The Inevitable Financial Crisis
Tom Bodrovics @ Palisades Gold Radio
In the article you also mentioned that the risk of a major financial crisis for the U.S. as an inevitability?
Dr. Stephen Leeb, Ph.D.
Right now, when people start buying as many bonds as they are buying, you begin to see how the United States is at risk for a financial crisis. Ten year yields around 1.3% and thirty year bonds are under 2%. The only reason this happens is a direct result of people buying so many of these financial instruments. Every bit the economy or government issues, we are buying. And when this happens, bubbles are created. It doesn’t take anything to take out a mortgage on a home and housing prices are going through the roof. It’s supported by very lenient terms on mortgages and your payment on these mortgages is 1.3% yields implied. It’s way out of proportion with the kind of growth you are seeing in this economy. Even slowing down, you’re seeing 3% – 4% economic growth, amidst 5% inflation. In the past, even if inflation was zero, those kinds of numbers would imply bond yields of 3%. Yields control the way you ration money. If you have 1.3% yields in the context of 10% nominal growth- that’s absurd. And it results in all sorts of bubbles.
Dare I mention Bitcoin as a potential bubble? People can borrow money at zero percent interest rates and buy Bitcoin. When you go to these exchanges and buy on heavy margin, what margin interest are you paying? Virtually nothing! And in some cases, you are paying no commission, you are just paying for order flow.
Economic Bubbles
In this scenario, you are going to have unprecedented economic bubbles. Currently, real interest rates are negative and governmental financial policies are keeping interest rates incredibly low. They are so artificially low, it’s ridiculous. Take a look at the enormous profits that Amazon or Facebook or General Electric are earning. We don’t need these kinds of low interest rates, it’s not doing anybody any good. It’s creating economic conditions that economists refer to as a bubble. It’s exactly like the housing bubble we saw in 2008, but this time it’s not going to be confined to just housing. When money is free you create bubbles. Money is virtually free today and in the context of the growth that we currently have- it’s super free. You don’t even have to believe that there will be growth, just bet on inflation. Invest in something that is going to go up as a result of inflation. Invest in commodities because resource scarcity is on the rise.
The financial system has to have a reckoning. The only thing that will save us is to segway into a new monetary system. You cannot be free to print money. Right now, money is essentially free and that is begging for catastrophe.
The probability factor is over 95% assured of a major crash happening in the economy.
A likely catalyst for an economic crash could potentially be Bitcoin or Cryptocurrency. I’m definitely not anti-cryptocurrency- I’m anti-bubbles. I’m against anything that can create an economic bubble- like Bitcoin. A situation where you have a finite supply, combined with an unlimited amount of money is a potential bubble in the making. All over the internet, you see forecasts of $1 million dollar Bitcoin and this could be a terrible disaster. It’s like the tulip craze in the economic textbooks, when you have unlimited amounts of money, you can make anything as valuable as you want it to be. When you have economic conditions such as this- it’s going to end in tears. This is where we are headed and that’s why I say a major economic crash is inevitable.
Tom Bodrovics @ Palisades Gold Radio
Dr. Leeb, I would like to go back and talk about the energy side of things and I would like to get your thoughts on how oil fits into this picture. Isn’t it easier for developing countries to use coal and oil as a source of energy than the ‘green’ or complex energy systems?
Dr. Stephen Leeb, Ph.D.
It’s not only easier, it’s absolutely necessary. It’s necessary worldwide to use all of our energies in order to get to a point where we are energy independent of fossil fuels. In order to get rid of fossil fuels, we have to use every fossil fuel judiciously in order to build the infrastructure needed to create a renewable society. And renewable energy relies on two basic energy carriers, hydrogen and electricity. At the moment, we are honing in on electricity and we aren’t getting anywhere as of yet.
Just The Facts
Renewable energies account for 20% of electricity production, which itself accounts for 15% of total energy consumption. As the saying goes, the numbers don’t lie. It doesn’t take a rocket scientist to figure out that fossil fuels account for over 85% of electrical production worldwide. Essentially the goal is to reach the point where we can use hydrogen for industrial processes instead of using natural gas. To achieve this goal it’s going to require all of the energy sources in the world. Yet, the U.S. and some countries in Europe are trying to drastically restrict oil. Climate change has become the driving force for restricting oil usage but the data to justify it’s restriction doesn’t jive. And the pushback against that data is astonishing. It’s not just the developing world that needs oil and coal, it’s the developed world also. We are already ‘paying the price’ with oil currency priced at $70 a barrel. Recently, President Biden requested the Saudi’s ramp up their oil production. In addition, another thing that should be alarming is Russia’s inability to increase oil production. Under OPEC guidelines- Russia is allowed to produce another 200,000 barrels of oil this year but falling drastically short.
The existential crisis we are facing is the shortage of critical natural resources, not climate change!
Tom Bodrovics @ Palisades Gold Radio
Dr. Leeb, your latest book ‘China’s Rise and the New Age of Gold’ was released about a year ago… is there anything that you wish you could have changed, given the perspective of looking over this past year?
Dr. Stephen Leeb, Ph.D.
No, I don’t think so. I’m not going to get everything exactly right. However, the thesis of the book is that we will develop a basket of digital currencies backed by gold as a new global monetary system. If China decides to go their own way and have a digital yuan backed by gold- which inevitably becomes the world’s new reserve currency- then a pox on me. In the book, I date the decline of America slowly accelerating since the United States went off the gold standard in 1971. That’s where the root of the problem began for America’s decline. It’s the crystal clear event that you can directly point to when the American dream slowly started to drift away. Better said, some say it’s now the American nightmare. I hope the United States can rally and make a comeback. The only circumstance that can feasibly save us right now is to utilize a gold-backed reserve currency. Not only will this allow the United States to reinstate an authentic monetary policy, we could also have a chance to save the planet. Instead of bantering over how many degrees centigrade the world should achieve to reduce global warming… the real problem at stake is rapidly growing natural resource scarcities.
In conclusion, we can look forward to a sustainable future and global economic stability, given the world can cooperate and come together to create a basket of digital currencies backed by gold.
Time Stamp References:
0:37 – China’s Digital Currency
20:19 – Gold Backing?
28:00 – Bitcoin a Threat?
31:00 – Financial Crisis Bubbles
37:10 – Energy and Oil
42:05 – Restoring the World
45:55 – Concluding Thoughts
Palisades Gold Radio Show Notes
Tom Bodrovics welcomes Dr. Stephen Leeb, financial author, wealth manager and newsletter publisher back to the Palisades Gold Radio show. Stephen discusses China’s imminent plans to launch a digital currency. Initially, it will be used domestically but they plan on taking it international by basing it on a basket of currencies. He believes there will also be a gold backing. It should be simpler to use than the existing monetary system and he expects a lot of countries to adopt this system. A gold backing to this currency will be crucial as the world is tired of the existing US dollar system.
Commodities are increasingly crucial for society and a lot more copper is going to be needed. Energy will continue to be incredibly important to the world. The world isn’t going to accomplish what is needed under the US dollar system.
Gold has always been a threat to the dollar as it has been considered to be the currency of choice for centuries. He discusses the three in the morning raids on gold and why gold is the only commodity out there that can call itself a currency. The U.S. will do anything it can to avoid a gold standard but in the end, won’t be successful.
He argues that bitcoin is terrible due to its energy use and also its use by various criminal organizations.
The United States is buying its own bonds and the financial world is severely out of wack. We see low bond yields and numerous bubbles being pumped up. Mortgages cost very little and payments are low. People today can borrow for very little and buy investments on margin. Low-interest rates are creating dangerous bubbles and distortions. When money is free bubbles are created and are begging for a catastrophe.
Climate change has become a religion and there are severe risks with limiting the oil and gas business. We will need to use a lot of fossil fuel energy to build out renewables. He has serious concerns about the policies surrounding climate change. These policies will have dramatic impacts on the population and the economy. We are creating an economic crisis via flawed policies.
