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How Inflation is Killing Your Savings & Could Gold & Silver Help? – Rick Rule

Rick Rule

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Rick Rule and Craig Hemke discuss the staggering $35.7 trillion in debt in the USA and the severe impact inflation is having on your savings. Rick explains why gold and silver are critical to protecting your wealth in these turbulent economic times. As inflation continues to rise, learn how precious metals can be the key to preserving your purchasing power and financial security. 

Craig Hemke: I'm your host, Craig Hemke. Joining us this month our old friend, Rick Rule. He is the CEO of Rule Investment Media and is a legendary resource investor and speculator. It's always good to get his thoughts on the current world. Rick, good to see you.

Rick Rule (00:03) Craig, it's a pleasure. Thank you. Lovely to be back on.

Craig Hemke: It's we've had a fun year and it's been fun to catch up with you every time and every time we get caught up I'm like, well, that's probably about as far as we'll go with the metals this year. Then we keep charging forward. I want to remind everybody again Sprout Money is the sponsor of all this information. So you want to subscribe to their channels so you don't miss any of it because there'll be more to come still in October. But second support their business. They'll actually now accept Bitcoin and Ethereum as payment. How about that?

And if you buy anything more than 500 bucks, they'll ship it to you and insure it for free. So go to SpronkMoney.com and get yourself some precious metal. Prices keep going up though. Not a bad deal. Rick, let's start with this. There is a lot of conflicting cross-currence regarding the U.S. economy and what the Fed is doing. Next Fed meeting is about two weeks and then

They told us it was going to be 25 basis points for the next cut and it looks like where they're going. So what's the biggest threat in your eyes? Is it a U.S. tumbling into recession or is it a resurgent inflation?

Rick Rule (01:39)
I would say resurgent inflation. I was brought up to believe that every now and then we had to have a recession. It's a cleansing event. It would seem to be that savers and investors and workers believe that they should get through life risk-free. And my belief is that the moral hazard is real. That there are bad habits that get built up in good times and they need to be expunged through a recession. But a much larger problem

is what happens if you don't expunge those. And I think that's the circumstance that we face now. And I think it's important to quantify inflation, Inflation, I don't believe is accurately represented by the CPI, which would suggest that inflation is crawling along at 2.6%. When I look at the basket of goods and services that I consume, I believe that the deterioration of my purchasing power, which by the way is how I measure inflation,

is more like seven and half percent. Therein lies the problem. To me, the on balance sheet liabilities of the US government approaching $36 trillion and the off balance sheet liability of the US government in excess of $100 trillion with a budget that's in deficit in excess of $2 trillion a year is the real problem. It appears to me that the only way out of that trap

is depreciating away or in conventional terms inflating away the net present value of the obligation. I lived through this in the decade of the 1970s. We had the same circumstance, although arguably not as severe. And we solved, if that's the right word, the problem by reducing the purchasing power of the U S dollar according to our own government.

by about 75 % over the course of decade. My suggestion is in this circumstance, past this prologue, that we will deal with the debt, not by dealing with the debt, not by reducing spending, but rather by the inflation tax, by inflating away the net present value, particularly of the entitlement obligations, which is to say, you will get paid your social security allocation. If you're supposed to get 2,200, you'll get 2,200.

It's just that the $2,200 will buy you $400 $500 worth of goods and services.

Dope With A MacBook (04:09)
That has been done, I mean, they go back to prehistory times. was Dionysius? Wasn't he the first to figure this out, that we can just devalue the currency to pay off our debt? And that was a couple hundred years BC. Is that the biggest issue that being failed to be addressed in the US presidential election? Is that the biggest issue going forward for whoever wins?

Rick Rule (04:16)
Correct.

guess we have two challenges going forward, two big challenges. One is the one that you or I, depending on who you want to blame, suggested, which is to say too much expenditure, too big a government. The other is war. And I don't know how to address war, but I think the ongoing conflict in the Middle East needs to be addressed. I don't know how to address it, by the way. I'm not complaining about this.

And I think that the ongoing hostilities in Eastern Europe need to be addressed. I don't think that the United States is, let me rephrase my question. I believe that the US is partly culpable in both circumstances.

I see all points of view in both conflict. I don't want to get deeply involved in a geopolitical discussion because I'm not a geopolitician. But I think in addition to our society having to focus on the fact that government is way too big, that our debts are way, way, way too large, we need to focus on what we can do as a nation to foster world peace or at least not participate and exacerbate war.That's a nice idea. I don't disagree with you. You wonder how the participation or lack of participation impacts the perception of the US and the world stage. I guess what I'm driving at is this. You had talked to a long time ago. We've discussed the idea of the US 10-year Treasury note as the benchmark global asset.

Rick Rule (05:57)
Yeah, but don't know.

and our problem.

Dope With A MacBook (06:22)
demand for that bird's-spark global asset at present doesn't seem to be very high. Is that all tied together?

Rick Rule (06:27)
That's a third problem. In addition to being a party to active hostility around the world, and in fact, having US troops in over 80 nations worldwide, not my definition of defense, we've weaponized the US dollar. We have said to other countries that given our role as the provider of the medium of exchange,

If your own political processes and in fact, your political actions don't conform with our beliefs, we will punish you by weaponizing the dollar. the most egregious step, I think, irrespective of how you feel about Russian con, conduct in the Ukraine was our in effect, stealing the $300 billion in Russian treasuries. That sent a rather dramatic message.

to other countries that were storing some of their wealth in US treasuries and conducting their trade in US dollars. It reduced what de Gaulle had described as the exorbitant privilege enjoyed by the United States, printing currency and shipping it to other countries for the settlement of their debt, the extent to which we are devaluing the American franchise.

is disturbing to me as an American. I understand the reasons why the powers that be would do it. you go into government to exercise power. That's what you do. and this is another level of power from their point of view. I understand it from my point of view, somebody who has benefited as a citizen from the exorbitant privilege that our good behavior over 50 years earned us. The fact that we're destroying that franchise.

is, I think, at once troubling and sad.Is it irreversible, Rick? Okay.

Rick Rule (08:29)
Is it irreparable? I don't think so. I don't think so. I've spent a lot of time during my period of time at the other part of Sprott from you, Sprott Inc. talking to sovereign wealth fund managers and big, investors from other countries. And as little as they trust us, they trusted each other least, less. There was a lot of historic goodwill and there was a lot of utility in the US.

dollar as a medium of exchange and in fact in the period 1982 to 2022 to the US tenure treasury. I think that's changed and I think most of what's changed is our own fault and I don't think it's irreversible at all. I don't see any demand by the US voter and hence any plan by either party to address it but

When I travel around the world, the goodwill that people evidence towards American citizens is spectacular. The difficulty that I encounter is the opinion in other countries of the actions of the U.S. government. The fact that the U.S. government is pursuing policies that are antithetical to U.S. interests from my point of view on a global basis. And I don't think that's irreversible, but I don't see any particular move to reverse it.

Dope With A MacBook (09:58)
that if the demand, if gold does become or really does siphon off demand for treasuries as the ultimate safe haven.

Rick Rule (10:06)
You know, I want to address that because you talk to a precious metals crowd. And the precious metals crowd is too simplistic on occasion. There is this suggestion that gold will somehow replace the US dollar as a medium of exchange or replace treasuries. That doesn't need to happen and it likely won't happen. The market share for gold relative to other savings and investment assets in the United States

The market share for precious metals, gold, silver, platinum, palladium, gold stocks, platinum stocks, all this stuff, is less than one half of 1%. One half of 1 % of total savings and investment assets in the United States is comprised of precious metals and precious metal securities. The four decade mean market share is 2%. If precious metals just reverts to mean, demand grows fourfold. Don't.

Confuse yourself as a precious metals investor with the collapse of the US dollar or the replacement of the US dollar as a medium of exchange by gold. Likely not going to happen and doesn't matter. If we merely revert to mean, we have the type of bull market that we had in the 2000 to 2010 period. It's important that people understand that it's important that they don't hold their breath.

for the renunciation of the US dollar and the collapse of the US treasury market. Not a requirement, not likely to happen in my lifetime and I'm 71. Also completely irrelevant as to the performance of your gold and your gold stocks.And so Rick, you, the rally that we've seen this year, which is slightly counterintuitive in the gold price, because at times the dollar's been rising and rates have been rising, but gold keeps surging higher. Do you lay some of that at the feet though of this switch, the central bank gold demand, this more inclusive investment option of getting more people into gold?

Rick Rule (11:53)
here.

I do. I think it's important to note that the gold run has happened without retail participation, mostly. It's a function of foreign central bank buying. By the way, that is in itself responsible for a lot of the delta between the move and the gold shares. Gold went up because central banks are buying it and central banks don't buy gold shares. If the markets are different, it makes perfect sense that the response would be different. Usually,

Dope With A MacBook (12:35)
even the Swiss.

Rick Rule (12:42)
Gold going up in US dollar terms is a precondition for a gold bull market. We've been in a gold bull market and other currencies for four or five years because the US dollar has done well against them. so gold has done better against them. But the idea that gold is going up in US dollar terms, I think is really evidence of the circumstance that I've talked about, which is to say the weaponization of the US dollar. If, and for 15 weeks now,

Dope With A MacBook (12:53)
Yeah.

Rick Rule (13:11)
We have been in a period where there has been retail participation in the gold market. Maybe not at the bullion dealers like Sprott Money, but certainly if you measure the inflows into bullion denominated ETFs for at least 15 weeks and probably 20 weeks, we've been in a period where there has been retail participation in the gold market too. If we get continued central bank buying and if there's an overlay of retail buying, particularly retail buying,

in north america and western europe then i think you begin to see precious metals pricing really get underway and i would suspect that you can see that

Dope With A MacBook (13:53)
Can we do this though, Rick? One of your famous lines is about, own gold because I'm afraid it might go to $9,000 or $10,000. Could we go to $9,000 or $10,000 just simply under the current situation with demand, central bank demand, global asset allocation, know, demand? Can we get there without some kind of crisis scenario?

Rick Rule (14:02)
Yep.

I'm sure.

Yes, yeah, I think so You know Craig in the past people have asked me on your show Okay, I get all this when's gonna gold gonna move To which I always respond the year 2000. That's when gold's gonna move In the year 2000 gold was 253 bucks and what is now 2700? So it's moved eight and change compounded for 24 years. The problem isn't gold

The problem is investor perception. I would argue with you that most of gold's move hasn't been gold going up. It's the fact that the purchasing power of the US dollar has gone down. Unfortunately, until we deal with debt and deficits, I don't think that there's any upward pressure on the US dollar at all. Upward pressure on the US dollar relative to other currencies, sure.

Dope With A MacBook (14:43)
Yeah.

Rick Rule (15:11)
but in terms of real pricing, no, it's interesting that my estimate of the deterioration of purchasing power is conservatively at seven and a half percent compounded and gold has increased at about 8 % compounded, which would suggest that gold really hasn't moved up a lot since the year 2000. It's merely kept pace with the deterioration in purchasing power of the US dollar. I believe Craig, that as,

the perniciousness of inflation becomes more felt in the average household. When more people stop thinking about the CPI at 2.6 % and pay more attention to the price they pay for gasoline, the price they pay for groceries, the price they pay for their mortgage, the price they pay for rent, that not only will the reality be true, but the perception around the reality and the actions will be true.

the decade of the 70s, the perception of inflation didn't catch up with the reality of inflation for five years. The writing was on the wall in 68. The reality began to be felt in 1972. Similarly, we didn't feel the increase in pressure in the US dollar, which began to be evident in 1998 until about 2002.

gold actually started moving up 1999 and 2000, but nobody felt it. And I suspect in this circumstance that the delayed reaction will be the same, which is to say that investors, savers, voters in the United States have lived through 40 years of very benign economic climate in the 1998 to 1988, pardon me, 1982, I'm sorry.

to 2022 timeframe. And I suspect it may take another couple years for people to understand what has happened to their savings and what has happened to their paychecks. And for them to understand that we're gonna have probably a 10 year period in front of us with rapidly deteriorating purchasing power of US dollar denominated savings.

And I think when that happens, when that perception coincides with the reality, that we'll see the same response that we saw in the period 2000 to 2010, which is the gold price escalating sixfold or sevenfold. I don't want to make that a prediction. What I do want to say is that I believe that like the decade of the 1970s, that the purchasing power of the US dollar likely declines some number

Dope With A MacBook (17:44)
Yeah. Yeah.

Rick Rule (17:59)
like 70 or 80 % over the next 10 years. If that's true, I suspect that past is prologue with regards to the gold price. Putting a real number on it, I don't want to do it because you get these weird internet headlines then Rick rule says gold's going to 20,000, some stuff like that. know, but I think, I think your listeners need to think about what the probability is that we solve the problem with regards to debt and deficits.

Dope With A MacBook (18:15)
Tell me about it. I get those skills.

Rick Rule (18:27)
If they then agree that the answer to that is nil, then they need to think about what happens to the purchasing power of their savings and investments in US dollar terms. If they agree with me, then the likely outcome is strengthening precious metals prices. And I think that's the sort of conclusion train that people need to subscribe to.

Dope With A MacBook (18:55)
Yeah, the Fed is full of six figure economic historians that like to write their reports and the Fed's history coming out of debt to GDP after World War II was yield curve control and inflate away the debt. I can't imagine they won't follow that same playbook, at least initially.

Rick Rule (18:58)
here.

around the community and forward movement.

I agree, sadly.

Dope With A MacBook (19:18)
Yeah, which does not bode well. However, it is what it is and you can protect yourself by owning physical gold. I'll give you one last thing, Rick, as we wrap up. There was a thing I saw on Twitter. I just think you'll like this. You know, they showed a London gold bar, right? The one that everybody has seen, 400 ounces. And in 1971, when Nixon closed the gold window, you could buy one for $11,000.

That same gold bar today cost you about $1.1 million. The gold hasn't changed. It's the same bar. So what better, what better visual aid do you need about the destruction of your purchasing power? So get yourself some physical precious metal, go to SprottMoney.com or call them at 888-861-0775 and get your some of this financial protection against the madness. Rick, thank you for all you do.

Rick Rule (19:49)
Right.

Dope With A MacBook (20:12)
and please keep spreading the message and trying to help as many as possible. It's been wonderful visiting with you again today.

Rick Rule (20:18)
Thank you for giving me the opportunity to give a sober interview. Any of your people who care what I have to say should go to ruleinvestmentmedia.com. List your natural resource stocks. personally will rank them one to 10. No charge, no obligation. Will not reduce your purchasing power. Ruleinvestmentmedia.com. Thank you.

Dope With A MacBook (20:35)
I would remiss for not pointing that out. You are so generous with your time. Again, tell everybody, they can email you their top 10 mining stocks and you will, you, you, Rick Ruhl, email them back and tell them what you think.

Rick Rule (20:50)
All true, I need to run. Thanks for the opportunity. Bye bye.

Dope With A MacBook (20:52)
Okay, thank you, Rick. Thank you so much and thanks everybody for watching and keep an eye on this channel for some more content still to come here in October.

 

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

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