Friday, December 2nd, 2022
Dan Denning reporting here from Laramie, Wyoming. Below you'll find part two of the wide-ranging discussion between Bill Bonner and our old friend Porter Stansberry.
In the second-half of their one-on-one, they resume their discussion of energy and add money, interest rates, and the prospects of a global meltdown to the mix. Feel free to share if you know someone who would be interested.
Porter's been busy. In addition to the warning about the Boston Blackout of 2023 I sent you yesterday, Porter recorded a separate presentation on the two men responsible for destroying America.
Can you guess who they are?
You don't have to. You can watch the entire presentation here (click on bold text to go to the video).
Until next week,
Dan
PS Joel will publish a link to the video of Bill and Porter's interview tomorrow, once we have it set up.
Empire of Delusion, Part II
A conversation with Bill Bonner and Porter Stansberry
Porter Stansberry:
So Bill, what do you think some of the possible outcomes of this clash of delusions is? And I'll go first because mine are pretty simple. It seems very likely to me that we're going to have a global hyperinflationary crisis where we've already seen it happen in the gilt market in the UK. We've already seen it happen in the Euro bond market. We've already seen it happen in the yen bond market. We've already seen those currencies crash.
The reason why the dollar hasn't crashed yet is because our economy is larger and stronger and has higher rates of interest. But the rates of interest still aren't nearly as high as rates of inflation. And there is no sign the inflation's going to stop. And eventually, if you look at all the other, say the Plaza Accord in '85, other times where the dollar has been this strong, the world economy simply breaks.
And then it's not very long, usually less than a year or two, before the dollar rolls over. Of course this cycle has repeated every 15 or 20 years. But there's going to come a point where, maybe because of Bitcoin or maybe because of some really fractious political circumstances, that people just stop putting up with it. That they abandon the paper global monetary system in total. And if you look at what Bitcoin has done, it's easy to envision that occurring. So that's one possibly surprising, very negative potentially, outcome because of the delusion that you can cure all the problems with government spending. And then the energy thing. What I can see is that there is no other way to power the world with a relatively clean fuel in the next decade without way more American natural gas production.
Bill Bonner:
Not in the next decade. I mean, theoretically the most efficient fuel is uranium by far.
Porter Stansberry:
Yes.
Bill Bonner:
But it takes a long time to build uranium plants.
Porter Stansberry:
It does. And what's interesting is that the American government operates 82 secret nuclear power plants that they never ever talk about and that are highly portable. So it is interesting that that technology is clearly possible. And by the way, I'm talking about of course our nuclear navy.
Bill Bonner:
Oh, right.
Porter Stansberry:
Right? My point is that if you can put a nuclear power plant on a ship and send it into war, that it's got to be certainly safe enough to build in a neighborhood in a concrete bunker. That we haven't done that is a very interesting political choice. But like you say, that's going to take a decade or two to build out. And so what I see is that if you're not going to let people burn coal, the only way of maintaining the power grid stability is with natural gas and with somebody blowing up the Nord Stream pipeline... I wonder who that was?
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Bill Bonner:
Can't imagine.
Porter Stansberry:
It just seems very likely to me that Global LNG and American Natural Gas are going to be a booming market.
Bill Bonner:
Yeah, I know that's been a theme of yours and I think you've been exactly right about that. But going back a bit, crises always happen. And then when you get these kinds of delusions operating with high rates of inflation, you're going to see more crises. So what I think is going to happen is that the Fed will pivot, just like the Bank of England did when they had the problem in the gilt market. They're going to be faced with a crisis.
And it could be an energy crisis, could be a political crisis, could be a big bank goes broke, something like that, like Lehman Brothers. And when that happens, the Fed will pivot and then we'll be in a different world. It's a world in which the Fed has admitted that it's not going to control inflation. It can't control inflation because trying to control inflation is more costly to it, to the political class, than letting it run in order to satisfy all these problems and print money and so on. So I think when that happens, it will be a big change. And the only thing that comes close to that I have any knowledge of is Argentina. In Argentina, they've done that and they've done it for years. And it is-
Porter Stansberry:
It's a way of life now.
Bill Bonner:
Yeah, it's a way of life. And everybody knows that they can't trust the currency, they can't trust the government and, unfortunately, they can't trust their neighbors either because everything is a bit crooked and it's too bad because it's otherwise a very nice place. They have very good steaks and very good wine. It's a very nice quality of life. Can be.
Porter Stansberry:
And very inexpensive if you have hard currency.
Bill Bonner:
But not if you depend on the local system to earn your money.
Porter Stansberry:
Well, let me ask you this question about that. There has been a long running political delusion that, "Deficits don't matter," as Dick Cheney famously said.
Bill Bonner:
Oh yeah, Dick Cheney did say that.
Porter Stansberry:
And when I wrote The End of America back in 2011, the total US debt was something like 10 trillion. The federal debt I'm talking about, it's now $30 trillion.
Bill Bonner:
$31.
Porter Stansberry:
And so one of the really interesting consequences of a higher inflation rate and higher interest rates is it isn't possible now to afford these debts. And I haven't seen any commentator anywhere pointing out the plain truth that if the federal government were to pay a real rate of interest, let's say 6%, across their entire debt load, that amount of money would be larger than the entire tax receipts.
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Bill Bonner:
Already we're headed to a debt service charge higher than our military cost...
Porter Stansberry:
That's right.
Bill Bonner:
... And it won't be long, you can imagine that the debt is scheduled, and nobody knows what happens if there's a crisis, scheduled to get to 40 trillion in the next couple of years. At 40 trillion and at today's-
Porter Stansberry:
And the average duration on these loans is three or four years.
Bill Bonner:
Three or four years, yes. So it has to be rolled over all the time. All the time at higher rates. So it's exactly the opposite of what we've had for the last 40 years. Last 40 years we've had more and more debt but have been refinancing it at lower and lower rates, so it meant the payments went lower. Now the debt is still going up faster than ever, and the refinancing cost of getting higher and higher at a faster rate. It's going to explode. When? We don't know.
Porter Stansberry:
And by the way, the thing that's really scary about that, to me, is that America's economy and America's currency, the dollar, is the complete foundation of the global trading system. So central banks around the world settle their trade debts in dollars. Oil is traded in dollars, virtually every commodity is traded in dollars. So the consequences are not just scary for Americans losing their purchasing power, it's also really scary for people around the world.
Bill Bonner:
Oh, we're looking at a global meltdown. There's no doubt about that. All the currencies of the world, major currencies, follow it with one amazing exception, which is the Russian ruble. They all follow the same pattern. All governments spending far too much money and all covering their debts with printing press money led by the Fed. And so what we're going to see is inflation worldwide, it's already 10% in England, in Holland I think it's greater than 10%. We're seeing big numbers already and there's no case in history where inflation has been cured without real interest rates greater than inflation rates.
Porter Stansberry:
Right. So that would be rates higher than 10%.
Bill Bonner:
It had to be 10%.
Porter Stansberry:
Which is isn't going to happen.
Bill Bonner:
Imagine how many Americans can afford to refinance their homes at 10%.
Porter Stansberry:
None.
Bill Bonner:
How can the government, at 10%, if the 10 year T-bond had a 10% yield, it would mean $3 trillion of interest charge every year.
Porter Stansberry:
Which can't happen.
Bill Bonner:
Can't happen. Where's the money come from? It doesn't work. So we're looking at some big, big problems. And the crisis that I see coming comes out of the intersection of these various delusions about money, about power, about the way people live, the way people think. And we're going to see a big crisis, a big train wreck, of some sort. And then the government will be in Argentina. We're headed for Argentina. I like Argentina, so I'm not complaining too much.
Porter Stansberry:
You're already there, so you're just ahead of the curve.
Bill Bonner:
I'm not complaining too much, but it's a hell of a way to live.
Porter Stansberry:
The one thing that I've seen so far that really does back up these views with hard evidence is that only in the last couple of quarters globally, central banks have suddenly been buying enormous quantities of gold.
Bill Bonner:
Yes, they have. Yes.
Porter Stansberry:
More gold than they have bought and recorded history. I mean, just massive amounts of buying gold by central banks around the world who see the same thing. That the dollar hedge money is unsustainable. That we have, unfortunately, run up so much debts. How many trillions in Afghanistan, how many trillions in Iraq?
Bill Bonner:
A lot.
Porter Stansberry:
How many trillions did we spend paying people not to work during covid? The debts have grown so large that they can no longer be financed in sound money, and that means there's no way to stop the inflation. And when you combine that with this fantasy about making power grids out of solar cells, you have a really big conundrum because the largest input cost in any kind of production is energy.
Bill Bonner:
Yeah. Well, it's the largest thing in all of civilization.
Porter Stansberry:
That's what makes fertilizer. It's what makes food...
Bill Bonner:
Makes everything.
Porter Stansberry:
... What makes transportation.
Bill Bonner:
We are energy. The whole system on the planet earth operates because the sun shines on it, creates little tiny microorganisms, plants, animals, who eat plants, we eat animals and plants. It's a whole system.
Porter Stansberry:
So what's the solution for the average American family or global family? How do they operate in this world gone mad?
Bill Bonner:
That's a good question.
Porter Stansberry:
And obviously it really, like you said, affects the way people relate to one another. Because without sound money, people can't trust each other.
Bill Bonner:
Yeah. That's why I think this crisis is going to be worse than any we've ever seen. Because the poor Argentines, they can't do anything. They go in the streets, they form into mobs, they demonstrate, they vote and they get handouts. The upper class Argentines have figured out long ago that they needed bank accounts in dollars outside of Argentina. So if you go through the banks in Miami, you'll find a lot of Argentine money there.
Porter Stansberry:
And Uruguay.
Bill Bonner:
And Uruguay and all those countries in Latin America. And the middle class has always bought property. They buy apartments, they buy houses, they buy land because they know that prices may go up, they may go down, but they won't go away. And so those are the strategies that they've always used and I suspect those will be the same strategies here, more or less. Except we're not going to go to Miami and put our money into an Argentine peso. No, we don't have that option.
So perhaps it's Bitcoin, or gold as the old reliable, it's one I like, but who knows? But there are no secrets to this. It's mostly a matter of understanding what's going on. And for Americans that will be very hard to do because we've never had to do it before. The Argentines are used to it. They know that when they hear something from the government, it's a lie.
Porter Stansberry:
Yeah.
Bill Bonner:
Americans still believe it's the truth. So we have a long learning process to go through.
Porter Stansberry:
Yeah and it's funny, when there isn't any sound money, everything becomes more and more politicized because everyone has to organize to get higher wages to keep up with inflation, so there's a push towards unionization. And that of course separates people from one another.
Bill Bonner:
This is an important point that I think needs to be hammered on, which is that before 1971, which is the key date, people got more money by earning it. And to earn money, you had to provide a good or service to somebody else, which meant wealth increased. After 1971, increasingly when you get into this kind of funny money world, you don't get money by earning it. You get it when you're front of the line for the handouts, the loans.
Porter Stansberry:
Or you get it or you get it through financialization. You get it by trading.
Bill Bonner:
Trading, yep.
Porter Stansberry:
You get it by the inflation of the currency. You own a home, you sell it for dollars, the dollars are inflated. That's, in your mind, income.
Bill Bonner:
You're running a company, you borrow money at below market interest rates, you take the money, you buy back your own shares, you give yourself a bonus for being such a good manager. It all gets so funny, so screwed up, that people don't know what to think.
Porter Stansberry:
And so over time, the amount of production falls relative to wages and prices increase.
Bill Bonner:
Right. Bad asset allocation leads to lower growth and lower profits.
Porter Stansberry:
Do you think that there'll be any particular investor or style of investing that does better? And I point out that in the 70s, Warren Buffet and value investors in general did very, very well. Some types of investing do better during periods of chaos and inflation. And it'll be kind of the opposite of what we have seen. We know that technology stocks are not going to do well with high interest rates...
Bill Bonner:
No.
Porter Stansberry:
... But it seems likely that things like, maybe copper, could do very well because the price of copper will increase. Demand for copper will have to increase.
Bill Bonner:
Yeah. Well, I think that's generally the nature of things that when you're prosperous, you're expanding. And the web of financial and commercial relationships gets bigger. Globalization happens and you're able to trade with people around the world you never met, you don't speak their language. When you go into a contraction, it's just the opposite. Things have a way of coming back to you and prices go down because you no longer expect such great profits in the future. The whole business world contracts you.
And we're seeing that too, a de-globalization of the world economy, which will mean people are poor because you won't have so much trade. The strawberries won't come from Chile, they'll come from West Virginia or somewhere. And it's a process of de-globalization, but also de-financialization and cutting asset prices down to more realistic levels. So the companies you want to be in are those that'll survive this process of taking fantasies away. So they're not Spotify, they're not cloud computing. They are things that make copper, grow strawberries and food production, mineral production. Solid businesses. And they should do well.
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