A Sunday Session with Bill Bonner

Editor-at-large Joel Bowman sits down with Bill at his home near the banks of the Blackwater River in Ireland to discuss inflation, central bank digital currencies, and much, much more.

Photo from the banks of the Blackwater River, credit Dan Denning

Joel Bowman:

All right, Bill. Well, first of all, thank you for having us to your lovely Irish countryside residence, for your and Elizabeth's hospitality.

Bill Bonner:

Nice to have some visitors. Nice to have visitors.

Joel Bowman:

Our readers and listeners won't appreciate this, but Europe is in the middle of a heat wave right now. And as we can see outside...

Bill Bonner:

It’s a real heat wave.

Joel Bowman:

... it's a balmy 55 degrees here.

Bill Bonner:

It's pretty darn cool. I have a T-shirt, a shirt, a sweater, a jacket...

Joel Bowman:

Well, you're working out there in the weather, building a wall.

Bill Bonner:

I'm working outside, there's a bit of wind. Yeah.

Joel Bowman:

While we're sitting in here, all cozy the rest of us, while you work outside. Now, I wanted to bring our readers up to speed here with this weekend's Financial Times. I'm not sure if they can see [the headline], but we have Madam Secretary, former Madam secretary, Hillary Clinton, warning that we are on the precipice of losing our democracy. Bill, you're a father of six. I myself have a seven year old daughter. And I'm wondering if we can't maybe help Hillary out here a little bit.

Bill Bonner:

I don't think I can help her, Joel. I can't even find my cell phone.

Joel Bowman:

Where was the last time you saw modern democracy? Do you remember where they left it?

Bill Bonner:

I don't know, Joel. It's been a long time.

Joel Bowman:

You'd have to go back a little while. It might be behind the seat cushions. We'll get back to Hillary. 

But first, we've got a ton of reader questions. Your dear readers were very gracious in writing in to us. And we'll get to plenty of their questions in time. But first I wanted to just get your take on an observation that I made in yesterday's weekend edition, and that I think you'll have some insight into it as well. And that is a difference in trust between different cultures.

Bill Bonner:

Oh, yeah. Yeah.

Joel Bowman:

And coming from Argentina, where we see maximum skepticism from the Argentines. They expect their government to debase their peso, to confiscate their wealth, to impose all taxes and capital controls and so on and so forth. I've spent the last couple of weeks in the Nordic countries and I was shocked to never have to get out any money from the wall, to never have to use anything other than a bank card, it seems like that on the other end is maximum compliance or maximum obedience. I'm wondering if you share the same observation and maybe where you think the US is on that trust-to-skepticism spectrum?

P

Photo near Youghal, Ireland

Bill Bonner:

I think the US is somewhere in between. Ireland is a very high trust society. You know, you go into a bakery and you forget your wallet or something and, oh, I'm sorry. I forgot my wallet. And they say, oh, don't worry about it. Come back tomorrow. It's that way here. And people, people don't worry. It's an island. You can't get away easily, but trust is very high in Ireland. And that's something new. I think these things go in waves, cycles, because in the 1920s, they were having a civil war in Ireland, a very vicious civil war, murdering people running left. So I think it goes in cycles. And I think the US is on a down cycle right now where it's going the way of Argentina. People are losing trust in their institutions, people losing trust in the Supreme Court, because the Supreme court justices saw that the abortion law, that it was a purely legal thing that they're talking about, has nothing to do with whether abortion is a good thing or bad thing. It's just that the federal government does not have the power to do that the way it did it.

But we're seeing that all over the place, a loss of confidence in our institutions, in our government, particularly in the Fed. The Fed demonstrated that it didn't know what it was doing. It was keeping his rates much too low for much too long. And now it is famously behind the curve.

Joel Bowman:

Right.

Bill Bonner:

Where it can't do what it needs to do.

Joel Bowman:

Exactly.

Bill Bonner:

Because the whole idea of the Fed, the whole idea of Keynesian central banking, is counter cyclical policy, which means that when prices are going up, the Fed is supposed to put the brakes on very gently by raising interest rates. When things are going down, the Fed is supposed to release the brakes and let the market do its thing; it's a countercyclical thing. But instead, the Fed is forced into a pro, with what economists called a ‘pro cyclical’ policy, where it has to make things worse because already prices are falling. I'm talking about asset prices. Asset prices are falling. And the Fed is making it worse by raising interest rates.

And by the way, it has to raise them a whole lot more if it's going to-

Joel Bowman:

Keep ahead of the curve.

Bill Bonner:

... ahead of the curve. Exactly. So it is a crazy situation brought about by incompetence and bad theory, bad ideas.

Joel Bowman:

And so maybe this is healthy skepticism on part of the citizens.

Bill Bonner:

Yeah. So the citizens are beginning to notice that, Hey, the Fed doesn't have the economy under control. The government doesn't have prices under control. Doesn't have anything under control.

Joel Bowman:

Right.

Bill Bonner:

It's really kind of a messy situation. I do think we're in that cycle where people are losing confidence in their institutions, certainly in Congress. And certainly in the President. There you have the lowest approval ratings ever, perhaps the lowest, I don't know, but we're definitely in that down swing of the cycle.

Joel Bowman:

So you've called this, in your writings and elsewhere, the “Inflate or Die dilemma, maybe it's going to end up as “Inflate and Die” dilemma. But the big news this week, of course, was that Mr. Powell hiked rates 75 basis points. Inquiring readers want to know, is this a masterful uppercut on Mr. Powell's behalf? Or is this a desperate haymaker of a flabby, old, out of shape Fed?

Bill Bonner:

Yeah, he's throwing jabs and hitting nothing. 75 basis points is not nearly enough. You know, they're talking about this-

Joel Bowman:

So what does that put him in real terms? Because-

Bill Bonner:

Well, in real terms, the inflation rate, 8.6%.

Joel Bowman:

Yeah.

Bill Bonner:

In real terms, the Fed interest rate, the Fed funds rate is normally, and should be according to most theory, about two percentage points more. It's got to be a positive interest rate. Otherwise, it doesn't make any sense. You know, you can’t borrow money at less than it actually costs you. It sends everything into a crazy world, which is by the way where we are. But so in order to have a rate of 2%, be above the neutral rate or the normal rate, the Fed funds rate has to be 10.6%. And it is now what, 1.5 to 1.75. So it's got a long way to go. And raising it by 75 basis points, 0.7, 5% each quarter. You know, I calculated it would take about four years to get there. In the meantime, inflation has been around, wild.

Joel Bowman:

And in the meantime we see, just to point readers again to this [holds up Financial Times newspaper], I don't know if they can read this here, but it says “rate rises send global stocks diving.” Well, if 75 basis points sent global stocks diving, what is 750 or 900 basis points gonna do?

Bill Bonner:

Well, it is just not going to happen. And what happens is another part of the story, which is that the Fed loses control. It can't control. It's behind the curve. And what does that essentially mean? What we're seeing now is that Mr. Market, Mr. Market is taking over and he's cutting prices, he's cutting asset prices. I have a feeling that inflation will come down too, simply because it's the opposite of the wealth effect. Now we have the poverty effect, the opposite of the wealth effect, and that's going to make people reluctant to spend money. They're not going to have money to spend. And we've seen in the paper lately, layoffs are increasing. So this wonderful world we had, full employment, house prices going up, asset prices going up. Who complained about anything?

Joel Bowman:

Right.

Bill Bonner:

But now we're seeing just the opposite. House prices are rolling over now because the interest rates on mortgages are much higher. And asset prices are definitely going down already, down about 20% so far. So what we're seeing is, you climb the mountain and then what happens?

Joel Bowman:

Then there's the descent.

Bill Bonner:

You got to go down the other side. The question is how you go down, you go down orderly-

Joel Bowman:

You have the slow descent, or the quick... the straight way down-

Bill Bonner:

The quick descent is a lot rougher.

Joel Bowman:

Right.

Bill Bonner:

The uncontrolled descent is not what you want when you're coming down a mountain.

Joel Bowman:

The parachuteless base jumper. Yeah.

Bill Bonner:

Yeah.

Joel Bowman:

And added to that, added to consumers capacity or ability to spend, not only are we seeing depreciation in asset prices and housing, we're assessing consumers credit cards getting tapped out.

Bill Bonner:

Yeah.

Joel Bowman:

I think they're kind of at maximum capacity-

Bill Bonner:

Yeah, that was another theme that's been very heavily played in the press, that consumers were flush with cash because the federal government had a sense of giving it to them. But what we see now is first they're reluctant to spend cash because now they see a recession coming. Secondly, their incomes are way down.

Joel Bowman:

Right. In real [inflation adjusted] terms.

Bill Bonner:

Because the good times are over.

Joel Bowman:

Right.

Bill Bonner:

And so now in real terms, they have less money than they had last year. And in real terms, they're cutting back on spending. So we're almost, well I'm not certain, nothing is certain, but it looks like we're entering a recession.

Joel Bowman:

Right. If we're not already there.

Bill Bonner:

We might be there already.

Joel Bowman:

So one other thing that Mr. Powell remarked on last week, and Dan, our colleague, Dan Denning included this in his Friday note to members of, to Bonner Private Research members, that was Mr. Powell's attitude toward a CBDC, a central bank digital currency. And I've got his quote here, which I'm just going to read out really quickly. Mr. Powell said, "Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future. Most major economies already have, or are in the process of developing instant 24/7 payments..." (What could go wrong?) "... as the Fed's white paper on this topic notes, a US CBDC could also potentially help maintain the dollar’s international standing."

So I guess the question is, do you see this CBDC as imminent, on the horizon, and what might the Feds use this tool to do? We'll let our imaginations go wild here...

Bill Bonner:

Yeah, well, I think that no matter what happens, and we never know anything about the future, but whether inflation goes up, goes down, the market crashes, the market doesn't crash. I think one thing which is probably a 95% probability, is that they're going to introduce this currency.

It's just too attractive. With this currency, they can control things much more than they do now. And they can control us much more than they do now, by simply making adjustments at the CBDC level, at the Fed level. So you don't have to go to Congress and say, we want a bill to force everybody to drive an electric car. You know, you can just change the interest rate on, or lease rates on electric cars or something...

Joel Bowman:

Right.

Bill Bonner:

It has not yet been fully implemented or fully fleshed out what you can do with these things, but letting imaginations run, you can imagine that they will use it to control activity at all sorts at the macro level, by adjusting the interest rate charge, or charge to you. They can adjust the velocity of money, by influencing whether you should spend it right away or hold it, because the interest rates are high. That, at the macro level, that's certain. At the micro level, the Chinese are experimenting with that. What do they call social-

Joel Bowman:

Social credit scores.

Bill Bonner:

Social credit scores in which they identify each individual. And they're already talking by the way about an individual carbon footprint.

Joel Bowman:

Right. Yeah. We saw that at the World Economic Forum.

Bill Bonner:

So that they can tell how much fuel you use, whether you recycle your plastics.

Joel Bowman:

Whether you've reached your limit, your quota...

Bill Bonner:

So you can imagine putting these things together, the central bank digital currency, with a social credit score, they can adjust to manipulate activity at an individual level.

Joel Bowman:

Yeah.

Bill Bonner:

That is certainly, I don't know how far away that is or how far it'll go. You never know about these things, but that's certainly a very attractive nuisance-

Joel Bowman:

And it does seem like, to go back to those kinds of cultural differences with regard to skepticism versus compliance, it does seem like that would be difficult to implement in Argentina where nobody trusts... the state.

Bill Bonner:

Right.

Joel Bowman:

But here in Europe, and then maybe with the US somewhere in between, I get the feeling that Europeans are kind of begging for something like that.

Bill Bonner:

Yeah. The Europeans...

Joel Bowman:

They'd be happy to see it.

Bill Bonner:

Yeah. It's very surprising. I remember that cultural change happened in France and Italy when we lived there, which was about 25 years ago, because it was in the 1990s that the French banned smoking in bars.

And I thought, being that they're French, they all smoke. And they're all smoking in bars. I thought, there's no way they're going to go along with that. But darn, if they didn't. They went right along. And now the speed limits are being adjusted down on rural roads all the time.

Joel Bowman:

Yeah. Was that your column about driving down France with the talking car?

Bill Bonner:

Yes.

Joel Bowman:

... telling you to slow down...

Bill Bonner:

Car telling me I was going too fast or whatever. But control, the Europeans are very much into control.

And they're very, well... you can't be, you don't want to be...

Joel Bowman:

Out of line?

Bill Bonner:

Out of line. Right. And Macron used that term when he was talking about implementing universal required vaccines. He said something which was remarkable for a leader to say, he said something like the people who are not doing this, we're going to find you and we're going to get you. Something like that.

Joel Bowman:

Wow.

Bill Bonner:

It was shocking. It was shocking, but that's Macron, he is shocking. But anyway, the Europeans are farther along than Americans in their trust. What we call, what you call trust. It's not really trust; it's obedience.

Joel Bowman:

Obedience. Subservience.

Bill Bonner:

And they are, yes. They're already way ahead on things like these green energy programs and all that kind of stuff. So it wouldn't surprise me if they get the central bank currency first.

Joel Bowman:

Right. They'll be maybe be the Canary in the coal mine for-

Bill Bonner:

Yeah.

Joel Bowman:

The Australians won't be far behind, too, I imagine.

Bill Bonner:

We'll see what happens.

Photo near Bill Bonner’s home in Youghal, Ireland

Joel Bowman:

All right. Well, we've got a bunch of questions that I promised our readers we'd get to. So let me jump right in here. And we've got, let's see here. I love this, “Clueless in California,” writes in to inquire, “Bill, I've often seen financial advisors say that you should have some percentage of, one should have some percentage of his assets in cash.” And our dear reader asks, “What is cash? Is it money in a bank account, treasury bills? Is it something under the mattress?” 

For our dear reader, he says, “All of these alternatives for storing cash seem unsatisfying to me as they all yield negative, real interest,” about which we were just talking, “and all have security issues of their own. What are your thoughts?”

Bill Bonner:

Well, that's exactly right. And that's why cash is not a good thing to hold for the long run. It's just that there are periods, there are moments when having a gold coin in your pocket or a wallet full of a hundred dollars bills is not a bad thing.

Joel Bowman:

Yeah.

Bill Bonner:

And I believe we're in one of those moments now. And it's certainly true that over the last, let's say two months cash was better than stocks.

Joel Bowman:

Yeah.

Bill Bonner:

Stocks went down, cash went up relative to stocks. And we're still in that phase of deflation. Are when we're talking about inflation. Inflation is true at the gas pump level. And it's true at the grocery store level and a lot of other things, but in the markets, in asset markets, in investment markets, we're in a deflationary stage.

And so for holding money for investing, for keeping your assets where you want them, now's a good time to have cash. Not too much and not too long-

Joel Bowman:

Not too long.

Bill Bonner:

Because it's going to go bad.

Joel Bowman:

Right.

Bill Bonner:

But not necessarily right away.

Joel Bowman:

Right. One of the recurring themes in the questions that our reader sent in was to do with the dollar’s relative strength.

Bill Bonner:

Yep.

Joel Bowman:

And I mean this against a kind of basket of other fiat currencies. One would expect maybe, or intuit, that if we're seeing 40 year, once in a generation type inflation, that the dollar would be crumbling against its international competitors. Is that just a relative phenomenon?

Bill Bonner:

Yeah. It's very confusing too. And I don't advise people to waste much time thinking about it, because you'll go crazy and you won't get anywhere. But what happens is the dollar is the reserve currency. So it's what everything, everybody measures its own activity against. Now it just so happens that the US for all of its faults is not as bad as the Europeans, for example, even though inflation is not quite as high in France, say. It's higher in the Netherlands. Anyway, the US currency is the lingua franca, the money franca of the whole system. And you can use dollars, as you know, and I know you’re traveling around, people don't necessarily want a Euro or they don't want a yen or something, but a dollar they recognize and they'll take it as a payment, almost for anything.

Joel Bowman:

If you need to bribe a police officer almost anywhere in the world.

Bill Bonner:

Yeah.

Joel Bowman:

US dollars are the preferred.

Bill Bonner:

US dollars are the way to do it. And so in a moment of what looks like crisis, a developing crisis, it's not surprising that people want what they regard as the safest, the best known, the most secure, the most ubiquitous currency around, which is the dollar. But in the long run, I think they're all doomed. Remember, all these currencies have been inflated because all major central banks, with the exception of Russia, followed the same pattern.

They all lowered rates to zero, beyond zero. The Europeans went below zero. And the Japanese... The Japanese did crazy things. You know, borrowing, borrowing lots and lots of money. So they're all in the same basket. And at the end, I remember Richard Russell used to say, Richard Russell died probably 10 years ago, but he saw all this coming and he said, oh boy, he said, the dollar looks better than the others right now. But in the end he said, after the dust settles, the last man standing will be gold.

Which is to say, not any of the paper currencies, but old fashioned gold. And I think he's basically right about that.

Joel Bowman:

Right. Yeah. Maybe that’s the real ‘basket of deplorables’ ... the basket of fiat global currencies.

Bill Bonner:

Yeah, yeah. I think they're all going down. It's the first time in world history that we've had a global inflation.

Joel Bowman:

Right.

Bill Bonner:

You know, usually this is a relative measure, and it served people well, and still does. I go to Argentina, where you live, and I take dollars with me-

Joel Bowman:

There's an arbitrage opportunity.

Bill Bonner:

Right. And when I have a dollar... gosh, everything's cheap.

Joel Bowman:

Right.

Bill Bonner:

Everything's cheap. And people are very happy to get the dollars, but you can't take pesos to Europe and expect to get much service.

Joel Bowman:

Yeah. Pesos in Norway don't get you very far...

Bill Bonner:

But it's all relative. And we read those histories of the great inflation in Germany in 1923, 1921 - 1923. And it was dollars. It was even then, people who had dollars did very, very well. They were buying up houses for a dollar or something. Very, very crazy, crazy period. But then the difference was that the dollar was not linked to the Deutschmark.

And the dollar, and typically they had a great inflation in Zimbabwe, the dollar and the Zimbabwe dollar had no connection. They weren't following the same monetary policies. It had a big inflation in Venezuela, still going on, but now seems to be tapering off. Again, there were commercial connections, but the Venezuelans followed a very different monetary policy, which is why they had their inflation. But now they all follow the same monetary policy more or less, with one exception, Japan has not turned around yet. Japan is not tightening. But with that exception, all the major central banks are following the same policy. And you should expect to get the same results.

Joel Bowman:

Right. You mentioned gold just then. And I know many of our readers have written in with questions, concerns, inquiries regarding Richard Russell's last man standing-

Bill Bonner:

Yeah. Last man standing.

Joel Bowman:

I guess many people have looked back over history at sort of isolated inflationary periods and seen gold go up relative to that particular currency, whether it's Zim dollars or Venezuelan bolivars or what have you. Are you surprised that gold has sort of maintained its narrow band, pricewise, that it hasn’t risen more?

Bill Bonner:

I'm surprised and I'm not surprised. Gold is remarkably long lasting and far seeing. Far seeing. And I think, because I'm surprised at how much gold went up in the past. You know, if you take the actual purchasing power of gold, gold ran ahead of itself. And now I look back and I think, oh it was probably anticipating the inflation we have now. So it's not reacting to the inflation now because it already did. And maybe right now what it's reacting to, is this deflation that we're seeing coming on and it’s reluctant to move up because it's not its moment yet.

Joel Bowman:

Right.

Bill Bonner:

Gold rises in inflation. I mean it does well in any crisis because people want, they want...

Joel Bowman:

Certainty.

Bill Bonner:

Right. But it really goes bonkers when you have a real inflation that people think it is going to continue. And that we're not there yet. We're at the beginning.

Joel Bowman:

But it's coming.

Bill Bonner:

We're just at the beginning.

Joel Bowman:

We've got a few more reader questions here, Bill. Reader MV. And I'm just anonymizing all of our dear readers here, writes in to ask, “Can you explain currency debasement in simple terms with perhaps a few examples and where the currency debasement of one country benefits or harms other countries?” I guess we kind of just touched on that one a bit...

Bill Bonner:

I think that's too big a question for this setting, but currency debasement is just like it was in old Roman history. They had the Denarius and the Denarius had a silver content. It was about 80% or something. And gradually they debased it by taking the silver out.

Joel Bowman:

By clipping the coins.

Bill Bonner:

Clipping the coin, yes, but actually minting them with less silver, too.

And that went on and on until the Denarius was worth nothing. That's debasement. And now we do that with dollars by printing more currency, printing more dollars, you have more volume of money. You know, the classic definition, the volume of money chasing a volume of goods. That's the volume theory of money, which I think is mostly true, I guess. So that's how debasement works. How does it benefit one country and not another? Well, that is a long, long story. And interestingly enough, we've had a marvelous test to that theory in Turkey.

Turkey, the guy running the place, Erdogan, he decided that lower currency values were good for your economy.

Joel Bowman:

And what examples was he looking at to arrive at that conclusion?

Bill Bonner:

He's not totally wrong about it, because what it means is when your currency goes down like Argentina, then all of a sudden other people's currency is stronger and they can buy more of your goods and services.

Joel Bowman:

So if you're an exporting country?

Bill Bonner:

Yes, you become the cheapest provider, the cheapest source, because your labor is paid less, everything costs less. And he thought, well, I'm right next to Europe, so what I'm going to do is debase my currency so that my Turkish lira becomes worth less money. And then the Europeans will find our goods and services cheaper. And so he did that. And for a while it boomed, Turkey boomed, but then it rolled over.

Joel Bowman:

Then it busted.

Bill Bonner:

Now it's got an inflation rate, which is going up like 25 percent... I can't remember. I thought it was 50% or something amazing, but the economy's collapsing. Because you just can't, you can't do that. You can't just manipulate your currency to make you richer.

We know that. We know that, we know it from experience and we know it from theory. If you could print money or not print money and make yourself richer, there'd be a lot more richer people.

Joel Bowman:

Right. And Zimbabwe and Argentina would be right up there at the top.

Bill Bonner:

Right. But it just doesn't work. You can't do that. Money, real wealth... How do we get real wealth? We get it by working. Working, innovating, saving, saying please and thank you, being careful, all those things, self discipline, all those virtues, which we accepted as virtue for hundreds of years. There are virtues when it comes to making money. I mean, I don't know who goes to heaven, but I know who gets rich.

And the person who gets rich is the Swiss. And they get rich because they're very hard working. Very careful. They've got all kinds of things going on. And the Swiss are very judgemental. You know, it's not like going to Argentina. It's a very different thing. You know, talking about high trust. You cross the street only when the light tells you can cross. In Argentina, when do you cross the street? Whenever you can.

Joel Bowman:

Yeah. When you're willing to take your chances.

Bill Bonner:

Yeah. That's exactly right. You look both ways... twice.

Joel Bowman:

Right. Right. All right. Well, let's get to a few more reader questions here. We've got one from Mr. R. Smith. And he's got a couple of questions in here. And Tom and Dan have actually sent in their own thoughts, too, so I'll read those out real quick. But Mr. Smith, he said, “I wanted to ask one question about owning physical gold. What is your opinion between owning collectible, uncirculated pre-1933 gold coins versus rounds, Eagles, maple leaf, philharmonics, et cetera. There are probably a number of factors to consider, confiscation, premiums, availability. I just wanted to get your general opinions.”

Bill Bonner:

Well, Dan and Tom are real investment people. I'm not. I just don't think about that very much. But there is one important issue, which is there is gold and there is paper gold-

Joel Bowman:

Yeah. That's an important distinction.

Bill Bonner:

And there is said to be 10 times as much paper gold as there is physical gold. And that too is a part of the reason why gold is not responding, I think.

Joel Bowman:

Yeah. We had a few questions about that-

Bill Bonner:

Oh, did you. Yeah?

Joel Bowman:

... people wondering about whether the paper market could be manipulated...

Bill Bonner:

Well it's because the reason gold is so good is that it's limited. It's very limited. And there's only so much of it. And you know, it cost a fortune to get it out of the ground. But paper gold, you can create that pretty easily. So it is possible, and I haven't seen any real studies on this or anything, but it just seems logical to me that if you can create paper gold, and if people buy paper gold, believing that it's as good as gold, then the quantity of available gold is much bigger than we thought.

So there's that going on there, too. But here's my point. Paper gold is not gold. There's somebody on the other side of that trade.

Some banks, some institutions, something. And they don't have all the gold that you think they have. What they have is some financial wiz kid there. Who's doing some something with his laptop computer. And he's figured out that when somebody needs to get their gold back, he goes to the market and buys it. All works just fine until it doesn't work.

Joel Bowman:

Until everybody wants the gold at once.

Bill Bonner:

Until everybody wants it at once. Right. When the last man is standing, that last man standing is holding physical gold.

Joel Bowman:

Right.

Bill Bonner:

He's not holding paper gold. So that's a word of warning to everybody and including to me, because I've also found it convenient to buy paper gold rather than lug around gold or bury in my backyard or something rather. So it's a word of warning to us all.

Joel Bowman:

And I recall one reader wrote in to ask, with regards to the increasing supply of gold, which is, I think generally accepted to be around 2% of the above ground reserves per year.

Bill Bonner:

It's logically and observably about the same as the GDP growth rate.

Joel Bowman:

Right. Well, our reader wanted to know if your thoughts on whether or not the Feds stated inflation target of 2% is somehow a precursor to that figure, whether it’s in some way correlated to that? Or is it just an arbitrary number that the Fed made up?

Bill Bonner:

It's an arbitrary number, but it's not a totally dopey number. It's a number, it comes from Milton Friedman's original idea. Friedman was a funny guy. He thought he had it all figured out, monetarism, which was, you just control the money. If you control the money, then people never have to worry that there won't be enough or there will be too much or anything. And so he recommended the shift in 1971 to the current dollar system, the paper dollar system. But he also recommended that they keep it between 2 and 3% growth per year. And these numbers that stick in your mind-

Joel Bowman:

But nobody did that. 

Bill Bonner:

Nobody did that, and currently, recently, the growth rate has been more like 20% every year. So they don't really do that. It was a bad idea, but you know, a lot of things go wrong. 

Joel Bowman:

Well, let me get to Tom and Dan's responses here because they had some things to say about this, too...

Tom, up first, he writes of his preferred means of holding gold, “Honestly, for me, it comes down to value.” And this is in Tom's words. He says, “I'm a cheap skate when it comes to buying gold. I want as much gold by weight as I can get for my dollars. Oh. And the other thing I think about is how easily they're going to sell when the time comes." This is getting toward the last man standing. He writes that he “doesn't want anything weird or unique or rare, which might not be readily liquidated.”

Bill Bonner:

Yeah. That’s a good point.

Joel Bowman:

Finally he says he “mostly owns US $20 gold coins dated pre 1933." And to the point of confiscation, he says, "It's not something he really worries about because, well, it's largely outside of his control." 

And then we have Dan Denning here, and he says he “doesn't own any pre 1933 coins except maybe one or two that are in clear plastic cases. That's numismatics. Everything else for Dan is “about how cheap it is, the premium. Or how pretty it looks. So he has some British sovereigns.” He goes on, “If ever it came to having to trade gold for goods and services. I don't think people would care what it looks like. They would care what it weighed, which is pretty much how gold has always been valued anyway. But if the government were to confiscate gold again and you were foolish enough to turn it in, they might only exchange US mint legal tender coins for cash.

“Anyway, that's all pretty fanciful." He says. "There are small differences in the size of bullion coins, and the amount of gold in them, which affects their value, but probably keeping it simple is keeping it best." 

OK, so our next question from Bob V., who writes in from Johannesburg. I wanted to get to this one because you mentioned this before. With the current geopolitical setup, with things in Russia-Ukraine as they are, and this is a much bigger subject, but we’re seeing roughly this bifurcation of the world's payment system away from swift. We've got sanctions. More sanctions. It's a whole mess. And it's very complicated. But our dear reader touches on something very interesting here.

He says, "Bonjour, from South Africa. I'm 86 and spent my youth years under Nazi occupation, which taught me never to trust paper currency, probably a good lesson. When Nixon cut the dollar loose from gold, this confirmed my World War II lessons. For protection. I invested in precious metal coins and the companies mining them. One of my last wishes is that I would live long enough to witness the advent of a new monetary system. One based on more solid principles. I'm now very happy to read that Russia is proposing just such a system. And in fact has started gradually to implement the same. I'd be interested to hear your opinion and whether you agree with me." 

And I guess our friend and colleague Byron King has done some of the math on this, but I think I'll reader here is referring to Putin's promise to make gold convertible at a certain amount of rubles...

Bill Bonner:

Well, I think that the real experts are Jim Rickards and Byron King. I'm certainly not an expert. I don't trust the Russians anymore than I trust anybody else. So-

Joel Bowman:

Equal distrust.

Bill Bonner:

Equal distrust. But the Russians are now competing and they're very much an underdog in the world economy. So they're competing for market share and anticipating joining together with the Indians and the Chinese, which represents the biggest block of people in the world. They are anticipating the destruction of the dollar.

Joel Bowman:

Seems that way.

Bill Bonner:

And I think correctly.

Joel Bowman:

Yeah.

Bill Bonner:

So we'll have to see how that plays out. I don't know, but I don't think our friend in South Africa will get much advantage out of that. In his lifetime or mine. But you never know. I think it's a fascinating thing, but I don't think it's a practical thing for us.

Joel Bowman:

Right. Okay. And Byron, in that same email thread that we had going back and forth was also mentioning, he mentioned the advent of a methane backed ruble. He was talking about Russian gas contracts being settled in rubles. A competitor to the petrodollar hegemony, I guess. Is that something other than a kind of just economic oddity?

Bill Bonner:

Well, it's a fascinating thing from a geopolitical and economic point of view. What does it mean? I have no idea. I have no idea. You know, where you're seeing so many things go wrong in the world caused by such bad ideas. You know, this whole thing with the other system... The dollar is king, but thanks to our Fed and our federal government, the Fed undermines it with inflation by creating too many dollars. And now the federal government undermines it with sanctions, so that people holding dollars, all of a sudden realize they may not be able to use them. They may be confiscated. They may be sanctioned and not be able to get to them.

So the combination of these things is going to destroy the dollar system. For sure. I mean, that's almost guaranteed. And it leads to all kinds of crazy things going on. So that now the Europeans are in trouble. The poor Germans. Germany has an industrial economy. They need gas!

And they're running out of gas because they've taken up this policy, pretty much pushed onto them by the Americans. Again, Jim Rickards would have a clear idea of how this all works. All I see is just nonsense and things going wrong because people doing dumb things. Why not just buy the Russians gas? Who cares, who wins this fight in Ukraine? And we don't know which side is good, or which side is bad.

Joel Bowman:

We're just told our story on our side.

Bill Bonner:

The whole thing is crazy. Yeah.

Joel Bowman:

All right. Well, lots of craziness to go around. I'm going to skip through to a few questions here. We might try and get another one or two in, if we can. Here we have reader C.W. writes in to say, “Like with Bill and his taxpayers union, I've been watching askance, organized aggression against US constitutional government by ‘our managing elite’ on both sides of the aisle for most of this gentleman's adult life. As a fellow, 49er, only a couple of months younger [than Bill], my question for Mr. Bonner is, going back to our early days, attempting peaceful reform, are we now too far down this new world order/world economic forum, hole to recover. And if not, what means of solution, if any, might be effective at this point?

Bill Bonner:

Yeah. The answer is yes. We are too far along. But the funny thing is we were too far along in 1973.

I was then part of this group trying to prevent waste in the government. We thought, well, let's try to save the taxpayers some money. Let's try to avoid all this waste. And it took me, I guess it took me about five, maybe 10 years to realize that the government functions on waste. Waste is what it wants, because every dollar that's wasted ends up in somebody's pocket. And the pocket, it belongs to somebody who is part of the elite who run the government, who control everything, blah, blah, blah. So there was no way of stopping that. And by the way, we realized that you had to nip this in the bud. And so we started a campaign for a constitutional amendment wherein the government was forced to balance the budget.

Well, we were just two states short. You needed a certain number of states. I think it was 23 or something, you need. The constitution has this provision. The people may call a constitutional convention. Well, we came close, but in the end, what killed us was Ronald Reagan. Because after Reagan was elected, those people on the other side of the aisle, which is to say the Republicans, said, “well, we're not going to mess with the constitution now. We've got our man in the White House!”

Joel Bowman:

We're in power. This is our motion.

Bill Bonner:

Yeah. You know, it just didn't work. You know, Reagan was subject to the same forces everybody else is when you get to Washington.

Everybody wants waste. And Reagan... I think he had the right idea, but he couldn't overcome all that. And the person who's closest to all that, who understood it best is David Stockman. And David Stockman now is writing from New York, writing his daily letter. And it is a marvelous account. And occasionally he explains how it happened. Then, David Stockman was budget director-

Joel Bowman:

Under Reagan.

Bill Bonner:

Under Reagan. And he had laid out how they could balance the budget, and how they had to balance the budget. And it didn't fail because of the Democrats. It failed because of the Republicans. And the Republicans, just like politicians everywhere said, well yeah, Mr. Stockman, we appreciate your efforts. But you know, I got that bridge down in Tallahassee, and we got to put that bridge in wherever, and because don't our man will lose the election, blah, blah, blah. And it's all like that. I mean, everybody wanted the waste...

Joel Bowman:

Thanks for your brief, Mr. Stockman, we'll be in touch...

Bill Bonner:

Yeah. Right.

Joel Bowman:

We'll let you know.

Bill Bonner:

David Stockman's book, I recommend to everybody. It's called The Triumph of Politics. He wrote that after he left Washington, and it is really a marvelous, marvelous account of it all. It's really the answer to the question I've just been asked, how this happened and why it can't be stopped. It has to run the play itself out, I think.

Joel Bowman:

All right.

Bill Bonner:

And anyway, so what can we do about it? Nothing. You can't do anything about it. You can rant, you can rage, you can vote, you can do whatever you want, but the system is set up to reward the people who control the system. And those people are not going to back off. They're not going to stop. They're not going to suddenly say, oh, by the way, oh, I guess I should do this for the benefit of others. No, it doesn't work that way. So I don't think that's going to change. And I think we're going to run through this cycle. The cycle we've started this conversation with, it's a cycle of trust. People losing faith in the government. Why? Because the government is faithless.

Joel Bowman:

It doesn't deserve our faith.

Bill Bonner:

It doesn't deserve our faith, because it's going through this cycle of its own. Greed, corruption, incompetence. Incompetence. I mean, these people! Janet Yellen the other day, testifying in congress saying, she didn't see inflation coming. What, whoa, what a surprise! You mean you quintuple the money supply and you don't expect inflation. What kind of economist is this? I mean, it's just amazing.

Joel Bowman:

The very person employed whose sole job it was to monitor it.

Bill Bonner:

Yes, exactly.

Joel Bowman:

To stand guard, as inflation sentinel, and she was the only person who-

Bill Bonner:

Couldn't see it coming.

Joel Bowman:

Could see it coming. All right. Well, we'll leave it there Bill. We've got people coming over to your place here for lunch shortly.

Bill Bonner:

Okay.

Joel Bowman:

But so thank you very much for taking some time.

Bill Bonner:

Well, thank you, Joel. Been a pleasure, a jolly time talking with you, Joel.

Joel Bowman:

Well, we'll have to do it again in another place, another time.

Bill Bonner:

Okay.

Joel Bowman:

And thank you to all our readers who wrote in with your questions. Some of them we didn't get to, but I'll forward them around to Dan and Tom and Bill. And maybe we can provide some answers during our dailies. This is a rare, in-person Sunday Sesh. So again, thanks to Bill, thanks to you all for paying attention. And we will see you again during the week. Thanks a lot.

Bill Bonner:

Thanks to all.