The Great Deflation IS HERE - Mike Maloney & Harry DentMay 01, 2020
What could you buy Apple with an 80% discount? How much money will you make in the long term? This will be the first time we will have an economic event of this scale that is global. Well I'm going to take advantage of part of my portfolio and I'm going to bet that stocks were down the last time gold fell below a thousand, you couldn't get anything physical and if you did you'd be paying more for it than if you had bought when it was 1100, you can do things now to get ahead of this and position yourself right when this happens because this is inevitable, you can't maintain a bubble forever and you can't avoid
deflationforever, you can't stay but offer when it happens, like said.
Before, a small percentage of people would make a fortune and do very well, and most people simply won't know what hit them. Several months ago we did an interview with Harry Dent at our offices in Santa Monica and now that the Hidden Secrets of Money episode is about
deflation, episode 6 is coming out. We wanted to come to Florida and visit Harry in his office and do a little follow up on that, so Harry we both feel like t
here's definitely going to be deflation, I think. t
hereis going to be deflation before major inflation or hyperinflation simply because our monetary system cannot function under deflation for long periods of time, it begins to implode due to the interest owed on every dollar in existence, so what are the fundamental reasons why You think deflation has to happen.
I mean, you already went over demographics in the office, so we don't have to do too much demographics, but I see that we're headed for a bond crisis in a currency crisis. I think the dollar will rise first, but then I think we are headed for a real currency crisis and that this time there will be something a little different. History is very clear in this sense. Deflation is rare. An economy cannot remain in deflation for long. It always follows large debt bubbles and what happens in a debt bubble is that not only does the debt grow in a leveraged economy and create unsustainable growth but, more importantly, the debt creates more money chasing financial assets.
It's not just a debt bubble, it always ends up with a financial asset bubble and a lot of people have been looking, you know, and governments keep this bubble and they're printing money incredibly and people said why don't we have inflation? ? Inflation is reaching financial assets. stocks are going up for no good reason the chinese stock market just doubled in less than a year when they just announced that their exports fell 15% from last year which is death for china. China's economy has done nothing but slow its housing bubbles finally. going down and yet the stock market doubles because the money has to go somewhere and that's what the central banks have designed.
We had a natural bubble. The debt grew two and a half times, 2.6 times the GDP from 1983 to 2008. That is obviously unsustainable. So the debt bubble was starting to implode in financial assets and with it you saw the major financial institutions on the verge of going under and governments just said: well, we're not going to let this happen, we're going to inflate to compensate. deflation, that's how you get Deflation, I call it, you can create money magically, that's what banks do, governments can print it like magic, what they're doing now with QE, it's like magic, now you see it, but also now you don't, this money can disappear even faster than it was created because when a debt bubble bursts many debts are ruined and a restructuring such as chapter 7 or chapter 11 and businesses are canceled when that It happens, but the most important thing is that there is more money than debt in financial assets that have been overinflated by quantitative easing and this naturally had a natural bubble, now we have an artificial bubble because governments are trying to maintain a bubble forever and I say, who can do that?
The answer is nobody, you can maintain a bubble forever, these financial assets implode. like they did in 2008 before stopping it, like they did there in the early 1930s, stocks fell 89% and didn't get back to those highs for 24 years, housing went down like 30% and didn't get back to those highs for 24 years. 10 years for these assets to not only implode, but to go down and not return strongly to new highs that destroy wealth. The other day I saw something from a major global study $250 trillion in financial assets, loans, stocks, bonds, you name it. that had been inflated by this global bubble of those 250.
I look at history in the Great Depression, 60% of private debt was wiped out as a percentage of GDP because of that deflation, so let's say a hundred trillion dollars of that fits that is my best estimate, it could be more than that based on history, at least a hundred trillion will disappear, mainly the value of stocks and loans, well when all that money disappears you will have less money chasing the same goods, that's the definition classic deflation, this is how, although governments are printing money all the money printed QE 11 12 trillion according to different estimates up to this moment that does not compare to those hundred trillion that could disappear like this in a matter of years, this is how it occurs deflation, bubbles form, debt creates money. banks lend against 10% of your deposits lend while borrowing money create money as if it were your deposits, it's your deposit and that's what happens in the Great Depression banks lent money to housing but mainly to farms and equipment agricultural that were the big ones The bubble there was a tractor bubble back then and when those loans failed the banks didn't have your money, that's how you get a bank run.
Money is created out of thin air with high leverage of 10 to 1 in banks and now again. We had never seen this before outside of a Second World War. Governments never just printed trillions and trillions and trillions of dollars, but bubbles burst the death bubble and the financial asset bubble and that's how deflation happens and deflation kills a lot of things. of debt eliminates a lot of those excesses, so deflation doesn't last as long and then we go back to an inflationary economy, we have basically had inflation for 90 percent of the time throughout modern history, as long as the population grows and the level of Life grows and all that, inflation is actually a natural phenomenon, yes, but the difference is that once in a lifetime there is more hyperinflation like the one we saw in the 70s and once in a lifetime there is deflation, like that that the most important thing about deflation is difficult to explain to people, especially when governments are printing someone's right, people naturally think that that has to cause inflation, all it has done is compensate for the deflation that we would have already had and keep inflation between zero and two per sentence in most countries who then understand deflation because they have not seen it, but if you look at history, it is very simple, it follows debt, infinite asset bubbles, very simple and , as you say, it is temporary last time, although about a third of our money supply and not We don't call it money because its credit is our current money supply, a third of our money supply back then or more, there was actually a 40 percent reserve ratio by the Federal Reserve, but then you have bank credit, but about a third of the currency. the supply was gold so it had this component that couldn't evaporate it was still there regardless of what happened this time there is nothing it's all credit there is nothing solid underneath this so credit has a risk counterparty and it requires faith that your counterparty will pay you to keep the system running it's a trust game the other thing about credit Mike is that as we go we get richer or richer or more fluid we are eight times our standard of We live since 1900 so as people become more fluid they can borrow a lot more in the 1920s the average person couldn't borrow to buy a house it was a five year mortgage and you had to pay the 50% and it's something like that in China.
Today, our economy is not only a credit one, but we have created much more credit than in the last financial bubble that peaked in 1929 and of course this was followed by what was the Great Depression, you could also call it the
greatdeflation, that's what it was. It was a big deflation, but that deflation cleared the way, it took a lot of debt out of businesses, and people took all of this. I mean, how is a younger family going to invest for retirement when stocks are so valued or the best stock models? Let's say that at the stock's current valuation you would expect a return of -1 percent over the next decade.
How do you invest for the future? How can you have a decent standard of living when housing has become so expensive? And I mean, I used to live. in San Francisco before here I mean a starter home, a poor quality starter home was $800,000 there, how can a young family have a standard of living when 50 60 percent of the salary goes to the mortgage and taxes to property, so this big deflation is a reset? The good thing is that we have all this excess and we go back to a level that reduces the cost of living and then we go back to the inflation that occurs every time inflation follows deflation.
You talked about the potential of maybe a hundred trillion trillion disappearing if you look at the 1920s, so the percentage of the population that was leveraged with debt was much lower than today, that's all you said you could put in for your hit , you only had five year mortgages and you had to put 50% down instead of a 30 year with zero zero at the bottom right, so the average person a young couple, a kid out of college and his wife, they couldn't buy a house back then unless they got help from their parents or something instead of a bank and today assistance.
From the government, not only does the government guarantee most mortgages today, but now you can do it with no down payment and that allows people to buy something that they really can't afford, so a lot of people are going to get in trouble. and if. I think it's much more than a hundred billion what you said. I think it's good. I think you're conservative, yes, but, for most people, you know that deflation will affect all of your financial assets and, for the average person, that can affect their own. people back home, up until 2008, nine people didn't think real estate could go down so it went down and I always tell people when people used to tell me real estate can't go down so pick up your phone and call anyone randomly in Tokyo real estate went down 60% and now 24 years later it's still down 60% and never recovered because not only did it get bubbly and had to deflate to become affordable again, but Japan has something which, as I pointed out, no one understands. in that, because the next generation is substantially smaller than the baby boom generation that bought all those houses that drove them up, even when the young generation comes back and starts buying houses, it should drive prices up, except in Japan , just like they sell more adult diapers than baby diapers for the first time in history they have more old people dying than young people buying houses nefarious buyers dyers or salesmen so you know people have to look at your illness they tell you look you should have real estate you're going to live it forever if you can rent a positive cash flow do you think you're going to get rich with real estate in your lifetime?
That probably won't happen, but that deflation, who is that benefit for all the young generation that is coming? to have a decent house again without getting a deep mortgage, so deflation has very positive effects in the long term, but it is the most painful thing that can happen to the economy, to the company you work for or to the company you own Or to your own financial assets, I mean. it's a reset, it's up there, you know the rivers here and that comes out of a waterfall now it's here, that's where your assets will be, they'll go from here to here and that's what happened in the 1930s, you know, you talked about Japan and One of the things that surprises me is that for more than 20 years they have shown that Keynesian economics does not work.
They have tried to print the rate to achieve prosperity. They have tried. they had government policies that kept these zombie banks alive, they didn't let deflation happen and the debt clear up, they didn't let it reset and that's why here they are fighting this now since 1989 they've been fighting this. and keeping their economy at this really stagnant level, we recently went to Australia, China and then Japan and it was really interesting flying to Australia, you land in the year 2000 and you don't realize this until you fly to China and you land like in Shanghai or Beijing and you land in 2014 or 2015you land today basically in 2016 if people are watching this next year and then you fly to Japan and you land in the late 80's all the buildings leave their paths everything is stuck in time Just like America is stuck in time when it blew up the Nasdaq bubble and then people don't realize until they see a comparison like Shanghai.
It is very interesting that all these government policies that will not allow deflation to occur and have won. Let's not let the debt clear up, we just freeze in time and keep fighting it and our prosperity would actually be much
greater if they had let the free market work. We would have overcome this crisis. We would have overcome deflation. At this point they have to let it happen and they could have done it in a civilized way. Governments could help restructure debt. Help facilitate restructuring rather than having it violently forced by a collapse. That's what happened in the '30s, so everything fell apart.
So we had a natural reset, actually you could do it more. Constructively they don't and in what I say about Japan I call it the Coma economy, they didn't have a crisis like the Great Depression. The banks did not fail because they did not allow it, but the price they paid for that is what they are doing. in an economy forever comatose, they are barely alive, the reboot would have revitalized them. I call this deflationary period the winter season and what Japan has been shown to do now is that this winter season rarely lasts more than 10 to 15 years and, at its worst, deflation rarely lasts more than a couple of years, but since they didn't allow this restart, if you don't get through the winter you don't get to spring.
The new generation of Japan should have already brought them to spring, they are ahead of us and on the sole. baby boom curve, the boom and bust curve, so that's the price, they're paying a big chunk of it, they don't realize, they said, well, we never had a crisis, well, the price is that you'll never grow again, They will never have zero inflation. I have had zero GDP growth on zero average everything that is in a stagnant coma is frozen just like you said so I am very concerned about what the central banks are doing because they have taken over the economy, they have set the interest rates. short term at zero they set ten-year 30 Treasury bonds at zero adjusted for inflation, it is free money, free money will always be abused, but when the prices of risk-free bonds are set, everything is set, all the financial system is compensated with mortgages, with shares.
Is there a ten-year earnings projection adjusted to the present for the 10-year Treasury yield? The lower it is, the higher the value of those shares. This is creating a bubble and inflating all of this, the bigger the bubble that is created in the glass of history. clear on this and it is a law of physics equal and opposite reaction. I don't know the first law, the third law, but the bigger the bubble, the bigger the burst, so everyone says to me Oh, Harry, what's the problem? The government avoided a Great Depression. We are growing at 2% and blah, blah, blah, we are doing better than Europe, we are doing better than Japan.
I think the problem is that we are going to have a bigger bubble and a bigger disaster because the governments will either not bear the consequences of the debt that they helped create and the governments have guaranteed everything, you can get two mortgages, all the bank deposits, guaranteed, almost all mortgages, now companies are guaranteed, no one can fail, no one said, when you guarantee an economy and create free money, you will miss out on investments, bad investments, speculation and ever-growing bubbles until everything falls apart, the cost money for a reason and if you do, you are feeding things with free money and/or endless debt that has never ever existed. sustainable in history, so this is for me, most people feel better about the economy every year, we grow every thousand two thousand points, the Dow Jones or the stock market.
I think we are going to pay a higher price. I'm scared and in fact I may have to move somewhere a little safer, that's how scared I am. You know, it's interesting that they keep proving that what they're doing doesn't work. Alan Greenspan created the housing bubble by not allowing debt. for it to be erased and deflation to occur when the Nasdaq crashed in 2000 and for that bubble to be created, so Greenspan created the o8 crash and said that's right, because how are you going to do with that? He just had to go and say exactly, it's just going well Bernanke, his reaction to that o8 crisis is going to create this next collapse that's just around the corner and it's always going to be worth it, you know, it's like the classic drug, You can add them if you are going down. a high what's your cure you take it best how long can you do that before your system collapses so i have no doubts about this next crash, this next recession and the deflation that will finally come with it when people finally realize what can you do?
It won't inflate forever because I mean, imagine central bankers around the world we have a bigger crisis than we had before a bigger deflation and they turn around and say, oh, you know, we just didn't print enough money. , let's double the bet. Do you think most people would say, "Oh, right, if it didn't work and created a bigger crash?" I think people are going to say no, no, this doesn't make sense, the next recession, the next collapse can only be significantly stronger than the last one, so it will be worse than 2008-9, especially when it comes to financial assets.
I mean, I absolutely agree that yes, and in fact, if you look historically at this kind of winter season where you have deflation only once in a lifetime, that's what people don't understand, it's typical that stock markets go down 80 to 90 percent before you buy them, it's not like in the 70s or other deep recessions where they go down 50 or 60 percent or even like in 2008, 80 to 90 percent hundred. one would wait and guess how much Japan's stock market fell when it bubbled 80 percent despite the endless QE it still fell 80 percent in Japan's real estate sector fell 60 percent than anyone in this country a few years ago and few people even now they think it's real wealth could go down 60 percent and really not recover as usual this is exactly what the demographics exactly what history would say it's going to happen this scenario is exactly what I've been betting on for years I'm trying to turn it to my advantage if I can, but what do you think people could do about it?
Because the thing is, it's harder to plan for deflation than it is for inflation or hyperinflation, even though it's a different kind of wealth transfer that's very difficult for people. deal with it, so what are you doing about it? Well, you know, basically, you have booms and busts, but you have inflationary busts like the '70s and you have deflationary busts like the '30s, they're totally different, they're both and they're still ruining the economy. it slows down people lose jobs companies go under but in deflation everything restarts, so there are a number of things you can do, the simplest thing and sleep well at night is simply to say that we have had a big bubble in the sector real estate, big bubbly stocks. and all the financial assets that I am going to withdraw, I have my money safe and I wait for the next explosion.
This is what Joseph Kennedy did in the early 1930s. He sold stocks near the top when his shoeshine boy started telling him what stocks to pick. I remember in 1999, taxi drivers telling me which NASDAQ stocks to buy. What I'm saying is it's close, if you come out at the top the stock goes down, say 80% tip, now you buy those same stocks and companies at 20 cents on the dollar, that's how you get rich overnight Tomorrow people think, oh, but I'm in cash or safe bonds and I'm not going to get any returns. Your performance is in the Latin teeth because everyone else is going to lose their assets in that deflation.
You will buy those assets when they brave the fire, otherwise your money, yes, if you do not have cash or liquid money or you are not sure of something that you can liquidate, you will not be able to know that you will see the vacation home. of your dreams, you know, in the Hamptons, and they'll be 10 or 20 cents on the dollar and you won't be able to buy that market or the same, you know, Apple, yeah, stock up on your favorite, you know, apples will survive this. A big part of this reset is shifting market share to the most efficient companies and investing in long-term focused companies.
Well, those are apples that will come out of this cry, and Samsung too. There are many companies that you have seen, these companies will survive. What if you could? buy Apple for 80% off how much money you're going to make in the long run, so that's the simplest thing you know, the most complicated, the flip side you've had in things going down, it's a good thing, The bubbles rise much faster than normal. Markets and most bubbles are built over five to six years in stocks and typically over 10 years for real estate. The trick is that they blow up much faster, they blow up two or three times faster than what they bill, so if someone realizes that things have to go down and you don't go crazy and lean in and try to be a fancy trader, something like that if you just say, well I'm going to take a part of my portfolio and bet that the stock will go down and you'll just sit back, no You don't have leverage, they don't stop you or anything, you get margin calls and if We wrote the following, my indicators are pointing particularly downward in the next five years, you know, from 2015 to early 2020 and you just say, "okay." I'm just going to be short some stock index it could be the S&P the Nasdaq whatever I shorted anything that's shorted Germany Germany is going crazy and they have the worst demographics of any country in the world, same as Japan in the 90's just sit back and when the stock goes down you've made money the dip is up for you right now most people don't short the dog swords in Dayton well just do it a little , so there's a whole spectrum of being safe and just being in safe liquid bonds or cash and guess what the dollar went up in the last crisis in 2008, it didn't go down, it went up 27%.
I think it will rise 40% or more, that dollar will rise in the deflationary stage and then I am a little agnostic about it. I think the dollar will probably go down further on the set, but the dollar is the safe haven, we are talking about destroying financial assets and loans. There are more financial assets and loans denominated in dollars, 40% more than euros, three or four times more than a yen and all. otherwise when we destroy all this money more dollars will be destroyed than other currencies so during every short period of time the dollar will appreciate then God knows what happened to the currency markets because there will be a recent major there but people be in the dollar to hedge or you can have a portion of your portfolio short things that are going to go down in one of the things that I get when, especially when I debate with people who are more in the Gold Bug camp, a lot of people listen and then I listened to Peter Schiff and he said well, you're both right about the crisis, you both write about the debt, you both make sense, but he says do this and I say do that.
I'm saying deflation, he's saying inflation comes first. of deflation, I mean, I can tell you what happens if you are not one hundred percent sure that the only thing that goes down in an inflationary crisis or a deflationary crisis are stocks, real estate will go up in an inflationary crisis, commodities will go up, gold and silver spoiled the king in an inflationary crisis stocks go down anyway they just go down more in the 30s, I mean stocks fell 89 percent at worst in the 30s and then, adjusted for inflation, fell 60 percent in the 1970s. Then it gets worse, so I tell people to decide their risk tolerance and then take some fortune in their portfolio and just be short stocks.
I think here in 2015, you know, it's a good time for everything they say to sell out in May and go away. I think this may be a good time to sell stocks and leave them for the rest of the decade; in this case I say four five years, but most of the time if you sell in early May and buy back in the second or third week of October, if you did that consistently over time, your returns would be much higher than someone sitting on the S&P 500. The risk would be much lower because most corrections do not happen every year, but most serious corrections occur in the second half of the year. year, yeah, you said the dollar is the safe haven, you know, that's where everything brings this deflation and I agree that the committed dollar is probably going to go up and I think we're going to go into deflation, the only area we're going to have. agree notagree are precious metals.
I see that as another safe haven is the other safe haven and this time we are in for a monetary crisis in my opinion. I think you could see gold going below a thousand. You could see it. go down to 700 or something, but that will be paper gold. The last time gold fell below a thousand, you couldn't get any physicals and if you did, you were paying more for it than if you had bought it. when it was 11:00, they were there, you know, I was a trader or I am a trader and there was a tremendous shortage back then for more than a month our only gold product was kilobars, so the cheapest thing we had was like $30,000, there were three days. where we couldn't get any product, we were out of business for three days and everything we had was selling at tremendous premiums over spot places, so although precious metals fell dramatically during the o8 crisis, the actual physical price to buy and get a a bar that you can hold in your hand or a coin practically stayed flat or went up during that time when the Comex, futures, paper gold and silver fell dramatically, now that will happen again.
I don't know, I have my wallet. They used to be almost all precious metals and they still are mostly precious metals, but I have a higher cash balance than I used to have. I keep a lot more cash. I also stock emergency food and, but you know, I've never been a gun person, but I bought a couple of 9 millimeters in a 12 gauge shotgun and you said in an interview that shotgun shells, yeah, they're a good stock. current, good cartridges and small bottles of bourbon, who would notice in a crisis? And I think you know these emergency food bags, oh, absolutely, I think they could end up being an important currency and I think we're definitely headed toward something that's going to be a jumbled mess that people won't be able to figure out because nothing like what happened to them in his life, no one saw the 1930s, he is alive today or maybe some people and they can't even remember, I mean, yeah, no one will see this coming, no, but no one, how many people think well, used a small saw. inflation coming in and gold doing so well, no one saw it coming until it happened, no one will see this and this is going to be more destructive to financial assets in particular than the 70s inflation was deflation, yes sometimes, when I'm arguing with people.
Who knows who sees hyperinflation instead of deflation or sees inflation outside of the deflation set? It's kind of like governments should be punished for printing this money. Yes, as a moral argument. And I say, wait a minute, you want to punish governments. Deflation is a much worse punishment than inflation. Would you rather have been the early 1930s or mid-1970s? The credit that was created during the 1920s was by German cyclists, it was a consequence of printing and most printers think that governments are printing money. Governments set rules and regulations that allow banks to print money, primarily money printed by private banks and again at the peak of the last debt bubble in 2008, we had 10 trillion of federal government debt, we had 42 trillion and debt private, more or less, and it is private debt, especially debt, that leverages financial institutions and that was the largest component, but more than corporate. more than the home, that's what deleveraging is the fastest, we didn't have that factor, we didn't have the government of Freddie Mae and Fannie Mac, you know, agency mortgages and all that kind of stuff, so yeah , we create much more debt than our total debt ratios.
At the top of this last bubble there was more than double what there was in 1929 and 1929 was followed by the greatest depression in American and world history, so imagine how big the recession could be when we get to this with double of debt. and on top of that, governments have created money out of nothing, so it is the people who should be aware of that. I don't want to be alarmist, but people should be afraid and we should get serious about studying what happens in deflation and you know the problem with gold is that it has been manipulated for almost all of history, so it started to traded freely in the early 70s so I can look at everything else, real estate stocks, commodities and say what happens when there are challenges that I can look back on. history of gold I have no way of saying yes, we have times in which gold is going to rise in times when it is going to fall and this deflation because it is a metal in crisis and it is something that people have confidence in at the conference, it's real, but we only have one cycle to look at, you have no right because it was a very short cycle in 2008, I mean, gold, well, it went back up to the bull market of the 70s and then to the 2000s, but that doesn't It was deflation, it's not right.
There is no doubt that it is also too cold and then there is no graph to show that the correlation between gold and inflation is only in the 30s, although the process in which gold went from $20 an ounce to $35 the ounce was a month. and a half to unpack and the exchange rates would fall and that's why the dollar was basically sinking compared to gold and then they would harvest eggs every day it wasn't just Roosevelt, yes, Congress gave us the power to devalue the dollar. up to 50% against gold, so the price could double. They were allowed to raise the price to $40 an ounce and they cleared, re-fixed, unpacked.
Leary set and for over a month and a half it was this. slow sinking of the dollar and gold going from $20 and 67 and cents an ounce to 35, but the fact that it wasn't just one signature and suddenly it's 35 that it was actually the global markets that caused this to me, is a good omen for gold. in a deflation that is the last, the only great deflation that we can observe and that is really well studied. I could have known him. I've read Murray Rothbard's America's Great Depression. Milton Friedman's Monetary History of the United States from 1867 to 1960, about half of which was The Great Depression and Ben Bernanke's Essays on the Great Depression I'm probably the only one you know.
I'm considered a golden guy. I'm actually more of a bike guy. I'm not a Gold Bug. I'm on gold right now because of the beliefs I've developed being a cycles guy and you're a cycles guy and the EMA charts of a demographic murli like I've never seen or I was a demographics expert oh really demographics is just one of the most useful cycles I came across and it's usable because I can reject it in the future. I know exactly when people are going to spend money exactly fast, they're going to do it by age and any category of consumer in general, when they can invest, save, but I know I'm definitely a cycle guy, but gold went up. 70% nominally in the Great Depression and then purchasing power went up a lot and prices fell 30% so purchasing power more than doubled during the Great Depression, will it be this time?
I don't know, that's no guarantee that it existed, you know? the government had manipulated it, gold still cost 20 dollars and 67 cents an ounce as before World War I and they had inflated from a billion dollars of national debt before World War I to 25 billion at the end and We knew that we had established the Federal Reserve and had pumped up the money supply. The base money had gone from being just gold - Federal Reserve Gold Plus now and with a reserve of only 40%, so the growth of the network caused it to be said that the growth of base money allows banks to then make the Fractional reserve lending that caused the Roaring 20s that caused the peak bubble collapse or the greatest depression in history followed the creation of the Federal Reserve, because what the Federal Reserve takes on is its job is to prevent recessions like you should. prevent recessions like you should cure I don't want a cure for the common cold colds help your body get rid of things it's not something to get rid of recessions create efficiency and innovation you get the most efficiency and innovation in recessions, no in booms, so what did the Federal Reserve do?
We had very volatile markets in the late 19th century and early 19th century, he said we needed someone to tame this, so they tamed it, which means what they are doing today, even today they are doing more every time there is a recession. or slowdown, you pump more money, you accumulate more money, you get more debt, you get more leverage and you create a bubble and then it bursts, which is why we've had depressions before in the United States. 1870s, 1880s, 90s, 1830s and early 40s, they never earned so badly. during the Great Depression, okay, the Federal Reserve came in and tried to improve the economy instead of letting the economy run itself.
Economics is the dynamic opposites of democracy and capitalism, you know, and boom and bust, inflation and deflation, what you need all these seasons. everything has seasons too I'm a cycle guy everything I study including weather even mine has seasons so seasons weren't created by acci
dentit's a fundamental part of life seasons helped facilitate change , progress and innovation, and our standard of living increases. So when governments intervene like the Federal Reserve did initially in the early 1900s and now central banks are doing so globally on a scale the Fed couldn't even imagine in its lifetime, they are killing the goose. the golden eggs, that's what they're doing. kill free market capitalism, which is how we got rich in the first place, so I'm not just saying warn people about this reset and you can see it coming, it's inevitable, you can do something about it, you can prosper instead be wiped out by but I think I want this reset to happen, if we don't do it we will be like Japan in a coma economy forever, we will die as a country, the entire western world will die, so this is don't mess with mother nature , from my point of view, you made it easy and they, but they have gotten so into it and when the reset starts to happen, they will try to avoid it completely and we look like the leaders that we are.
I'm going to let you know that in the next election we will be even more socialist than we are now and potentially, and what really worries me is not the reset, it is the reset that tries to get the government to rush to save us, react and then decide that Because all of this is imploding, they would have to share the wealth that they have, we have to follow this path that has never worked, there is no example in history, I mean, if socialism worked the Soviet Union would have been the gutter in Carlina is still a top down economy driven government planning that has been proven not to work and I have been telling people you talk about a bubble we are nowhere compared to China China is the biggest bubble big, leveraged, manipulated, and government-push bubble in all of modern history.
China is not going to see a soft landing, they are going to go down like an elephant, yes, and I think we are going to have some civil unrest and a lot of problems here, but I tell you, you couldn't get me in China for a billion dollars, really. They are going to have problems and this is what happens when governments mess with Mother Nature, they mess with natural cycles, you can facilitate them but you cannot manipulate them. and trying to prevent them and that's what they're doing this is an extremely dangerous thing and I'm hoping two things my cycle suggests again from 2015 to early 2020 is all for my long term cycles and they are very comprehensive.
I will point out at the same time as they did in the early 30s to mid 70s, so it says it will happen in the next five years, but the most dangerous time seems to be between 2015 and 16. I hope that, first of all , start having the next financial crisis before the 2016 election, so maybe we'll elect someone who looks like they could be a change manager instead of another, you know, endless money printer, that's one of the problems, although we do not elect people who have business experience what we shout Ben Bernanke Craig ever ran a business no, I have never hired anyone they study a degree René, you studied the excellent forms, technical documents and stuff, yes, the other One thing I hope for is that when the next crisis comes and I think sooner rather than later I hope that the people of most countries and particularly the United States.
I hope people are smart enough to say: you already did this, you already tried to print your way out of the last deflation, depression or failure. of our economy, but if it was brilliant, a bigger bubble, all it did was burst bigger, we won't let you do it again, now we will be against it, I don't know if that's going to happen, no, but it hasn't happened . in Japan in 25 years, but you know, Japan is unique and discarded because it went through its great reset, its bubble burst, its real estate and stocks and its endless was that they went through thatwhen the rest of the world was having the biggest boom in history.
And I told them that maybe they had us to sell to us while their export machines were wearing out at Full Tilt, which made it much easier for them not to have the spillover of a global crisis into their economy like everyone else had in the Great Depression so they were able to do this and then they had been in quantitative easing forever and it hasn't worked except it kept the banking system from going down so maybe I don't think it's possible that the whole Western world just goes into this coma economy, keep printing and keep doing things.
I think people will say something is wrong because I think most people know that you don't get something for nothing and when governments, when there is a problem, they just create. money and throwing it away, I mean, people have to be sitting there on one side, yeah, something free, there's something wrong with this, on the other side, they say yes, but we didn't have a big recession. Still I got my job and the economy changed. I hope people say no and the Germans say nein and we'll see. I don't know people, I don't think they do because that average person who might say they don't have a mortgage. the leveraged from our home that goes into all the rent, you know, the Great Depression, anyone who had debt lost everything they had, they lost the family farm, the farmers were the hardest hit and you know, I think it's going to be a lot of farmers. .
They are the ones who could borrow because they could land there and it's their crop cycle, they would borrow a foot every year to replant and grow the crops and then they would pay it back once they harvested, so they were in debt when deflation hit and that It's one of the reasons they were the hardest hit, yeah, well, you know a lot of people don't understand it. I think this time it will be the opposite, so it was the smaller local banks that were affected. of farm loans and all that and those are the ones that went under this time are going to be the big banks because once they strictly ban the left and splash all this leverage and make all these mortgages and stuff and all these financial securities and those things, they will be the ones who will be Citibank and Bank of America JP Morgan and all these and in the government, basically, they will not say this.
Their main motive for this endless printing of money has been simply to save. the banks and the Federal Reserve do not represent the people, it is not democratically, they basically represent the banks and that is why they are saving the banks while killing anyone who saves money and creating this comatose economy that will never be able to truly grow, innovate and reset ourselves. it's not just the financial asset bubble, it doesn't benefit ordinary people, we have too few stocks and financial assets, we have a healthcare bubble, we have an education bubble that is being fueled by this, kids now have to catch them .I know that with a hundred and fifty thousand dollar stu
dentloan just to get a college degree, how are they going to get on top of the high cost of housing and in healthcare for seniors and education for younger people?
How are they going to achieve it? in all these crazy things just to prevent the banks from failing look, look, the banks fall, restructure and come on, Ford. Did we lose banking after the Great Depression? Did you know we did everything? Didn't we lose about a third of the banks? many banks but those that remained lost many companies those that least our motto of history and life what does not kill you makes you stronger people do not want the problem with people is that we are a bunch of sissies nobody wants challenges everyone wants the good things the easy life everyone wants booms no one wants busts life has to have both life doesn't work without booms and busts male and female inflation and deflation and all the opposites you can imagine in life it's a game of opposites light and dark , you know how to sleep and how to work, I mean, you know that people want one side and not the other mm-hmm and if you think that way you're not going to be as successful as you could be and you're not going to see these cycles come there are cycles and always There have been cycles and some people tell me oh the cycles are nonsense or we don't have them we are not going to have recessions in the future I think you are crazy, there has always been a place if you don't believe and study the cycles you are going to miss a lot of things, It's that simple because it always happens and the cycle we see most is that you come out of a deflation, a reset, you have a boom with mild inflation.
I call that spring, then you have a crisis with high inflation and then very low productivity, that's what we had in the late '60s, '70s and early, and then you have a bubble boom with disinflation and disinflation is always followed deflation before returning to inflation, so anyone says that digital goes from inflation to disinflation and back to inflation first no, you have to go through deflation disinflation encourages debt encourages speculation yes, of course, encourages lack of savings because you get real is that it's the Federal Reserve conditioning everyone to use their home as an ATM simply because in five years you'll be able to refinance again at a lower rate and take out more cash, well this is what kills like insult when you enter this fall disinflationary bubble boom season.
I call it naturally, this will just happen. falling interest rates encourage more borrowing falling interest rates drive up everything from real estate to stocks to financial assets this is happening, not this will happen, you'll get a bubble anyway when the government intervenes and the schnauzer faces even lower, you will get a bigger bubble why is this already going to have anyway in the government it just makes things worse the government made the 20s more bubbles than necessary and they made the 90s and 2000 were more bubbles and now they're trying to keep the bubble going forever what are the lanes and stuff I've ever heard of that yeah who would think you could keep a bubble going forever and why would you want that in a bubble the rich get richer and the common person is crucified?
That's what already happened. Ordinary people's wages haven't gone anywhere, in fact they've gone down over the last 20 years. The rich are doing better than ever, why wouldn't they encourage that they were supposed to come? And in the capitalist system, the rich and innovative people are already favored. people take risks and they should, the government is supposed to maintain some balance and say, look, this has to work for everyone, that's what democracy is the opposite of capitalism. Most people say, oh, this is like brother and say that they are opposites now, like man and woman. balances the capitalist system that's why we've done so well when I don't know when when Sally met Harry, I call it the late 1700s, democracy emerged, especially the United States is the model and the Industrial Revolution really created free-roam capitalism. market and then Adam Smith and all that there, he was the first true economist who understood the dynamics of the game of opposites, a free market traveler.
No economist I see today even remotely understands that if they ever ran a business, ever had sex, or anything else, they would understand that they don't. I don't understand it and I really said, I mean Yellin, good person, Ben Bernanke, smart person. I met Alan Greenspan, he's actually an economist, funny and has a sense of humor, but these people don't understand our economy at all. You can know a lot about her. something and not understanding the real dynamic that they are killing the golden goose here and that is the worst I fear. I'd rather have the worst reboot ever than be in a coma economy forever and basically die and that's what Japan is chosen for.
I don't think everyone can choose that option. I think Japan could choose it because they had it to themselves and if they had us to export and they had us to export to the whole world, we would all affect each other. economies during the Great Depression trade was reduced for everyone and everyone put tariffs and made things worse, as you say, governments reactions are almost always wrong mm-hmm in the end, if we look at history, there are no governments big enough as to compensate the entire free market system in the world is bigger mother nature is bigger than us the capitalist free market system is bigger than any central bank so the central banks are going to lose this battle and you should know They are winning right now they are inflating enough to avoid this crisis at some point something is going to go wrong the China bubble burst Germany I am telling people we simply predicted the demise of Japan and in the late eighties people said impossible, They are the largest country in the world, we said Japan is collapsing purely demographics and bubble Germany has the worst demographics of any country in the world in the next eight years no one will see Germany fall Germany is going to fall just because of demographics and they are holding it together to the eurozone without Germany are not good at all so something is going to go wrong and these clueless central bankers are going to lose control and this will restart, so you need to sit down and say what do I do to protect my business, my family, my financial assets , even where you live is important.
If you want to be in this place as safe as possible, you can do things now to get ahead of this and be positioned right when this happened because it's inevitable. You can't maintain a bubble forever and you can't avoid deflation forever. You can't save her. deal when it happens like you said before a small percentage of people will make a fortune and do very well and most people just won't know what hit them they could be walking around the days it happened my house collapsed in a 60%. I'm underwater on my mortgage I can't refinance buh-buh-buh I lost my job all my neighbors lost my job my kids can't get jobs and they're all moving into my house and you know, and all their friends and you know the people will just be like what happened, well the story is very clear, what happens when a boom bubble bursts, a very clear deflation, debt reset and financial asset reset, that's what happens so you can prosper through From that, if you see it coming, you're right. 90 percent of people won't see this mm-hmm, yeah, so the most important thing people can do is study this as much as they can and try to figure it out for themselves, yeah, you have to do that to make the kind of changes what do we do.
We are talking about this, did you know that to go against the current you have to be very convinced of this? That's what I tell people. I mean, I said, you know, don't just don't read my book or listen to an audio tape. organize a summit, come to it, you must be convinced of this and spend enough time with me. I tell you that you will be convinced because we have history and facts on our side and when I argue against people who say otherwise, they are always talking about ideology and they are always exaggerating the facts.
I have to say that all the time many people argue and they will agree on the issue of the debt, the crisis, then we will totally disagree on the deflation versus inflation side and these people will throw and I have to say one that is not right that is not right no that didn't happen this is not the facts I have studied the damn facts I have studied one more history that history teachers have on their backs as far as you want go, I want, I don't tell people how long I studied history, they tell me I should get a girlfriend, you know, but history repeats itself and it's very clear what happens, so if you see this, you can do the right thing and it's very clear, no, what I see in history is that the public is never rewarded for massive stupidity and if everyone is leveraged to the max, everyone does it.
Stan, you don't go directly into inflation, something that has never happened in history. we can see where the public gains at the expense of the banks and therefore when everyone is leveraged what has to happen is deflation, whatever it is, the majority in the stock market has to be wrong eventually, so On the contrary, the markets do not work and there is no market for opportunities. It speaks not only when trends like demographics or the debt bubble or something like that peak and I mean, basically we are already past the peak of debt, no one needs to ask anymore. borrowed, everyone is in debt, but all bubbles in stock bull markets also when all the investors have piled in, so you are right when when the majority of people have piled in, you are talking about the vast majority and they leave to make a mistake because there's no money left to buy after them, right?
The last people in or as they say, I hate to reduce money and holders, yeah, so when that happens, even if I mean 1987, yeah , a 40 percent correction peak, there was no recession, there was no slowdown in the economy, nothing, it's just that the stock market has been down for a long time. Suddenly it started to rise, everyone piled up and went downjust because everyone's piled in now we're talking about everyone's piled in and the hedge funds and the financial institutions are leveraged thirty to fifty to one with almost zero cost money and and and the demographic fundamentals the fundamentals of excessive debt and financial leverage are all negative .
I mean, this is what I tell people with great confidence that the next few years will be the worst economic and financial crisis you will see in your lifetime or maybe even in your children's lifetime, but certainly not in your lifetime. You will see something like this, so what you do today is more important than any other time in your life because wealth disappears much faster. I've been telling people this is going to happen for about a decade and I call it the greatest crisis in the history of humanity this is the greatest transfer of wealth that has ever been in history because a crisis like this, I mean, the Great Depression was almost global, yes, it affected advanced economies, this will be the first time that We have an economic event of this scale that is global and there is no place and there is only a high number of countries that merge because yes, the countries Emerging countries do not have the demographic decline that rich countries have, but they are largely exporters of raw materials.
I know that what has collapsed the most so far has been the prices of raw materials, iron or steel, oil and things like that, copper. I mean, we've been predicting this for years. Commodities run on the cycle dial, you know, thirty year cycles like a clock, you know, 1920 1950 1980. and then recently, in 2008 and 11 years in between, commodities are going down, this kills emerging countries and their exports and their main companies, so this time it will not be just the developed countries that will fall like in the 1930s, the emerging countries will feel this in First, now they are going to come out of this much better and I prefer to be in a country where their currency supply is primarily base currency and not all this credit, voodoo debts that banks create and that's it.
One of the emerging countries, since they have lower incomes, they never have the same ones. China is the only emerging country with a very high debt level. Their debt ratios are a fraction of ours in India, Russia or South Africa, countries like that, so that is an advantage for them, the emerging countries. The countries also have very strong demographics except China coming out of this great reset and also this commodity cycle will rise again. I'm predicting that I think the next commodity boom will be perhaps the strongest in history because the next global boom is It's going to be driven much more by emerging countries and their higher populations in their new middle class than by countries emerging because we are getting older, except in a few small countries, we are getting older and those emerging countries are much more commodity intensive, you know.
India spends 60% of its spending on commodities, you know, the Chinese, forty percent, we spend ten percent, maybe on commodities, something like that. You add it all up, so I think you know when I'm arguing with people and I'm just saying. Well, the gold could reach five thousand. I say yes, in the next boom. I think the next commodity cycle, around 2038 or 40, will perhaps be the strongest commodity cycle in history and emerging countries will benefit from that. Developed countries do not like raw materials. rising because you know that we import, they export mm-hmm ah the prices of tea and in the 70s it was great for emerging countries, so you know that there is a lot of dynamics, but you know that it returns to its cycles, its cycles and it puts its cycles and demographics their cycles and raw materials their cycles I have geopolitical cycles it's really simple 70 date 17 to 18 years old well in 17 to 18 years ago think about 1983 to 2000 if something went wrong in theworld at that time we had a hundred our war with Saddam Hussein they expelled him from Kuwait and then they said: we are not going to try to take over your country and restructure it and depose it mm-hmm that is the worst thing that happened it is very Grenada without inflation without global conflicts the Cold War was coming to an end everything you are not doing now look what happened there in 2001 911 how the world has been since 9/11 a failed war after the next Civil war after the next you know one A dictator does this after another and now we have Isis on top of everything we makes Al Qaeda look like nothing so this is a negative geopolitical cycle that will continue to be negative, it's a cycle until about 2020 and then all of a sudden The world is going to get better again and no one sent anyone.
It's just a cycle. I measured this cycle 200 years ago. So wouldn't it be nice to understand that it's not just generations spending? And it is not a very projectable cycle, but rather the geopolitical environment. This goes through very clear cycles, so people, if they were just aware, thought they were a farmer and didn't understand the seasonal cycle, didn't know anything about it, had no idea when spring was going to come or when to harvest, people learned that thousands of years ago and now it's a science no one argues about the tides no one argues about spring it's like it might come a little earlier it's useful to understand the cycles that's why I'm into the cycles above all else it's for me most importantly I understand the world because there are cycles in everything, so we agree on 99.9% of everything we've talked about, with the exception that I lean a little more towards precious metals.
I have a little more cash, but precious metals and me. I think they'll ultimately do well either way, even if they go down. I think it will be temporary, as I said, when it comes to the money supply contraction, the deflation that we are here now. we are going to take this severe deflation our monetary system the global monetary system cannot function in persistent deflation without everything imploding and the central bankers know this and I think they are going to throw hundreds of trillions of dollars at it and we could end up either in a big inflation or even a hyperinflation, and I think precious metals are a safe haven, but like you, I also have cash on the sidelines, so tell us about your website, tell us about some of your books, again, tell us people what they think they can do.
What do you do in this deflation to protect yourself and get out of debt? I don't have any debt. Do you have any debt at the moment? I only have it in my vacation house. I don't want to pay for a low-interest, tax-deductible mortgage loan. any other debt I don't want, certainly not credit card debt or student loan data, vibes for a younger person, that kind of thing, so no, I'm talking about people who have low debt and high liquidity, the ones that will do well in this recession, that's it. simple and you know, to get more information for me, I have a free newsletter called economics and markets, just go to Harry dent com, enter your website, you are on my newsletter, we have your email address, yeah , everyone, enter your email address. you are on the screen news, it is a high daily content, you can meet us, you listen to what we say about everything and we also have a website dent research com.
My most recent book is The Demographic Cliff, it will be published in paperback in August. of 2015 is a great book because we're really focusing on this season of deflation and stuff, but it's also useful. I tell people to go back and read my first published book. The big boom I had came out at the end of 1992. People go back and look at that. In the book we predicted the entire '90s, the fall of Japan, the big housing bubble boom, all of this before Clinton took office or any politician you know thinks they caused it, it had nothing to do with them. , so it will just allow you to see it.
The cycles we study work make sense. I can't predict the short term. I can't predict exactly when this bubble is going to burst or exactly where the stock market is going to peak, but I can tell you that the bubble is going to burst. and I can tell you that you win the danger periods and therefore the demographic cliff, safe reading and if you have time, come back and you can still enter Amazon, get the big boom ahead, excellent, thank you very much for your time and good luck. You and deflation, well, deflation will do me good.
I can tell you that by then I will benefit and not disappear, that's something I'm sure of. I expect the same. Thank you.
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