Richard Carne, founder and managing editor of the emerging trends report, talks about The end game of fiat currency abuse.
Click the play button above to listen to the interview, or you can read the transcript below
D: Hi this is David Duffield from Ultimate Money and I have a very interesting guest on the line today. Richard Carne is the founder and managing editor of the emerging trends report. Thanks for joining me Richard.
R: I’m glad to be here.
D: Great to have you. Firstly can you tell my listeners what it was about Australia that attracted you to come here a couple of years ago and research our resource industry?
R: Uh sure. The Emerging Trends Report writes about long term investment trends. We started publication in 2004 and since that time we have written about 9 trends. One of the primary trends that we are writing about is the non-stop printing of money by central banks and our contention is if you want to save money in a negative real interest rate environment, the only way you can really do that is with physical metal because any other vehicle that you purchase whether it’s a treasury bond or even a tip is actually losing value through currency depreciation and loss of purchasing power faster than whatever income you are earning from that. As well as your getting a tax on that privilege of being defrauded. So we decided in 2006 I think it was… the later part of 2006 that history showed that in the aftermath of every global economic crisis in history there have been incidents of resources nationally going through the roof. And we limited…started limiting our investment horizon to North America and Australia. So we made that decision in 2006. In 2007…actually 2005, 2006 we did quite a bit of research on specialty metals on a contract basis for B.S Ingleheart and a number of other people and one of the things that came to light was that specialty metals was a market that nobody understands and we wrote a report on that we couldn’t publish until January 2008 because we kind of blocked by non-disclosure agreements and confidentially agreements. But in the course of our research it came to our attention that of the… what is… a list now grown to 49 specialty metals, 40 of them are or will be produced in Australia. So with our fondness of gold and silver as a defensive saving money approach as well as an investment…speculative investment we could use both stocks as a derivative of the metal itself and these specialty metal things. When President Obama was elected we decided that we would let the dust settle down in the United States and we would come down here and look at these projects. We have been doing that since November 2009.
D: Ok. And could you just explain to everyone why all the money printing … excessive money printing in the United States effects Australia and probably all the other currencies.
R: Well the… somewhat controversially we believe that all currencies on the planet today are derivatives of the US dollar. The reason for this is that the global reserve…you know the global reserve currency. Every country has significant motivation to make sure that the dollar does not fail. Now this is the exorbitant privilege, that’s what the French call it, the exorbitant privilege that the US has had since 1971 since Nixon closed the gold window and ended convertibility to the dollar from a….as far as I’m concerned from a moral and ethical point of view the behavior of the Federal Reserve Bank is utterly reprehensible but it’s important to remember that every currency on the planet today, even the Australian dollar, fiat currency and the simple truth history says that of the more that 2000 fiat currencies that have failed in the last few thousand years they always fail from the periphery towards the center meaning the reserve currency at the time is not the first to fail despite the obvious implications that are going to be the most abusive its actually their frontier economies and there currencies that fail first on the way to the ultimate failure of the reserve currency. And it doesn’t matter whether you back to the guilder, the peso, the pound, the whatever that has been historically consistent through out. So while a certain amount of people are on the right track calling for the demise of the dollar and we agree 100% just like every fiat currency in history the US dollar…indeed all fiat currency will fail it only a matter of time.
D: Ok. I was going to say is it fair to say that what we are going through or what you expect we will be going through isn’t new, but what is new is that it’s the first time its going to happen on a global scale ?
R:Yes that a very fair assessment. Anyone who looks at the…anyone who looks at the federal reserve system of the United States has probably at some point realized that the system is broken and that its gonna fail. However at least in our case and numerous other cases we can talk about I can not tell you how much money we have lost over the years betting that this stuff is going to fail because of this policy or that policy. They are just brilliant at keeping the balls in the air. And on a global basis there are just literally trillions of trillions of dollars out there that people don’t want to see become worthless. And so…yea… I don’t mean to sound like Mark Faber and be all gloom or anything it… the simple truth is that we are in the end game of another bout of fiat currency abuse. The debts that have been run up are consistent which are consistent historically by the way you know if you have a gold standard. One of the things about a gold standard that is good for an economy it limits how much money people can spend specially politicians. I’m not saying we need to return to an old standard I think some type of modified gold standard is probably in the works I’m sure certain people are thinking about it. But we have the better part of 7billion people on the planet and a lot of economic activity that wasn’t there even 50 years ago I don’t know whether or not it feasible. I’m not enough of an economist to be able to say yes we can go to that standard. All I know is the currency system we are currently operation on is utterly broken and has been utterly broken for at least 20 years. And the Federal Reserve and other central bank systems are simply propping it up. And in the course of propping it up they have made the situation just one step after another worse and worse and worse. Now I like to remind readers that…as I said were students of history and I like to remind people that since we have gone of the gold…since the US has gone off the gold standard this is not the first end of the world banking crisis the US has had. The first was only for 400 million dollars in the 70’s and the second one was I think 800 million dollars right at the end of the 70s and then continental. And then I think continental Illinois was 1.2 billion dollars and nobody eve care about that any more. We had the saving and loan crisis there was 1 and a half trillion dollars all up. Ever crisis gets bigger because the powers that be the monitoring authorities are not solving any problems. There only answer is to further increase the supply of money in this case in the form of debt and kick the can down the road. What is happening as a lot of people have pointed out we are just running out of road. And the very interesting thing to me is in the course of kicking this can down the road the politicians should really be doubly damned for… in the case of the United States for example…they should be doubly damned for how little of this money they created has gone to provide the infrastructure and services and preparedness that the American economy warrants and is capable of utilizing to its advantage to work its way out of this problem. Instead every social welfare program you can think of has been funded and has literally run muck. We’ve go Mr. Obama has up to it think 30 or 40 of these Zars who are unelected, unvested by congress running around with these massive multi-billion dollar budgets doing all kinds of thins which I don’t really think were designed to be done on presidential order. And these are all just signs of the time which we call ad global pandemic of corruption. And that is also consistent towards the end of a fiat currency reserve. It’s like rat deserting a sinking ship. Everybody and there brother is trying to get a much as they can as fast as they can and get the hell out before everything blow up on them. And this is a real big problem right now.
D: And the general public’s pretty much unaware of what’s going on. In terms of gold and silver you have described it as the ‘ultimate anti-fiat currency’ which is a very fair description. Where do you think we are at in the cycle of gold and silver being recognized sound money again? Not for the first time but again. I know time frame is impossible to predict there are just too many variables. How do you expect it to play out lets say in the next 12-24 months
R:I think a better way to think of it and the metaphor that we used for what’s going on in golf and silver mine is a land mine. The metaphor that we use is the lane mine. The old and silver mine right now for central banks are literally land mines. It doesn’t matter whether you subscribe to the notion of central banks sort of corrupting the market or whether it’s J.P Morgan. The gold and silver markets are the only commodity markets on the planet that are interfered with to this extent anywhere. And we liken it to a gold mine because the explosion in a land mine…we liken it to a land mine because the explosion in gold and silver prices will happen not when the central bank are stepping on the price its when they step off the price and the land mine goes off that the explosion in price will, However its also very important to point out, we are very quick to point out.. You have to be careful what you are wishing for. Because if we get 5 or 10,000 dollar we are talking about $20 liters of milk and $40 per liter of gasoline. I mean the increase in the price of gold does nothing more than reflect the decrease in the purchasing power of your currency. If there is one thing we try to bang into people’s head, you’re not really investing in bullion to make money you are trying to preserve the money you have saved over time so we liken the purchase of bullion like a financial snap shot of what the fold price was that day you bought it. Now if you keep your receipt and look at it in 10 years I guarantee you the price will be much higher than on the day you bought it.
D: So you mentioned gold and physical silver a way of protecting your wealth but also a lot of your work involves looking resource companies. How do you measure and calculate the risk involved with those resource companies and all the stuff they have to deal with whether its government regulation or possible taxes in the future all that sovereign risks.
R: Well I as I said risk not withstanding we have forsaken tolerating any sovereign risk whatsoever we only invest from Mexico north, North America and in Australia We don’t even invest in Europe anymore. And again this is just a choice that we are making because the horrible thing about mines is that that they are very easy targets for people with agendas and people intent on enriching themselves for there political agenda point at these resources when they were in government and they had the money and choose not to take the chance to develop these mines. They let somebody else develop them and they suddenly are claiming other people’s resources and the benefits of that should go to your country and blah blah blah. If that were true that’s a very specious rhetoric because if that were true why weren’t these governments out developing these mines themselves. So the whole sovereign risk thing we think is going to continue to worsen and we have been saying this for probably 5 years now and I don’t we are anywhere near a crest of the wave here we are very very concerned about what’s going on in Africa especially the southern part as you know Mali just blew up and who knows what going to come of that but the policies in Neiva South Africa are very worrisome trends developing. And now even with Australia’s neighbor Indonesia there’s some worrying things happening. I just don’t see… if you can’t sleep …there are a lot of reasons to be worried about mining investments. It’s a very very difficult business. It’s very very difficult to find, develop and bring a mining production properly. And these guys work very very hard at it. And they have to go where the ore is but in some cases it doesn’t matter how good they are some leftist government just wants to step in and take the resource. So as far as Australia companies are concerned… Australia has the luxury as it were as being the most geologically stable in terms tectonics…continent of the planet. This has allowed a tremendous amount of natural weathering of these millions and millions of years and that give a lot of Australian resource deposits an incredible le up in terms of global competitions. That’s one of the reasons you can afford the high labor and high development costs and apex cost. So when we go and look at thing were looking at management first and foremost and were also looking tat the resource itself. Were also looking at how much upside there is on the expiration there. We like a lot of upside of the expiration. We also like the idea to take a position and be very patient with it. It’s not very unusual for some of our recommendations to go down 40 or even 50% before they run around and come back up. We would not maintain those positions if did not have the confidence from first hand dealings with the management as well as going out and spending time on sight getting to know people out there. If we were not confident we would not recommend or hold on to these positions. We buy them and hold on to them. Now because the market is so squirrely and we do high frequency trading we’re now starting to infiltrate the Australian market. We certainly broached the subject with our sponsors and our subscribers and it may not be a bad idea to develop yourself a position in a company a core position and then trade around it because there are so many vaguer and so much instability in the market right now that anything you can do to lower your cost bases is utterly to your advantage. So to finish this line of thought we have talked to 220 companies now in the last 2 years and we’ve done about 80 site visits and we have only written up about 20 companies, And with the exception of one company that blew up on…that had…well that’s a whole other story. With one exception all the companies we bought we would have no question recommending right now regardless of how they performed. Some are up 4, 5, 800% some are down 50, 60% because as far as the trend is concerned the precious and specialty metals…the trend is in tact. Period.
D: Ok. Australia has benefited a lot obviously from the boom in China, but there are plenty of bears around at the moment on the future of exactly what’s happening in China. Will it be a soft landing or something a bit worse? What are you expecting? What are your thoughts there?
R: Uhm my thoughts on China are that I know enough to know I’m ignorant about it consequently I don’t base any of my investment decisions based on what China tells the world. If I don’t trust American statistics and the government, which is supposedly transparent and democratic I’m certainly not going to give any credence to a communist regime. At the end of the day whether or not the bricks…oh now they’ve added South Africa to it so know its Brazil, Russia, India, China and South Africa. Whether or not the bricks are indeed slowing or not isn’t really a critical concern to me because coming up behind the bricks are a whole another generation of countries I think they are called the N-11and they are countries like Indonesia and Turkey and Egypt, Nigeria and Pakistan and Bangladesh and South Vietnam, I mean Vietnam and South Korea and Mexico. There’s 11 of them all together. The Philippines that’s 10… I’m missing one but I’ve forgot which one, which have significant population as well as a rapidly growing economy and there drive for infrastructures phenomenal and there are just not getting as much press as you know the bricks. They still want the same thing everybody else does. These are developing economies with a growing middle class And by in large they are more “debt free” or should I ay less “debt burdened” than our… most of the developed countries in the word so they are in a better position to push and continue to boom going forward than for example Europe is.
D: Very interesting. Alright thanks for your time today. If you get a chance take a look at your site AmericanTrendsReport.com. Thanks again Richard.
R: Thank you.