John Rubino: We Will Hit The Wall Pretty Soon

John Rubino, founder of DollarCollapse.com, appeared on SchiffGold with a great interview. Rubino predicats a massive, sustained economic collapse is still lurking on the horizon, and explains why it did not happen last decade (as originally outlined in his bestselling book The Collapse Of The Dollar And How To Profit From It.

It is the first time in human history that all of the world’s governments are engaging in unlimited currency printing. The ability to create money out of thin air has allowed governments to take on more debt than anybody imagined feasible. Rubino believes there’s no way to know when the economy will hit the wall, but it will likely be pretty soon. At some point central banks and governments will run out of the ability to borrow and print, and they will have to start living within their means again.

Watch the interview or read a selection of the quotes below:

QUESTION: Negative yields persisting up the yield curve, all the way to five years in some cases. If the US had to carry the entire economy on its back, we would have seen that, maybe not hyperinflation, but we would have seen something very bad. By spreading it around, by having the Bank of Japan help, by having the ECB help, this has kind of spread the symptoms of the catastrophe that you and James wrote about.

John: Yeah. Post 2008-2009, China for instance borrowed really more money than any country has ever borrowed in history. And that was the big driver of the “recovery” of the last few years. They just bought up all the natural resources in the world and drove the prices of iron ore, and copper, and timber, and oil through the roof. And that created a global resource boom. And that basically pulled us out of the, what would have been a depression after 2008-2009. But of course, that was done via huge amounts of new debt. And so, now the world is something like $60 trillion more in debt than it was back when debt was so accessible that it almost blew up the global financial system in 2008. And yeah, the European Central Bank and the Bank of Japan, and the US Fed, along with the People’s Bank of China, and the Chinese government have kind of gone back and forth borrowing money, and then lending it to each other. And they’ve enabled the system to hold on for much longer than it would have if it was just one country doing things like this. But that’s not a perpetual motion machine; we can’t keep going on like this forever, because we are building up more and more debt. And the big banks are bigger than ever, they’re more leveraged than ever. This time, the emerging markets have been pulled into it with something like $9 trillion of dollar denominated debt that they can’t manage. So at some point, it blows up.And then the question is, is it this year, or is it 2017, or 2020?

There’s no way to know when we hit that wall. But I think it’s highly likely if not absolutely guaranteed that we do hit the wall pretty soon. We can’t go on for decades more as we’ve gone on for the past three decades. At some point, we basically run out of the ability to borrow, and print, and we have to start living within our means again. And at that point, we have to go through a transition from what is today unsustainable, to whatever we do after this that is sustainable. And it’s going to be a really painful transition. And there’s really only two ways to get there; either all the debt or most of the debt that we’ve taken on defaults, and we have a 1930s style deflationary depression, or we inflate our way out of it. That is we create enough new currency to make today’s debts manageable, but in doing so, we risk people losing faith in the fiat currencies that we’re creating with such abandon, and end up with a currency crisis, and that’s it. Those are our two choices. The next few years will determine which of those courses that we end up, and which kind of crisis we’ve chosen, but we can only chose one or the other, that’s all that’s left.

QUESTION: Clearly the preference of the big thinkers at the world central banks would be to inflate the debt away, hence to target positive inflation rates, those are supposed to be a good thing. It’s 2% now; I can see that very well going higher. But the consequence of that, of course, is that the market recognizes the price inflation. Now, gold has not been responding, but it seems like perhaps this correction is coming close now because gold is starting to respond the way you would expect it to respond. And part of the consequence of having this be a worldwide effort, all of the central banks participating in different currencies is sometimes the appreciation in gold is masked, meaning that the US dollar as a unit of account, the US dollar has not been participating in this currency war, but in other currencies, you would have seen gold rising.

John: Well, the US dollar has been the strongest currency in the world for the last few years. And that’s largely because…we’re not in great shape, but we look relatively good compared to the rest of the world. So a lot of capital is flowing in to the US and that creates demand for dollars, and pushes up the value of the dollar. But yeah, as you said, if you value gold in virtually any other currency it’s up now. So gold’s bear market ended some time in 2013 or 2014 depending on the country that you’re focusing on, and it’s been going up ever since. And finally, at long last, it has started to go up in dollars. So, whether that’s the beginning of a new leg in the gold market, or just a kind of a fake out before we get one more down leg before the gold market resumes, we can’t know that until retrospect, until afterwards. But when the gold bull market resumes, this is what it’ll feel like, this is what the early stage will be like. And so now the question is, will it continue through the rest of the year? I don’t know. But eventually, because gold is the form of money that humanity has used for the last 3,000 years, and it’s held its value for that entire time, it tends to be where we hide out when things get crazy.

And as things get crazier, and crazier, and more and more capital is going to flow into gold, and also into silver, so other things being equal, you’ll see upward pressure on their prices even when priced in dollars over the next few years. Whether it’s a gradual kind of, a little at a time bull market, or a parabolic one when all of a sudden in the space of a couple of months we see another $1,000 added to gold’s dollar price, we can’t know, because that depends on the other stuff that’s going to happen out there. Will we have a raging war in the Middle East that distorts global trade? Will China have a hard landing credit crisis? Is the European Union or the Eurozone going to spin apart? And is the dollar going to do something crazy like spike from here or fall from here? We can’t know any of these things. But we can say with a fair degree of certainty based on history that things are going to be really volatile, and they’ll get crazier and crazier as this debt really bites. As our bad decisions of the past come home to roost, and the globe will be one of the beneficiaries of that, because that’s the way it’s worked in every previous currency crisis. You can go back to the Roman Empire, and France in the 1700’s, and Weimar, Germany; it’s always been the same. Money flows out of these mismanaged fiat currencies, and into real money like, gold and silver. There’s no reason to think it won’t happen again, and the only question is timing.

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