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Goldsmith comment: Below, you'll find an exclusive interview I conducted with Porter in December 2010. I asked Porter what problems America faces today, exactly what you can do to protect yourself, and what he would do to fix these problems. Plus, Porter reveals a never-before-heard prediction involving a freedom U.S. citizens will lose in the next two years.
Before we get to the interview, if you haven't already seen Porter's End of America video, on which this interview is based, you can watch it here...
Sean Goldsmith: Okay. So, Porter, you recently made the video, The End of America, and it's been getting huge media coverage. I know you just recently did a radio interview where it was broadcast to millions of people. So what spurred you to make this video?
Porter Stansberry: I've been working on these ideas pretty consistently since 2005 because I believe the growth of the debt in the U.S. economy were unsustainable and that it eventually was going to have very serious consequences for the American people. It was time to make the video because a lot of that debt which had been private is getting placed into government hands. So the public is bailing out a bunch of people who made bad choices when it came to debt, and the result will be a tremendous crisis in the value of our currency because the Federal Reserve and the Treasury have taken on more debts than they can possibly afford.
SG: So the government already isn't your biggest fan, and now you're saying it's bankrupt. Are you expecting any backlash for this?
PS: Certainly the government does not approve, in many cases, of the things we write, because we don't toe the line when it comes to the bailouts and companies like General Electric that have basically become the for-profit wing of the Obama administration. So I'm used to that kind of criticism and pressure from the government, and I expect that the bull's eye on me will get larger with the success of this video that I've produced.
SG: It's good you're at least getting the message out. So I know a lot of your work started years ago when you started looking at Fannie Mae, Freddie Mac, and GM and you noticed that these companies were in a lot of financial trouble. So how did you know that these companies were going to fail?
PS: Let's talk about another company just to introduce a new name. I think people are very familiar with my work on General Motors and Fannie and Freddie. But I'll point out to you a different thing I was following, which was in Las Vegas – the rise of MGM.
I can't remember whether it was in 2005 or 2006, but I went to Zurich with Steve Sjuggerud, and we were looking into supplying large amounts of bullion to our readers. We wanted to buy older European sovereign coins, and Europe was supposedly where we could find them.
So we were talking to the banks about buying these 100-year-old coins, and at the time, they were actually trading for less than melt because people thought they had no real value, so it was a good time to be in Zurich. And I happened to run into one of the guys who built the Mandalay Bay. He was a Las Vegas developer. The Mandalay Bay, as I'm sure you know, is a huge hotel complex at the end of the Strip, and it has a Four Seasons Hotel – it was a very, very big project.
He had just sold it to MGM for $8 billion, and he was in Zurich buying gold. I thought to myself, "Huh. That's pretty interesting." When a guy who's spent his life building Vegas cashes out and buys gold bullion in Zurich, that's a sign of something important going on in the economy, so I started looking into the deal where he had sold Mandalay Bay to MGM.
It turns that MGM bought Mandalay Bay at a price equivalent to $2 million per hotel room. So you start doing the math on this, and you're trying to figure out how could it possibly be profitable to buy a hotel for $2 million per hotel room.
SG: Seems rich.
PS: And, of course, as we know now, it was way too rich. It couldn't even be financed. The whole thing has fallen apart, and now MGM is selling itself off piece by piece to help repay these terrible debts. Treasure Island was sold about a year ago to another well-known Vegas entrepreneur, and the price of the sale was about $50,000 per hotel room. I don't think it takes a rocket scientist to realize companies that do things like buy hotel rooms for $2 million a piece and then sell them five years later for $50,000 a piece are not going to be good investments.
SG: Sure. So there was definitely an "Aha" moment with MGM. You met this Vegas guy in Zurich and you saw the moves he was making. Were there other "Aha" moments for your other big calls?
PS: Oh, there have been dozens of these moments. There's been madness all around. I know some people very well who haven't made a mortgage payment since January 2007, and they're still in their homes. The process of following these bad debts started when I saw people in businesses making decisions with their capital that didn't make any sense, that couldn't possibly be profitable.
I saw one deal, for example, back in the mid-2000s, where a developer was selling land on the Galapagos Islands. The Galapagos Islands are in the middle of the Pacific Ocean, about an eight-hour flight away from Ecuador. So Ecuador is about 10 hours from anywhere, and then Galapagos is another basically 10 hours from there. So this is pretty much the definition of the middle of nowhere.
Now keep in mind, it's also an ecological preserve. So you're not going to be allowed to build anything or dig a well or anything like that. And the developer was selling lots on Galapagos for $50,000 an acre. Unfortunately – I'm not making it up – that was a true real estate deal I saw happening at the time. I also saw people who had been dirt-poor farmers in Panama and had sold their 1,200-acre ranches for millions and millions of dollars, and I knew that none of these deals could possibly pay off.
So I started following the debt trail: Where's the money coming from? Who's creating it? And I found where all the money was going, and all the money was going basically into the investment banks and into Fannie Mae and Freddie Mac, and that made them ripe to fail. The problem now is that all those bad debts have been passed along to the balance sheet of the U.S. Treasury or the balance sheet of the Federal Reserve. They have not been repaid, they have not gone away, and now all those problems have become a critical cancer on the U.S. government itself.
SG: So you say the banks' bad debts have moved to the Treasury. Can you briefly explain how that process works? How the money actually moved?
PS: In many cases, it was simply a purchase. So for example, the Federal Reserve bought up all of Bear Stearns' bad mortgages. It's in a holding company called Maiden Lane, and you'll find it on the Fed's balance sheet. It's still there. Meanwhile, we know those mortgages that the Fed paid $1 for are now probably worth $0.10 to $0.15, so the Fed has an asset on its books that's stated at book value that's really worth almost nothing, and they're making up the difference by inflation, by printing a lot more money.
Likewise with the banks: They have, in some cases, given the banks large amounts of money, but the more diabolical thing they've done is they've structured the yield curve so that it's impossible for the banks not to make a fortune. They've done that by artificially holding interest rates very low on the short end of the curve, so banks can get money almost for free. Meanwhile, by printing more and more money, long-term rates keep going higher and higher and higher. All the banks have to do is borrow money from the Fed and pay almost nothing, and buy long-term assets like Treasury bonds that are yielding 3% and 4%, and they make the spread. So they get guaranteed, free money.
Of course, as everyone should know, money, to have any value, has to come from legitimate savings, and this printing and manufacturing of money isn't creating any real value in the economy at all. In fact, it's robbing all of us by the effects of inflation.
Sean Goldsmith: The government has labeled its lending practices quantitative easing. We already had quantitative easing 1, which pumped trillions of dollars into our economy. We now have quantitative easing 2, where the government has committed another $600 billion to buying U.S. Treasurys. It just said today it's probably going to print more money because unemployment is still too high and growth is not to its liking. So where's the end? Are we going to see quantitative easing 3, 4, and 5?
Porter Stansberry: Let me be really clear about what quantitative easing is. There's some controversy about it, and it's poorly understood. quantitative easing, according to the Federal Reserve, is simply monetary policy in another form. And it's simply a way to manipulate interest rates lower to give a boost to the economy. Unfortunately, that's not the case at all because what quantitative easing actually is doing is covering the funding gap of the U.S. government.
Total domestic savings in the United States is about $600 billion. The annual fiscal deficit of the U.S. government (that's only one borrower... admittedly it's the largest borrower in the economy, but still only one borrower) is $1.2 trillion, give or take.
So the difference between what we can save as an economy and what we have to spend in stimulus as an economy is about $600 billion. Not surprisingly, that's exactly the amount of money the Federal Reserve says we require in quantitative easing. So it's printing up $600 billion and giving it to the Treasury. The Treasury therefore doesn't have to issue those bonds on the open market. If the Treasury had to actually auction an additional $1.2 trillion worth of debt instead of selling it directly to the Fed, the market prices of U.S. government bonds would be vastly lower. There isn't enough global demand to meet the U.S. government's funding needs.
This is a big problem going forward because once people get used to these low interest rates, a lot of businesses and employment is going to come to depend on them. But the more money the Fed prints to buy them, the more inflationary pressures will be created. So you've got this tug of war. You've got to print more money to keep interest rates low, but the more money you print, the more likely it is that interest rates are going to go much, much higher.
Once the Fed stops printing money and stops buying Treasury bonds, what will be the real market for interest rates? It could be much, much higher. And that could set the economy up for a real big interest-rate shock. And so one of my concerns is that once you start this quantitative easing, you can't stop, because the economic consequences of stopping are too severe.
SG: The only reason we're able to do any quantitative easing is because the dollar is the world's reserve currency. So what's the breaking point? When is it going to stop being possible?
PS: Let me be clear about that, too. If we were another country and were printing this much money, the consequences of doing so would be much more immediate. For example, if Argentina decides it's going to double the amount of money outstanding in Argentina, its peso would be devalued immediately, and it would be obvious to everyone.
The U.S. government has the luxury of having the world's reserve currency, which just means we can print the money we need to buy any commodity we need and repay all of our obligations legally. The Argentines can't just go print dollars. We're the only ones who can do that. So it puts us in a strong position, but it's a double-edged sword.
Because we have the power, we can get away with managing much, much larger amounts of debt. The problem is, getting away with managing it doesn't necessarily mean that having it is good for us. I believe having it is very, very bad for us. Total debt in the United States today is about 400% of GDP. It's obvious to anyone that is not sustainable. So the question becomes not how do we keep employment high… not how do we keep interest rates low… but how do we avoid a massive collapse of our economy because of the debt load. And I would suggest printing more money and running larger government deficits is not the way to reduce the debt load.
SG: The U.S. isn't the only one with these problems. It seems like every fiat currency in the world right now is heavily indebted, and those countries are printing money. So a lot more money is in circulation than there was several years ago.
What do you say to the people who still believe in deflation? Deflationistas – people who say, "My cost of living hasn't changed; the Consumer Price Index has barely budged"? You'd think by now these people would wake up and see the writing on the wall.
PS: I thought so back in 2008. It seemed clear to me when the government went with TARP and quantitative easing, the writing was on the wall... deflation – meaning a collapse in commodity prices related to a collapse in credit markets – couldn't possibly happen. And it couldn't happen because the government was going to print as much money and borrow as much money as necessary to keep the credit markets alive.
So while private credit creation has declined, the government issuance of additional credit has far exceeded those declines, so the total credit continues to grow. And when I mean total credit, I'm talking about the total debt in the U.S. economy has continued to expand. You can't have debt deflation when you've got the amount of total debt growing. And you certainly don't have price deflation when every commodity in the world has been on fire for the last 18 months. I mean silver has gone from about $7 an ounce at the bottom of the crisis all the way to $30 an ounce.
To believe in deflation, you have to believe the government will tell you the truth… that it won't print more money… that it's a reputable debtor. And none of those things are true.
SG: So can the U.S. fix this problem? Or are we at the point of no return?
PS: We have two choices… and we've had these choices the whole time. We can default on our debts, which would imply a tremendous collapse in our economy. It would be very, very painful, but it would be very, very short, because as soon as you write off the bad debts, you can move forward. So we would write off bad debts, the people who have made bad decisions would take big haircuts, a lot of people would be wiped out, a lot of bad investments would end up going south... But it would happen quickly and we could move on.
And if you look at countries that have made this decision to simply default – you look at Iceland, for example... Its economy is doing great now. It went through a terrible crisis, but now it's doing fine because it's not continuing a lifetime legacy of debt. In the U.S., we've made the decision to fight these deflationary pressures by printing tons of money and by running unsustainable fiscal deficits at the government level. So all we're doing is burdening our children with debt that will take decades and decades and decades to repay, while we're robbing our citizens through inflation to finance it.
These are very simple choices we're making, and the consequences are well known to any economist. I would argue the only moral answer to the dilemma is to default. Not that I think bankruptcy is necessarily the highest character choice, but it's simply a fact that we cannot afford these payments. Our government has made terrible decisions, and I don't think it's right for the creditors to expect to be repaid when they have made the mistake of issuing a completely unsustainable amount of debt to the U.S. government.
Sean Goldsmith: At this point, most people expect the government to raise taxes because we know they're not going to cut spending. But recently, we see they're actually going to extend Bush's tax cuts for two more years, and they're actually making the estate-tax more lax. So we have less money coming in the door. Meanwhile, we're still printing tons and tons of cash. It just seems like a downward spiral.
Porter Stansberry: Well, it is a democracy, and there is no interest group that's going to organize to have less government benefits and higher taxes. So this is the way democracies always go, and this is why creditors shouldn't lend money to democracies. You're guaranteed to get your face ripped off because no one's going to ever pay back these debts. It's just a fact.
So if we're not going to pay them back anyway, why are we going through the charade of this massive inflation? Why don't we just have a real default, reorganize the debts based on our ability to actually pay, and get our economy moving in the right direction again?
SG: It's political suicide.
PS: I don't think it necessarily is, but I'm certainly no political expert. I think the political suicide is the track we're on right now because we're heading into a complete collapse of the U.S. dollar and the U.S. economy. Think about the consequences.
SG: But that's political suicide for the next guys.
PS: Yes, it's a political suicide that we just kick the can down the road a little bit. But think about this: 40 million people in the United States are on food stamps, and if agricultural prices double or triple – and it's already underway – how are you going to feed all those people? So we're going to borrow more money to feed those people. If you borrow more money and print more money, inflation's going to get worse. So we will borrow and print more money.
The whole thing will completely fall apart, and everyone knows this. This is not like some super-secret thing that no one can figure out. This has happened time and time and time again in history. It mostly happened in democracies, and it's always happened for a simple reason: The politicians couldn't be straight with the people.
Look... our fiscal deficit this year is something on the order of 30% of GDP, OK? That's absolutely, positively unsustainable, and everybody knows it. So what are you going to do? You either have to default on the debt, or you have to raise taxes tremendously, which will end up defaulting on the debt because you'll kill your economy. Or you have to print money and have a hyperinflation. Those are your choices. The only option other than that is simply to default on the debt, to wipe it clean, to move on.
SG: In an interview with 60 Minutes, Fed Chair Ben Bernanke said if inflation starts running rampant, he can raise interest rates in "15 minutes," as if that's going to solve all of the world's problems. So will simply raising rates stop the problem? And what's the consequence to raising rates quickly during rampant inflation?
PS: If you saw Bernanke in that interview, you know he was lying. There's lots of ways, but even his body...
SG: Mainly the twitch.
PS: I mean, he was shaking so badly, I actually kind of felt sorry for the guy even though I think he's probably the biggest criminal in the world today. But the Federal Reserve cannot control the market value of the dollar. That's a fact. The global foreign exchange volume is something around $5 trillion or $6 trillion a day. Nothing the Fed can do about how the market prices our currency, and you see that in the soaring price of gold, the soaring price of silver, the soaring price of oil, the soaring price of uranium, the falling value of the dollar versus its trade weighted other currencies. That's all out there. That's all absolutely, positively the truth.
Bernanke wants to argue the value of the dollar is not correlated to inflation, and that is simply an absurd lie. He knows very well the root cause of inflation is the falling value of the dollar, and he knows very well that his money-printing and quantitative easing is destroying the value of the dollar. He also knows very well that raising interest rates will not reverse those trends unless the U.S. can do something to assure its creditors that it will not continue to print ever increasing amounts of money.
SG: So the printing of money, huge inflation – it's happened many times before in history, probably most famously in Germany during the Weimar Republic. Can you discuss briefly what happened in Germany during the '20s?
PS: That's a complicated situation because a huge amount of war debt and war repayments were in place. And so what the Germans decided was, "Hey, you know what? We don't want to repay the $12 billion that our economy owes for the war reparations, so we're going to print money and attempt to pay it all back"... and obviously, it didn't work. But the analogy isn't quite appropriate because the issue was war reparations the German people really didn't want to repay.
But it is analogous in one way. In both cases, an enormous amount of debt was placed onto a free economy. And the government made a deliberate choice not to repay it and instead to paper over the problem. The exact same thing has happened in the United States. It's not war debt... It's not war reparations. It's simply money the government has borrowed for the last 30 years.
SG: It's still a lot of debt on a government balance sheet.
PS: It's a lot of debt on a government balance sheet. And there is no political will to actually repay it. None. No U.S. politician in the last 15 years has presented a budget whereby the debt would be repaid. When people talk about balancing the budget, all they're talking about is ending new additions to the debt, ending the fiscal deficits. Nobody talks about "in 15 years we can pay off all our government's debts." No one even mentions that anymore and because there will never be an actual attempt to repay, ever. It will never happen.
SG: So you say Germany is not the best analogy... but there are several throughout history. There's Zimbabwe... there's Argentina... there's Asian financial crises. So how is the U.S. any different? Is it any different?
PS: It's different in one important way. It's different because the U.S. dollar forms the basis of the world's economy. More than 60% of all the currency reserves in the world are U.S. dollars, so banks all around the world hold U.S. dollars in reserve, and other central banks hold U.S. dollars in reserve. The open question – and no one knows the answer to this – is what happens when the world reserve currency goes into hyperinflation, goes into de facto debt default? What are the consequences on the world?
And the truth of the matter is we just don't know. But it certainly doesn't seem like it's going to be good for the U.S. because all those dollars out there in foreign hands represent claims on U.S. assets. If all those people want to dump those claims, they want to cash in those tickets, there's going to be a very, very big problem in the world's currency market, where you could see the value of the dollar fall 50%, 70%, 80% very, very quickly as people panic to get out of the dollar.
Sean Goldsmith: So taking us back to what we were previously discussing in your single-stock analysis, when you started talking about the fall of all these major U.S. corporations, you got a lot of heat from your subscribers. You had people e-mailing in with legitimate hate mail. Have you seen the same thing when you're talking about the "End of America"?
Porter Stansberry: It's interesting. You say things like: "Hey, if you're a shareholder in General Electric, you better watch out because it has way too much debt. It'll never be able to repay it. And sooner or later, the equity investors are going to get wiped out." And the people who own GE write to say, "I'm going to burn your house down because you're negatively impacting the value of my investments."
When you talk about risk to the whole economy, you get some people who respond, "Saying this about the government is un-American." But for the most part, people are more receptive. I think people recognize these risks in the macro way somehow in a different way than they recognize the risk to individual companies.
SG: You think it's just too big of a concept for them to grasp?
PS: No, I'm actually kind of saying the opposite. I think that people have an instinct, a feeling, that something has gone wrong with government. They know in their hearts the government can't run enormous deficits forever and can't finance things like free medical care for the whole country. They know in their hearts this is unsustainable. So when I point out the actual details behind why it's unsustainable, I don't think people are that surprised by it.
SG: So what I'm confused about is how can the U.S. possibly go bankrupt if it's still rated triple-A by Moody's and S&P?
PS: I understand your question is asked in jest because Moody's and S&P rated everything triple-A that went bankrupt in 2008. Moody's is doing its best to be diplomatic about America's credit rating. But everyone knows America is a long way from triple-A. Everyone already knows this, just like everyone knew that subprime mortgages were not really triple-A.
But Moody's keeps warning, very publicly, America is going to lose its triple-A status. You see this in the bond market, where corporations now are paying less to borrow money than the government is because, in many instances, corporations are a much better credit risk than a bankrupt government.
SG: So the question everybody wants to ask is, how do you protect yourself? And before you answer, I'm sure a lot of people in their retirement accounts are buying Treasury Inflation-Protected Securities, commonly known as TIPS. And we've recently seen a breakdown in the TIPS market when it should be going up, but it's actually performing worse than regular bond funds. Why?
PS: I personally think it's a little bit crazy to buy an "inflation-protected security" because the issuer of both a regular Treasury bond and the inflation-protected security is the U.S. government. If the U.S. government is bankrupt, it can't really afford to pay back its Treasury bonds. Therefore, it will depend on inflation by printing money to pay them back. That's the situation we're in right now today.
So you are going to extend credit to a known defaulter. You're going to extend credit to a known counterfeiter, whom you know is going to default on its bonds. So on the one hand, you already know it's going to default – otherwise you wouldn't be interested in the "inflation-protected security." I mean why do you have to have an inflation-protected security if you've got a credible government? You don't.
By even issuing an inflation-protected security, the government is admitting it's not really going to pay back these debts. It's just going to print a lot of money. So why would you depend on them to actually give you the real value of the inflation? They will never do that. The inflation-protected security will never pay you even a fraction of the real loss of purchase power that's coming because of the hyperinflation that we're about to experience.
The idea just seems to be so oxymoronic to me that I can't even believe there's a market called inflation-protected security. I mean, think about that for a second. "OK. No, really. No, really – we'll pay you back. We're going to just screw over all the other guys, but you – you're special. We're actually going to pay you back." I don't believe any of it.
SG: If history's any indicator, as inflation becomes more of a mainstream issue and more people start to accept it, I can guarantee that we'll see Vanguard and Barclay's and all these huge fund management companies pushing TIPS, ETFs, and TIPS-managed accounts down people's throats. And that'll probably be a good idea when it's really time to short them.
PS: That's right, that's right.
SG: So I believe we've proven the point that you don't want to buy TIPS, so what do you buy? What do you short? And outside of the stock market, what are you doing to protect yourself?
PS: The simple answer is, you have three well-known ways to protect yourself from inflation: own energy, own agriculture, and own sound money. The way you go about owning those things are many and varied. I don't think we really need to get into all the details here. Obviously, you can buy corporations. You can buy equity in companies that specialize in energy assets or in agricultural assets. Sound money just means buying gold and silver. There's lots of ways to do that.
And the fourth thing I would strongly recommend everybody over a certain net worth do – and you'll have to decide for yourself if this makes sense considering your own net worth – is get a portion of your assets outside the U.S. Look, this thing is starting to fall apart. The government is going to quickly realize it can't continue to have this amount of fiscal deficit every year. Sooner or later, the inflationary pressures of these huge fiscal deficits and money-printing is going to catch up with us.
The moment that happens, they're going to have to take serious steps toward a balanced budget. And the only way they're going to do that is by taxing everything that moves (or doesn't move). And the things that don't move are your assets, and they're going to go after them.
There's no doubt in my mind. You want to have some assets that the government doesn't know about that are outside the U.S., and you can still buy some things outside the U.S. that you legally don't have to report to the government. And of course, that's one of the things that we talk about in the video that people have been watching on the Internet.
SG: And we'll give everyone a chance to view the video at the end of this interview. So in which banks and in which countries are you holding your offshore assets?
PS: What offshore assets, Sean?
Sean Goldsmith: I know previously you've discussed an escape plan.
Porter Stansberry: Hold on. Let me go back to that facetious question [where I'm holding my offshore assets]. One of the things I used to really like to do in investment conferences when I used to speak in front of a bunch of people every year... I do little of that anymore because I have a family now and I don't like to travel that much without them. But I would get up and say, "Hi, everybody. How's everybody doing today? How are things going?" And we talk about their investments, and then I would ask the audience, "Now, how many of you people here have an offshore bank account?" And there would actually be people who raised their hands.
SG: Another good one is when Doug Casey was giving a speech, and he'd get up and say, "Well, I got a call and I know that there are two federal agents in the audience, so if you guys would please stand up? We all know you're here, so please just stand up and show yourselves out." And of course no one had called him. He was just making a joke. And sure enough, two federal agents stood up and walked out of the conference.
PS: That's great.
SG: So back to my question... You've previously discussed an escape plan. I would like to know what is your plan – if you're willing to discuss that – if things get bad enough in the U.S. Do you recommend the average American citizen have an escape plan?
PS: Well, this goes to what I think everyone considers to be the fringe element of these discussions.
SG: Certainly.
PS: And so let me preface my remarks by saying I consider the idea that I would have to flee my country because of political or fiscal pressures to be remote. The possibility is certainly remote that I would ever feel persecuted enough individually to flee the country.
SG: And that's coming from a guy who was sued by our country.
PS: Yes. The government has targeted me individually. It cost me $3 million and eight years of my life to fight the lawsuit that resulted from it, so I speak from some experience. But I do consider it unlikely I will need this contingency plan.
On the other hand, I firmly believe that it is my responsibility to always provide for the safety, the security, and the well being of my family. I can't do anything to save my neighbors. I might not be able to do enough to save our subscribers, but I can damn sure save myself and my family from any and all outcomes of this coming hyperinflation.
So I have provisioned the ability for me to leave the country secretly, anonymously, and I have taken the steps to make sure that I have assets overseas that can sustain me in the event of an emergency. This may not be for you, and it may be completely unnecessary. It probably is. But I know a lot about what's going to happen here. It's going to get really, really ugly. And nobody can know exactly what the outcome will be. So I think that taking certain precautions in a limited way is simply prudent. Whether you feel the same, of course, is up to you.
SG: All right. So a couple of questions for entertainment value... I want to know – let me preface this by saying I know that never in a million years will you ever enter the political arena – but what would you do to fix the U.S.?
PS: That's a very good question, and I have no interest at all in serving my fellow citizens, at least not at the wages that the government will pay. So…
SG: Well, everyone knows that you don't make money as a politician with your wages. It's in the kickbacks.
PS: Right, exactly, and I'd rather just make money honestly. So my answer is sort of silly because there's no political way to do these things... but if I was king for the day and my edicts would remain in effect, I would start by doing one simple thing.
One thing you have to do is have a balanced-budget amendment. It's completely immoral to spend more than you tax if you're the government because all you're doing is taxing future generations of Americans who are not even entitled to have a vote on decisions that you're making.
It's totally immoral to leave vast debts to our children and grandchildren. Every American ought to understand this. So I would put in a balanced-budget amendment that says unless our continental United States is invaded by a foreign enemy we have to run a balanced budget. If the Mexicans decide to invade us, then OK… we can run a deficit for a couple years just until we can repel the invasion. Perhaps the Canadians will come after us. We don't know.
But there's no point at all in believing these foreign adventures in Iraq and Afghanistan are worth the debts we're going to leave to our children. And don't even get me started on Medicare and Social Security running deficits like that. It's just completely immoral, and it shows just how decrepit and disgusting the American political process has become. So a balanced-budget amendment is No. 1.
No. 2, you have to have sound money. When you don't have sound money, none of the economy can function correctly. Prices are the most important form of information in the economy. Prices are what inform entrepreneurs about what needs to be created and what doesn't need to be created. When you don't have sound money, you have a completely distorted price system, and it all falls apart.
Then of course, people say, "Oh, look, capitalism has failed." No, we haven't had capitalism in this country since before World War II. What we've had ever since then is this sort of phony corporate state capitalism, really sort of socialism-light. So you have to have sound money... Otherwise, the economy can't function appropriately or efficiently.
So a balanced budget, sound money... When I say sound money, I mean either gold and silver as money or a sound backing for such a currency. So you can say 25% backed by gold, 10% backed by gold, 100% backed by gold. I don't really care about that. I just want the money to be sound, and I don't want inflation to be possible, legally.
And then the third thing, I think, is you'll never be able to keep those reforms. You'll never be able to keep a balanced-budget amendment in place. You'll never be able to keep sound money in place until you change the fundamental nature of our democracy. And this of course is the most radical idea that I'll share with you. I have a simple idea to fix America. Everyone should be entitled to as many votes as they have spent dollars in taxes. Real simple. If you spend a ton of money in taxes, you get to have a powerful vote. If you don't pay any taxes, you don't get a vote at all because you haven't invested at all in the equity of our country. So I think that would really eliminate a lot of the problems that we have with people voting themselves the largesse of our treasury.
Right now in America, half the people in our country don't pay any federal income taxes – none. So they are net beneficiaries of the welfare state, and they're going to continue to vote for more and more welfare until they bankrupt our entire country. The incentives of that are so clearly perverse everyone should understand why that's not a safe process, and I think that just giving people the vote based on their taxes is really simple.
And I tell you what would even be better: You could make taxes optional. If you don't want to vote, you don't have to pay any taxes. Boy, that would really change the math, wouldn't it? Of course, I don't expect that to happen either. But those are the three principles: a balanced budget, real money, and change the voting system so only people who have a vested interest in the success or failure of our country are able to have a voice in the decision-making process.
And by the way, all three things were in place when our country was founded. So to say that these things are radical is really not true. These things are actually conservative. They're what our country was founded on. They're just common sense. And if you put those things back in place, our country would be on the right foot almost immediately.
SG: All right, and in closing, I was wondering if you would be willing to share a prediction, an End of America prediction that you haven't yet made with Digest readers.
PS: Oh, jeez.
SG: And I know you've already predicted a lot.
PS: An End of America prediction. OK, sure. I don't know if I've exactly predicted this yet or not, but I believe it'll be against the law for you to send assets overseas without restriction by January 2013.
SG: All right.
PS: Some kind of significant capital controls will be in place in two years. So you've got two years to really prepare yourself for what's coming, otherwise all your assets are going to be trapped in the States, where they'll be confiscated or taxed or inflated away.
SG: All right. Well, thank you very much, Porter. |
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