Washington, DC -- (ReleaseWire) -- 08/04/2016 --DAWN BENNETT: Richard Duncan is an author and financial analyst that specializes in fiat currencies and macro policy. Duncan is also the author of the Dollar Crisis: Causes, Consequences, Cures that came out in 2003; The Corruption of Capitalism that was published in 2009; and The New Depression: The Breakdown Of The Paper Money Economy that came out in 2012. But you should know what really drew me to Richard was his video newsletter called "Macro Watch" where the public can subscribe to his research and we will talk about that more at the end of the show. This is where he talked about how the world is in $300 trillion worth of debt and that's a result of how we have survived in the last few decades. He's also going to talk a little bit about how Janet Yellen is going to do everything she can to prop up the economy ahead of November. And that's where I want to start today. Richard, welcome to Financial Myth Busting.
RICHARD DUNCAN: Dawn, thank you for having me on your program.
BENNETT: Richard, it feels like to me that the Fed game is to attempt to keep the markets elevated until after the elections in November. So that Americans of course can unconsciously vote, not only for the new president, but also for another four years of Keynesian economic madness morphing into socialism. Does it seem like that to you too?
DUNCAN: Well I think that the policy makers in general are determined not to allow a replay of the 1930s. We had a massive credit bubble during the 1920s. That popped. Policymakers didn't do anything. The global economy collapsed into a depression for ten years, and that didn't end until WWII started. So this time they're doing everything in their power to prevent this new massive global credit bubble that we have from imploding. It almost imploded in 2008, but they're reflated it by trillions of dollars of deficit spending, and trillions of dollars of fiat money creation helping to finance all of that government debt. So far they've been very successful in reflating it. We still have a massive global credit bubble, but they're keeping it inflated. As a result we've had eight years of relative prosperity that we wouldn't have had if we had collapsed into a depression in 2008.
BENNETT: You recently reported that the world is now 300 trillion in debt after the global economy turned to this debt fueled growth strategy, which are your words, over the last three decades. But that exploding debt actually halted in 2015. Why is that? Is this why the economy appears to be flatlining? What does it say that we need to do in order to appear to growing?
DUNCAN: Right. So I think that our economic system changed in a fundamental way when we stopped backing dollars with gold between 1968 and 1971. Afterwards our economic system evolved from capitalism into what I call creditism. Now capitalism was an economic system in which businessmen would invest. Some of them would make a profit. They would save that profit, or in other words accumulate capital, hence capitalism, and repeat. So it was driven by investment and saving, investment and saving, that's how capitalism worked. It was slow and difficult, but that's the way it worked.
Our system works in a completely different way. Our system is driven by credit creation, and consumption, and more credit creation, and more consumption. That has generated fabulous economic growth, at least up until 2008. It ushered in the age of globalization, and it created the prosperity that we've enjoyed all of our lives, really up until 2008. The problem with that is that in 2008 we reached the point where the private sector, the average Americans, just couldn't continue taking on any more debt. At that point they started defaulting, and this global credit bubble that resulted from creditism started to implode.
BENNETT: Okay. So the term creditism is the way that you describe the current economic dogma which is guiding Washington policymakers and central bankers worldwide. But what does this mean in terms of this ultimate collapse that you're predicting? Are the current efforts at creating growth actually going to make the crash you're predicting more painful? Give us an idea of what you're talking about there.
DUNCAN: As you mentioned in the beginning of the show my first book was called The Dollar Crisis. It was published in 2003. The economic crisis, the economic crash that I was predicting happened in 2008. So that's what The Dollar Crisis was all about, warning that we were heading toward what I described as the most likely to be the worst economic depression since the 1930s, and that's what happened. So since that time what I am focused on now is what the policymakers are doing to keep this global bubble from imploding into a new great depression. So it's important to understand that we don't have a capitalist economic system anymore.
The U.S. government has been directing and guiding the US economy since at least WWII, when they took complete control over the economy; production, distribution, pricing, even labor. They've never stopped controlling it since that time for better or for worse. But as a result of that government policy they really didn't have much choice. They defeated Germany, and then they defeated the Soviet Union, but that required government management of the economy. So they have been managing it now for 76 years, they just haven't been managing it very well. We've reached the point now where this creditism can't continue to create economic growth because the private sector is too heavily in debt. If the government sector doesn't continue borrowing and spending to drive the economy then there is a very real danger that we will collapse into a catastrophic global great depression again.
BENNETT: You're not the only one who is making these kinds of predictions. Yet supporters of the status quo will continue to point to the level of the Dow, and the level of the S&P, and they see that as current strength. That's what they feed to the media, and that's what the media feeds to the American public. But how do you respond to their comments when they say that you're wrong, there's no inflation, quantitative easing is working, the markets are high. How do you respond to that Richard?
DUNCAN: Well I agree, quantitative easing has worked in preventing a new great depression, it has worked. This fiscal stimulus, and the quantitative easing has prevented us from collapsing into another great depression. Thus far it has kept this global bubble inflated. So the question going forward is can they continue to keep the global bubble inflated, and that's not at all certain, but I think there's a real possibility that they could. So I believe that we can't just look back to any one economic school of thought. Adam Smith had a lot of wise things to say back in the 1700s, and Ludwig von Mises had a lot of wise things to say in 1912, and Keynes had a lot of intelligent things to contribute in the 1930s. But we are in a completely different age now.
What makes our age so different is we have globalization. Because of globalization we no longer have national economies, we have a big global economy. In our big global economy there are more than seven billion people, and two billion of those people live on less than $3 a day. So they would be delighted to have a job that paid them $5 a day. So globalization is extremely deflationary, it's pushing down prices around the world. That's why our central banks have been able to get away with printing trillions of paper dollars, and pumping it into the economy to keep this inflated. If it were not for globalization, and the extreme downward pressure on wages that that's causing this would have created hyperinflation just like it always did in the past. But we're not in the past, we're in the present.
In the present we have a global economy with massive excess labor capacity. In addition, not only do we have excess labor capacity, we have enormous excess industrial capacity across almost every industry, primarily because China has over invested on such an extraordinary scale. So we have too much industrial capacity, and that's driving down the price of all manufactured goods, and we have nearly an infinite supply of labor, which is pushing down wage prices. So we are in a deflationary environment that has actually allowed policymakers to get away this huge quantitative easing, and the resulting inflation of asset prices that has created a wealth effect, and allowed the economy to keep growing as much as it has since 2008.
BENNETT: You've actually said that you think the central banks can continue to keep it inflated. For how long? Because, again, at the same time you've been warning for some time that the modern economic system is poised for a very large, very painful collapse. Tell me how I can attune those two ideas.
DUNCAN: Well, again, the collapse that I was predicting happened in 2008. So now the question is what next. They have managed to reflate the global bubble, that is inflated now. So, good question, how long can they keep doing this. I think it very much depends on what policies they adopt. So this economic system that we have, creditism, it requires credit growth to survive. Now going back to 1950, any time the U.S. economy has had less than two percent credit growth, and this is adjusted for inflation, this U.S. goes into recession, and that recession doesn't end until we get another big surge of credit expansion. So the ratio of total credit to GDP in the U.S. increased from 150 percent in 1980, up to 370 percent in 2007. That expansion of credit drove the U.S. economy, and the U.S. economy drove the world economy.
But we've now gotten to the point where the private sector can't take on any more debt, because their wages aren't going up, and they're too heavily indebted already. So that really means that we're dependent now on expanding government debt. Like it or hate it that's just the way it is. If the government doesn't keep expanding its debt then creditism is going to collapse into a depression. The good news is if we look at Japan, Japan's bubble popped 26 years ago, and they've managed to keep their bubble from imploding into a great depression by having very large budget deficits every year. Six, seven percent of GDP every year. They've taken their government debt now from 60 percent of GDP in Japan up to 250 percent of Japan's GDP. Well in the US the US government debt is only 100 percent of US GDP.
BENNETT: But I mean you've got to be honest, how long can this game go on? I mean are you saying that it can be 1,000 percent of GDP? Is that what you're saying they can take it to?
DUNCAN: So just think about that. The U.S. economy is 18 trillion dollars in size. So that suggests the U.S. government can do another 18 trillion dollars of deficit spending lets say over the next ten years before we even hit 200 percent. Of course if they spent that much money the economy would grow by ten percent every year, and we would never get to 200 percent government debt to GDP. So how long it can go on really depends on how they spend this money. They're going to keep spending it, it's just whether it's sustainable or not depends on how they spend it.
If they keep spending it in the bad ways that they have been spending it, on unnecessary wars, and on too much consumption, then yes, ultimately one day a couple of decades from now we will collapse into a new great depression, and we will probably not survive it. On the other hand if they take this opportunity to actually spend this money that they're going to spend anyway, if they were to invest that money in new industries, and new technologies on a very aggressive scale. For instance, invest a trillion dollars in solar energy, a trillion dollars in genetic engineering, a trillion dollars in biotech and nanotech. Well the government could induce a new technological revolution that would not only allow us to grow our way out of this crisis, but also produce technological miracles, and medical marvels as bonuses, and certainly lock in another American century.
BENNETT: We're not hearing any of our presidential candidates talk like that though.
DUNCAN: Well vote for Richard Duncan. I will assure you another American century through wise investment, not directed necessarily by the government, the way that NASA was, but more probably in joint ventures between the government and the most promising 10,000 U.S. entrepreneurs. Set up a joint venture company between the government, for instance, and Elon Musk, and everyone else like Elon Musk that you can find. The government funds it, keeps a majority stake so that when one of these companies invents a cancer cure we can list it on NASDAQ with a 10 trillion dollar market cap, and pay off all the debt, and cure cancer.
BENNETT: Wouldn't that be nice. We only have a couple of minutes left, and I want you to talk about richardduncaneconomics.com. You have a video newsletter called Macro Watch, and you're offering all of the listeners a 50 percent discount. Can you walk them through the discount coupon code? What they need to put in, and how to access it.
DUNCAN: Yes. So in Macro Watch I believe that in this new age of fiat money credit growth drives economic growth. Liquidity determines whether the stock market goes up or down. The government does everything it can possibly do to control both credit and liquidity to make sure that the economy doesn't implode. So those are the things that I focus on. Every two weeks I upload a new video discussing some important aspects of the global economy.
BENNETT: What code can they put in?
DUNCAN: So go to richardduncaneconomics.com, and use the coupon code watch for a special 50 percent discount to Financial Myth Busting listeners.
For over a quarter century, Dawn Bennett has been successfully guiding clients through the complexities of wealth management. Her unique vision and insight into market trends makes Bennett a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to her highly regarded weekly talk radio program - Financial Mythbusting. Through prudent and thoughtful advice, Dawn Bennett has strived to consistently provide the highest quality of guidance.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com.
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.