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Rafi Farber: The Inevitable Death of Fiat Currencies

Tom welcomes Rafi Farber back to the show to discuss the consequences of the debt ceiling debate. Rafi is an investor, author, and proponent of the Austrian Business Cycle.

Farber discussed the possibility of flooding the market with $1 trillion worth of T-bills if a deal is passed, and the potential effects of this. He noted that similar factors were in play during the repocalypse of 2019, such as tax day and quantitative tightening, and that this current situation is worse.

Farber discussed the complexity of the current banking crisis, which is the fifth largest monthly loss for the big banks in deposits ever. He believes that this is due to a combination of deposits going into money market funds, and small scale debt defaults. He also discussed the IMF’s worries about the banking crisis becoming worse, and how the main difference between the 2008 banking crisis and the current one is that the Federal Reserve now owns mortgage backed securities.

When asked where he saw inflation heading, Farber explained that the paradox of monetary and non-monetary forces on prices is that lower interest rates will initially drive prices down, but eventually the higher money supply will catch up and cancel out any productivity gains in the supply. This will lead to an exponential growth of money supply that will eventually be unsustainable, leading to the collapse of the banking system.

Farber also discussed the weakening of global currencies, using the British pound as an example. He argued that the UK government’s decision to directly finance the government deficit and hand out 70% of paychecks to citizens was “hog wild” and is now leading to a hyperinflationary spiral with food prices at 20%. He then discussed the 10-year bond being at crisis levels, as the Bank of England now owns the bonds instead of retirement funds.

Farber concluded by discussing the importance of paying attention to the current state of the U.S. dollar and other currencies, and the implications this has for the future of the global economy. He argued that the only way to move beyond the skeletal remains of the Bretton Woods system is to trade in gold, but that governments don’t want to do this because it’s honest and they benefit from stealing. He encouraged people to stay grounded in logic and not overextend themselves, reassuring them that if they do, they will make it to the end of this game.

Time Stamp References:
0:00 – Introduction
0:40 – Ceiling Consequences
5:18 – Liquidity Issues
8:06 – REPOcalypse Thoughts
10:23 – Feds Balance Sheet
11:53 – Banking Deposits?
16:13 – Mortgage Securities
19:12 – Inflation Cycles
22:12 – British Pound
25:49 – Inflation & Metrics
28:20 – The Gold Benchmark
33:40 – BRICS & The Dollar
37:04 – Metal Delivery Months
39:50 – Gold/Silver Ratio
42:24 – Communication Speed
43:54 – Wrap Up

Talking Points From This Episode

  • Defaults and deposit problems in the current banking crisis.
  • Concerns with the Fed now owning mortgage backed securities.
  • Governments don’t want to trade in gold because it’s honest and they benefit from stealing, so it’s important to stay grounded in logic and not overextend oneself.

Guest Links

Rafi Farber invests based on the Austrian Business Cycle Theory and covers economic trends for timing the credit cycle. His marketplace service, The Libertarian Investor, helps subscribers manage the risks and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. His approach uses gold, silver, and associated stocks and investment vehicles as a low-risk, high-return methodology.

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