This interview is a comprehensive look at where we stand today with Peter Campbell, Market Expert and Fund Manager. You may go to one of the specific topics listed below directly by fast forwarding to the listed time code:
00:30 Municipal Bonds 10:44 Debt Based Money 12:56 Is it reasonable to invest looking out 30 years? 15:05 How Money is Really Created 19:24 Do we need constant Economic Growth? 22:25 Are we going to run out of Oil? 30:05 What about Gold and Silver? 32:02 What has Bernanke Accomplished so far? 41:17 Death of the Dollar? 46:19 Nuclear Power & Fukushima 50:58 What you can do to Preserve your Purchasing PowerThe below chart is courtesy of M3 Financial Sense regarding the Municipal Bond conversation in the video (Click Chart for more detail).
You can see further daily commentary from Peter Campbell by visiting his blog at www.m3financialsense.blogspot.com
{ 7 comments… read them below or add one }
So if your dollars are going to be so valuable, AND they are FDIC insured, I’m not really clear on why you would want those dollars to be held in paper cash as opposed to leaving them in the banks?
interesting hour. keep it up and keep me on your list. thanks!
Mark, This is a good question. Consider that FDIC is made up of its member banks. As credit continues to contract and dollars get more and more scarce, banks will have an increasingly difficult time keeping their reserve requirements met. Should there be a loss of confidence at any point in the banking system, the FDIC or the money system in general then banks become the least safe place for your cash. The FDIC has 99 years to make good on their promise to pay you on insured deposits and any institution which needs insurance to convince me it is safe is suspect to begin with. $100 bills are good because you control them and should comprise some amount of your holdings. For the balance I feel much more comfortable with it deposited in a non-leveraged, non-insured Swiss Private Bank which by swiss law is segregated and my deposit is NOT an asset of the bank, unlike the banks here. Thanks for asking. Doug
Very informative, but some points seem to conflict. If the US can print more money, then why / how would the dollar become more valuable. If we just keep printing at our current rate, how / when can contraction overcome creation when we have the ability to make more (by either actually printing more or creating more digital dollars).
I’m having some trouble with the statement that currency is being destroyed. If the fed loans a bank money which it uses to invest in commodities, and the value of those commodities tank, the invested money is not destroyed, it’s just transferred from the bank to the commodities seller. How is the money destroyed? The only effect that I can see is that if the bank goes under, it will not be required to fulfill its obligations to the fed and as such, the interest that would have been paid on the loan is no longer going to be paid and therefore the fed is under less pressure to create new money to be used to pay the interest.
What am I missing?
This is a very good question and almost universally misunderstood. Money is created in a couple of ways. First it is “printed” into existence. That would be the coins and bills in circulation. It can also be printed digitally by the Fed, for example during the QE2 process in which they created money from nowhere and then purchased assets from the banks, thus transferring that money to them. However, by far the way in which the majority of our money is created is through the fractional reserve banking system. In this case the money is lent into existence. However, when that money is either paid back and not re-loaned out, or when the money is not paid back at all, the money is destroyed! This is what has happened by the trillions over the past 3 years since 2008.
The other way in which “money” gets destroyed is during a deflationary event. If all of the real estate in the United States was worth let’s say $10 Trillion in 2008 and today it is all now worth $7 Trillion, then $3 Trillion has disappeared into thin air (where it came from in loans). So anytime money is put into an inflationary asset, the possibility exists that the same asset with deflate, thus destroying the money.
Now to your question, if the banks are given this digitally printed money from the Fed in exchange for damaged inflationary assets and then this money is used by the banks to trade in stocks, currencies and commodities how does this money get destroyed?
Initially, if they put it into a zero sum game like the futures market, it would not be destroyed, as someone is on the other side of every trade. However, eventually this money works its way into inflationary assets like the stock market, real estate, bonds, private companies, and hard assets. And when these in turn deflate then all the money is destroyed.
The real problem with the Fed’s printing of money has been that it has virtually guaranteed that this will occur, since artificially inflating an asset creates the very “bubble” circumstances which setup up a pop.
Excellent question, thank you for sharing.
Doug
From the Interview with Peter Campbell in Sept 2011, he said you should stay in cash. Be Safe.
In the same interview he mentioned JP Morgan will be wiped out via de-leveraging (makes sense – accept this as a reasonable premise).
Scenario1: I have my cash in a Chase/morgan bank account. JPM goes under. I’m now expecting the woefully underfunded FDIC to ‘repay’ my deposits. The only way they can do this is to borrow money from the Treasury; who must go to the open market to issue a bond. To do this, Congress must authorize a TARP-like program and go further into debt (as new cash must be ‘loaned’ into existence in our current system).
I see several risks here that scream out “your cash isn’t safe” under this scenario. Like you said, cash is a position. Typically in bankruptcies I see capital controls instituted. FDIC does not have to pay you your funds “on demand.”
An alternative is real cash, removed prior to the implosion. So what does Peter recommend you do with your cash?
Scenario2: Governments print and print and print to prevent the implosion. Pre-implosion this could be viewed as quite inflationary. But once the money “disappears” or is lost in the crash, the Fed ‘replacing’ this money with “new” credit-generated money, means a net-net “no loss.” Optics are terrible – the US Government has to “borrow” the money into existence in essence to do a straight monetization process.
Hence there is no inflation; and PMs lose their luster as a hedge; hence crash in relative price?
Scenario3: People no longer trust the ‘fiat’ and they use PMs as money. Even Greenspan said gold was money. Why wouldn’t people do that, and in the process, support its value (silver seems a likely candidate for fiat substitution in small denomination).
Thanks for your help/answers.