The System is Rigged

[PUBLISHER’S NOTE: Please make time to read the interview transcript below. You see, this weekend we publish a book called The End of Australia. In a fairly unconventional move, we are making this book available to any reader with a valid Australian mailing address for free.


You’ll get a full explanation in the coming days. But, put simply, The End of Australia is a very important book. It’s by Vern Gowdie, but it’s a project that actually began with a late-night email to Vern from Bill Bonner late last year.

In case you don’t know Bill, he started our parent company, Agora Publishing, over 30 years ago. He’s a New York Times best-selling author and writes Diary of a Rogue Economist. Bill asked Vern to come to Paris to talk about a crucial new project. The end result is the book we’re going to start giving away this weekend.

We recorded their whole conversation in Paris, and soon we’ll be making that available. For now, here is an extract from the transcript…]  

Vern Gowdie:  Hello, Bill. Great to catch up with you again. This time, we’re in sunny, beautiful Paris, and in the middle of summer. It’s just a delight to be here and for you to make time available.

Bill Bonner:  It’s a pleasure, Vern. Good to see you here. Thanks for coming all this way to Paris.

Vern:  No, it’s wonderful. But the reason we’re getting together today and having this thought-provoking and important discussion for Australians, it’s based on an email that you sent me late last year. And I was just wondering if you could elaborate on what prompted you to write that email.

Bill:  Well, it’s a very long story. In fact, I didn’t realise how long the story was, but recently, I’ve come to realise that my whole career for the last 40 years has been dominated by a phenomenon in the financial world. And that phenomenon is the increase and expansion of credit, which started in 1949. I was born in 1948. So my whole life, I’ve lived in this world of increasing credit. And that world is a funny world…

Almost every nation is in the same boat more or less. Rising credit. Rising credit means rising asset prices, and it shows up in different places. You look into the Sydney real estate market, and what you see is a market of houses that are way beyond the means of the ordinary person to buy a house. And you see that in London, the same thing in the real estate market. It’s concentrated in a few key cities, like Vancouver, New York, London, not so much Paris.

But what’s happening is all this cash being developed, being created really by central banks and by this low-interest rate world, that cash goes somewhere. And where it goes of course is the story of our markets, and a lot of it has gone into the US stock market. Some into the US real estate, but mostly real estate in Manhattan, and San Francisco, and a couple of key spots, and a lot, a lot in the bond market — the bond market worldwide.

And so I began to think about how all the stuff fits together in a kind of a worldwide pattern, and I began to think about how you, and I, and a whole group of people ought to cooperate and work together to try to uncover, to try to tell the truth about it really. Because nobody else can.

Because if you look at the Wall Street Journal, they’re not telling this story.

You look at the Financial Times, they’re not telling this story. Why?

Vern:  Because they’re not interested.

Bill:  Because they get a lot of advertisers, and those advertisers don’t want to hear that story. And the customers, the people who buy the newspapers, they don’t want to hear the story. Government doesn’t want to hear it. Government is the biggest debtor on the planet. The last thing they want to hear is that the end of this great big credit bubble is coming because, then, they won’t be able to borrow, and it won’t work quite so well.

So there’s almost no part of the financial world or serious financial actors who want to see the truth or want to talk about the truth, and so I feel like we’re kind of the — we’re the remnant. We don’t get any money from big advertisers. We don’t get any money from Wall Street. We don’t get any money from the government. We’re practically the only ones who are in the position to tell the truth about what’s going on.

Vern:  The other thing is maybe they don’t actually see it. Maybe they’re so close to the action they just think this is normal.

Bill:  Well, yes.

Vern:  And that this is how it’s functioned for decade after decade.

Bill:  I think for almost everybody under the age of 70, it is normal. I’d say 70. It’s probably 80, because this world that we live in has been dominated. Everything.

Look at shopping malls in America. Why are there so many shopping malls? Well, because people have so much credit, so much consumer credit that they’ve been able to buy things that they really can’t afford.

And you have to look. In America — I know this is not true in other places, but in America, the wages for the average man have been flat since 1975. 1975! That’s 50 years. Flat wages! And those were the most spectacularly productive years in world history. How is that possible?

And if the wages have been flat, how is it possible that stock prices, the asset prices, which depend on a real economy, how have they gone so high? It doesn’t make any sense, but that’s the world we live in. It’s the world we were born into, we live with, and we take that world. We believe that that world is the real world, and that’s the way things work.

So the average person, certainly the person who hasn’t given it a lot of thought, what is he going to think? He’s going to think, ‘Oh, that’s the way things work. Of course assets go higher and higher. Of course the central banks manipulate the system. Of course they have to control interest rates. Otherwise, who knows what would happen?’

So I think you’re right. Most people haven’t thought about it. Those who have thought about it a little don’t see. And there are a lot of other people who’ve thought about it a lot, and there I’m thinking about leading economists like Krugman and Larry Summers who are paid not to see it. [Chuckles]

Vern:  Yes.

Bill:  Last thing they want to see is that everything they’ve been seeing for the last 30 years is wrong.

Imagine Larry Summers, a guy who just wants to manipulate everything, wants to control everything, can you imagine him standing up and saying, ‘You know, I really studied this. I looked at it carefully, and I realised that all these things that we’ve been doing for the last 30 years are really not so good, that you can’t really make people richer by tinkling with the, uh, with the interest rates or printing more money, or all the other things they do. It just doesn’t work that way.’

So people are either paid not to see it or else they just can’t see it.

Vern:  But those in that position, the ones who are being paid, I firmly believe they’ll have their green field and parachute. [Laughter] They will know what’s happening.

Bill:  Well, they also are making so much money from this system. The whole system has been kind of rigged. Not necessarily intentionally. I say that a lot. It’s been rigged. And I don’t mean that everybody who was rigging it understood what he was doing, and I assume that most people acted in good faith.

And 30 years ago or even 10 years ago, it was a lot less clear what was going on. Now, it’s becoming clear. It’s becoming very clear, and I think governments all around the world are getting kind of panicky about it, and they’re doing things which… I mean most people have no idea, but they are beginning to control cash.

The guy who was the controller of the bailout system calculated that the total amount of those guarantees was $33 trillion. I mean they were guaranteeing things they couldn’t possibly really guarantee, but it worked. And I guess the question for everybody now is will it work again?

They’ve used all the tricks now, interest rates are zero. They’ve been zero for six years. What are they going to do when the next crisis comes? The next crisis will come because none of the problems, none of the real problems in the system have been corrected. They’re only worse.

[PUBLISHER’S NOTE: What will this next crisis look like on the ground here in Australia? How will we fair during Global Financial Crisis MkII when we don’t have a mining boom protecting us. And what can you do NOW to protect yourself?

Those three questions are comprehensively answered in Vern Gowdie’s new book The End of Australia. Bill Bonner has written the foreword. We start shipping free copies this weekend. Watch this space…]

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

To read more insights by Vern check out the articles below.

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