington DC pay the guy five percent commission to sell a you know a big chunk of gold you know and dribble it down to five dealers selling five thousand each piece because my brother wouldn't touch it because that's dangerous he will look suspicious nobody will in other words government's brainwash people unfortunately like my own brother who would think that this is something there on signal he would never ever have anything to do with gold I mean no way he will ever touch it or consider he doesn't want to be associated in any possible way with gold or silver alright that can dragon doesn't get any date of it whatever it is and I was that's how they do it okay it is a very educated man okay it's not just some you know next price manipulations you know they smash the price people get scared about it ignorance people just don't know gold is not studied anymore there in international finance textbooks most of what they write and teach and educate people about gold is just dead wrong people don't know it people don't understand it's not part of the education gold is not part of Western culture anymore it's part of an Arab culture in Indian culture and Chinese and I know it's a part of Eastern and Asian culture but not anymore part of Western culture and civilization of course they can just plain confiscated or nationalize it or they'll just tell you tell you Patriots don't hold gold Patriots buy government bonds okay only traitors do that that's of course pure propaganda but it doesn't work they'll just ban and outlaw it and this is just a simple example it's the same chart they gave you a while ago as to why the government's are resorting to financial repression and to the war on gold that's because that's been rising and rising and rising and rising government's are getting to the point where 3 4 percent is next to impossible for them to pay it's gotta be one or two or better- at a conclusion again total global that is still rising and rising that's the previous chart financial repression is getting intensified the war on cash is just beginning and will intensify in the war on God has barely begun but once the war on cash is more or less one they'll move on to gold next so the world cash is here now on in the war on gold you should expect to come soon and what's the recommendation simple hold gold somewhere outside the financial system and preferably the outside a safe deposit box in a bank yeah you want to keep five ten fifteen percent and you know you know safe deposit box in the bank okay got a million keeping fifty thousand in the bank that's no big deal but keep most of it 8090 percent outside the financial system and same thing just old cash outside the financial system and that's my presentation which I had I hopefully was enlightening and I hope that it was you know you've got to understand about it [Applause]

Channel: Krassimir Petrov

Views: 4,051

Rating: 4.884892 out of 5

Keywords: financial repression, war or cash, war on gold, negative interest rates, ZIRP

Id: rOWbdvJM1fo

Length: 41min 30sec (2490 seconds)

Published: Sat Dec 30 2017