So, Doug London has suffered more damage from recent rioting than
from anything else since the Blitzkrieg; the stock market had its
most volatile week in years; gold shot well north of $1,800; and
the U.S. government almost crashed into its debt ceiling. Smells
like blood in the streets. What does a street fighting man like
you make of all this?
Well, it was about 40 years ago in 1971 [laughs] when I read Harry
Brownes first book, How
to Profit from the Coming Devaluation. In that book, Harry
said that if gold went as high as $200, it would be a sign runaway
inflation was coming, and readers might need their survivalist
retreats, etc. He was actually right about everything he said
in the book, and for the right reasons, but things didnt
get as bad as quickly as Harry thought they would.
goes to show that if you predict any particular number or outcome,
you should not say when it will happen, or if you predict a time
for important events, you should not say specifically what will
very uncomfortable predicting serious gloom and doom for two reasons:
One, most individuals intuitively look out for themselves by producing
more than they consume and saving the difference so the
amount of net wealth in the world grows. Two, technology continues
to improve Moores Law and all that.
Ive heard you say that before, but youre the guru,
so you dont get off so lightly. What do you feel comfortable
My sense is that we are definitely exiting the eye of the storm
at this point, and were heading back into the raging winds
of financial, political, and social turmoil. The riots you see
now are just an indicator of whats ahead an appetizer
hardly the main course.
Thats a pretty bold statement, Doug. Weve been talking
about the so-called recovery really being nothing more than the
eye of the financial storm that hit in 2008. But the U.S. and
other governments around the world have been able to animate the
corpse of the 20th-century economy and keep an appearance of life
in its zombie motions longer than we thought possible. To say
were exiting the eye of the storm implies that zombie is
going to stop moving and the smell of decay will soon overpower
everything else. Are you ready to make that call?
Youre asking me to do what I just said was unwise: to say
both what and when. But yes, it does look grim to me. With the
markets fluctuating so wildly, the Dow going up and down hundreds
of points per day, thats very likely to spook the government,
investors, business managers, and consumers even more than they
already are. Normally I dont pay much attention to consumer
confidence; its an emotional state, and emotions can change
in a New-York second. But at this point the economy rests on nothing
more substantial than confidence. Its a confidence game.
And confidence can blow away like a pile of feathers in a hurricane.
So what were looking at is not just a bump in the road.
Its going to change priorities and marching orders for market
participants and for those who interfere in the markets
in various ways.
Yes. Its the kind of thing that accelerates a negative spiral,
in good part because everybody wants the government to do
something, in the idiotic belief that it can improve things
by doing more. Actually it can only help by doing less.
the economy slows more. Why cant the government
reanimate the corpse one more time, turning up the juice on the
stimulus heart-shock paddles?
Theyve already created trillions more currency units. Most
of these are currently sitting in banks rather than circulating.
Thats partly because people are afraid to borrow and banks
are afraid to lend, but also because the Fed is paying banks interest
to keep what are considered to be excess reserves locked up. So
these trillions of dollars that were created to bail the banks
out are sitting there, but theyre not going to sit there
forever. Once those dollars start circulating in the economy,
prices will rise rapidly.
way for prices to really explode would be for the foreigners holding
some six or seven trillion hot-potato dollars to start dumping
them. With the U.S. government clearly unable to deal with its
debt and the consequent credit rating downgrade which was
both inadequate and long overdue those foreigners are getting
pretty nervous holding dollars. Almost any sort of financial calamity
could spook some central bank into exiting its dollar position
wholesale. And once one of them starts, the race will be on, because
no one is going to want to be left holding the bag.
two time bombs that are ticking away right now the trillions
of dollars outside the U.S. that could come pouring back in, and
the trillions of dollars inside the U.S. that were created to
paper over the leading edge of the storm. Either of those things
could bring on the end of the dollar as we knew it, and both may
well happen at once.
But the state has been very good at convincing people
to pay no attention to the man behind the curtain. If the markets
settle down, why cant people go back to imagining that everythings
Im not sure that many people really ever believed there
was a recovery under way. Wall Street acted like there was
but only somewhat, since banks never started lending again. But
unemployment has remained high; itd actually be about twice
the official 9% level, if it was calculated the same way it was
30 years ago. And outside of the price collapse of certain asset
classes like real estate the cost of living has
increased greatly for most people; the calculation of the governments
CPI is as corrupt as its unemployment numbers. I think its
a mistake to talk about a double dip in the economy; we entered
the Greater depression in 2007 and are still in it. A jobless
recovery is not a recovery. The only thing thats recovered
is the stock market, to some degree. Aside from government hocus-pocus,
the mirage of corporate earnings, and foolish investors wanting
to believe it was safe to get back in the water, things have not
gotten better. And they are about to get much worse.
That may be so, but the government, the press, and corporate America
have all been talking about a recovery. With the Fed promising
easy money, if the markets calm down, couldnt the illusion
of recovery be reestablished?
I dont think so. The economy isnt going to stay in
the eye of the storm for much longer. The stab of panic we saw
last week gave lie to the emperors new recovery clothes.
Its not just the losses on the stock market, but gold hitting
significant new all-time highs in nominal terms, and Bernanke
saying that the Fed would hold interest rates close to zero for
another two years. Thats huge and a huge mistake.
It tells me that Bernanke has truly panicked. The impact this
will have on the dollar cannot be overstated; its a guaranteed
disaster. It assures that people will do all sorts of things they
would not do without that artificially easy money.
Okay, but if they go into debt to buy houses and cars, theyll
create jobs and there will be more appearance of recovery, wont
Thatd just be digging the hole deeper at this point. What
needs to be done is to let the market raise interest rates, to
encourage savings the accumulation of the capital needed
to start moving forward on a solid basis. Instead of encouraging
people to work, spend less than they make, and save the difference,
these low interest rates encourage profligacy. They encourage
people to liquidate savings and live above their means. As usual,
the government isnt just doing the wrong thing, its
doing the exact opposite of the right thing.
Because of the false belief that printing money stimulates the
economy. The artificially depressed interest rates of today will
result in very high inflation and very high interest rates in
the near future. A healthy economy gets naturally low interest
rates as a result of a lot of savings, a lot of capital creation.
A healthy economy has stable interest rates that relate to the
amount of new wealth being created, typically just above the natural
rate of inflation that results from real money gold
being mined out of the ground. Artificially low interest rates
The Fed is
also keeping rates low because of the governments massive
debt problem. The U.S. is already running trillion-dollar deficits
if interest rates go up, say, to 12% like back in the 70s,
that would add another trillion to the deficit right there. Financing
a $16 trillion debt at 12%, rather than 2%, equals another $1.6
trillion of spending just for interest.
means they have no choice. The situation is completely out of
control the U.S. financial house of cards is irredeemable
at this point, even with interest rates at close to zero. The
whole financial structure is close to collapse, and thats
why I think were exiting the eye of the storm.
The Titanic has been struck, but Captain Obama just doesnt
yet realize how badly?
Exactly. And adding insult to injury not only are
they doing the opposite of the right thing, they are actively
punishing people who did the right things, who worked hard and
saved. Pensioners living on fixed incomes are being forced to
reach for higher and higher yields, which means they are being
forced to put their nest eggs into riskier and riskier investments.
This guarantees that the pensioners and the savers will be wiped
Unless they put their savings into gold.
Sure, but nobody but crazy goldbugs even thinks about that. And
it gets worse: The current course guarantees the total destruction
of the U.S. dollar. Again, I cannot emphasize enough how serious
this is. People all around the world save in dollars. If the dollar
is destroyed, it wont just be Americans whore hurt,
it will be all the hard-working people around the world whove
struggled to scrimp and save and put money away for future needs.
All these people who were wise and frugal, they are going to be
wiped out. They are going to be left with absolutely nothing.
This is criminal its the stuff revolutions are made
of. And thats exactly what I expect well see plenty
of, all around the globe.
Seems so clear what could they possibly be thinking?
Perhaps Bernankes making the same mistake people with maxed-out
credit cards make, when they think hyperinflation will wipe out
their debts. They forget how nasty, brutish, and short life can
be in a society in a hyperinflationary collapse. And think about
it: What happens if you wipe out these debts? Who are the debtors?
They are the most profligate people in society. So these artificially
low interest rates reward the most irresponsible and punish the
most responsible people in society.
[Chuckles] Took the words right out of my mouth.
Easy enough to do in this case.
Well, theres your answer. Whats going on now really
is creating the foundation for revolution, and not just in the
U.S. The riots in London and Chile, and other outbreaks of chaos
around the world arent anomalies theyre a warmup.
An overture before the symphony starts. Things will be especially
bad in British and European cities, where there are millions of
people whove never worked. Ever. Theyve just lived
off the state.
Maybe well hear the music on November fifth.
Remember, remember, the fifth of November
would be interesting indeed. Readers should rewatch V
for Vendetta to put them in a proper frame of mind on
how serious things are. I mean
it is going to be a time
Fighting Man will be a most appropriate theme song. Turn
up your speakers.
I agree with you, Doug, but I have to say it makes me a bit nervous
to come out and say were exiting the eye of the storm. The
powers that be have proven far more adept at keeping the balls
they are juggling in the air than I ever thought they could be.
Every time I think it cant get worse without things coming
apart, it does get worse, and somehow things dont come apart,
they keep going.
Of course. As I started out saying, Harry Brownes prediction
40 years ago was essentially the same that Im making today.
Harry was a bit early and I was too, in 1980. But this
time really is different, with so many unprecedented actions and
reactions between the market and the state. I truly see no way
out for the state this time, and its going to be much, much
worse than it would have been had it collapsed back then. I cant
say for sure exactly when things will fall apart, but Im
more convinced than ever that they will, and that we are about
to plunge deeper into the Greater Depression.
What if youre wrong?
I honestly hope I am, because if Im right, the global economic
devastation is going to have a very real and significant death
toll. The price in human suffering these fools in government are
setting us up for is truly monstrous. As a human being, of course
Id rather see good times.
But as a speculator
Yes, as a speculator, I know the crisis will create phenomenal
opportunities. If we lived in a stable society, with a stable
monetary order and a non-predatory government, itd be impossible
to be a reliably successful speculator, because thered be
few or no politically induced distortions in the economy to take
advantage of. So, always looking on the bright side, we can look
forward to many new bubbles to result from the states massive
interventions today and in the future.
There will be a huge bubble in gold ignited, and maybe soon. That
seems pretty much baked in the cake at this point.
Thats interesting. A lot of people say gold is already in
a bubble that the recent surge up to $1,800 per ounce is
a sure sign of that. But youre saying it hasnt even
Well, I hate encouraging people to buy gold at $1800 an ounce,
because that level is already more than 700% above the bottom
in 2001, and Im a bottom fisher. I like bargains, and I
cant call gold a bargain today. But its plain as day
that gold is going to go higher. Theres simply no other
place for people to try to safeguard their wealth as the dollar,
euro, and other currencies plummet toward their intrinsic values.
What else could people buy as they get more and more afraid of
paper currencies losing acceptance? What are corporations going
to do with the billions of dollars in their treasuries when their
management gets frightened? Where else can they go when they need
to get rid of dollars, euro, yen, and yuan? Central banks, too
what will they do when they need to dump dollars in favor
of something that will hold value?
This is why
I see a bubble in gold still ahead. It has nothing to do with
the supply and demand for gold in the jewelry trade, or whatever
its going to be a result of there being no viable
alternatives when the paper-money con game is over. Gold is the
ultimate cash, and thats where people will go when theres
a global, total, panic to cash.
Agreed. Other investment implications?
Gold mining stocks. Most good ones arent bargains, even
though theyve been lagging gold in recent trading, maybe
because of the fear in the marketplace. But theyre going
Of the two major forces that drive markets, greed and fear, which
do you think will predominate going forward? Because there are
different buying patterns, depending on whether its greed
or fear in the drivers seat
Youre quite right. I think it will be a market driven primarily
by fear for some time, and that will favor profitable producers,
emerging, high-margin production stories, and maybe the best of
the best explorers advancing projects with obvious merit towards
production. Nobody buys the risky junior exploration plays when
fear is driving the market.
Except a bottom fisher.
Except a bottom fisher, yes. There will be some fantastic opportunities
in earlier-stage exploration companies that will get smashed because
of fear. But speculators looking for those have to be patient.
Many junior explorers will dry up and blow away during the fear-induced
drought. Eventually, the best will come roaring back when the
bubble inflates and the real mania phase of this bull market kicks
in. Then, everything with gold in its name will trade
at ridiculous premiums, even the crappiest juniors whose only
gold is in their name.
How long before greed kicks back in?
There you go asking for a time as well as a prediction again.
I dont know, but it could be a while: A lot of greed has
been washed out of the system with the big panic of 2008, the
real estate collapse, and the stock market really going nowhere
for the last ten years. Plus, when the bond market collapses,
as I think it will, that will be the final blow. Thats really
The Big One on the horizon these days the bond market is
three times the size of the stock market, so a major reversal
there will cause enormous damage.
So, stay away from the junior explorers?
Just the crappy ones and as you well know, 95% of explorers
have nothing and never will have anything. But there are some
which actually have gold or silver in the ground or clear
drill indications that they are close to being able to report
having such assets the kind you specialize in finding for
the International Speculator. Those stocks are going to
benefit from the flood of money hitting the precious metals sector.
Remember, the whole gold market is trivial in size. Its
only a tiny fraction of the oil patch, and not even a rounding
error compared to the global market. When the average investor
wakes up to the need to own gold for safety and the potential
profit from owning gold stocks for leverage to gold, its
going to be like trying to fit the contents of the Hoover Dam
through a garden hose. Prices will go ballistic, and there will
be plenty of money hitting even the smaller juniors that have
Good reminder about safety.
And thats another factor that will be driving the price
of gold: It wont just be speculation, it will be prudence
the flip side of fear. Prudence will drive people into
buying more physical gold. Greed will drive people into gold stocks.
I own a lot of physical gold already, but Im still buying,
even at these levels. And I own a lot of gold stocks, but Im
still accumulating those too, when we dig up good opportunities.
Very well. Anything else?
I should mention for those in our audience who like our video
conversations that I recently had a conversation
on the Money and Wealth Show when I was in Vancouver,
similar to what weve discussed today.
Very good. I also want to mention that Ive just set up an
Facebook page for the entertainment of those who wish to follow
my travels and adventures on a sporadic but hopefully more
frequent basis than in the monthly issues of the International
Great I look forward to seeing the pictures I know youll
take on your next rock-kicking expedition. Til next time.
All right then til next time.
crisis Doug alludes to isnt some far-fetched, distant possibility:
Its very real, and its in progress now. Other fiat
currencies are facing the same inevitable fate. To learn how to
protect yourself and your assets register
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