Welcome to Crash Concepts where the economy, energy, and the environment are explored. Up next, fresh ideas and insights into the factors that are driving the world and shaping your future. Presenting information you can’t afford to live without, here’s Chris Martenson.
Chris Martenson: Welcome to another chrismartenson.com podcast. I am your host, Chris Martenson, and today we have the pleaser of speaking with Addison Wiggin, executive publisher of Agora Financial, LLC, the independent economic forecasting and financial research firm he runs with Bill Bonner. Agora’s wide-ranging operations include the influential econo-blog, Markets and Money, bestselling publications such as Financial Reckoning Day Fallout, and The New Empire of Debt, both of which Addison coauthored with Bill.
Addison, you’re a man of many talents. I’m delighted to have you here today.
Addison Wiggin: Well thanks for having me, Chris. I’m happy to be here.
Chris Martenson: For many years now you’ve been prolific in your efforts to wake up the investing public to the risks that lie ahead. Your books, The Demise of the Dollar, Empire of Debt, Financial Reckoning Day, your movie, I.O.U.S.A., all predicted a future that is increasingly now unfolding before our eyes. I’m wondering if you’re experiencing some emotional conflict here.
Your predictions have become soundly validated, yet that means sort of the dire outcome you feared is arriving. What’s it like for you to be at this time in history?
Addison Wiggin: Well it is kind of an interesting time because we had gotten used to, for well over a decade, being mocked by people in the mainstream press and even people in my own family… There’s a whole generation of Americans today that don’t understand the very nature of capitalism – the savings and investment that led to the United States being one of the more prosperous countries the world has ever known…
Chris Martenson: Yeah, so what’s a big surprise for you in this story so far? What’s unfolded maybe a little differently than you thought?
Addison Wiggin: Actually the thing that has been most surprising to me has been the willingness with which politicians in Washington have abandoned the very causes and ideas that led us to be a prosperous society in the first place. I suspected they would do it all along, but just to give you an anecdote in August of 2008 right before the last presidential election, we premiered I.O.U.S.A. This was before stimulus and bailouts, before trillion-dollar deficits. We had spent two-and-a- half years making a movie about the disastrous state of the financial balance sheet in Washington. We were running history deficits of what now seemed like a quaint $450 billion, and we had a mounting pile of unfunded liabilities.
We made the movie and released in August of 2008 for a reason, we wanted it to be part of the national conversations during the presidential campaign season. In August of 2008 we got Warren Buffet together with Pete Peterson, David Walker, the former Comptroller General, we premiered the movie, and we held a national town hall meeting with the intention of making deficit spending and unfunded liabilities a part of the conversation that was going on in Washington prior to electing the new president. We broadcasted on CNBC, we thought we made a big splash. Less than six weeks later, Lehman Brothers declared bankruptcy.
And we were already on sort of the wrong course to fiscal mayhem, and after September 17th, 2008 we jumped course and we got on a faster track and I guess my biggest surprise is how quickly people were willing to engage in the amount of stimulus bailouts and deficit- spending. They just kind of abandoned any kind of fiscal defense to a much greater degree than I thought was even possible.
Chris Martenson: I found that surprising as well… And it was just surprising that money was just thrown everywhere at this problem…
Addison Wiggin: Right, even, even the voices that we followed for a couple of years while filming I.O.U.S.A., David Walker principally amount them. He fully supported the stimulus spending, even though we were documenting his efforts to wake people up to what was happening with the fiscal condition of the United States… It was just surprising to me that for all these people that we’ve elected to office and for the amount of study and intelligence that they presumably have, they rolled over and threw out all common sense and just went for it.
Chris Martenson: Given what you just saw, and the anecdotes you just shared with us, how do we reverse this, what do we do from this point forward?
Addison Wiggin: Well the prescription for what to do would probably come with a lot of political baggage. It depends on what form you think the government should take. Should the government play the role of providing a safety net for all citizens? Should the government be involved in providing security around the world for national interest companies to do business in places that are otherwise hostile to us? I happen to believe we shouldn’t be doing either of those things because we can’t afford them, not because politically, I think that they’re bad ideas, just that we’ve never done the hard work of figuring out how to balance those interests with the tax code that we currently run.
Everything is out of whack. We can’t be the policeman to the world and provide a safety net for all citizens if we don’t have the tax rates or the income to the government that supports all that. It seems like common sense, and it should be common sense, but something happens when you take it from a discussion that you and I might have to the political level, which is often just driven by emotion and public speech. Somehow the desire to continue promising that the government can solve all problems meets with jubilation and most people want to just keep going and they never want to actually accept that at some point unsustainable activities have to end, I mean it’s the nature of the word…
I struggle to think that we’re even capable of putting together a set of solutions that will work. It might be too late.
Chris Martenson: Well I share that view, and this is not just a US issue. World history, and also current events, recent current events shows that governments will reform, and they will undertake austerity and they will live within their means when the bond mark has forced them too.
Addison Wiggin: Right, absolutely.
Chris Martenson: Greece is in the middle of it, Portugal’s in the middle of it, Ireland’s right in the middle of it, Spain’s gonna get there… So this has been my view for a long time, that the United States will reform when the bond market forces it to. And that day will come. Nobody knows when or how long we can kick the can down the road… But sooner or later, the bond market will revolt… Would you share this view, that there is a day of reckoning here?
Addison Wiggin: Well I would definitely share that view, and I think that it does come when the government has to raise interest rates beyond what it can already afford just to get the money that it needs to continue… It’s not unheard of, even in our own history, but when you mention that, when you talk about that, the fact that we might lose control of our ability to fund these massive deficits in this current environment, people think that you’re a kook, that you don’t understand something that they do understand.
But, in fact, there will be a point where investors will look at their return from the US government, and they’ll say, I want more to put my money at risk…
Chris Martenson: Well sure. And think about what would happen to the housing market right now. It’s nothing good in terms of upward price mobility. So one of my views is that we’re all speculators now… What’s your view on QE and is more QE a good idea here, or is Bernanke trapped either way?
Addison Wiggin: Well you mentioned Bill Gross, if you take his point of view, when QE2 dries up, who’s going to buy Treasuries then? That was the position that he took when he started unloading Treasuries from Pimco’s bond fund. I think the Fed is between a rock and a hard place because they have to continue to be the buyer of last resort in order to keep Treasury [yields] where they are. But the Fed is…at the end- game from what they’ve been trying to do. They’ve been trying to play both sides of the trade, keep Treasuries where they are, keep the government funded but at the same time avoid any kind of a fiscal restraint that would make Treasuries viable, or even attractive to the investment crowd.
Chris Martenson: Yeah, well the 10-year at what, 3.5%, 3.4%, somewhere in that zone depending on which day we’re talking about. That’s a pretty low rate of interest over the next ten years, given everything that I see on the radar screen. And without the Fed stepping in there buying, influencing the prices, manipulating, whatever you want to call it…
It’s just a self-referential piece of ridiculousness, so there we are, and we’re all speculating now in terms of what the Fed’s going to do next. But what does this future mean to investors and what sorts of recommendations are you making to those that are looking to preserve wealth in this interesting period we’re in?
Addison Wiggin: Well…we just recommend that people recognize that this is actually happening. Most people tend to think that the government is made up of a bunch of smart people who really know what’s going on. Even the readers that write back to us, they say things like, well the Fed wouldn’t be doing this kind of thing if there wasn’t a very good reason for it.
There’s a high degree of trust left in Bernanke’s hands, in Timothy Geithner’s hands. So even now, part of our goal is just to get people to recognize that there is a possibility that Treasuries might not get funded the way they have in the past. And if you take that piece out of the financial puzzle, then everything else begins to unravel very quickly. And that’s why I believe we have gold going to the prices it has that we’ve seen in recent weeks. Silver, precious metals, many of the commodities, because people are looking for tangible good outside of the financial system, things that seem to make more sense.
So we’ve been recommending commodities and precious metals, and energy markets.
To be continued…
For Markets and Money Australia