Placeholder Image

Subtitles section Play video

  • I'm Mike Maloney, author of "Guide to Investing in Gold and Silver". It's the world's number-one

  • best-selling book on investing in precious metals.

  • It's available in eleven languages.

  • And in my book, I said that we are on a wild rollercoaster of a ride,

  • and that we would first see the threat of deflation, followed by a helicopter drop,

  • and that would be followed by big inflation.

  • And that has happened. There was the 2008 crisis...

  • We're seeing the base money around the planet being hyper-inflated right now

  • while all of the credit aggregates are collapsing, and so it's sort of netting out

  • to zero inflation or just slightly positive inflation, even though

  • base money around the planet is just taking off like a rocket.

  • But it would then be followed by a real deflation

  • and then followed by hyperinflation.

  • So I think it sort of looks like this:

  • we've got the markets going up in the real estate bubble in 2007,

  • and then we had the threat of deflation, which was the 2008 market crash, and the big

  • helicopter drop of currency, and you are here [laughs].

  • And then I think that we're going into something like this,

  • and it'll be followed by the world central banks overreacting.

  • People, you know, some people say I've been calling for hyperinflation, hyperinflation, hyperinflation...

  • There isn't any time that I can find, in all of history,

  • where a population that's all on one side of the boat, when you have

  • a nation of debtors,

  • what has to happen is that you go into a deflation first,

  • allowing the banks to foreclose.

  • The public, in general, is on the losing side of the bet.

  • We are entering a period of financial crisis that is the greatest the world has ever known.

  • The wealth transfer that will take place during this decade

  • is the greatest wealth transfer in history.

  • Wealth is never destroyed, it is merely transferred;

  • and that means that on the opposite side of every crisis,

  • there is an opportunity.

  • The great news is that all you have to do to turn this crisis into your great opportunity,

  • is to educate yourself.

  • I believe that the best investment that you can make in your lifetime is your own education:

  • education on the history of money, education on finance, education on

  • how the global economy works,

  • education on how all of these guysthe central bankers, the stock market

  • how they can cheat you; how they can scam you.

  • If you learn what is going on and how the financial world works,

  • you can put yourself on the correct side of this wealth transfer.

  • Winston Churchill once said, that the further you look into the past,

  • the further that you can see into the future. This program

  • is all about creating your own crystal ball: being able to gaze into the future;

  • being able to change this crisisthe greatest crisis in the history of mankind

  • into your great opportunity.

  • Well I've been traveling overseas quite a bit,

  • but I'm on my way home now to speak at an event in California, finally.

  • What I've been trying to make clear is the fact that this rollercoaster crash

  • that I was talking about in my book, and that I've been predicting since 2005,

  • is playing out right before our eyes.

  • One of the things I really like about speaking at live events is the chance to interact with people and sort of

  • get my finger on the pulse of what they're thinking.

  • And lately, it's become pretty obvious

  • that for a lot of people, it's difficult to grasp why I think deflation

  • is coming before big inflation, or even hyperinflation.

  • So here, I'm going to break down four of the biggest reasons that I see deflation coming first.

  • The first one is simple:

  • The overreaction to the 2008 crisis has caused a credit / debt bubble, and all bubbles pop.

  • So, I talked about hyper-inflating base money. This is, this *is* hyperinflation right here.

  • Inflation and deflation is either an expansion or a contraction of the currency supply,

  • and prices follow the inflation or deflation eventually.

  • Now, most of this currency does not circulate. It's sitting on banks' balance sheets and what's called

  • excess reserves.

  • You know, if you look at the years leading up

  • to this crisis, this red line is reserve balances.

  • The white line is how much of it is excess,

  • and here we have Alan Greenspan's response to 9/11.

  • Look at the scale of how big this emergency is compared to 9/11.

  • But what is Ben Bernanke afraid of, and now Janet Yellen has inherited this legacy?

  • Well, one of the things that happened in the 2008 crisis is that banks

  • froze up and wouldn't lend to each other. They were all scared to lend to each other,

  • and our system is such a fraud,

  • that at the end of each day, they all have to be able to borrow

  • digits from each other that were created from nothing

  • just to keep the whole smoke-and-mirrors game going. They all have to do this interbank lending

  • to keep things balanced.

  • Well, if one bank won't lend to another and they don't have any reserves, the whole system freezes up.

  • Now, if you've got all these excess reserves that are on their balance sheet

  • and you pay them interest to keep the reserves there and not

  • use this as a basis of fractional reserve lending,

  • they're going to be liquid. This basically prevents

  • bank runs *by* banks *on* banks. It's not a public bank run with the

  • the public lining up at the doors.

  • It's a bank run where one bank is trying to

  • get their currency out of another or won't lend to another,

  • and so this keeps things liquid. Right now, what this has done though,

  • the banks get to use this stuff in the middle of the day.

  • And so, you see the use of margin in the stock market going to record levels.

  • You see the stock market going to record levels. Things like – I follow collector cars

  • they've been going astronomical. The number of 10-million-dollar cars out there now

  • is just absolutely insane. And there are cars now selling for *30* million dollars.

  • Wine collections, artit's all going ballistic at this point.

  • And all bubbles pop.

  • This is the average price of a new home divided by the median annual household income.

  • Normally, 3, 4 times your income is about what you can afford with a house.

  • When you drop interest rates, the affordability goes up, so people pay more for a house.

  • But interest rates don't stay in one spot forever; they *have* to revert some time or another,

  • and all these people are going to be trapped. Every bubble pops; that's a bubble.

  • We are in for something big again, and this time it's going to be more horrific than the

  • crash of 2008, simply because the response to 2008 created a lot of stored energy.

  • And then when the market crashes, that energy is released in the opposite direction. That previous chart

  • of the hyperinflation of base money, well, we're going to get a reaction from all of this.

  • Whatever bubble you're in, the opposite happens of what

  • is of greatest benefit to the most people.

  • Right now, if we went into big inflation or hyperinflation,

  • the average Joe Six-pack would get rewarded for mass stupidity.

  • They're all out on credit; we're in a credit boom, we're in a bond bubble;

  • those bubbles have to pop. And the popping of a credit bubble is deflationary.

  • It's deflationary... and history's crystal- clear on that. A lot of the gold bugs say,

  • you know, the Federal Reserve and central banks, they're creating money, which they are, unprecedented;

  • but, they're actually inflating to fight the deflation that started to set in the late 2008, early 2009.

  • And if you look back at history, as you say, every major debt

  • and financial asset bubble in historythe railroad bubble of the early 1870s that peaked,

  • followed by deflation;

  • you know, the auto and farm bubble and tractor bubblethat's actually a tractor bubble

  • that caused the Great Depression. It was farms failing

  • and it was smaller local banks failing that caused the Great Depression and high unemployment.

  • Deflation. Because the deflation has to root out

  • the massive debt, and the financial assets that get over-inflated. And it's good

  • if we bring down the cost of living, if we restructure debt, if we bring financial assets down;

  • it actually improves our standard of living long-term. But it is painful when it happens.

  • People don't –

  • people think that the Federal Reserve can prevent deflation; that they control the money supply.

  • Most people don't realize that the Federal Reserve controls *base* money

  • only; and it's an incredibly small portion ofit's so tiny! – right,

  • and all they do is influence the rest of the economy with interest rates and reserve balances and such.

  • Well, you know, some people say

  • the strategy didn't work. Well no, it did work: we would have been in a depression,

  • just like the early '30s. We were going there: banks were melting down, financial institutions; *major*

  • Fortune 100 companies were failing, like AIG.

  • We would have imploded because once you have that much debt and

  • leverage and things go wrong, it just builds the other way. Like you say, you

  • get a bubble on one end, you get a crash. Bubbles don't crack; they burst.

  • So we were going into that, but governments said no, we will do

  • whatever it takes: Mario Draghi, you know, Ben Bernanke...

  • and they created trillions of dollars to fill the hole.

  • Well, all that does,

  • it's like taking more drugs

  • to keep from coming down. I mean a drug addict can keep taking more drugs until it kills them.

  • Or until they just fall down and get dragged into detox. It's [the] exact same thing.

  • Debt, especially when it's extreme, is a financial enhancing drug:

  • it gives you more than you deserve, makes you feel better in the short-term.

  • And, but when it's over, you have to go through a detox, as they would call it:

  • a debt detox. And that's where you get deflation.

  • This is the demographics of the United States back in the year 1940,

  • and it's broken into five-year age groups.

  • And what I'm going to show you here is the baby boom and one of the reasons

  • that we're going into this deflationary scenario,

  • and we're also in this swing from individualism to collectivism.

  • This is a pendulum, a cycle that just goes back and forth throughout time.

  • And this is the greatest threat to your well-being and the well-being of the economyand, freedom.

  • We're going through a period where this demographic

  • is going to cause some huge problems. So,

  • here we are in 1950 and you can see the beginning of that baby boom taking off: 1960,

  • 1970, and this wave

  • now, the reason I've got this broken up into these different colorschildren

  • are the ultimate consumers: they consume everything, they produce nothingexcept

  • a quality of life for their parents; you know, a big reward

  • as far as seeing them grow up and so on.

  • But economically, children are an economic loss. They consume economic energy.

  • What you're seeing here is this wave coming into

  • working-age. The green area is sort of a break-even area;

  • that's when

  • people are getting a job and it might be a minimum-wage job or something like that, and

  • uh, might be sharing an apartment with a few other

  • people. And then, as you get into the yellow area you start to become a net positive

  • for society. You're paying income tax, you're producing more than you consume,

  • and then you get into what's called the maximum spending demographic.

  • The maximum spending demographic is ages 45 to 54.

  • And this group lives in the largest houses of their lifetimes; they're driving the most cars of their lifetimes;

  • they're sending their kids off to college; they're spending A LOT. Then,

  • the kidsthen they become empty-nesters; that's the maximum saving demographic.

  • Once the kids are gone, off to college, they go, "holy moly, we didn't save anything!

  • We want to retire in five years or ten years!" And so they start saving. And then,

  • you get to the point where they retire and

  • they become maximum social burden demographic, I call it, simply because

  • they're liquidating assets; they're pullingthey've got their stocks and their savings

  • and each year they're going to liquidate some of those to live. And the only

  • driver that inthe economic driver is

  • the medical industry; they drive the medical industry. So economically,

  • the maximum social burden group is a net loss for

  • the prosperity of society, the prosperity of an economy.

  • And so, I'm going to go back again and

  • you can see that that maximum social burden group almost didn't exist in 1940.

  • And there's a lot of people of that working age and maximum spending age

  • supporting the few people that were of the maximum social burden category.

  • And then we get the baby boom sweeping through and

  • in the '80s and that stock market boom of the '90s and all the way up to 2000,

  • that yellow area that really drives the economy

  • was growing every year. Now,

  • we have an economy where it's supposed to grow at about 3%

  • or it's going to stall; we have, we

  • inflate the currency supply at about that rate and...

  • but now, after the year 2000, we've got 2010,

  • the peak of the maximum spending demographic,

  • and from now on it's sort of downhill.

  • Maximum savers, they do help drive the stock market,

  • but look at that maximum social burden category and look at what happens next.

  • So we are going into this time period right now.

  • Now, the reason there's no children on there is they haven't been born yet.

  • But if you look at... you know, when I first presented this a couple of years ago,

  • birth rates have been falling for quite a while now, and they've been

  • falling at an even greater speed since the crash of '08.

  • And if you look at the data from the Great Depression, birth rates just fell off a cliff

  • in the Great Depression. And so you have less people, less

  • people of the younger age

  • coming into this demographic to support the people that are retiring.

  • They didn't have the pill during the Great Depression.

  • Contraception was something that was not within most people's reach.

  • So here it is automated, and you can see that big wave sweeping through there.

  • And if you could imagine data for the children,

  • it would be a much lower rate. And if we do have a big economic pullback,

  • you're going to see that really reduce.

  • So we're in, most likely, some very serious trouble here. Because all of our social programs

  • and the way the economy and the society is set up,

  • everybody is expecting to be able to retire at a certain age and live fairly comfortably

  • off of the rest of us, off of the government.

  • Any comments on this,

  • these different age groups: maximum spending demographic,

  • maximum savingsyou've got the same model we do.

  • What is unique at this time in history

  • and it's the main topic of my most recent bookthat's why I call it the Demographic Cliff.

  • This is the first time in most wealthy countries

  • there's a few exceptions; let's call it Sweden, Switzerland, and Australia, countries like that

  • that have a larger millennial or echo boom; but almost every other country

  • has an echo boom that only comes up