Editor’s note: The following is taken from Vox Day’s exclusive interview with Max Keiser.
What is your take on the recent announcement of the 28.7 percent collapse in existing home sales reported by the National Association of Realtors?
The economy and the markets are broken. There isn’t going to be any increase in demand without jobs or wages. Furthermore, there is the situation where the commercial banks are holding huge mortgage pools that they claim hold values above zero, which is not the case. These huge write-downs mean huge problems for the Fed.
Will Obama’s financial-reform act that passed Congress earlier this year lead to any improvements in the economy?
No, because it doesn’t solve the structural and systemic problems. The problem is that the banking system is fundamentally broken. It broke in 2008. The big stimulus enacted in 2009 threw new credit into the economy, but it was like giving a blood transfusion to a corpse; we saw some movement, but the corpse still isn’t alive. The system broke in 2008, and no one has done anything about it. It’s a pail with no bottom in the pail.
Are the big banks still in trouble?
Absolutely. They are still carrying all this mortgage paper that is worth zero. No one wants that paper. The Chinese aren’t buying that paper. The only people buying it are investors buying bonds through bond pools, and they will find out they are sorely mistaken when the rest of the world abandons the dollar.
The dollar is up 20 percent from the end of last year, when it was down to $1.52 against the euro. How do you explain that in light of your belief that there is declining interest in buying dollar-denominated debt?
It’s the same reason you see strength in the Japanese yen. It has to do with unwinding all that debt. There is $750 trillion in derivatives that needs to unwind as the global economy deflates. People have to buy dollars in order to get out. China, as they get out, has to continue to buy dollars to unwind that debt and buy gold and other currencies, until they’re finally out. Eventually the dollar will be replaced with a new global currency basket of which the dollar will be just one component. In the transformation, it will experience a 50 percent markdown from its current valuation against other currencies.
Hyperinflation or debt-deflation?
They are two sides of the same coin. Deflation or hyperinflation, neither of them can be equated to inflation as that term is understood. The money supply is not expanding, and wages are not going up. So the money supply is contracting, and the system is breaking down, which is deflationary. Will a currency breakdown create hyperinflation? Sure, but that isn’t conventional inflation.
Why can’t the Fed simply print the money to expand the money supply?
The reason is that for every dollar that is printed, there are two or three more dollars that will be revealed on the balance sheets of the banks. David Cameron thought the UK had an 800 billion pound deficit, but he found out after he was elected that he was facing a deficit of 5 trillion pounds instead. The problem with the TARP program is that there were many times the trillions supposedly involved in bad debt. That takes us back to housing. The banks are carrying worthless paper, but they are telling everyone it is worth something more than zero. But as housing continues to collapse, they will have to reveal that they are sitting on another five to 10 trillion in bad debt. The Fed is behind the curve. No quantitative easing will make up for the bad debt that is yet to be revealed. The commercial banks didn’t get rid of their bad debts in 2008, and Obama let them leave it in place. They’re continually failing to disclose these debts. All of their 10k and 10q forms mis-state their balance sheets in violation of the SEC laws, and there is nothing remotely legal about what they are doing. But every time they break the law and finally admit they have more debt than they’d previously declared, it’s done during some crisis. They put a gun to Congress by admitting that they broke the law and lied about it, but argue that if they’re not bailed out they’ll blow up the economy. Extortion is the No. 1 business model on Wall Street today.
Do you see any safe haven for investors and depositors?
Everything will deflate against gold. Even Peter Schiff, who is an inflationist, says the same thing.
Will the prospect of a Republican landslide in November help the situation at all?
The American transition from the only global superpower to a regional power began in 2008. America is now a regional power of medium standing. So who is running the shop? The local donut shop is losing customers, but now it’s bringing in a new manager. Does it matter? No, because the shop is in a bad location. It doesn’t matter who the manager is. Whether it’s the Democrats or Republicans running Congress, America is still being relegated to the dustbin of history.
Historically, this happens all the time. The U.S. made unbelievably bad policy choices in the last 20 years, and you can only make so many bad choices before you can’t come back from them. Peak America was in 1969. Some might argue for other times, but the Peak America moment is still now behind us. After World War II, America was the only major economy standing, and there was a period of expansion with all the manufacturing capacity in place to allow the rise of the middle class. In 1969, there was the remarkable achievement of the moon landing, the New York Jets won the Super Bowl and the New York Mets won the World Series. It was a historic achievement taking place in the same year as two major teams from America’s largest city having the ultimate sports success. After that came the ’70s, followed by Reagan and the adoption of Milton Friedman’s neo-liberal policies that did so much damage to a number of South American countries.
Are Americans not so much getting the country they deserve as the country they have demanded?
Last year, 700 Americans renounced their citizenship. You’re going to see that number continue to increase until they start trying to confine them. Anyone with half a brain is going to want to emigrate. To understand what’s going to happen, you need to look at Argentina circa 2000 and 2001. The kleptocracy won and started stealing everything. Remember, in the Great Depression, there was still a functioning banking system and good leadership. That is going to be remembered romantically as a great period of American history by comparison when this is over. When I say America is done and dusted, I’m saying 1776 to 2008. It’s over with. It’s done with done. From Mexico to Canada, there will be only pieces. How many states are bankrupt already? They can’t afford to turn on the lights or fix the roads. They can’t afford to teach the children. There’s nothing there anymore. It’s an empty shell.