Jason Hartman is joined by Jim Puplava to talk about the supply chain disruption. They explain how many businesses will be forced to innovate. Jim looks at Walmart as an example and e-commerce. The conversation goes into the oil market, whether or not we will be going into a period of inflation or stagflation, and thoughts on cryptocurrency. They end with the US and its debt to GDP ratio.
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Announcer 0:12
Welcome to the American monetary associations podcast where we explore how monetary policy impacts the real lives of real people and the action steps necessary to preserve wealth and enhance one’s lifestyle.
Jason Hartman 0:29
It’s my pleasure to welcome back a returning guest and that is Jim plava. He is Founder President and CEO of financial sense Wealth Advisors. And he also has this podcast where I came to know him many, many years ago. financial sense news hour, Jim, welcome back. How are you?
Jim Puplava 0:46
Hey, great, Jason. Great to be back with you hope you’re safe and you’re not going crazy staying inside. You know,
Jason Hartman 0:53
I hate to say it because I know some people are having a really tough time with this, but I kinda like it. I’ve been enjoying this break from training. Ravel, and I used to live in Scottsdale where I believe you are. Right. Are you in Scottsdale?
Jim Puplava 1:05
No, that’s where I grew up. I grew up in Scottsdale and moved to San Diego. Ah,
Jason Hartman 1:09
got it. And I lived there for a short time to and from LA and Orange County most of my life, but now I’m in Florida. And the weather is absolutely stunning. So this is not too bad for me. But I know it’s hard on some people. So I don’t want to minimize that or, or take away from that. And, you know, let’s hope this all lifts soon and, and we get back to the new normal. I don’t think we’re getting back to normal, but we’re gonna have a new normal. And, Jim, I’m going to start off with a big macro question. What’s the long term play here?
Jim Puplava 1:37
You know, I think what we’re going to go through Jason is a major whiff of deflation here. I mean, the supply chain has been disrupted, and that’s going to take a while to correct. I think in the longer term, it’ll be better, because we’ll need to bring some of that manufacturing. I don’t care if it’s vaccines to drugs back here and very bullish on Mexico because I think that’s where a lot of manufacturing is going to be going. But in the short term, when you don’t have supply, and you have great demand, how are you going to get that? In? You’re shutting down businesses, you’re shutting down demand. So usually when you see something like this happen, which is a shock to the system, the first wave is deflation in but it hasn’t we already had that we’re in the deflation now look at oil prices, for example. Right? Yeah. But I mean, in the short term, I still think that we’re going to be in a deflationary environment. And it’s only when things get back to I guess, if you can call it the new normal. When demand starts to pick up. I mean, you know, I live in California, and this first time I’ve been able to go anywhere on the freeways without a traffic jam.
Jason Hartman 2:52
Yeah, it’s it’s kind of pleasant in some ways, you know?
Jim Puplava 2:54
Yeah. I mean, it’s you don’t have traffic jams. You’ve got airplanes parked at airports. They’re not in the air. And so eventually when we start to return to whatever that normal is going to be like, and people start filling their tanks, demand starts to go up. And all of a sudden, you go from a base where oil prices are 11 and 12. And let’s say a year from now they’re over 30, that’s going to start working its way into the economy. And then also, there’s gonna be goods that are going to be in shortage, and you’re gonna have to pay more for them.
Jason Hartman 3:25
Right? So So eventually, and especially if the government keeps injecting money like they’re doing, then you know, what’s the definition of inflation, it’s a lot more money chasing fewer goods and services. And when you have the demand destruction that we’ve had that is deflationary. Then you have a supply demand shock after that, because after the demands destroyed, the companies go out of business. Already the supply chain has been massively interrupted. Then when demand comes back, it causes inflation because Now you have supply shock. There’s no supply right.
Jim Puplava 4:03
Now, let me give you a good example. Since we’ve been quarantined, of course, all gyms have been shut down because they’re petri dishes for infection. Try to go to a health place try to order a pair of dumbbells, exercise bands, Home Gym machines, they’re sold out.
Jason Hartman 4:21
Yeah. And then the prices have gone up.
Jim Puplava 4:23
Yep, they’re raising the prices. Why not? If you can sell everything, you can get out the door. And then you got to remember you got to make new stuff and then the new stuff is harder to get. So you have a shortage of materials, you have the shortage of labor, because a lot of people can get to the factory. If you bring them back. You have to pay more. Just take a look at what Amazon and Walmart are doing. All of that is going to be reflected in the cost of goods you’re going to be buying. And now we’re running into a food situation where you have places like Tyson are shutting down their meatpacking plants and That’s gonna drive up the cost of food.
Jason Hartman 5:01
Yeah, it’s really something and I’ll tell you, I would pay a lot of money for a haircut right now. And to get my dog the bath because everything’s closed and charged me quadruple what you usually charge. I don’t care. I pay it for both of those things. So yeah, it is really something it is. But let’s dive into this a little further. I mean, we have put the economy in hibernation mode. It is absolutely astonishing. What has happened in the maybe the world’s first self induced recession, maybe depression. I don’t know, you can chime in on that. But what is that going to mean? More broadly, let’s just unpack this a little more.
Jim Puplava 5:41
Well, let’s put it this way. The longer they keep this in quarantine is some governors are doing although that may be challenged by the Justice Department. The longer they keep this going, they’re going to turn a recession into a depression. And this reminds me of the the early 30s where we took the What should have been a recession, turned it into a depression, then turned it into a great depression. The strength of this economy is a lot of small businesses account for most of the job growth. Well, those small businesses when they did the NFIB survey, most businesses over 50% of them said we can’t last more than two months. And then when they did the stimulus for the payroll protection plan, 4% of the company’s Jason got 80% of the money. And so that’s why they had to do stimulus to in replenish the stimulus fun, or the PPP plan by another close to 300 and $50 billion. So you start putting small businesses out of business, I don’t care if it’s restaurants, small hotels, you know, local barber shop local service companies, then all of a sudden you’re creating higher unemployment. I looked at figures Who knows, it’ll be this Thursday. We’re doing this interview on a Tuesday. But we have 26 million people unemployed right now filing for unemployment claims, and that’s in five weeks. And think about it, Jason, five weeks ago or six weeks ago, we were at three and a half percent unemployment. Now we’re going to be in double digit unemployment. So the longer they keep this going, the worse that this can be. Which is why I’m really afraid that they could be making a major policy mistake here.
Jason Hartman 7:29
Yeah, that’s quite a quite a big deal. No question about it. So I mean, look at like supply demand shock in terms of restaurants, right, the demand collapsed. And and then a significant portion of the supply will collapse, because these restaurants are just going to go away. And then when they do reopened as some are starting to like in Georgia and so forth, the new rules will only allow them to operate at a small percentage of their prior capacity. So Can you imagine the price of going out to dinner is probably going to skyrocket because the remaining restaurants that will still be there, everything will be space so far apart all these new protocols will be burdensome on on the restaurants and so forth. And it just won’t work.
Jim Puplava 8:16
No, because you take an average restaurant, let’s take Friday and Saturday night most people go out for dinner. You want to fill that whole restaurant and you want to turn those tables over two or three times, because that’s where you’re going to make your money. Well, what are you going to do now on a Friday night when you can only fill your capacity by 25%? It’s just economically how are you going to pay for the chefs in the kitchen? That food supplies, the waiters, the busboys, the people that have to come in and clean when you’re only operating at 25% capacity?
Jason Hartman 8:47
Hmm, yeah, it’s something I mean, going out to dinner is going to be a big huge luxury in the near future, I believe because they’re going to have to sell those tables for a lot more money than they’ve been selling them right.
Jim Puplava 9:00
Yeah, and select manufacturing, manufacturing, any manufacturing plan, I don’t care if it’s GM or Ford or three em, they have fixed costs, the fixed costs of the factory, the personnel, the management team, the workers, those are fixed, then you have the variable cost, which are based on the amount of units that you’re going to make well, that fix costs. You need to have enough sales to cover your fixed cost. And then it’s the additional sales where your profit margins come from. Well think of a restaurant or any kind of business, where you don’t have enough in sales because the capacity to cover your fixed costs, you’re going to be losing money.
Jason Hartman 9:43
So what do we do? What does this mean? I mean, I think we all get the problem. What does this mean to the broader market and what other types of businesses are affected? And, you know, there’s such a knock on effect to all of this in so many ways, right?
Jim Puplava 10:00
Well, there’s gonna be a number of things. And thank goodness for the American economy. If it’s allowed to operate, I think you’re going to see some technological changes that are going to get around this. Let me give you a good example. We’ve got Amazon, which is the retail behemoth. And Amazon was overtaking companies in terms of market cap like Walmart, Target. Costco, what did all three of those develop a major online presence? So in order to compete now, Walmart will have delivery, you can deliver, you can pick up stuff at the store. So this is going to create a lot of innovation. I’ve seen interviews of major restaurant tours, who are saying, you know, what, we’re going to develop a takeout business is going to be a major part of our business route, Chris restaurants, now has to take out business. So businesses are going to adapt to that. Some that won’t, or don’t innovate, will fail. And it’s going to be Creative Destruction. Yeah, we’re
Jason Hartman 11:01
gonna have to. You know, Jim, that’s why I like your show. I say the same things and I haven’t been listening to your show lately, I must admit. But Joseph Schumpeter, one of my favorite economists, the creative destruction is happening much more quickly. And that’s one of the great things that is coming out of this. My veterinarian the other day sent me an email saying now we can see your dog via tele medicine. My doctor sent me the next day the following day telemedicine app download it so you can see your doctor over your iPhone. I mean, I’ve been asking for this stuff for years the technology is not new they could have done it years ago but they have no impetus they have no motivation in this has forced them to do it. So that’s great.
Jim Puplava 11:46
Yeah, so you’re gonna see that in fact, you speak of a panda took my dog out, and he got bit I don’t know if it was a scorpion black or brown look for clues and we just did it by video showed the pod the swelling and the doctor Bring them in that we didn’t know if it was a snake bite, right or an insect bite, but apparently it was serious enough to bring them in.
Jason Hartman 12:07
Here’s the thing that happens though, these businesses, those efficiencies, stay with that business even after the pandemic ends. And now those businesses are much more efficient all of a sudden, and that goes to productivity because now that veterinarian and that doctor can make more money because they can see more patients and the consumer the patient benefits because they have better access to that doctor now, rather than waiting two weeks for an appointment, you know, the doctor can be working at home and can do telemedicine appointments, the cost of all that real estate and staff that they used to have, a lot of it goes away. And so these are good efficiencies that are developing in the system. And I think they eventually create more prosperity. Yes, there is a change over time. Yes, people lose jobs. Yes, there’s creative destruction. We all know that But ultimately, it’s better.
Jim Puplava 13:02
Don’t you agree? Oh, absolutely. I mean, we have an office building last year. This might have been prescient by accident. But we took our cubicle space and turned it all into individual offices. So when we do go back to work, we will you can be self quarantine by just being in your own office rather than bullpen area where you’re more susceptible. And the other thing is we’re adding more brokers and they can have their own office and operate remotely so I don’t need any more brick and mortar space. So it’s more efficient.
Jason Hartman 13:36
It is more efficient, but commercial landlords hate it. Carl Icahn is shorting commercial real estate, and that is bad news for commercial real estate and the retail apocalypse is only going to get worse. Sadly, it’s pretty crazy what’s going on out there. So Jim talked to us about oil and the other commodities if you will, for a moment. It’s absolutely astonishing what has happened in the oil market.
Jim Puplava 14:00
Well, I mean, it was the perfect storm, you had demand destruction coming in from the COVID-19. So, you know, I saw a picture of a major airport, I’m trying to think of those Dallas, or Chicago where the planes were parked on the runway, like a parking lot. So there’s 75% of the planes that aren’t in the air. If we’re all quarantine in our homes, you’re not driving to work. So you had demand destruction. At the same time, you had this price war between the Saudis and the Russians, flooding the markets with oil. And then on top of that, you had other things that were going on in the global economy. So you’ve got a glut of oil, there’s like 750 Super tankers in the globe, and 85 are now being used for storage. You’ve got Cushing, which has about 10 million barrels of oil storage left a project by the middle May, Cushing will be completely full. So you had all of that occurring at the same time. Then you have the problem between the paper market, which is futures in the fiscal market, which is oil companies, refineries buying oil, and you had an ETF. This is something I talked about three years ago with this index bubble. And you have these, this fun called uso, they owned 25% of the main contract. Well, uso typically rolls over its contracts every single month. In a normal market, Jason, you’re able to roll that over. But uso is not in the business of taking delivery. What happens is they got to a point, there was no place to roll that over, and they couldn’t take delivery. So they ended up selling their oil paying people close. To 40 bucks a barrel to take it. So we had a 300% drop in oil. Now what you have going is they have roughly about 40% of the June contract, and over 40% of the July contract, so you could run into the same problem. But this time, Cushing could be empty, or not empty, but completely full, because they were at 85% capacity heading into May. And with May, they could be at full capacity. So the only alternative would be for the President to open up the strategic oil preserve and allow that for storage
Jason Hartman 16:38
is the opposite of the problem they created it for.
Jim Puplava 16:43
Yeah, I know that funny. Yeah. They
Jason Hartman 16:45
they created it to let the oil out in case we were cut off, right? Yeah, in case we had a disruption. So this is the exact opposite. Fascinating.
Jim Puplava 16:56
So this is going to be with us and it’s not going to be on We are somewhat normal. Now, here’s the real key thing, whether I, in my opinion, whether we go into a recession and come out with a U shaped recovery, or we go into a depression. And that would be what happens in the fall because we know right now, we don’t have a vaccine. And I think we’re better able to handle if it comes back. We know more about protocol, social distancing. But if we start shutting things down, when the next flu season starts in October, and we do the same thing, we’re in a depression.
Jason Hartman 17:34
Well, there’s no academic definition for depression, right. But what do you consider four quarters as a flat or declining GDP? Is that where you’re calling it?
Jim Puplava 17:43
I would say, more than a year and then you’re looking at unemployment rates that are in the high double digits. And they’re talking right now. 13 to 15% to 16% by June. And then you’ve got Bullard in Janet Yellen talking about 30%. So a lot of that is all dependent on what happens this fall if we get a second wave and if the second wave is deadlier. So a lot of this is and here’s the thing that I, this is where I want to be on the positive side. When you look at the Oxford study coming out there is going to be 2 million deaths. Every single one of these COVID-19 models is been far off the mark. A good example is New York. Cuomo wanted 40,000 respirators, they only use 5000. So
Jason Hartman 18:37
short ventilators and they they they’re gonna be in massive oversupply. It’s gonna be like oil with those things soon, they’re gonna pay you to take them.
Jim Puplava 18:47
Yeah, so you know, it’s a lot of this is a big if right now, but I’m a little bit more optimistic that we’re better prepared for a lot of these things. And also The taking a look at a lot of the death rates, a lot of those death rates Jason were associated with co morbidities. So people that had heart disease, autoimmune disease, other respiratory disease, COPD, are associated with those deaths.
Jason Hartman 19:17
And so it’s not really necessarily a COVID death, death and the world may never know, you know, as to the MIS categorization, but in you know, I have not heard or seen this anywhere. It’s just my own thing. But, you know, the federal government came out a few weeks ago and said, Don’t worry, we’ll pay for COVID treatment for anybody, you know, regardless of, you know, Obamacare or Nationwide Insurance, you know, whatever, just no matter what, we’ll just cover it. Okay. And you might remember when they said that, well, why wouldn’t they categorize everything as COVID-19 because the hospital wants to make sure they’re paid, and they know the government’s gonna pay him. So that seems like an obvious reason to miscategorized a lot of this treatment, right?
Jim Puplava 20:04
Well, yeah, there were two doctors that work in ER, to put out a video that said that a lot of their peers are getting pressure from the hospital to add COVID to their autopsy report. And a lot of it is for that reason, you know, if it’s over, they get paid. Yeah.
Jason Hartman 20:22
It’s crazy. This is ridiculous. You know, every time the government and the central bank gets involved, you get all these distortions and all this false reporting, and all this abuse and corruption. It’s just too bad. It really is eight. Let’s talk about fiscal policy for a moment. Okay. So we talked about the supply demand shock how it initially creates deflation, then it creates inflation. And, you know, we’re obviously in the deflationary cycle right now. But, you know, what do you think about the fiscal policy of all of this money creation? I mean, are we going to have an inflation sneery future, or as I think a stagflation airy future,
Jim Puplava 21:04
I think you’re gonna see stagflation. And one of the reasons is, as we just previously talked about, if you are killing supply, killing small companies, killing suppliers, then all of a sudden you start coming in with big fiscal spending. You know, we got his I wrote in my article, the end the money, physical or a stimulus one was just the first of many to follow. So we just got a supplemental fiscal stimulus. That’s a half a trillion. They’re working on another fiscal stimulus that’s supposed to be by the end of May or June, which would include suspending payroll taxes for employees, employers, and maybe a possible monthly check of $2,000. So that’s going to put demand Okay, that’s great. But what about supply? And the other thing that they’re going to do is, I’m trying to figure this out. We’re trying to project because the budget deficit was going to be a trillion dollars heading into the government’s fiscal year, ending this September. That was before the 2.1 or 2.2 trillion, you just added another half a trillion, then they’re talking about stimulus three, which is going to be half a trillion. But Jason, that’s the only part of the story. The other part of the story is, when you have 26 million people unemployed, maybe it goes over 30, or who knows what that number is going to end up being. That means those are people that aren’t working, which means that they are receiving unemployment benefits. So social spending goes up. That’s number one. Number two, they’re not paying taxes. So tax revenues go down. So in addition to this additional spending, that is coming from this fiscal stimulus, you also have the major drop off in tax revenues, at the same time, the increase in social spending. So we could be within the next two years, we could be at $30 trillion in national debt. So and that’s why I think you’re going to devalue the currency.
Jason Hartman 23:11
Yeah. So the gold bugs would say, you know, Peter Schiff would be out there to buy gold. He’s been saying that forever, but you know, it’s Peter Schiff has got a got a checkered record here. You know, his arguments are good. I like the arguments, but the result never seems to pan out the way he says it. So currency devalues. But the question we’ve got to ask ourselves, Jim is compared to what I mean, a lot of central banks are pumping stimulus into the system. So the dollar index is only a comparison,
Jim Puplava 23:42
right? Here’s the issue. I see. You know, everybody’s devaluing their currency and they’re pumping out money, but the Fed is like on steroids. I mean, we added 1 trillion to the Fed’s balance sheet in two weeks. We’re doing daily what they used to do monthly and You know, I’ve never seen anything like this. And then we’re also seeing the Fed move into areas they’ve never done before. Before it was in the last crisis. It was treasuries and junk mortgages. Now they’re moving into the corporate bond market buying triple B’s ETFs. They’re moving into the junk bond market. They’re going into their they’re going into municipal bond market. So there is going to just be no end to this in terms of what they’re doing. And eventually, what I think they’re going to go to is they’re they’re going to try to flatten the yield curve. And there’s a great anybody that subscribes to The Wall Street Journal. I’m now I’ve got a Bloomberg so it looks different. But if you go to the Wall Street Journal, go to the markets page and then scroll down and go to bonds and they have a yield curve, where where it was a year ago, a year ago, you were looking at 30 year bonds or 10 year bonds at 3%. Today 30 year bonds are a little over 1%. So they’re trying to keep the yield curve steepened. But flattening it, which they’ve done. I mean, you’re talking about almost 200 basis points dropping yield on a 30 year bond. And eventually, Jason, I think they’re going to do two things. We’ve got ZIRP, which is zero interest rate policy. The second thing they’re going to go is to nerp, which is negative interest rate policy. And as crazy as that may sound several weeks ago, if you went into three and six month t bills, they were negative, do we
Jason Hartman 25:35
have to look at money itself like, like oil, and like self storing your extra furniture where you literally have to pay for storage? I mean, it’s so strange. You know,
Jim Puplava 25:49
I’m hitting you know what else they’re thinking to do into it and there’s a Fed paper. I’m going to put this my next article, where if you look at your dollar bill, like your hundred dollar bills, and you see that little Mental strip in it. There is going to be attacks on cash. And they’ll come up with some cockamamie idea, well, hey, people are doing this, you know, with the drug trade or some kind of illegal thing. Terrorists are using it or something, but they’re going to, they’re going to penalize you for cash. Because what the government does not want is a deflationary environment where the asset markets collapse, because then debt becomes toxic. So how do you inflate the debt markets is you get people out of cash. Now, here’s something that’s going to scare the hell out of you. We have 14 little over 14 trillion in cash in the banks. These are you know, that’s what people have in their checking account savings account money market funds, we only have a little over 1 trillion and actual bills to pay that. So if everybody wanted to pull their money out, at the same time, there’s only about a trillion to back 14 then if You
Jason Hartman 27:01
backing 14 trillion. Okay,
Jim Puplava 27:03
yeah. And it gets worse. Then you look at FDIC, there’s only about 100 billion dollars in the FDIC fun to back 14 trillion in deposits. So this is an event, the Fed can’t afford to happen. This happened in the early 30s. When the dollar was backed by gold, people use gold as money. And people start going to banks and demanding gold, right? Well, all of a sudden that starts sinking the banks, the banks start going under. And what a Roosevelt do, he declared a bank holiday? Yeah, confiscated people’s gold, and then we came up with the FDIC. Yeah. And I think we’re at some point, if we keep going down this direction, that’s going to be the end game.
Jason Hartman 27:50
You know, I’m curious, Jim, I have a feeling. I know where you’d stand on this, but I don’t I’ve never actually heard you say it. So I asked you. What do you think about digital cryptocurrencies Bitcoin, etc. I’m not a big fan of it because he doesn’t have a lot of the characteristics of money. And the best example I can give you, is Bitcoin going from 1000 to 18,000. down to 4000. Again, right? Yeah. So can you imagine if you were a card dealer, and bitcoins at 18,000 and you’re going in and buying a, I don’t know, a Lexus, a Toyota? Maybe a Honda, you pay for two bitcoins coins when it’s at 18,000. and a month later, it’s down to 4000. What happened to that dealership? Right, right. It’s a disaster. It’s like a Zimbabwe esque disaster one way you know, depending on which direction it’s going. But the other problem with all of the cryptocurrencies of the bunch, Bitcoin is the best I believe, but I I don’t believe in any of them. I’d like to be wrong about it. But the cryptocurrency It’s gonna win the day as the one backed by the Fed and the US government, and they’re going to have one. And then when they have a digital currency, we are going to lose our spending privacy. Of course, there will be a reason, just like you said, it’ll be well terrorists and drug smugglers and stuff we’re using, you know, we need to eliminate cash. And it also the virus spreads on cash bills. So it’s time for digital currency and digital dollar. And I think that’s where it’s going, Oh, I agree with you 100% because they want to get rid of cash, right? And then also, they can monitor you and also just think of the power of the government has to turn off access to your cat. I know, I know, you know, it’s no longer a thing if they think you’ve committed a crime, you know, the civil forfeiture, and you know, they just go take your stuff, that’s bad enough. But in a world where it’s a digital currency, they can just deactivate your currency. It’s like instantly demonetized and you know, you’ve seen this happen where They de monetize the larger build denominations in various currencies. And that’s one way to just get more control of the population. Because spending privacy is I believe, a civil right. And that’s a scary thing when you don’t have spending privacy.
Jim Puplava 30:19
I think eventually, you’re gonna see I wouldn’t be owning $100 bills, because I think they’re going to go against them. Mm hmm. Is there used to be $1,000
Jason Hartman 30:27
bill on a $500. Bill, you know?
Jim Puplava 30:29
Yeah, yeah. And so the hundred dollar bills next.
Jason Hartman 30:32
Yep. Yep. And that’s when those bills were worth a lot more money than they are today. Now, a lot more. I mean,
Jim Puplava 30:43
yeah, they’re gonna go they’re gonna get rid of cash. They’re gonna go to negative interest rates, and eventually they’re going to go to devaluation. We’re in the we’re in the endgame right now. And you know, the best tool I’d recommend if you have a chance, go to our website and read my art. The end of money because I showed the total debt of the United States. And I showed GDP growth. And there’s a wide margin between those two. So it’s taken 678 dollars of death to get $1 of GDP. And you’ve got the Fed coming in with treasuries with mortgages. Now with corporate debt, now with municipal debt, now with junk bond debt, I mean, how much of this stuff can go on? They can’t afford a deflationary asset spiral because that’s when debt becomes very toxic.
Jason Hartman 31:39
So the thing is, we’ve never been here before and nobody knows the answer to that question. And it’s like the Malibu xeons. You know, that still exists today who say video The earth is overpopulated but the problem is, they have no reference point because we’ve never been here before. You know, we don’t know if 7 billion people To many people, maybe the earth can sustain 20 billion or 40 billion people. How do we know how much debt a country can sustain? Especially a country with the largest military the world has ever known to force its reserve currency upon the rest of the world? You know, we just don’t know, do we? I mean, wait, it’s the numbers are crazy. And I and your chart is crazy. Yeah. You know, that divergence between GDP growth and currency growth. It’s absolutely staggering, but we don’t have a comparison, do we, Jim?
Jim Puplava 32:37
Now we don’t have a comparison. The only comparison we can make is with Japan.
Jason Hartman 32:42
Yeah. What I was just gonna say that 229% of GDP right or something like that? Yeah.
Jim Puplava 32:47
230% we’re not even close to that. Yeah. So you know, we have much further to go. Yeah. But that’s we’re we’re going to start moving. You know, the transition is going to be when we move From this deflationary cycle, we’re in now more towards the inflationary cycle because they’re destroying by their policies supply, you’re putting all these businesses, small businesses out of business. So that’s only gonna leave the big guys that are gonna be left. So you’re going to have a limited supply. At the same time, you’re going to be pushing money through the system, which is going to create demand. And one of the things that eventually they’re going to have to do is I think we’re going towards zero percent interest rates that they are going to drive this yield curve. And once again, if you can go to the Wall Street Journal, if you subscribe, and maybe we’ll just put this graph in the next article, but I can show you the yield curve, where it’s gone in the last year, where you’ve got 30 year treasuries falling from 3% all the way down to 1%. And then, once they get through that, then we’re going to go to negative interest rates. When we get to negative interest rates, then you’re going to have problems with cash. And that
Jason Hartman 34:07
is why do negative interest rates cause a problem
Jim Puplava 34:10
with cash? Well, because if you have money at the bank, they’re going to start charging you. Right?
Jason Hartman 34:17
Well, but that’s just like oil right now. Right? You got to pay to store it. And and if you have extra furniture, you’ve got to pay to store it in a self storage unit. Right? So that’s the I want to draw that comparison. You know, maybe I know, we totally think it’s weird. I mean, I think it’s weird, but I’m just playing devil’s advocate here. Maybe you should have to pay to store your money. I mean, it’s a weird idea. I get it because the idea is that money always has an opportunity cost. And if you’re not using it, and you store it somewhere, someone should pay you to effectively rent it from you, so they can use it. That’s an interest rate on your savings account. For example, but You know, the negative interest rate paradigm flips that on its head?
Jim Puplava 35:04
Well, it’s not just that, but it also distorts lending with, you know, so you can end up doing what Europe had to do where the ECB had to basically give free money to banks, because basically, they had to pay out on their deposits, where it was charging, and people are just pulling money. So you just, you know, the Fed creates money, gives it to the banks, hey, it’s, we’re not going to charge you for this, we’re going to give it to you for free. And if you use it to make a loan, and your cost of funding is zero, then you can still make the bank semi function, but it’s distorting the whole lending process. And it’s also distorting in terms of how you value for example, if I’m an investor, and I’m Warren Buffett, and I’m looking at buying a company, so Warren Buffett is a cash flow guy. So he’s going to look at what what is this company going to produce? In terms of cash flow, and I’m going to discount that, or what happens if what you discounted is at zero, it distorts all those cash flow calculations in terms of what a company’s actually worth.
Jason Hartman 36:13
Yeah, it’s just a different paradigm. I don’t know. It’s, it’s very weird. I don’t think it will actually work. Who knows? I mean, we’re just in such uncharted territory. And just to finish off on maybe one more concept, we talked about Japan. So when the debt to GDP ratio gets absolutely out of whack, like Japan, I think ours is around 100% or something like that, right? I can’t remember. But yeah, we’re pretty close a little over 100 in Japan’s at 230%. So they’re the highest ratio of any developed country for sure. by a longshot. So what happens? What does that mean? to them? Well, Japan has had the last going into three decades, I guess, you know, they have this sort of, like anemic economy, but they also have demographic problems. And, you know, they just don’t have any immigration. And so there are other factors, right? What, what happens? I mean, what are the what’s the result of our debt to GDP getting way out of whack like that what will happen in the US in a country that has the reserve currency, very different from Japan, in a country that’s actually growing in population, different from Japan, which is shrinking? You know, I think in the end, we’re going to have to have some kind of gold backed currency or some kind of linkage. In other words, when everybody devalues the currency, including the US, when we eventually do that, ECB if it survives, which I have doubts about, or Japan or China, everybody’s doing it. You know, I could see him going to some kind of gold Currency that’s going to have something that is going to have to give it tangible value because people won’t trust it. Mm hmm. And do you think gold is the thing? Hmm. Not a barbarous relic relative
Jim Puplava 38:12
to say yes. You know, it’s been around endless but this way, take a look at what central banks if it was a barbarous relic you wouldn’t see central banks owning it.
Jason Hartman 38:21
Well, fair enough. Fair enough. Maybe they’re just hedging though, right?
Jim Puplava 38:25
Maybe they’re just hedging what they’re printing.
Jason Hartman 38:27
Yeah. Yeah. Hedge hedging their own printing press. Good stuff. Well, Jim, thanks so much for joining us again. It’s always a pleasure to have you on and please do give out your website. I know you alluded to it before, but just so people have it.
Jim Puplava 38:38
Okay, is financial sense all one word in senses se en se like common sense. Financial sense.com and Jason Once again, thanks for having me back.
Jason Hartman 38:51
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