Alasdair Macleod says the biggest credit bubble in history is about to pop—and 2025 could be the breaking point. Hear straight talk on how interest rates, real money vs. “fake” credit, and gold’s lasting power may shape everything. If you think your currency is safe, this might change your mind.
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Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein. I am joined by the one and only Alasdair MacLeod, author of the MacLeod Finance Substack, who joins us today to talk about money, credit, gold and what he sees as the biggest factors that could shake the macro world in 2025. Alasdair, welcome to the show.
Alsadair Macleod:
Thank you for having me, Ben.
Ben Nadelstein:
Let’s jump right in. So why is it critical, as you argue on your Substack, for people to understand the distinction between money and credit and what are the people who don’t understand that distinction missing?
Alsadair Macleod:
Well, the two things I would say, firstly, people have always had a very poor understanding of money and credit. And when they talk about money, they make no distinction between the two. So this so it is very, very important and particularly at the moment, because what has happened is that we are in a credit bubble and it so happens it’s the largest credit bubble in history.
It’s truly global, far larger than anything between 1927 and 1929, which led to the depression. When that unraveled. This is so big because successive credit bubbles since 2000. No, since 1985 ish, when we had Big Bang in London and everything became a lot more financialized, in terms of banking, there’ve been about 6 or 7, of these sort of bubbles building up.
And, they’ve always been, if you like, kicked into the next one rather than allowed to wash out the mal investment and, you know, the banks and, the businesses, which really should go bust. I mean, it’s, you know, when a, when a bubble ends, you get a cleansing operation. And, that just hasn’t happened. So the result is that it’s all rolled up into this mega, mega, mega bubble.
And another reason that it’s, I think, desperately important to, point out that there is a difference between money, which I call, a medium of exchange with no counterparty risk and credit, which always has a counterparty involved. So, you know, if you earn, a bank deposit, is because the bank has a liability to you, you don’t actually own it.
It’s just credit from the bank. And, because of all the propaganda, particularly, when, Bretton Woods ended, the propaganda, particularly from the US government, has been, gold is a pet rock. It’s no longer central to the international monetary system. The dollar is the new gold, as it were, which is not the case.
So, with this credit bubble, literally teetering on the edge, and the thing that will push it over is higher interest rates. You can see that it’s time for a wakeup call on those who don’t understand. The difference between money and credit. Don’t even understand money. Really? It’s very important that they do to protect themselves.
Ben Nadelstein:
So let’s talk about those higher interest rates, which you think could potentially be the the pin to pop that bubble. So interest rates in the US have spiked over 5%. A lot of people were warning that this would cause a problem for equities. And yet stock market equity markets seem to be doing all right at the moment. So first of all, how big do you think the Pin needs to be to pop this bubble?
If this is kind of a larger bubble than we’ve seen before? And do you think only interest rates are the thing they can do it, or is there something else that can kind of pop this bubble?
Alsadair Macleod:
Well, I’ll answer the first question first. I have observed over the years that at the end of a bull market cycle in equities, you get both bond yields and equities rising at the same time. You then sometimes get a pause in the rise in, bond yields, which allows equities to go even further. More extreme. And then when you start rising again, it’s at that point that the equity bubble gets popped.
I mean, I’ve noticed that so many times over, over, what the 60 odd years I’ve been involved with, with the securities industry, if you like. So I think that’s, that’s the first thing to understand. The second thing to understand is that, credit is very much like anything else. If you restrict the supply of credit, then the cost of credit, in other words, interest rates will rise.
And we’re seeing this manifest itself in various ways. I mean, firstly, the banks are no longer keen to, to lend on, you know, to local businesses. So the sort of 80% of an economy which is local businesses, if you like, rather than the big corporations, has been starved of capital and, the liquidity, if you like, in order to carry stock and all the rest of it, you know, typically the sort of the problems, if you like a local retailer, and, you know, with some of the smaller and medium sized enterprises on a local basis, you know, which have over an overdraft facility with the bank, the banks are turning around and saying, well, you know, we want to cut this done. I mean, we would like to see, your account run back to balance. But until that time, I’m afraid we’re going to have to raise the rate at which we lend to you. And we’re only going to lend you half as much, you know?
So you’re getting these restrict if you like. The heart of this is that banks have now moved from a period of being greedy for business to being cautious about risk. And when they’re cautious about risk, and they assess that risk is more important, if you like, than opportunities, in terms of lending, then, you know, you find that the interest rates that they charge will start rising.
And that has actually been the case for a little while now. The other thing you see is that, they will move their balance sheets. I mean, because collectively they can’t actually get rid of any credit. I mean, once it’s in existence, it’s in existence until someone goes bust and defaults. That’s the only way credit goes. So, what they will tend to do is to switch their lending from, local businesses, small and medium sized enterprises, etc., to governments who are, according to the regulators, less risky than lending to commercial enterprises.
So everything is actually working against the productive side of the economy in that sense. And the other thing they do is they, they try and reduce, the, duration of their assets. They would rather be rolling over things on the more sort of cash like basis than, let’s say, lending stuff five years out. So this is the other problem.
And it’s, it’s, it’s raised the problem for governments because they’ve had to, raise, that their debt principally out of, Treasury bill type instruments rather than, you know, longer maturities, which would give, if you like, a sort of a nice, stable profile to their overall debt. So this is, this is, I mean, it’s really quite simple.
A lot of people think that the fed or their central bank manages interest rates. Well, they can, you know, they can do something at the front end if we ignore the consequences. But when it comes to longer, it they can’t actually touch it. I know that a lot of people talk about yield curve control and all this sort of stuff, but actually, in this situation, the banks are risk averse, the balance sheets are overleveraged compared with, where they would be, if you like, at the beginning of the of the lending cycle.
I mean, the beginning of the lending cycle, there would be something like 8 to 10 times, assets to, shareholders equity leveraged at the moment in the US, you’re looking at about 14 times. So you can see that this is a situation which makes a bank, a banker, really quite uncomfortable. That is why interest rates and bond yields are rising and will continue to rise.
And there’s a worse problem than that because, of the G7 countries, all of them, with the exception of Germany and Canada, have government debt to GDP in excess of 100%. You know, this is this is extremely difficult. It what it means is particularly with the slowing of GDP and maybe even contracting GDP, that debt to GDP number starts soaring.
And, foreigners who basically price, the debt, government debt on international markets, don’t want to buy it. I mean, you know, because they can see that this is, you know, the debt is rising faster, if you like, than GDP and all that basis, the country, the nation is in a debt trap. So, this is one of the reasons why China isn’t buying.
And it’s also the reason why the Japanese institutions aren’t buying. And I suspect that this reluctance to buy U.S. Treasury debt will actually spread to other nations as well. So, with the absence of buyers in the long term bond market, you know, because they’re you’ve got, you know, do you want to own dollars is the first question.
The second question is, do you want to own something with such a long duration for a yield of, say, 4.8% or whatever it is that the ten year is? At the moment? The answer is probably no. So, we’re going to see, bond yields particularly out along the yield curve rising. And it’s not going to stop here.
I think getting back to the core of your question about the consequences on equities, I think once you see the, us, ten year yielding more than 5%, I, I would be very surprised if the equity market can stomach that. I really would. And, the point about this being the biggest, credit bubble ever is that when it starts contracting, it’s going to be unstoppable.
And the consequences for all, financial investments, which are all credit in themselves, I think is likely to be catastrophic to personal wealth. So that’s why this this matters this the, you know, the the relationship between interest rates and how they pop the bubble. I mean, first it’s equities yet. Well I mean bonds are already you know, they’re already suffering commercial real estate is already suffering.
I mean, you got another thing in the mix, you know, with people staying at home rather than using office offices and so on, residential property is also going to be badly hit, simply because mortgage rates are going to rise. So you can see that this is not a very happy seen when, a credit bubble, goes pop.
Everybody gets really very badly affected. And the irony is that very few people actually know that we’re in a credit bubble. And it’s this sort of thing they discover after the event.
Ben Nadelstein:
So can we talk about some assets that you would consider not a part of the credit bubble versus assets that you would say this is purely based on credit. So one example on the credit side might be a zombie corporation. This is a company that they don’t even make enough profit to service the debt revenue, expenses. So the debt comes with interest expenses.
Their revenues do not even cover those interest expenses for, you know, ten years that would be qualified as a zombie company. Clearly, this is fueled by an excess of credit or lower credit and lending status versus something like, I’m going to let you fill in the blanks.
Alsadair Macleod:
Okay. Well, zombie corporations, basically, I suppose you define them as, as, corporations, which, are not profitable and cannot service the debt. Now, as interest rates rise, then the number of zombies are going to increase. I mean, that that is that is for sure. And they will start going bust. And so, I mean, that one is quite obvious.
And of course, an awful lot of, government action, US Treasury plus fed, in America’s case has been to try and stop those bankruptcies happening. But there will come a point where they can’t really do it anymore. What they will probably do is they’ll try and muscle interest rates down, even though at the long end yields will be rising, but then they’re going to have a problem because, that just undermines the value of the dollar and frightens off foreign investors even more so, you know, the situation actually becomes quite catastrophic.
I think the point is that this is actually no longer, under the control of the fed or the US Treasury. So zombies. Yes, quite simple, but the point about credit is that everything depends on credit. I mean, when you buy an equity, you think that you are, protecting yourself, against, inflation, for example, this is a common story because, you know, a bit of inflation actually is probably good for the company’s profits.
Alsadair Macleod:
So, you know, you would adjust your portfolio from, say, 60% bonds, 40 equity to 60 equity, 40, but, well, you know, whatever, whatever, all that sort of rubbish actually like which the regulators encourage fund managers to, to, to work on. The fact of the matter is that when you own an equity, you actually don’t own it.
It’s credit. What you’re doing is you’re buying a promise from the management of the company or the corporation to deliver to you with your interest a, an income stream, an income stream, or, profits in lieu, which may be retained in the company. But it’s worse than that now because you don’t even have that. The major shareholders of these companies are corporations, like, the Dtcc.
Dtcc, I can’t remember. Dtcc, you know, the the depository trusts, you’ve got euro clear in Europe. They actually owned the shares, and they issue you, if you like, you’re on the register with them as having, the interest which is meant to pass through. This is certificate less trading, if you like, you know, which is.
Sounds lovely. It’s great. We don’t have to worry about certificates and transfers and all the rest of it. Fantastic. But the problem is that when things go wrong, the relationship isn’t between you and the company. You think you’re a shareholder? No. You know this corporation, which is a middleman between you and the company. That’s the shareholder, and it allows them to deploy their total ownership in the company as collateral.
It’s still as you it still owes you your interest. Yes. But you, you you’ve got no say in this at all. So you’ve got no protection at all as an equity shareholder. And that bit of distancing also happens in bonds. Incidentally, look at, property. No, this is the other thing people say property is the best, you know, physical property as opposed to financial property.
Well, yes. But in terms of value, you’ve got a problem in that. The purchase of property always depends on credit and, credit in two forms. Firstly, so-called money, which is actually bank. Deposit bank. You know, it’s, it’s it’s a bank obligation to its, deposit holders. And secondly, the pricing of residential property depends on the availability of mortgage finance.
When you get, you know, a credit crisis such as the one which I now foresee, that finances isn’t going to be available. So we’re sort of rapidly whittling down there is actually, I mean, the only things which you can own, without credit are things like food, perhaps agricultural land unencumbered because that will actually produce non-financial things for you.
But principally, the answer is to get out of credit and get into real money, which is gold. And, if you own gold, then, okay, gold isn’t going to earn you anything because the whole idea is you hold it against this. This, this calamity. And don’t forget, incidentally, when it’s all over, to sell your gold for whatever it is that becomes credit because you then get back into the game if you like abusing credit, but not before the credit actually collapses.
So this is the this is why you’ve got to understand the difference between money without counterparty risk, which is gold used to be silver, used to be copper as well. And and credit I mean, credit is not the place to be at the moment. And that covers virtually everything in the financial sector as principals and also as agents.
Ben Nadelstein:
I really like the way you discuss this distinction, and one way that I usually try to help people understand this is if you look at something like a bar tab, you go to your local bar, you say, hey, listen, I can’t cover that today, you know, but, you know, put it on my tab. Right? So there’s $5 that you owe those, you know, that bartender, that establishment that’s that’s credit, right.
Versus when you go and you saddle up. Hey, you know, I, I owe you. Here’s your five bucks. You’ve settled up with them. The issue is that that credit, the thing that we’re using as, hey, I owe you is now also being conflated with the money. So there’s an issue where the person, the thing, the thing that gives you value, the thing that you say is money has now been kind of swapped or merged into one thing, which is credit with central bank saying, hey, don’t worry, the value of the currency is now up to us versus yeah, in the past with copper, silver or gold, the value of the currency or the money was the thing. It was that that stable thing with no counterparty risk. So can you quickly go over this, the global nature of this. Right. So it used to be that certain central banks had tied their currency to gold. And so you could say at the end of this credit, there is, you know, a kernel of gold at the bottom, but now we’re we’re in a global kind of economy, a global world with global irredeemable currencies.
So have we ever seen a credit bubble that was global in nature, or is this the first in history?
Alsadair Macleod:
I think this is the first in history. And, you know, you were talking just now about, you know, settling the bar tab and, the one thing which, is must be understood is that currency itself is credit, because, I mean, and the way you find whether something is, you know, credit or not is is there an obligation on the other side of it?
And the answer is look at the Fed’s balance sheet. And the answer is yes, the liability. The currency is a liability. And bank reserves on the Fed’s balance sheet are a liability into the banking system, which in turn will probably have a liability to you if you’re a depositor. So, you know, don’t forget that currency is also credit by getting out of equities or getting out of bonds or whatever and thinking that, you know, I’ve, I’ve no actually got real money.
No you haven’t. I mean that’s all a myth. So I think that’s desperately important. Sorry, I’ve rather lost the thread. What was your question again, Ben?
Ben Nadelstein:
Well, that’s great. I didn’t make that point.
Alsadair Macleod:
I do apologize,
Ben Nadelstein:
No, that that is a great point. And and I like the way that you put that, which is look at this thing. You’re holding this asset, whatever it may be. Is there some other counterparty on the other side of this? For example, you can own real estate, but on the other side there’s someone who’s holding the mortgage, right.
You can have a share. But on the other side there’s, you know, an exchange or something like that. And so when you hold something with no counterparty, whether that’s gold or silver or some other asset with no counterparty, that’s when you can start having the discussion is this asset money? But when you look at today’s currency check, check, pull out a dollar bill.
You’ll see. Federal Reserve note I’ll let, viewers look up what the word note means. Right.
Alsadair Macleod:
So so I’ve got I’ve got something actually, which which would amuse you a little bit. The Bank of England notes always have. I promise to pay the bearer on demand. Some of, let’s say, a pound. But when we don’t have a pound note anyway. 10 pounds. Now, that was payable in gold. Of course, that hasn’t happened since 1932.
It’s a promise which is on the paper. But actually, isn’t, isn’t, discharged now? I mean, you know, the the thing that’s fascinating is that on each time they redesign, you know, a 10 pound note, the writing gets smaller and smaller and smaller, and it’s getting to the point where you and I, it’s not just my advanced date.
You know, I need not only glasses, I need a magnifying glass in order to read it. So that’s the point. The other, about this is that this promise to pay the bearer, a 1 pound note. Not that exists anymore, but it, you know, it’s, let’s let’s say it does. That was exchange exchangeable for one sovereign.
The sovereign today, I was looking at the price earlier, the 531 pounds to one sovereign. So that gives you an idea as to what has happened to the purchasing power of the paper pound, compared with the guarantee which the Bank of England is no longer prepared to honor, even though it is printed in small print on its notes.
Ben Nadelstein:
It’s a great it’s a great analogy. One I often use to is imagine you go to a fancy restaurant, there’s a coat check. They say, hey, you know, pass us your coat, we’ll put that away, we’ll store it for you. And here’s a little claim to the coat check. And you walk around, you have a fancy dinner and it’s time to leave.
And they say, hey, listen, unfortunately, we’re no longer redeeming these little pieces of paper, these claims to coats. But the good news is, I understand it’s cold out. It is raining. And you clearly want a coat. But the good news is, is that little claim, that little ticket, a little chip that you have is actually a coat.
Most people would go, okay, that this this. Clearly these people are crazy. They’re defrauding me. You know, they’ve stolen my coat. But when I get the money, we used to say, hey, here’s this little piece of paper that, you know, it can be redeemed as pound for two for sovereigns. And now we can see that the amount of sovereign currency or gold compared to these paper pounds has gone way, way, way out of whack.
So please tell us about the global nature. So we talked about the pound okay.
But other currencies are dealing with this as well. Right. So where do you see these other currencies. Is the yuan is at the ruble. Clearly these aren’t attached to gold in any way. So are these facing a worse fate than other currencies. And where do you rank the currencies in terms of strength.
Alsadair Macleod:
Yeah. Basically, all paper currencies, all currencies, instead of being tied to the to to gold now refer and they’re not tied to the dollar but they refer to the dollar. So, you know, as Steve Hanke puts it, you know, the dollar is the least dirty shirt in the laundry. Oh, which which I think is a pretty good analogy.
Now, what that means is that, the dollar may indeed be weakening, losing purchasing power. Obviously it is. And I would say it a faster rate than indicated by the consumer price index. But other currencies, are losing, you know, purchasing power even more rapidly. And I think this the reason which, I have to take issue with, monetarist because monetarist just sort of think there’s a mechanical relationship between the quantity of money and its purchasing power.
The problem with the currency is that its value ultimately depends on the faith that its holders and uses have in it. If they lose, faith is valueless. And indeed, I mean, I think this is sort of admitted, in a backhanded way by by you know, the, US government, you know, it’s, you’re buying the faith and credit of the US government, you know, when you hold dollars.
Yeah, exactly. That’s absolutely true. And this is independent of the quantity. Okay. The quantity has, an effect. I mean, you know, we we know that, it dilutes, you know, if you if you issue more dollars, then you’re going to dilute its purchasing power. Of course you are. But the overriding thing is the faith that people have in that currency, and it’s that which is likely to disappear.
Why? Because, you’re in the debt trap. One and two. Rising interest rates created by the debt trap. In effect, is going to prick the, the credit bubble, and then nobody wants to credit any credit. I mean, you know, you don’t want you don’t want lesser forms of credit, like, you know, bonds or, equities or, any bit of paper derivatives.
That’s another one. I mean, think of value derivatives that it’s just absolutely astounding. You know, so all this is going to, suffer, if you like, a huge, great reappraisal of value. And as far as other currencies are concerned, I mean, they are down the pecking order. I think that’s the way to look at it.
I would say the other thing which we haven’t mentioned yet is if you look at the balance sheets of the central banks, they’re all deeply in negative equity. I know that there’s been some publicity about the fed, you know, with as a result of, doing QE. I mean, you could define QE is the means by which a central bank pays the highest possible prices ever for government debt.
And that’s, you know, that’s that’s actually what, what they were doing. And, I mean, just look at the Bank of Japan’s balance sheet. It’s something like 40,000, 50,000 times underwater, you know, it is. I mean, you know, everybody thinks it really doesn’t matter, but you get a banking crisis and then you start trying to rescue the commercial banking network by not allowing anyone to go under.
That is going to matter. Exactly. You know, if you like the sort of the hidden, inflation within the system because they’ll be inflating from already a position of huge, huge, great balance sheet mess. And, there is one area where this really does matter, and that is in the eurozone because the ECB doesn’t have one shareholder, it has all the national central banks to turn to in order to recapitalize its balance sheet.
Now, if it attempts to do this, it will find at the same time that the national central banks are in the same problem and they’re going to have to recapitalize their balance sheets. And if you imagine, say, the Bundesbank, which, as far as many Germans is still concerned, you know, has got to be, you know, sort of sensible in its operations and non-inflationary and all the rest of it.
I mean, can you imagine the debate when they have to ask for political permission? You know, they’ve got to go to the politicians to pass legislation in order to recapitalize the bank and for the bank to recapitalize its share of the ECB. Oh, yeah. I can just see, and I’ve said this on other people’s shows, you know, if I was, you know, a dumb politician, in Berlin, I would turn around and say, well, look, hold on a minute.
You want a couple of trillion? Euros, in order to recapitalize the your bit and also the ECB. But hold on a minute. Aren’t you owed $1 trillion through the target two system? Why can’t you use that? You know, you can see the whole thing beginning to fall apart at that point because, okay, there is a balance sheet liability, owed to the Bundesbank of roughly €1 trillion.
But you can’t. They don’t have access to it. This is all just myth. So I, you know, I the one thing I would say is that, the euro is dead. I mean, even even if by some miracle, governments and treasuries turn around and say, look, we’ve got to try and stabilize this, and it does mean that we’ve got to go back to, a gold standard, you know, Bretton Woods to what?
Whatever. I mean, they’re bound to do it badly. But anyway, let’s just go over that one. At that stage, I think the euro’s had it. I think it’s out of the window. Because apart from anything else, I mean, I can see the Bundesbank and I can see the Bank of France, who have two big holders and also the Italians, big holders of gold, turning around to the ECB and say, no, we’re hanging on to our gold.
You’re not having it. So, yeah. Yeah, I mean, this is going to be a disaster, I think for the, for the euro. So that’s another answer to your basic question. I mean, the euro is sinking like a stone even against a falling dollar.
Ben Nadelstein:
Let’s talk about countries that aren’t in the eurozone and are not the United States. One could be Japan, for example. Japan has a crazy high debt to GDP ratio, and yet the Japanese economy, no one I think, would potentially trade their economy for the Japanese. Maybe. Maybe they would. But the biggest buyer of bonds is the Japanese government.
Is that Japanese central bank themselves. Right. Is kind of an internal circle. So is there a certain number, you think, in terms of this debt to GDP ratio that the U.S. or the eurozone needs to hit before that same perpetual cycle happens, where, you know, individual investors, individual institutions don’t want the debt, so the government has to buy it?
Or is that more context dependent? Is there a certain number that investors should be looking for before they start saying, okay, a debt to GDP ratio of 125% is ridiculous, but 105, you know, maybe a couple more bonds. Do you think there’s a specific number? Is it context dependent?
Alsadair Macleod:
No, I think context is is is the answer. I mean, the thing is that it depends on the savings rate, the thing that is saved, the, the yen, even though it has been depreciating very heavily against the dollar in recent times, has been the very high savings rate. The savings rate does one thing, which is very, very important.
It defers consumption. And what this means is that you have got, you know, a level of production which comes out, by producers, which exceeds the consumer demand. The the excess demand gets recycled through the banking system to the businesses who can then invest in capital, you know, invest capital into better production means and all the rest of it so that the prices tend to stabilize or even come down assuming relatively sound money, which is not the case in in Japan, but it’s because Mrs. Watanabe, you know, is a saver.
Alsadair Macleod:
This is the thing that saves it. It’s also true even more so in China. I mean, you know, the the Chinese government, it just pretty much reduced the interest rates towards zero at the moment. But this I think the reason that they’re doing that is that they can see, that, the level of household savings is tending to rise.
And that’s what they’re trying to kill because, you know, they bought the Kool-Aid from the Keynesian boys in, in the West to a degree, anyway. And they think, well, you know, we got to stimulate the economy because it’s, you know, it’s in danger of contracting, which is all a load of rubbish. I mean, the idea that GDP tells you what the economy is going is complete myths.
What is what is GDP? It is the sum total of credit transactions over a period of time which qualify to be included in GDP. I mean, it doesn’t even include all the credit transactions, but you can see, you can see, you know, it doesn’t tell you what the quality of, of any of those transactions is. And, that’s the vital knowledge which you need in order to be able to assess, an economy.
And I would say that I’m getting off topic slightly, but I, you know, I like to think of an economy in terms of its potential to progress. Forget about growth. Growth is a non sequitur. You’re looking at progress. That’s really what you want to see. And if you can think in those terms then you can see that there is absolutely no way that the government can actually try and manage progress because you’ve got you know, a government basically is an organization with no skin in the game whatsoever with completely different priorities.
The priorities are political, not commercial. And so, you know, this is why, you know, high government spending always goes wrong. I mean, I so, I’ve just come back from the Caribbean and, I think last time I was there, I was in Grenada. And the two examples, which I think it was drawing to, you know, your your audience’s attention, there was a bridge built from the mainland to an uninhabited island, and it’s still uninhabited.
It’s now it’s been boarded off. It’s, you know, fences, so you can’t go over it. I mean, this was a, you know, serious concrete bridge, and all the rest of it. Well, 100 yards long cost a lot of money to build. It was obviously done by, one of the, supranational agencies like, I don’t know whether it was the world Bank or, you know, one of those guys, who presumably had to allocate some capital spending, into the Caribbean.
So they built this bridge to nowhere when I was there, I think 6 or 7 years ago, on the West Coast, there’s a town, on a river. And, the means of getting from the south side to the north side were actually quite limited. And guess what? The Chinese were building a bridge. Yeah. You know, now, there was a need for a bridge there.
Why the hell didn’t the, you know, the whichever supranational agency it was with this money to allocate? I mean, you know, these become political decisions and, you know, the idea that, you know, a government can do infrastructure and all the rest of it, they actually don’t know, the most effective, use that, that, those funds can be put to, and very often the decision has absolutely nothing to do with the practicality of a community or a nation or whatever.
So, you know, this is this is one reason why, all this credit, which is being not deployed commercially at all, that’s gone out the window is going to go, bust. I mean, that’s the way it’s that’s the way it’s going. I mean, it’s just been doing this for decades now, as I say, since the mid 80s when we had the Big Bang in London, which eventually forced the end of the Glass-Steagall act in America.
Why? Because all the banks wanted to lend money to financial or for financial purposes, not for productive purposes. And and meanwhile, every business decided, well, the place to make things was actually Southeast Asia, where you can get a factory up and running in 18 months or less. The workforce are intelligent. They don’t, you know, you can train them because you heavily automate the whole process.
And you’ve got these Asian women with very nimble fingers, fingers, and they’re willing to work 12, 14 hours a day. You know, compared with unionized businesses, in, in Europe, you know, and trying to get planning permission to put in a factory. I mean, you know, you got to think 15 years ahead, basically to make a widget.
I mean, this this is the crazy situation in Europe, and I think it’s gone that way in America as well. So you can see how, with, you know, with the financialization of, paper currencies, the whole thing has got into this enormous super bubble which has been prevented from popping along the way, just rolling up and rolling up and rolling up into a tsunami, which is going to crash on our shores.
Ben Nadelstein:
I want to ask, I want to, I want to I want to come on a positive note now. So, so owning gold, regardless of whether this credit bubble has popped or it’s deflated a little bit or expanded a little bit, owning gold, even since, you know, the 1970s when gold prices were allowed to float more freely, has been a good investment.
So obviously we don’t give any financial advice on the show. But looking backwards, back casting, right from 1971 till today, gold has risen about the same as the S&P 500 on average. And of course, it’s provided you that credit free or that county counterparty risk free stability, right? You don’t have to worry about that extra risk. So I want to ask you now, if it were the case that this credit bubble and this credit expansion continues, right, where governments are pumping GDP and we’re building bridges to nowhere, but that continues, right, for longer than we expect, instead of, you know, one year or two years, five years, ten years, it goes on for another 20 years. Where do you see the role of gold? Do you think it will still be important as a hedge, just in case, if that sunami is to break? Or do you see gold’s role changing?
Alsadair Macleod:
Yeah. Well, the first thing I would say is I hope that credit continues without bursting because we’re all going to get very badly hurt. You know, not just investors, but I mean, you know, we’re talking about, governments going bankrupt and no longer being able to provide the welfare which everybody has become accustomed to, and the elderly and, you know, all the rest of it.
I think to answer your question, Ben, I think it’s important to understand well, two things. Firstly, you own gold and not as an investment. You own gold basically to get out of credit. It’s a very, very important point. You know, you’re holding it. You’re, you know, you’re in cash. But this is real cash with no counterparty risk. I think that’s the important thing.
And when it comes to comparing it with something like the S&P, I mean, the S&P, the constituents of the S&P actually go out and deploy credit, purposefully and productively and profitably. So, you know, you’re always going to get use out of credit. You don’t get use out of gold. The second point I’d like to make is that the purchasing power of gold is nonvolatile.
I did a bit of research some time ago. I looked at Dirk’s edict of maximum prices. Know this. We’re going back to about 302 A.D.. So this is what, you know, it’s what, 1800 years ago, 1700 years ago might get one. That’s right. And if you look at the prices of things in those Roman times, apart from the slave markets were no longer exist.
So we can’t do that comparison. You look at things like, you know, sort of foodstuffs, eggs. You look at beer, wine has gone down, actually, you, you know, there’s there’s been some fluctuation, but generally the prices in gold are about the same. And this is interesting. And a colleague of mine when I was at, Go Money, James Turk produced a fascinating chart of, oil, WTI oil in both dollars and in gold.
But he did it in, in four major currencies. But, the point is that, in gold, the price just goes along like that. Oh, it you know, I think the most I’ve seen is about it’s risen. The price of oil rose in gold by about two times two and a half times. The worst was it? It lost 50%, roughly of, of its value, measured in gold.
But look at it in dollars, for goodness sake. I mean, it went from, I think the 1950 price was something like $2.56 a barrel, up to $140 at one stage. And currently we’re looking at 70. I mean, this is this is the difference. This is the point. You’re not, you’re not really buying gold. What you’re doing is you’re buying stability by getting out of credit.
I think this is the important point. I mean, it’s very, very important for anyone who thinks they’re investing in gold. Now, you’re not investing in gold because when you are investing in something, you look at the price. And, you know, we’re all sort of accustomed to look at the price of a share or stock. And, you know, we’ve seen it rise and we think, are we too late to get in?
You know, perhaps we should wait until it comes back a bit and doesn’t quite come back. And it goes on a bit and you reassess and, no, this is not the case because it’s not gold rising. It’s your currency going down. So what you’ve got to think in terms of is, is my currency still going down for whatever reason or has it stabilized?
And that should determine whether you have all your eggs in that currency or whether you move into gold.
Ben Nadelstein:
That is such a great point. I implore anyone listening, go back. Listen, you are buying stability and getting out of credit. What a great point. Okay, I want to say something interesting for our viewers. If they haven’t done it already, go to a site called Price in gold.com. Feel free to click around. There you can see the price of, for example, oil priced in gold real estate U.S for example, priced in gold as well as stocks.
And you’ll see some very interesting things. So for example you can buy a house on average. Of course no one buys the average house, but you can buy an average U.S priced home in gold for the exact same amount of ounces as you could in 1971. I won’t spoil any other interesting tidbits you can find on pricedingold.com, but I implore you to go give it a look.
So, Alasdair, as we come towards the end of our interview here, I would like to do something called a Lightning Round. I will ask you a series of quick questions. Hopefully I can make them quick and you will answer as quickly or as short, and as you can, and then we’ll move on to the next one. Are you ready?
Alsadair Macleod:
Yep.
Ben Nadelstein:
All right. So first I’d like to talk about gold and silver. So the silver to gold ratio has been way out of whack. So first can you explain to our audience what the gold to silver ratio actually even is and where you see it going in the future.
Alsadair Macleod:
Yeah, it’s it’s the price of gold divided by the price of silver expressed in the currency of your yields. You’ll be interested to know that, in time, the ratio was 12. So, we’re currently at eight I think is this is being, recorded. And, I would see it go lower. Now, there is this sort of relationship that, when gold really starts motoring, then silver, most is almost twice as fast.
The problem with silver is that when gold stopped motoring. So silver tends to lose value. But having said that, we’re now in our fourth year of a supply deficit, according to the Silver Institute and, the liquidity, the aboveground liquidity to make up the difference, which has been the case in the past, I think is is has drained out.
I think is, goes value appears to rise. In other words, as I’ve just said, you know, fit currency is falling when that process accelerates, I think you’ll find that, ETF demand for silver will build. And that is going to, if you like, squeeze the supply situation even more. So I can see that, it could for a period of time at rather like gold on steroids.
But all these things pause from time to time. And when, the situation between gold and paper currencies pauses, silver will probably start losing value at that stage. So this isn’t, you know, a slam dunk, easy deal. But in general terms, because I do see paper currencies diminishing in their purchasing power at a faster rate over the next year or so, particularly as the, as the, credit bubble goes pop.
Then I think under those circumstances, silver will will perform pretty well. It will outpace gold as, as as a means of protection.
Ben Nadelstein:
Alistair, next question for you. So perceptions of gold differ between Western and Eastern economies. So what is one lesson that you think the West can learn from the East towards gold. And what’s something that maybe the east eastern economies could learn from the West?
Alsadair Macleod:
Yeah. Right. Well, okay. The first way around, I think we should learn from the East that gold is money because the people’s Bank from China, for example. I mean, everybody’s been commenting how, you know, they’ve been, buying gold. No, they’re selling dollars. That’s the key. So I think that’s the first lesson in terms of what lesson they can learn from the West.
And I think very shortly they’ll learn the perils of being entirely based in credit. And they’re going to have to protect their own currencies in this credit implosion. And I think that, the reason they have been acquiring gold is that they know that they’ve got to, anchor the value of yuan, rubles, whatever it is, to gold at some stage.
But they don’t want to, act ahead of events, because, that would just destroy the dollar and create, I mean, financial, the financial equivalent of a nuclear war, I think, which could indeed end up being a nuclear war. I mean, the consequences, I think of anyone going on to a gold standard just undermine the credibility even more rapidly of a crazy credit system.
Ben Nadelstein:
Okay, next question for you. So Donald Trump, incoming US president, has recently proposed creating an external revenue service which would collect tariff fees. So what are your views on tariffs? And should investors in the US expect more inflation in the coming 2025?
Alsadair Macleod:
I think what I would suggest, investors do is reread the history of the Smoot-Hawley Tariff Act and see the danger that tariffs can, pose for the global economy and at the same time, for the US economy. So this tariff, these tariffs are not an easy solution. I know that tariffs have not, been reduced for a very long time.
And every succeeding president, I think, including from Reagan onwards, has somehow increased tariffs. You know, either at a slow pace or a slightly faster rate. But I think, Trump’s reliance on tariffs is extremely dangerous. I really do, and it’s going to undermine economic activity hugely all the way around the world, including in America. And then, of course, the debt to GDP figure begins to look, I mean, we ain’t seen nothing yet sort of thing.
So, that’s what I would say about tariffs.
Ben Nadelstein:
Next question, which is are markets like China for example, truly un investable or is it just a matter of finding the right price?
Alsadair Macleod:
I think. It’s a difficult question to answer. I don’t think anything is un investable. The problem is can you make money out of it or credit out of it if you like. And that I think gets a bit more difficult. China, I think, would welcome foreign interest in, its capital markets. Of course it would.
The problem has been that America has tried to dissuade people from investing in China, and that is really where the problem lies. So I think you’ll find that there’s an awful lot of propaganda, if you like, from the American end. You know, denying that China is investable. But equally, at the same time, you know, the America, if you like, geopolitical actions could actually threatened an investment in China.
So, you know, it’s, again, I, you know, I take the view. Just get the hell out of credit. Don’t don’t invest in anyone else’s credit. I mean, the American credit is probably better than anybody else’s, despite, you know, because of the currency relationship. That’s the thing. So, yeah, I mean, basically, I’m a seller of all financial assets because they are credit.
I don’t want any credit.
Ben Nadelstein:
Right answer. Next one. How do you see central bank digital currencies, sometimes called CBDCs, impacting the gold market, if at all?
Alsadair Macleod:
I don’t think it matters. I think this is a pipe dream. I mean, if you think about it and I’ve read the papers from the Bank of International Settlements, you know, they look at this as a means of, a direct relationship between the central bank and businesses and individuals. They look at it as the basis of being able to, promote certain types of business.
Again, these are guys no skin in the game. They haven’t, you know, they don’t know who to promote. I mean, how are you going to get progress? I mean, they get this idea. We must have AI. So we’re going to funnel CBDCs into air. You know, you know, it’s it ain’t going to work. And, from a practical point of view, I think for, CBDCs to have a distinct, existence as opposed to bank credit, commercial bank credit, it’s going to require an awful lot of decision making, committees, backtesting of systems and the whole thing.
And not only that, but when I look at America, I’m told that, every, politician is funded by a bank somewhere down the line. And I’m not talking about just, you know, we’ll give you we’ll give you, will allow you to open an account and you can have an overdraft. No, this is money pushed into campaign funds by the banking system.
And, I said a long time ago that, you know, by an American businessman, his definition of, of a good politician, a good politician is one who’s bought and stays bought. So, you know, are your banks going to, you know, like turkeys vote for Christmas holiday. Hell is like, I just don’t see it getting off the ground.
I mean, there’s a lot of talk about it. And that’s not going to go, but, you know, the there’s nothing substantive coming out of this. There really isn’t. I mean, the Bank of England did a white paper on it. This basically they said, well, hey, you know, this is our idea of, of, of a Cbdc.
We’ll just let the, commercial banks handle it, you know? Come on. That’s not what the bank rules are saying. So you can see that. No, it’s it’s, it’s a damp squib.
Ben Nadelstein:
I love it, Alasdair, final question for you. What’s one question that I should be asking all future guests of the Gold Exchange podcast?
Alsadair Macleod:
Do you understand the degree of the credit bubble? And if they say what credit bubble? You know, when the interview, just leave it the.
Ben Nadelstein:
Alasdair, it was great talking with you. Where can people find more of you and more of your work?
Alsadair Macleod:
Well, I’ve got my own Substack channel. And if you want to get an idea of the flavor, you can sign up for free. I’ve now got, what, 10,500 followers? But, I would urge you to consider being a paid subscriber. Because, I’m in the process or I’m in the business of trying to educate people about the dangers of, of, you know, faced by, our economies.
Credit, geopolitics. And, in the case of this country, which Britain I mean, you’d be amazed at how quickly, downhill the whole thing’s going because our government is, well, let’s put it this way. Oh, no, I don’t know. I’ll be too rude. I think you’re saying it, but a lot of current politicians, they really haven’t got a clue what they’re doing.
Imagine Kamala Harris becoming the next president. We have the same thing in Keir Starmer. Keir Starmer was director of public prosecutions. That’s his background. As I understand it, Kamala’s background was as a director of Public prosecutions in California, and I think, I don’t know, may have got that wrong. I mean, you know, they know nothing about economics at all.
And they’re pushing an agenda which is actually destructive of economics. So. That’s that’s why you should look at, McLeod finance. So it’s it’s Alister McLeod substack.com. But if you just Google McLeod finance, it should direct you in that direction.
Ben Nadelstein:
Alasdair, it’s been a great time with you. Your Substack is a fascinating read. I implore everyone to subscribe. For those interested, earning a yield on gold and gold, check out Monetary metals.com. And Alistair, thanks so much for the interview.
Alsadair Macleod:
That’s very much my pleasure Ben. Thank you.
