(bright upbeat music) - [Announcer] This is
The Rich Dad Radio Show, the Good News and Bad News About Money. Here's Robert Kiyosaki. - Hello, hello, hello, Robert Kiyosaki, in The Rich Dad Radio Show, the Good News and Bad News About Money. This is our first interview of the year, it'll be our second Rich
Dad show of the year. Our first show (indistinct) But Jim is the guy I go to when I really need some
mental stimulation. And I'm kind of a stalker of his. I sat in audiences and listened to him and then behind his back,
I call him "The Fire Hose." (Jim chuckles) I call him "The Fire Hose"
because I don't think he is, his brain must be connected
straight to his mouth. He does not think, he's
just pour stuff out, yes, this is amazing man to listened to. And I've been following him
for years, any comments Kim? - Well, yes, and so our
guest is Jim records. Macro economics expert and his
latest book came out in 2021. It's called "The Great New Depression." What a great way to kick
off the new year with Jim and giving us the macro
look at what's going on in the world and what's going on in the US and I just wanna turn it over. So let's get started. - And so the thing I love Jim is the book is called "The Great New Depression." And I'm fabulous fabulous book because you have the data there. I'm not going to, I just want you to, I'm gonna give you three questions, your job is to relate the three of them. Number one is, why do you say there's no
inflation versus disinflation? Number two, why are you calling for, what's your justification
for $15,000 gold? And the third is what do
you really think of the fed? Because the greatest period
of prosperity in America was when we had no fed, this is our third central bank we've had. So if you can weave 'em all
together, take off (laughs). - Okay. We spend a couple of hours
on each topic, but we'll work within the time limits.
(Robert laughs) And maybe I'll just us
need this to speak faster and cover it on ground. So yeah, on the first question, inflation, disinflation,
really important distinction. Of course you can't say
there's no inflation. There is inflation. I always say, you're
entitled to your opinions and your analysis, you're not
entitled to your own data. The data is what it is. And inflation has been
running hot since last spring, since April, May of 2021. And some of the monthly
numbers have come in, whether it's the producer
price index, PPI or CPI, they're printing numbers
of the highest in 30 years or sometimes longer. So we're going back to, if
not the worst in the '70s, at least the early 1980s, but some cases longer for
these inflation numbers. So inflation is showing up. So that's undeniable. You can argue about the
forecast, but it's here. And when it first turned up
in kind of April, May, June, even July, 2021, you could say, and it was the support for
that, a significant part of it, or what I call base of effects. And you have to know how
they calculate inflation, how does the government do it? They look at the monthly
data and they compare it to the same month, the year before. So it's a year over year
comparison, but only for one month, then they take that number
and they annualize it. So whatever it is, they, times 12, there's a little more to the math but basically they annualize that. And that's the number you
read about in the headlines. Well, if we say, "Okay, April,
May, June, 2021, were hot, well, what was going on in
April, May, June of 2020?" 'Cause that was the comparison where the economy had shut down. I mean, it literally shut down, now the worst collapse since 1946 and one of the worst in American history. So we didn't just have
low inflation in 2020, we had deflation prices to bind down. So when you get to 2021, the year over year comparison, of course it was gonna go up. And of course that was
gonna be more than usual. That was completely expected. It's hard to disentangle what I just described
as the base of effect from, it's called real inflation,
real pricing increases, but the best estimates
were about half of it was a base of effects. So if you were seeing number
of six percent inflation, and that was about what
it was, you could say, "Well, it's kind of three
real in three basic facts" 'cause we're comparing
to a very weak year. However, as you got into
August, September, October, the base of effect started to
go away, which is you can say, "Well, what was going on in August, September, October, 2020?" Well, that was one of
the strongest periods of growth in US history. That was the other side, it went down and then it came back up. It didn't make it all the
way back up, but yeah, that was a strong we've (indistinct) in the third quarter of 2020. So you would expect, so therefore the base of effect went away, but the inflation remained hot, it didn't fade as much
as I thought it would. It was like, "Okay, well,
the base of effects have gone but the inflation is still there," in fact, by some measures it's even worse. So here we are early in 2022 and as they're the most recent data we don't have the December data yet, but we have the November data and we have some other indicators and it's still a little bit hot. So now we're at a point where you say, "Okay, is this real inflation?" And I would define real
inflation not just as numbers, but is it persistent, is it pervasive, is it across the board? Is it feeding on itself,
is it raising expectations? That's something to worry about. Or is it, are there some
specific causes we can point to and say, "Yeah, okay, that's
causing a little inflation, but it's going to go away." So that's the debates, the biggest debate in economics right now, I'll give you my view, but to be clear that there are definitely two sides, two sides of the coin up unintended, but definitely two sides to the debate. And in particular you say, "Okay, let's just aggregate a little bit. The other numbers have been
hot, but what's driving it?" Well, the number one thing, one of the number one
things are energy prices. Well, okay, but what was
Biden's energy policy from the day he was sworn in, he shut down the Keystone XL pipeline. He handicapped Fracking in Texas and Pennsylvania
and other states. He prohibited new oil and
gas leases on tribunal lands. He limited (indistinct) and
did a number of other things all of which were designed
to basically handicap the oil and natural gas industry. Well, that's part of the
green new deal agenda. And then they're subsidizing, wind turbines and solar panels. I have nothing against wind
turbines and solar panels, I actually own the largest solar field, a non-commercial solar to the New England. So, I run my house on solar power, but I don't have any illusions about how scalable that is. I mean, I had to clear three acres of land to put in a solar modules. And everyone's like, "Why'd
you clear a three acres land?" Well, I'm up in new
England, we have trees, you don't want to treat a
fall on your solar panels and you got to create a little room and that's enough to run
a house, but I'm like, okay, three acres of cleared land, nine towers to run one house. How does that scale? How do you run a city on that? Well, the answer is you can. So solar and wind have a
place that there's supplements and they're, they're not reliable. You can't power grid on it,
it's intermittent power. I was the owner of the wide solar field and you know one thing,
it doesn't work at night, it just doesn't produce
any electricity at night 'cause the sun is dead and it
doesn't work in cloudy weather it doesn't work when it rains and snow. So that's why you have batteries, you really run the house in batteries. You've got to charge the battery, but it's a whole like lifestyle thing where you run the wash
machine on a sunny day, the stuff like that, it
works, but I'm saying, it's just not scalable. It's intermittent, it's not reliable. You can't power grid on it. We're shutting down uranium plants and we're shutting down nuclear plants. They've prior coal, and coal is like the
biggest prior out there. Well guess what, if you
handicap oil and natural gas and you outlaw coal we
make it not feasible. And you shut down your nuclear plants and you're gonna run on,
hydro, solar and wind turbines, you probably starting to fail. You're gonna have blackouts, which we are seeing in California, this whole thing doesn't work, but it doesn't raise energy prices. And that's the point that the
demand for coal by the way, is a close to an all time high, because we still have a lot
of coal fire plants in like, "I can't get anything
else, get me some coal." So that's one of the drivers, the other big driver,
are used car prices, huh? Well, what's up with used car prices? Why are they going up so much? Well, the answer is you
can't get a new car. Maybe you're gonna spend $200,000
on a Bentley or something. Maybe you can find one, but everyday Americans can't
get new price well, why not? Are we out of the steel? Are we out of rubber? No, we're out of semiconductors. This is where the supply
chain comes into it. So they give a car, I remember
I used to stick a screwdriver in the carburetor when
the engine was flooded, they don't even have carburetors anymore. But the point being, your car
is a computer on four wheels. It's hardly a card kinda I grew up with, it's a computer on four wheels and if you can't get semiconductors, you can't make new cars and
if you can't get new cars, you got to buy used cars and
their insurance supplies, those prices are going up. So my point is energy
is real, you need it. I fill my tank just like everybody else, I'm not immune to this, I use cars. But when you have a couple
of things like that, that are driving the whole CPI, you have to step back
and say, "Wait a second. Is this wise for inflation? Are expectations changing? Is this sustainable? Or is this just a short
term spike in a couple of key indicators around, okay, we'll have mental equivalent?" Housing is another one. With housing shortage
because zoning requirements and BlackRock's buying up all the houses and there are other reasons for that. And so as I look at it,
what I see is, yeah, the equation numbers are up,
there's no question about it, but this is not the kind of
a place you had in the 1970s. In the '70s it was, you
got to raise every two where, I was kind of starting my career and you would get three
or four raises a year, just to keep up with inflation. It was like, "Thanks for the raise. But, prices just went up 13 percent," which they were at the time. This is not that kind of inflation. In the '70s it was everything,
it changed expectations. It was what's called cost push inflation, which is workers like, "Well,
you got to give me a raise and unions are stronger, but
even non-union companies." And say, "Yeah, I do actually." That's not true today. Workers don't have the bargaining power, labor force participation is low. And I think you said, it looks like a couple of factors that are gonna run out of
steam and the economy slowing. And then we kind of can get into the whole supply chain debate. So, just to sum up, I would
look for disinflation. I'm not calling for deflation, deflation is when prices go down. I can't rule that out,
but I don't see that, that's not my intermediate term forecast, but disinflation is. I see these numbers going down from six percent to
seven percent annualized, which is what the government is showing. Getting down to the four percent level and eventually down to
the two percent level, which is where it was from 2009 to 2019, during that 10-year expansion,
during Obama and Trump. And there wasn't much difference
between Obama and Trump in terms of growth I know, Trump claimed the greatest
economy ever, that's fine. That's a talking point, but the fact, if you look at the numbers, the Obama, Trump economy, certain, they're kind of the same, right? We're not 2.2 percent growth inflation was between 1.6 and two, and rarely, rarely if
ever touch the fed started with a two percent, that's
where it's heading again. So not deflation, but disinflation. Disinflation probably is gonna go away. - So Jim I'm gonna ask this
questions 'cause this is, I wanna help sellers
sell some of your books, "The Great New Depression." And it's a fabulous book. - [Jim] Thank you. - And I want people to
be inspired to read it, so they're prepared because
you and I are old enough to be either Paul Reveres
or Chicken Littles. If you know what I mean (chuckles). Well, for all these
years we've been saying the betters are coming where
the sky is falling either way. And, I first came across the dollar, going off the gold standard in
1971 while flying in Vietnam. And I said, "What the heck does
that, what does that mean?" And I knew it was going to get bad, which why I became a gold and silver bug, but I didn't think was gonna get this bed. And so that's why you book,
"The New Great Depression," would you mind defining that
great new depression for us because that's disinflation. - Sure- - It's like, tender off up for one second. - Yes, go ahead Kim. - Can you just give your
definition of disinflation? - Yeah, disinflation is
inflation at a lower rate. So now is you still have inflation, but I think of some eight
percent to six percent to four percent to two percent, which is what I'm saying. You still have inflation
perhaps inflation of two percent and that's not true. You'll look at the value of the dollar and it happened 35
years, sounds tiny a bit. Most people were young adults at the time because you're in college,
it's about 35 years so or less. So that's real, but going from
eight percent to two percent is a big deal for a couple of reasons. Number one, it means that
six to eight percent number is not sustained if it is, if I'm wrong. I mean, I don't think I'm wrong. I wouldn't be giving this analysis, but if I'm wrong and fleshy
go six to eight percent, then it's probably on it's way to 15. So that's a completely different scenario. It's not the scenario I see. (indistinct)
- The fact that, that what you define as hyper
or super inflation then? - When you're getting close to
hyperinflation at that point. And, again, Kim, just to be
clear, I do the analysis. I have a view, I look hard at the data. I have models. So I exercise a lot of care on this, but I don't just ignore the alternatives. Sometimes you wrong and you have to pivot. So yeah, we should all be
watching for signs of inflation. I don't see them, I see disinflation, which means you still have inflation, but it's at a much lower rate, but there's a world of difference between let's say 1.8 percent inflation and 6.8 percent inflation. Those are completely different worlds because one is much more manageable, but it also changes expectations and expectations are the key. The fed doesn't control inflation. Everyone's like, "Oh, they
print money, you get inflation." That is not true. It's not true in prices, it
might be true in asset prices. It might be true in stocks
and bonds and real estate, but that's not the consumer price index. That's not what the fed looks at. That's not what most
economists or many economists mean when they say inflation,
they are assets levels, money printing kind of lead asset levels. But it does not lead to price inflation unless velocity picks up, velocity is just technological phenomenon. So if you change the expectations
and change the philosophy, and certainly change the psychology and change the philosophy,
yeah, you will get inflation, but I don't see any of
those things changing. What I see is this runs out of steam and we get back down to below two percent. - So my concern is why did you write "The New Great Depression?" - Well, first of all, thanks Robert. First of all, it has to
do with the definition of a depression and most people
don't have a good definition of depression and
economists don't even use what that go with the D word. They don't like it because
let's compare it to a recession, the R word, okay. So recession is well defined. It's two or more, or at least
two consecutive quarters of declining GDP. And a couple of other bells
and whistles about employment. And there's a referee, the National Bureau of Economic Research, a private econ (indistinct)
in Cambridge, Massachusetts, they call balls and strikes. They tell you when a recession
begins and when it ends, when the expansion ends and et cetera. So, but two or more consecutive quarters is the decline in GDP, that's the classic
definition of a recession. So people go, "Huh? Depression sounds worse than recession. And if recession is two
quarters of declining GDP, a depression must be 10
quarters of declining GDP. It must be way worse." And that's not the
definition of a depression. First of all, 10 quarters of declining GDP has never happened, if it did we we'd all be in trouble, but maybe during the great
depression to some extent, but not otherwise. But that's not the
definition of depression. Depression means depressed growth, meaning you can have
growth in a depression, but the growth is depressed
relative to trend, relative to potential. So in other words, if your
economy at the long-term trend of a recovery in a, well in a recovery, growth in a recovery is
three and a half percent, which it is. And you're growing at two percent, which we were for 10 years,
that's depressed growth. You're creating a wedge, so here's the three percent trend line, and here's the two percent actual growth. Well in between those two
lines, that's depressed growth. That's the last output. You could have been here,
but you're actually here because it's a wedge,
over time it gets bigger. What's the, I would say we've been in a depression since 2007. That the entire so-called recovery from 2009 to 2019, that
was a 10-year recovery, the longest recovery in US history, but it was also the weakest
recovery in 10-year history. The average annual growth
of that 10-year period was 2.2 percent. But for all posts, 1980
recoveries average growth was 3.2 percent. And if you go back to
post-World War II recoveries, it's closer to four percent. So if you have an economy that
can grow three, four percent and you're growing at about two, that one percent, you
have what, one percent, what's the big deal? Sorry, one percent of 20
trillion compounded per 10 years is a big number. You're talking about
trillions of dollars of loss. Well lost output from the
government's perspective, loss taxes. So that is the definition of a depression. John Maynard Keynes defined it that way. It was good enough for Keynes,
and it's good enough for me. So honestly we've been
in a depression in 2007, but the new great depression
is where we are now. And it's, by the way, that book has three chapters on economics, "The New Great Depression," but also has three
chapters on the pandemic. So it's kind of, it's a mixture of the impact of the pandemic
and then the effect it had on the economy. - Fantastic book. - You can't, thank you, you
can't disentangle the two. I had a debate with my
editors (indistinct), "We love you on economics, but you're not an epidemiologist." And he said, "Well, I know
I'm not, I'll mention that, but you can't, writing about the economy and not mention the pandemics, it's like talking about
property damage in new Orleans in 2005 and not mentioning
hurricane Katrina. I mean, you have to mention the pandemic." And I did. And I included the chapter
on the mental health aspects, by the way, there's a lot in that book that was way ahead of
today's conventional wisdom. I said the, I concluded
that the virus came from a laboratory in Wuhan,
that today that's the consensus. I said, that lockdowns don't work, today that's the
consensus, mass don't work, today that's the consensus. But all this stuff was heretical, a year ago when the book came
out, but it's all in there. But as it relates to the economy,
it's just one more reason. Now having said all that,
yeah, COVID has not gone away. The pandemic still here, it's still depressing growth
in the way I described. So there's growth- - Can you explain in roughly just a second when you say depressing growth. We still have growth, but
it's not at the potential where it could be, is that correct? - Correct. Now in 2020 and 2021, we don't have the fourth
quarter numbers yet. It looks like the fourth
quarter will be decent, might maybe relatively strong. The third quarter was quite weak. The fourth quarter of 2020 was quite weak. We did have another strong
quarter along the way in 2021. So it's kinda, it's kinda jumpy. We're getting some
strong quarters followed by weak quarters, but now I would expect that to trend lower. Then we're gonna see that very quickly. And in addition to the pandemic,
which we just talked about, there's a new headway
to growth, the big one, which is the supply chain breakdown. And that scenario, I'm doing a lot of time
and research too right now. So between the new omicron variant, which, fortunately is
mild, and appears mild, it's highly contagious
and relatively mild. So, it's kind of like the cold or flu bio-flu version of COVID, but it's around and it's affecting, people can't believe how quickly it's twine
through New York city. I mean, and nationally look
for a million new cases a day not fortunately the mild, but it's still enough to
keep people home from work. It's still enough to,
some people unfortunately are in the hospital, but even
if you're home for 10 days, you're not working those 10 days. So, this is a new headwind on top. And then we have the supply chain crisis and then they feed into each other. Surprising-
- So Jim can, Jim, can I add one more
because it was in the news, it was, they had to
raise the debt ceiling, our debt went past 30 trillion, which comes out to my second question. Your forecast for 15,000 gold and fellows who may not be following gold. This is January 4th or fifth, 2022, that was about 1800. So for Jim to be calling $15,000 gold, I think we're all connected in there with the debt and all this stuff. - Yeah. Well the $15,000 gold is
actually very straightforward. It's not a number I pulled out of the air. It's not a number I made
it up to attract attention. You don't really need that, but it is the number that gold
would have to be or higher. I mean, it's a base, but
it's the lowest number that gold would have to be
if you were going to use gold to support the value of US dollar. And why is that? Because we know how much
gold the United States has, 8,133 times. I mean, they're the people like the vault support knocks on
that did and they're empty they're not empty. By the way, most of the
cost is not in Fort Knox. It's at West Point, there
is a lot in Fort Knox, but more if it's at West
Point and the Denver Mint and a few other locations. They're not empty, the US got an incredibly
singled out and that's fine, but you can, the gold doesn't go anywhere
and you can terminate the leases and it's still there. So we know what the money supply
is, the fed publishes that, we know how much gold we have. And so if you were going
to go on a gold standard, you would basically have to say, "Well, what's the value
of an ounce of gold? Where am I going to sell it?" Is this what a gold standard is? Now, by the way, just to be clear, there's not a central banker in the world with the possible exception
of Elvira Nabiullina, who's that the head of the
central bank of Russia, she's the only central bank
who really does her job. She's taking gold up to 20 percent, slightly more than 20
percent of Russia's reserves. Russia's reserves just
hit a new, all time high of 600 billion. And the gold component
is 20 percent of that. So, over $120 billion of
gold, about 2,300 tons. And it was like, "Well,
the US has 8,000 tones." They only have, maybe a
little over a quarter of that, but their economy is
only one 12th to size. So when you look at gold, relative to GDP, they have a lot more gold than we do, and they're doing a much better position. And part of it is just to see
why sanctions don't hurt them because they don't, they're
not relying on treasury bills, and dollar payments there to
support their reserve position because they have a lot of gold. But getting back to the US, so if you said, okay, 'cause
one of the objections, to a gold standard people go, "Yeah, well maybe we
had a once upon a time. And maybe it worked okay, but we can never go back
there because commerce and credit and trade and bank
balance sheets are so high. We don't have enough gold to
support that level of commerce. We just don't have enough gold." That's nonsense, there's
always enough gold. It's just a question of price. Now at $1,800 an ounce, no, if you say, "We're gonna go on a gold
standard in $1,800 an ounce, and here's so much gold, we have," you'd have to cut the money
supply by about 75 percent. And that would throw us into, that would be the great depression, that would be, you would
collapse the economy. You can't do that. By the way, it is the mistake that the UK and Winston Churchill made in 1925, when they went back to a gold standard at the pre-World War I ray, and that was basically
overvaluing Sterling. So they had to cut the money supply and they did go into a
depression four years ahead of the rest of the world. So hopefully lesson learned
although with central bankers, you never know. So if you say, "Okay, I can't,
if I want to go standard, I can't pay you at 1800 because I'd have to cut the money supply by
three quarters or more." So what's the alternative? Raise the price of gold. So now it's the same
amount of gold can support any amount of commerce at a higher price. So then the equation is just
an eighth grade math problem. It's like, "Okay, well, what would the price have to
be to match the money supply" and let's use m1 as an example, and I assume 40 percent gold backing, the Austrians and the
monetarists, they bang the table. "No, it has to be 100
percent or, you're levered." Okay, that's a debate for another day. Historically 20 percent is, where it's all they considered
and let's say 40 percent. So if you take 40 percent
of the money supply, and that's how much gold
(indistinct) by value, and we know the weight,
divide one by the other, when you come out to $15,000 an ounce. So, the reason I'm explaining that Rob, just want to be clear that
there's not a central banker in the world who wants a gold standard. They're not gonna go to it voluntarily. - Correct, correct. - But if they have to, because of collapsing
confidence in the dollar, then it follows that you have
to go to $15,000 an ounce because any smaller, any lower
valuation is deflationary. And that's the last thing you want. - Okay. So thank you very much, whoa,
we're going to go to break. We come back 'cause he's answering all my little questions
here about $15,000 gold and inflation versus disinflation and depression and all this. But when I come back, I
want to ask Jim personally his opinion on the fed, because he makes little remarks off to the side here and then by myself, I wanna ask him what he really thinks. When we come back, we'll
be talking to Jim Rickards about the third central bank
and as it is called the fed. We'll be right back. Welcome back Robert Kiyosaki,
The Rich Dad Radio Show, the Good News and Bad News About Money. I wanna thank our special
guest Jim Rickards. We'll just keep this running
because this is too important. So we'll go to part two now. - I got one question, I
don't know if it's relevant, but there's talk Jim of the US dollar, not of losing the status
as world reserve currency, have you, what, do you have a- - Oh yeah, I hear that, you're right, Kim, I hear that all the time. I get asked that all the time it goes, it used to go into
the name of the great reset. It was like the great reset was gonna be, we'll have a new (indistinct)
and we'll we sat there and national monetary system, the dollar won't be the
only reserve currency. Kind of basic question, well, what is, is it gonna be the SDR? Maybe, is it gonna be a digital SDR? Yeah, okay. A digital SDR backed by gold. Well, that could work, but
nobody wants gold except me and a few other people. But so that's the great reset. What's interesting is that
our friend called Schwab, who is the head of the Global Elites, he's their chairman, runs the
Davos Conference, of course, came out with a book
called "The Great Reset." And, but they hijacked the term, they hijacked it as basically
the new world order. So now when you say the great reset, you've got to like define your terms, 'cause there's a whole
lot of, gold supporters, people who worry about the dollar and we're gonna have a great reset. And then you got Klaus Schwab, Jamie Don, and talking about the great reset, meaning get back to globalization, get back to the new world or whatever. Break down borders, and maybe
get away from the dollar, but not in favor of gold in favor of, something controlled by the IMF. So, that's in the air, I
don't see it happening. See, here's the thing, you're never gonna have a world where people lose
confidence in the dollar, but they say, "Hey, get me those euros or get me, those Yens, all these currencies are
gonna go down together. They may stay up together, be able to make the confidence in them. But if they collapsed,
they're all going to collapse. The idea that, "I hate to dollar, but I'll take all the Euros you can get." No that's not going to happen. Or do you think Euros can be better off than the United States in a world where confidence in the
dollar is collapsing? That's gonna be a world where confidence in everything's collapsing. Now that's the world where
everyone goes straight to gold. However, some people
are going to go straight to Bitcoin or they already have. So you're, I don't think all
in Bitcoin are comparable and I've been in more gold Bitcoin debates and I hate them all, but I get, I'm always asked to join them and I do. I actually was that cut
man for a Frank gesture. When Frank did a go a Bitcoin
debate with Michael Saylor, Michael Saylor has made
$5 billion in Bitcoin. So it was real money. I mean, he hasn't sold it, but on a marked market basis, you bought it in 18 or at the 16 and he bought like 2 billion
and he triple something, he's up to 6 billion. And Frank is the greatest
gold mining financier of, since probably George Hearst. So here you had your gold
guy and your Bitcoin guy. So I was, I kind of coach
Frank from the sidelines and we did a couple of that
prep calls and all that. Frank did a great job in the debates, but you can't, whatever. I think Bitcoin is irrelevant
'cause you can't dismiss it, it's out there. So I think what I would expect
is something possibly chaotic and a real roller coaster. And that's the world where you
definitely would want gold. - Again, would you go back into
the why we have three feds. There've been three feds, the greatest prosperity was between the second and third fed. And why do we have the third fed? - Right, well, you can
say we have three feds. We actually had three
central banks but one of them was called the fed 'cause
they didn't want to. - All right, all right, just me. - There was a reason for that Rob, is you're making a good point 'cause they didn't want people
to know as the central bank. Yes.
(Robert laughs) Where the fed is our third try. So the first bank of the United States, I think it was kind of 1797 to 1860. It was like I had a 20-year charter. So it went from the late 1790s
to around 1814, give or take, and then they shut it down and said, "Well, we don't need this,
this concentrate and all that." But they was actually
based in Philadelphia, "Concentrated too much
power in Philadelphia, that Eastern merchants and all that." So they let the charter expire. Well, then we got, then
it was kind of a hangover from the war of 1812,
and we needed finance and Train was disruptive (indistinct). So they, I guess the first
bank ended around 1812, but then after the war
we needed a new one. So they charted a new one in 1816. And that was called the second
bank of the United States. Also central bank on, I think in Chestnut
street in Philadelphia. That building is still there. It's beautiful building. Now that was a 20-year charter also sort of (indistinct) 1836. Well guess who was president
in 1836, Andrew Jackson. And he hated essential things. And he came to sometimes he,
(Robert laughs) he campaigned to shut
down the central banks. Well, it was one of the
biggest fights in history with the Congress who
authorized the 90 bit of it. And so the second bank of
United States ended in 1836. So two tries, two failures. we had no central bank from 1836 to 1913, there was no central bank. And that was fun as you point out Robert, one of the greatest periods of prosperity in American history. I mean the telegraph, the
telephone, the electricity, the automobile, I guess we
have planes kind of came along at the tail end of that. Harvesters, machinery,
ocean shipping, steam, railroads, you name it. I mean, we just grew and grew
and grew from coast to coast, massively productive,
inflation was not a problem. Well actually, deflation was a problem, but it was kind of a good
kind of deflation where, when prices go down, if you
make the same amount of money, you get a raise, you can
buy more for your money. What's wrong with that
when you think about it. So yeah, no, we're you get guys who just sort of lost
their way like Paul Krugman is that, if you have a look
at all the financial panics during the gold standard say,
"Yeah, I could list them." 1893, 1898, there were a lot
of financial panics by the way, look at all the financial panics
without the gold standard. In 1990 we had a serious recession, 1987, the stock market
fell 22 percent one day, 1998, we came within an hour show, of shutting down every market in the world and the LTCM crisis. 2000, NASDAQ lost 80 percent after the dot-com bubble blew up 2008 after Lehman bankruptcy. Again, the world was hanging by a thread. 2020, the stock market collapse 30 percent in about one month. And many other crisis. The Tequila crisis in
1994 et cetera, et cetera. The point is, there are financial crisis on the gold standard, there are financial crisis when you're not on a gold standard. Guess what that tells me is
astonishing you would say, there are no correlation between
gold and financial crisis. Financial crises happen, but they don't happen because of gold and otherwise gold works fine. So that's something we can dismiss. So yeah, there were those
crises, but the turning point, the US economy was doing just
fine without a central bank. National banks could issue dollars. The dollars were redeemable
for gold at about $20 an ounce. If you had a $20 bill, you
could walk into the bank and say, "Give me an ounce
of gold," and they would. And some silver equivalent of silver would be 20 ounces of silver at the time, that was the definition of a dollar. It was one ounce of pure
silver, that was a dollar. So why in 1913, why all of a sudden do we wanna bring back the central bank? Well, it goes back to actually to the San Francisco earthquake in 1906. Devastating of course. And so what happened was
they were insurance claims. Everyone's buildings got wiped out, knocked down or burned out
'cause it was huge fires, put in insurance claim. So the insurance companies
had to sell assets in the Eastern market as they
had to sell stocks and bonds to get the cash to pay the
claims in San Francisco, that created financial
pressure in New York, and then throwing a couple of frauds, it was a panel that the
Knickerbocker trust, it was financing a coronary
of the copper market that blew up corners usually do. Anyway, there was a financial panic and there was no central bank. So what happens? Pierpont Morgan and everyone
turned to Pierpont Morgan, the original JP Morgan. And he got all the bankers
in his townhouse in Maryhill around 35th street in
Madison avenue in Manhattan. And he sent actually Benjamin Strong who had became president
of federal reserve back in New York, got to audit
all the tax in New York. And they did triage and
they broke the banks into three categories. This is either, "You're strong
enough to weather the storm, you're okay." "This category you're
broken, so you're hopeless, we're going to let you go." And there was a middle category where they were not insolvent,
but they were illiquid. So what they said is you get
the strong banks lend money to lease banks, that'll prop
them up, it'll keep them open. And these guys we'll let
them fall off a cliff. And they locked the bankers. He had his servants bolt
the doors to the back and that made us stay up all night. He bolted and like "So
you're not getting out until you come up with an answer." And he stayed up all night. He knocked on the door and then they said, "We've got an answer," and they came out and they did exactly what
I had just described. Well, it worked and the panic
was over and the bank survive, but they didn't mind shutting
down banks in the states. They don't anymore, but there
were a large number of banks, a large number of deposits, lots of money, but they sell less, be more careful about your bank next time. But what happened was,
Pierpont Morgan died not long after that. And the bankers, basically
the Rockefeller interests, the Stillmans, the Morgan interests said, "Well, this is gonna happen again because backers are dopes and they do it every 10
years like clockwork. And we're not gonna have
Pierpont Morgan around the next time. So we need, and there was nobody like him, so we need a central bank. We need a printing press basically." And they cooked up the idea for what became the federal reserve. But they knew that Americans
hated central banks and they do, they still do. So they said, "Well, don't
call it a central bank, call it the federal reserve." It sounds like a branded whiskey. Now it's like, age, federal
reserve, (Kim and Robert laughs) but they call it the federal reserve and have a board of governors
and break it into 12 regions so it doesn't look too ominous. And they did all these
gimmicks to basically make it not look like a central
bank, even though it was. And the original purpose
of the central bank, it really only had one
purpose, lender of last resort. So the next time there's a
panic, like the panic of 1907, your job is to lend, to, sorry, illiquid institutions, not
insolvent institutions, the liquid institutions. And Walter Bagehot and 19th century writer sort of had written the
playbook for central banking in the mid 19th century. And he said, "The central
bank in a financial crisis should do three things. Lend freely to solvent
institutions at a punitive rate. I mean, turn the money stick it on, crank it with the printing
press line freely, but only the people who are solvent do not lend to the insolvent, let them fall by the wayside and the punitive rate
to teach them a lesson. Now what did Ben Bernanke do in 2007? Well, he lent freely, had to
increase the balance sheet by $4 trillion, but to
solvent and insolvent alike, they lent to everybody. AIG wasn't solvent, they half
of the banks on Wall Street weren't solvent but they
lend to them anyway. So they didn't follow badges number two, while they lent to insolvent institutions and it was not a punitive,
it was close to zero. So Bernanke broke two of the
three rules, he lent freely, but he lent to everybody, wasn't selective and he lent at a zero rate. Well, that just means
that you got through it, but you just propped up a
bunch of insolvent institutions and set them up for the next time. And 2020 was different. 2020 was an economic crash. It was not a financial crisis. We did not have a
financial crisis in 2020. We probably will the next time. But so the point is we have central bank for all the wrong reasons, but the real problem is that in 1934 during the Roosevelt administration, they reneged on the original fed deal. They pulled all the power from the regions and put it back in
Washington, where it is today. And then in the 1970s, I think 1979 or thereabouts
in Humphrey Hawkins Bill, they expanded the mandate
of the central bank. It was no longer just price stability, which it always had been. Well, the state of
Michigan was priced a bit, the real mission is bail out the banks. That's what they're there for. The state of Michigan
was a price stability. We don't want too much inflation but they added a third mission,
which was full employment. Well, mission two and
three are inconsistent. A lot of times what you need
to do to get price stability doesn't necessarily give
you full employment. And vice versa, full employment
might mean inflation, which is inconsistent
with goal number two. So we've given now that and by the way, now the central bank, the
fed has a fourth mission, which is climate change. And that's another, (Robert laughs) we need to spent a couple
of hours on that Rob, we don't have to but
they're gonna mess this up, mess this up, (indistinct) so. - Just like I said, Jim, behind your back, we all call you "The Fire Hose" 'cause you can't, I mean,
I don't know how you do it for all that information. But the fact-
- Well, here, I'm not for, but here's what I'll
do with central banks, the fed is I'll say always wrong, is, I do a lot of economic
forecasting on models, but one of the best factors is if the fed has a forecast gets wrong. If you assume the opposite or are certainly significantly reduced, you'll probably be very
close to a strong prediction. And I got nervous last summer, because as I just explained
this night earlier, Robert and Kim I'm expecting disinflation not strong inflation. But the fed was saying the same thing. They were saying, inflation is transitory. And I got nervous
(indistinct), "Wait a second. I'm agreeing with the
fed, what am I missing?" 'Cause I know they're always wrong, (Kim and Robert laughing) and it's like, if I agree with them, I must be missing something. But fortunately for me,
Haul flipped he said, "Well it's not transitory,
inflation is a real problem." So I feel much better, 'cause
I feel that my forecast will be valid 'cause the fed
finally just erased with me. - So make me happy because I've
been a pessimist in the '71. (Jim laughs) So this national debt has hit 30 trillion. COVID it's gonna be around the
Euro dollar market is bigger, Europe is in trouble. What's the possible bill
of $15,000 gold (laughs)? - Gold gets better every day. So (Robert laughs),
your children will give you any thanks with the $30 trillion of debt. First of all, I, yeah, it's a big number. I look at it, but what I
look at and others do also, is you look at the debt to GDP ratio. The number could be, if
you have a bigger economy, 30 trillion might be just fine. But you say, "Well, what's
the ratio of the national debt to the size of the economy?" Well, when the debt is 30 trillion, which it is you're right, just got there. And the economy is about
22 to 23, maybe trillion. That's the debt to GDP ratio
of 130 percent or more. So why is that significant? Well, there's a huge body
of economic research. We don't have time to go through it all, but with Carmen Reinhart and Ken Rogoff had been the leading scholars, but there are many other studies, you don't have to rely
on Reinhart and Rogoff, although you can, but there are many other
sides that say the same thing. When the debt to GDP ratio
goes over 90 percent, it's no longer any monetary stimulus, it's a headwind to growth. The Keynesian idea, you borrow a dollar, spend a dollar and get a
dollar 20 of growth, right? Borrow a dollar, spent a dollar and get a dollar 10 of growth, then the number keeps getting smaller. What happens when you borrow a dollar, spend a dollar and you
get 80 cents of growth? You didn't even make your dollar back. And so now the debt to GDP
ratio is getting worse. That effect is getting worse. You're off the right hand of the diminishing marginal returns curve, you're actually into
negative marginal returns. So not only is it not stimulative, and they call it Biden
things stimuluses, nonsense. Not only is it not stimulated, it's a headwind to growth number one. Number two, the people say,
"Well, yeah, we'll never be able to pay off the national
debt, the $30 trillion." you don't have to pay
off the national debt, but you do have to roll
it over, that's the key. So as an old, a 10-year note
that you issued 10 years ago, matures this year, you
gotta pay off that note. Well, maybe you issue a new 10-year note or maybe you issue a new
30-day bill or a five-year note or whatever it is. So treasury securities are
maturing all the time every day, new securities are being
issued, at least weekly, sometimes daily,
depending on the maturity. And that's the system Alexander
Hamilton invented in 1789 has been going strong for 230 years. But the question, but it's
always been based on confidence and good management. And I was in US history and
I covered this in chapter two of my book, "Aftermath" US history shows that,
yeah, the debt goes up, but it always goes up, the debt to GDP ratio
goes up in times of war. And then in times of peace, we pay it back down again
and it goes up in a war and then it comes back down again. So you can think of it as dry power. It's almost like ammunition
and gunpowder and artillery, or today jets or cruise
missiles or whatever. You keep your debt to GDP ratio modest so that you can wrap
it up when you have to. That's gone, thanks to Stephanie Kelton and Johnny Yellen and
modern monetary theory and Bernie Sanders and a
lot of other influencers, that's gone. Now, the debt to GDP
ratio is at a very high, historically high wartime
level, even higher, but there's no war. What are you gonna do if there is a war? Where's your borrowing power then? Or something like the great depression, not the technical definition I gave, but a collapsing economy. Where's your borrowing power then? And that's the problem. It's not that you have to pay up the debt, you do have to roll it over. And when you lose confidence,
you can't roll it over. Then you lose confidence
in the devil itself. - And that's the issue. - [Jim] Yes. - That's that issue right now. So my friend, I wanna thank you for your ungodly recall and great brain and the ability to just
come, just keep going at it. I don't know how you do it. Any comments Kim?
(Jim chuckles) - Well I just had-
- [Jim] I know if- - What if I had a question
I know we're short on time. One final question. So going forward 2022, the
supply chains happening, these mandates, vaccine mandates, some people are getting fired or that, how do you see 2022
penning out in terms of- - Yeah, the vaccine mandate
is gonna start to collapse, the courts take their time, but, they say that justice moves
slowly, but it keeps grinding. And so I think most of
the vaccine mandates will be thrown out. I think there 80 percent of
the US population woke up a couple of weeks ago and said, "Oh, vaccines, don't stop infection." They had been sold like
vaccine stopped infection. They don't, they don't,
they have other effects, I mean, there's, I'm not anti-vacs, I am anti mandate, but,
they would do symptoms. They would do solubilization,
that's a good thing, but they don't stop infection
and they don't stop the spread a lot of people thought they did. So I know 20 people or
more who personally, who have got Omicron
in the past three weeks and every one of them was double
vacced, every one of them. So, I think, "Well, what's
the point of vaccination, but it doesn't stop infection." No good question. And we're the point what's
the point of a vaccine mandate if it doesn't stop infection, 'cause the people you're
firing are, Marines, airmen, soldiers, truck drivers. - There is also doctors.
- There are ENPs, the big doctors, the
people we actually need. So I think that's all
gonna fall by the wayside. You don't have to be a
political genius to say the Republicans are gonna clean up in the November of midterms, but the problem with
that is it's a long way from now to November. And in fact, if I know
it, the Democrats know it. And so if you're a Democrat and you know you're gonna
get swamped in November, you're gonna try to do
all the damage you can between now and then. So I would watch out for that. And Ukraine is another
hotspot, but I always say, can the, all the things are on the list, I watched all of them, when I'm aware of them, they
explode literally or otherwise, but the thing is probably
there's the most tensions the thing that none of
us are thinking about, the true unexpected. But even the unexpected, the thing that's not on
the list has warning signs, so that's what I look for. - Thank you, thank you, thank
you, thank you, thank you. So my friend, thank you, Jim, and we'll be right back
with our final word, but really, I value these times with you. So thank you very much, my friend. - Thank you and thanks again. - And we will be right back. - Welcome back, Robert Kiyosaki,
The Rich Dad Radio Show, the Good News and Bad News About Money. We wanna thank our special
guest Jim Rickards. Like I said, behind his back,
we call him "The Fire Hose." He doesn't stop to think. I mean, I don't know how he does it. I mean, we should cross to him with Biden because Biden is always thinking, 'cause he can't remember anything. - Oh, no, no, don't do that. (Kim and Robert laughing) Don't do that, we don't
wanna diminish Jim (laughs). - But I don't know how he
keeps so much data flowing without stopping to think. - Look at my notes, I got
all these notes from his talk and all the things to follow up on. And yeah, he's an incredible
wealth of information. Oh my goodness. And you know what, he was talking about what Bernanke did like
violated the realest thing that needed to be done
with the banks and all, and I guess what that did, and that was my question, Robert, I guess what that did is it just pushed the can down the road. - Correct. - Because they didn't do
what they needed to do and they let the insolvent banks survive, which they shouldn't have. - Because that's why everybody should read "The Great New Depression." - Yap. - Is because the old
depression is not going to be like the new depression and we're in the new depression today. And when I say that to
people, they look at me like, like I'm a pessimist, but I'm saying if, "It's really good news, if you know it's here,
you can make some changes. But if you think the last," none of us were around
the last depression, "but if you think the last
one gonna be like this one, I think you're seriously mistaken." And that's why I really
appreciate having Jim on here. And I really encourage
people to read his books. It's just fantastic book,
his book "Aftermath." I listened to an audio book
driving across Montana, and oh my God just kept hitting in restart, restart, restart, because it took a while for
the data to sink into my brain. I mean, I have to think
about what he said. He doesn't even think about what he says. (Kim laughs) And it's amazing. Sarah, what'd you think. - [Sarah] Just like both of you, I have two pages of notes here. I think like Kim mentioned,
the most fascinating part to me was his timeline of the
three central banks. And really that pivotal
moment where in 1913, where they decided to come
back with the federal reserve. Like, I like how he called it. "Oh, it could be a
whiskey brand or whatever, call it federal reserve." But really, and then the
three different things that Bernanke violated
during the financial crisis, those are two huge pivotal
moments in American history that- - Correct. - What would have happened
if things had been different, I just can't help but think about, so. - And that was G Edward Griffin's book "the Creature from Jekyll Island." And it started with JP Morgan
rounding all these guys up and said, "Look, we're taking over here. I'm gonna back you up, but
you better place right." And that was a start with the fed. In 1913, the creature would,
Jeff Griffin writes a book, "The Creature From Jekyll Island." How many times we studied that book, Kim? - Yeah, many times, many times. And you know what else Jim led off with, he said, "You can have your
opinions in all of this, but you can't argue with the data. You can't argue with the data." And so I remember when he was talking about the solar panels, at his
home, he's got three acres, (Robert laughs) 900 towers or something, a nine, however many towers for one house. And this whole new
green deal is all about, "Oh, we're gonna have
solar, we're gonna wind." And he's absolutely
correct, it's not scalable, it's not realistic. But people aren't looking at the data, they're not looking at the facts, they're just running
on emotion and opinion. And I think I just always
love, look for the facts, look for the data, that's where
the real information lies, not in your opinions and your emotions. - Yeah, and what cracked me up when he beat that little
siren, by order the pheasants of the green new deal too or something. He said, something like that and going. (laughs) so I still wanna
know what he really thinks. But talk about the facts, I was watching Tucker
Carlson and they're talking about those winds the wind
turbines, the big propellers. He says, "Why doesn't somebody kill the number of eagle soul the blades kill?" That's the facts. But what the press will never report that, how many eagles those wind turbines killed and what happens in the wintertime. - [Sarah] And not to
mention when they break, they take 'em down and burry 'em. There's turbine blades
buried all over the Midwest. - Is that right? - [Sarah] Yeah. - [Kim] I didn't know that. - So anyway. - [Sarah] (chuckling) It's
like, what are we doing? - But the funny thing is because I'm not up to on
the environmental stuff. And I am an environmental
specialist, plant trees. I like trees. But anyway, when he was talking about Biden wanting to
save the environment, he just spite coal and nuclear, the two most polluting of all energies, but all in a way of doing
it for the green new deal. But he's actually polluting, I mean, these greenies
are polluting the economy worse than ever before,
same as the Tesla batteries. Those batteries are more
polluting than gasoline, but they'll never tell you that. So anyway, that's why I love
doing what we do with Kim in the Rich Dad Radio Show, it goes, we got smarter (laughs). - Yes, we get to talk to smart
people like Jim Rickards. - Yeah, yeah, yeah. So anyway, well thanks
you all for listening. Thank you Sarah, thank you everybody who listen to Jim Rickards and see the next on Rich Dad Radio show. Thank you.
