Emil Kalinowski Macro/Metals Expert Talks About Our Economic Future – RCS Ep. 50

Rebel Capitalist Show

Learning from a great monetary enthusiast 

Emil Kalinowski is a Metals Market Researcher from Wheaton Precious Metals, one of the largest precious metals companies in the world, and co-host of the Making Sense show of Alhambra Investments.

He has great experience interpreting commodity prices, macroeconomic trends, and longterm country risks.

I this interview we talk about the economic change, precious metals, central powers, globalization, our zombified economy, the future of your financial situation, and much more!

Emil’s Background

 George: All right guys. It gives me a great deal of pleasure to bring someone to The Rebel Capitalist Show that I've really looked forward to talking to. 

He is a cohost with my buddy Jeff Snyder on The Making Sense Show on YouTube. 

His name is Emil Kalinowski. Emil. Welcome to The Rebel Capitalist Show.

Emil Kalinowski: Thank you very much, George, you nailed the pronunciation of that last name. 

You are a broadcast professional, many people would have flubbed it. You nailed it. Congratulations.

George: Well, just give me time I'll make several mistakes Emil, don't worry about it. 

But for those of my viewers who might not be familiar with your backstory, other than you've been co-hosting this show with Jeff, can you get us up to speed there?

Emil Kalinowski: Sure. If you condense my whole life into about a five-minute little monologue, it's very impressive, but we don't even have that five minutes. 

So basically I went to a nondescript college, Arizona State University. I was there in the 1990s and we got into Playboy's top 10 party school all 13 years of that decade. 

So I joke, but the point is, you know what, I didn't go to a great school, and, therefore, I wasn't quite indoctrinated, you know what I mean? 

What I learned and knew was I can't be too certain of what I'm learning. 

A lot of the people that go to Ivy League schools, that are in the top ranks of the economies, they come out so certain of what they've learned because of the people they met, the people they've learned from, and it kind of helps or prevents them from maybe being amenable and flexible to new ideas.

So anyhow, after that, I worked in finance. I was in a dead-end job in 2011 in South Florida, yada, yada, yada. 

I moved to the Cayman Islands. And then a few years later I joined up with a precious metals company. 

The whole time I was reading different works, politics, economics, that sort of thing, and I kept coming across Jeff's work and I said, this is too difficult. I don't get it. I know it's important, but I don't get it. 

Then, in September 2015, I read an article about Alibaba, and it just gave me the chills. 

I said, something is desperately wrong that this largest IPO, in American stock market history at that point, somehow just got shepherded through with no questions, no flags raised. 

I decided at that point, you know what? I need to find out what's going on.

And I came across Jeff's work again, I think on Zero Hedge and I said to myself, I'm going to read his work every day for a month until I get it. 

I knew it was important, and I think it's kind of the unifying theory that stitches together the last 12 years. 

Because there are so many things that are going up, down, in circles, it doesn't make sense if you don't have this kind of underlying monetary view.

Then a few years ago I invited Jeff to speak down here at the Cayman Islands. 

We were putting on an investment forum and we did a whole show on the nature of money. Who did we invite? 

We invited Tuur Demeester, the Bitcoin man, Luke Roman, Simon McKellovitch, Jeff Snyder, and Rebecca Spang. 

She's not as popularly known as all those other individuals, but she is a professor of monetary history at Indiana University. She's great. 


If anyone's on Twitter right now, check out what she's doing, she's doing these threads from A to Z about different little curios about money, and she's on D right now. 

It's great stuff. Anyhow, I met Jeff there, we hit it off and then a couple of years later I went to The Macro Voices. The very first Macro Voices Show.

George: In Toronto or Vancouver?

Emil Kalinowski: It was in Toronto.

George: Oh, okay. So I was the one in Vancouver. Yeah.

Emil Kalinowski: Then we just kept in touch, and I said to him, Jeff, if you ever need an unpaid intern to do some of your work, let me know. I'll be your man. 

He said, I'm working on this project, yada, yada, yada. Now we're YouTube stars with 600 subscribers. How many do you have, George?

Dismantling The Industry Jargon

George: Well, I think that you guys have been growing very quickly on YouTube. 

I know I've watched almost every one of your episodes. It's just great back and forth between you and Jeff. I think you complement each other well. 

But one thing that I really enjoy about your side of the interview is, I think you've got a talent for bringing things down to a level where most people are. 

As far as their vocabulary and their comprehension of the monetary system that Jeff tries to understand. 

I mean Jeff has been in the weeds with this thing for decades. So, for him just to talk about it, he just rattles it off and a lot of it is extremely complex, but a lot of it's even more complex because of the industry jargon. 

Just like golf or any industry that you get into, it's got its own little language, and finance and macro is that way to an extreme.

Emil Kalinowski: You know, I'm watching Princes of the Yen, I'm not all the way finished, and George, of course, I would have not heard about this if it wasn't for your viewers. 

So let me thank you first of all for sending them to our channel. They've been posting a lot of comments and I'm learning from them as much as, hopefully, they're learning from the show. 

One of the recommendations was Princes of the Yen. I'm watching that and there's a section right in there that made me pause, reset, and review. 

It's a line about 20 minutes in it, says that the Bank of Japan made it a point whenever they got any questions to respond, in very technical jargon to confuse the ministry of finance and to just say we don't want any part of this.

I think that's the problem. I think the technocrats, they speak in this very fancy language, you know, arcana, minutae, and then you don't ask any questions because you don't want to embarrass yourself.

George: Yeah.

Emil Kalinowski: I have no problem embarrassing myself and hopefully I'll do it a few more times on the show. You could dive in their face first and say, Jeff, I don't get it. What are you saying?

George: Yeah, yeah. Well, I think that was an interesting part of the documentary, I just watched over the weekend as well. 

I did a video that was kind of about it last night where the step number three, I introduced two different opinions. 


One of them was Richard's, and one of them was Jeff, and I hope I didn't put words in their mouth. 

But just by listening to Jeff as much as I have, and by reading his blog, I would say that Jeff would say the reason central banks have kept doing these things over and over again, that have been proven not to work like negative interest rates, as an example.

I think Jeff would most likely say, well, that's because they're just completely incompetent. 

They've got their models and they're like little kids, they just put the earmuffs on and just say, “ahhhhhhh.” 

They just don't want to listen to what you're saying because they've got their little model, and if their model says we need to drop basis points or we need to drop 200 basis points, then, regardless of where that takes you to negative five or from three down to one or whatever, they're just going to do it because that's what the model says.

Economic Change: Ideology Or Conspiration?

George: Where Werner, as you know from watching a Princes of Yen, takes a little bit different approach. 

I think he believes it wasn't really incompetence, it was intentional. 

These central powers, whether it's the IMF, the Central Bank, or whomever it is at the time, they know that the way you create change, structural change, within an economy or a society is by a crisis. 

So they intentionally create these massive debt bubbles so that when they explode, they can kind of get the public to go along with whatever they see fit. What's your take on that?

Emil Kalinowski: I think I will take the middle ground. I also don't think that they're incompetent, but at the same time, would it be fair to say that would be hewing towards conspiracy? 

I don't want to go there. I feel like that's more ideological, they have a belief system. Economics was supposed to be a social science or a hard science. Right? 

In science you're not supposed to have an ideology, in politics you're supposed to. 

So I think it's ideological and not conspiratorial because they've had so many opportunities to tip the system over, haven't they in the last 12 years? 

That's what Jeff writes about all the time. This isn't the second crisis of the last 12 years, it's the fourth one: 

  • The 2007 period
  • The 2009 period
  • The European sovereign debt crisis
  • Then the emerging markets currency crisis when we saw the reserves from China go down by a trillion
  • And then we started in 2018 the fourth crisis. 

It didn't quite take on the visceral panic of the first three, but it was set up, the system was fragile. 

And Corona came over and pushed Humpty Dumpty over the wall, but Humpty Dumpty was already dancing, so it was going to happen. 

So if it's a conspiracy, if it's Richard's view, it seems that they would be very competent and in charge in managing the system. 

I'm no expert in complex systems, but it seems to be a pretty popular thesis lately that economics is chaotic. 

There's this self-referentiality and there's no controlling it. That's where I lean towards this, they're just holding onto the Tiger's tail for dear life, trying to keep the system going.

George: I think it goes back, or it could go back to what you were saying about your college education that you weren't ingrained with Keynesian economics, let's say, or any type of a school of thought from a very young age. 

So you could discover this on your own as an adult. That's very similar to what I did. I almost flunked out of high school. 

I've never taken an econ class, never taken a finance class, anything like that. 

I think it may have been, to a degree, an advantage because you can just look at things from a standpoint of common sense, and not just this structured approach that you learned in a textbook. 

What do you think about this? I've often also thought that trying not to put malicious intent on the central bankers, although I'm very hard on them, but I try to give them the benefit of the doubt.

Central Powers: Is It Just A Confidence Game?

George: If you were brought up in this specific mindset and you started learning this, let's say ninth grade, you went to college, you got your masters, and your Ph.D. 

Then you started writing papers and you were a distinguished economist, let's say you add a column in the New York times, stuff like that. Hint, hint, hint. 

But it would be extremely hard, if not impossible from a standpoint of cognitive dissonance, for that person to look at their life's work at the age of 40 or 50 or 60 years old and just say, you know what, I was wrong. 

That Jeff Snyder guy, he, he, he's right. Of course. Why didn't I see it that way? 

I mean, what they'd be doing, if you think about that from a psychological standpoint, is basically that every single book they had ever written, every single award they had ever won, they basically would have to say, oh, well that doesn't mean anything. 

Just throw it in the garbage because I was wrong.

Like what 60-year-old person is going to do that? Maybe that's what it is. 

Maybe it's just this psychological cognitive dissonance where they can't handle being wrong so they're going to rationalize their theory any way possible. 

What do you think about that?

Emil Kalinowski: George you took the words out of my mouth, that was the other thought I had when you asked your original question. That was the other idea. 

You can't expect them to do that, it requires true character. I'm not saying they don't have character, it's just that's very difficult for humans who have built up a whole lifetime of being in the Davos circuit. 

Are you going to give that up, George? Especially when no one else is saying it. 

I guarantee you that when the momentum starts swinging the other way, and we enter some new economic era and things start changing. Yes. Everyone will be saying, yeah, maybe it didn't work. Let's change our minds because it's safe to stay in the herd. If the herd is changing you can change then too. It's safe.

You know what Jeff sometimes does is bring to our attention that once these economists are out of power, or nearly out of power or out of the financial media and business press of the United States, they'll say some things that they otherwise wouldn't say. 

Bill Dudley's a great example, right at the end of his time he said, maybe something's not quite right. 

We didn't quite have it, the banking system might be more important than we thought. 

Another example is of one of the governors when they were in Sweden, and he said, something always seems to keep going wrong. 

We have all these plans and policies, but we can just never quite get it right? You hear it when they're leaving the profession. That's about the only time you hear it.

George: Yeah. One thing I always say in my videos is the economy is built on three things, asset prices or bubbles, debt and confidence. 

I think the most important one of those three maybe confidence. And maybe it's that the Fed knows that, so they can't really come out and just tell it like it is, like we can on YouTube or on a podcast. 

Because if they did, especially if they're looking at it from a Keynesian demand-side view, that would be catastrophic to the economy. 

If they said, listen guys, we're really in trouble here, you need to be worried we're headed for a recession. 

Then it's, in their minds, it's a self-fulfilling prophecy where people spend less and then you go into a recession a lot faster and probably a deeper recession than you otherwise would have. 

If they just come out and kind of try to be like this politician where they say, yes, we've got some things going on here but don't worry about it too much because unemployment's low and this is a fantastic economy and we're really bullish.

But yes, we need interest rates at zero, but that's not because of us, that's because of the emerging markets and they need dollars or what's going on in China. 

We need to help out these other countries. It's not because our economy isn't extremely robust, right? 

So it's kind of, they understand what's going on, but they also understand the narrative and the approach they need to take to make sure they don't cause this panic which would undermine the economy that's just built on this psychology.

Do you think I'm crazy there or do you think I'm onto something?

Emil Kalinowski: Crazy. The word begins with the letter C and to bring back Rebecca into the conversation. 

She was on the letter C a few days ago and I retweeted what she was writing about because she was writing about cowrie shells, and so I said, what is money? 

It's been cereal, cattle, coin, cash, cowrie, checks, credit, crypto, but at the end of the day, it's what you said it was George, confidence. That is it.

Looking For A Hero To Take The System Down

Emil Kalinowski: Money is confidence and they don't want to upset the Apple cart. 

What we need is the state's man or a stateswoman to come in and be willing to be kind of maybe a martyr. Someone who's really willing to go all the way and bring the system down to some degree, a little bit like Volker and Reagan did, right? 

It was out of control, recession, inflation, unemployment, and they said, we're taking control of the system, we're raising interest rates through the roof until we're finally in control.

They were willing to do it. And you know, I thought that President Trump might have been that person because he was an outsider, a radical, a populace. 

He was coming inside into the system and I thought that was his opportunity. The very first thing. 

Just go in there, take the system down and then build on top of that. But he didn't, I guess he turned out he wants to be a better Obama, a better Bush version. 

So I was a little disappointed in that. 

Because I'm looking for that outsider, that populous or that Visigoth at the Gates of Rome to come in there and upset the Apple cart. I think a lot of people are, if you look at the electoral results since 2014 in Europe, North America, South America.

We’ll Be In a Zombified Economy Until We Hit The Crisis 

George: Yeah, that's one thing. I've listened to a lot of Grant Williams stuff and I know he's taken a deep dive into social unrest. 

Going back to 2000, well I guess it starts in 2008 with occupy Wall Street to the crash, all those things, the tea party, but then what we've seen throughout the world.

It's never about what it's about. 

I had a business partner that used to say that and it's just so simple, but it's just so darn true. 

What I'm talking about specifically is something like in Chile, where they start to riot and burn the city down just because of an increase in the bus fare of call it five cents. Well, it's not about what it's about. 

This has been brewing for a long, long time, this discrepancy, and that just happened to be the trigger or the snowflake that caused the avalanche.

So from that standpoint, how do you see this moving forward? 

I know that now the Federal Reserve is trying to print money. They're not doing it well, to your point, and Jeff's point, that it's more like laundry tokens. 

These bank reserves don't really get out into the real economy, but they can prop up some corporations or maybe try to prop up the stock market. 

But it really leaves out main street. When you look at all the Fed's balance sheet going from, call it four trillion up to seven trillion in the matter of a month… 

Yes, we've had a stimulus package for main street, but that just means small businesses have been able to borrow a couple of bucks that they've got to pay back. 

It really puts them into a compromising position with their staff and what to do there. And then the normal average Joe and Jane have maybe gotten 1200 bucks a month for a couple of months, something like that. 

So there's just this wild discrepancy and moving forward, do you think that discrepancy is going to get worse because of the central banks or how do you see it?

Emil Kalinowski:

Well, if that was it, if March was it, that little downturn stock markets are up, if it's all over George, if the Corona thing is done, then I guess it's not going to get better. I guess we're just going to go back to the way it is and we're going to continue along in kind of the zombified global economy until we hit a crisis. 

That's what we need. We need something to get people asking questions and to say, no, we're not going to do it the way we've been doing it for the last 12 years. 

So are we going to continue that way? I don't think so because I assume that's not it. I assume that March, what happened in March, that's not it. 

Because the economic data that's been coming in is devastating and it would be just so hard to believe that the global economy is a light switch as opposed to some sort of complex system that you can't just turn back on. 

It's got to come back to life. It's got to grow like a plant. You can't just cut it off and then turn it back on. That's not how it works.

Globalization: An Economic Cycle

Emil Kalinowski:

I assume we'll have more people, I suppose a second wave of economic contagion of corporate defaults and that may then spill over into sovereign debt defaults. 

You've heard about the IMF trying to extend or receiving lots of phone calls from about 80 to a hundred countries asking for forbearance or loans. And that's what we've seen in past globalization cycles. 

I don't know if you've had Michael Pettis on your show or if you've read any of his work. He's great. 

He's great with the idea of looking back at the long span of time and the cycles of globalization. 

Because that's what globalization is, an economic cycle and it comes and it goes.

There have been six, seven, if you count this one since 1800. What brings them all to the floor, and then back to the background is a surge of money from the advanced economy money centers. 

And then one day, as Pettis recounts in his book The Volatility Machine, one day somebody says, you know that loan that we extended to that country, that's not a real country. Yeah. 

That was from the 1800s, people were making loans to a country that didn't exist because of the mania. Right? So they had no idea. 

Just like a few years ago with the mortgage-backed securities, it was overwrought. 

It pulls back, then the money starts coming out of the emerging markets, they start defaulting, then that rebounds it back into the advanced economies, wiping out banks, setting off defaults, asset price deflation, and then globalization disappears for a decade or more.

And the economies rebuild on top of that.
That process was arrested in 2008. But I'm wondering…

Are we going to defy economic gravity forever? 

Is there such a thing as free lunch? 

I'm assuming that the Corona with its Billy club came out of the alleyway out of the shadows and is starting to beat the drunken economy that was already swerving for the last 12 years.
That should set off kind of a cleansing cycle. That's what I assume.

If that happens, there's going to be a lot of upheaval and then the government will get more fully involved.

The worst-case scenario, as Jeff always says, is that nothing happens and we stay in a zombie state or the doldrums where you're just floating on the ocean-going nowhere in economic terms.

What’s Next For Your Financial Situation

George: Yeah, and I think a really interesting point you guys made in your last show was about the difference. 

If I'm someone that's listening to this saying, okay, well how do I figure out what's going to happen next for my own financial situation? You guys made a point that you've got to look at the bond market. 

You have to pay attention to the bond market and just completely ignore the equities market.

Can you elaborate on that a little bit?

Emil Kalinowski: Well, it's a question of, is the equity market our fathers, or our grandfathers equity market? 

Because you remember, back then it represented what this collective consensus opinion based on multiple independent points of view.

George: And fundamentals for heaven sakes, profit actually mattered.

Emil Kalinowski: I don't remember that era. I don't know what you're talking about George.

George: That goes way too far back. Right?

Emil Kalinowski: People wouldn't buy every stock, they would buy McDonald's, they would buy Alcoa, Warehouser whatever it is. 

And then that kind of consensus of everyone's opinion, multiple independent estimates would reflect reasonably, what direction the economy was going. 

At least it was a reasonable proxy. But now, you're just buying everything. You don't know what McDonald's is doing because you're buying the S&P 500. 

So is it really a reflection of the United States economy or does it reflect just kind of the retirement goals of the greater population putting their money away in the 401K? 

But, meanwhile, that passive investing that I'm sure you've seen Michael Green talk about in several of his interviews. 

He estimates that about 40, almost 50%, somewhere between 40 and 50% of the stock market is driven by passive flows. So is that really a multiple independent estimates? No, but the bond market is. 

History happens to be there, at least in the United States that this bond market does seem to reflect better which direction the global economy is going.

The Multiple Perspective Approach

George: Oil is such a unique asset class or commodity because the Fed really can't manipulate it directly. That's something that's in the real economy. It's not in the financial economy. 

So if you looked at oil and you looked at the bond market, those two things are telling me the exact same story right now. So what do you think about that approach?

Emil Kalinowski: You're taking multiple perspectives to try to get a better sense of the picture. 

So you don't look at just the stock market. Yeah, sure. Let's look at it. It's up. Okay. That's great. 

The bond market disagrees. The oil market disagrees. The copper market disagrees. Who else disagrees? Zero dollar futures. Did I mention gold? 

Then emerging market equities, advanced economy equities, not great. So we take multiple perspectives and I think your balance out that something's not quite right. 

But most importantly, everyone's going to say, yeah, of course something's not quite correct right now. 

But what's Jeff's trying to draw everyone's attention to is that it hasn't been right, even before Corona came, leading into 2020, it was sick.

The economy was already sick for two years. Mexico's GDP was negative for all of 2019. Industrial production was negative for all of 2019. And that's just an example that speaks to the general truth. There was a lot of sickness for two years heading into the Corona.

I mean, what was it? It was a complex system looking for a feather to break the camel's back. That snowflake. 

It happened to be a very hard shove, but something was coming to knock it off-kilter. And not only that, this was the fourth go around. 

We've already had three previous downturns, and then six years of political confrontation where we've switched from cooperation to confrontation. So it's definitely just multiple trends that are leading to the same idea that there's not much time left in this economic era or this geopolitical era. This social era. 

We're coming to the end of it and I don't blame businesses or individuals for trying to get as much as they can out of this era. 

Why would you invest in the future when there is no tomorrow? 

Because we're coming to the end of this era. The rules on the other side might be completely different.

It's risky to try to build something now for another uncertain unknown era. There's a lot of potential in the economy and we're going to take off as soon as we're out of this depression. 

But until then, stock buybacks, why would you invest into…

George: Yeah, that's what I was going to say, yeah.

Emil Kalinowski: Why would you invest into manufacturing if you don't believe in the future? 

There's no consumption, no real demand or at least it's weak.

George: Yeah, and then you think the Fed has your back. 

I know you guys have debunked this quite a bit, but if I'm just the average CEO, I think there is a Fed put, and I think they have the power to elevate the stock market directly, not just indirectly. 

So why would you, to your point, take that capital or borrow money and invest it into manufacturing or hiring more people or to a certain extent taking risk when you would say, well, I can just buy my own shares back? 

The Feds got the stock market put and I don't have to really worry about it, I can make a lot more money and there's a lot less downside. 

I think that's the incentive structure that our current economy helped by the Central Bank has created. 

But I want to point out for the viewers that although you guys talk about downturns of four specific downturns since 2008 the system really broke then.

The Difference Between Bank Reserves And Dollars

George: When you look at the Fed funds rate, I believe compared to LIBOR those are the two rates that just completely diverged. 

It was on a very specific date in 2008, and since that time they've never come back. 

That part of the economy or the financial system has never been fixed, and it's the most important part, the dollar funding market. 

So this is something that we've just put Band-Aids on here and there to try to create lower unemployment or an economy that looks good from the surface but once you start digging down deep, you see that there are some real problems here. 

I would always argue that if the economy was so healthy from call it 2012 to 2019 or 20, why on earth did we need zero percent interest rates or almost zero? 

Why did we need the Fed's balance sheet at four point five trillion if everything was just jamming? 

Why was it so hard to get three or four percent inflation if you believe the CPI, if the economy was just booming like Donald Trump would lead us to believe, right?It doesn't make a lot of sense.

But one thing I'd love for you to explain, because I think you did a fantastic job of this, is how bank reserves are different from dollars. 

Because people just don't get this, they think the Fed's printing money, they're printing money, they're printing money, and they don't understand that it's not the same thing. 

They're totally different although they're both called dollars they're not really both dollars. Can you explain that a little bit?

Emil Kalinowski: Okay. It's not going to be easy. I'm going to go for it.

George: We'll both try to tackle this at the same time.

Emil Kalinowski: Let's do it together. Okay. If you're a small business owner, you were producing a product or a service and it's not just enough to produce it. 

There's a lot of steps, and at least I like to think of it in four steps. 

Step 1: Specify the right kind of money

Can you specify it correctly? So their money, just like any other product or service has got to be specified correctly and you can see that just by looking into your pocket. 

You've got many different kinds of formats of money. You've got coins, you've got grocery store coupons, you've got notes, you've got checks, debit cards, credit cards. 

The same thing in high finance. There are many different flavors of money. So the central bank says, I'm going to create one kind of monetary format. All right, well that's great. That's step one. 

But is that a square peg and are really needing, round, and do we have round holes here?

Step 2: Production

 Number two is production, and this is what gets all the press in the financial media. 

They are producing like crazy. So it seems like it'll be inflationary. Fine, good. 

They're producing a lot, but what we don't see is the private banking network that's contracting at the same time, and so much more is disappearing. 

I'm going to be mixing analogies, but it's a little bit like dark energy and dark matter in space. We look up at the sky and we see the stars and the planets and the gases, and that's so impressive, just like the Central Bank volume of printing. 

It's so impressive. But we've learned recently that all the stuff we don't see or we can't measure, that's so much more and that's what that private banking offshore network does. 

So can the Central Bank specify the right kind of money? Can it print in volume? 

And then perhaps most important: Step 3.

 Step 3: Distribution

Can they distribute it? Can they get it out into the real economy? It's really hard. 

That's what you need bankers for. And if the banks don't want to do it, because it's not really money. 

It's not a palette of greenbacks or yen, you've got to extend some credits, some cheap loans that somebody that you are on the hook for as a bank. If it doesn't work out, you're in trouble. That's a loss. 

And guess what, the last 12 years, the central banks haven't really acquitted themselves so well. So do they have your back? Does the Central Bank offer a backstop? 

You're not so sure if you're a bank. So do you really want to step out into that economy? And then the fourth part is utilization. 

Step 4: Utilization

Do you, the private business want to take out that credit? Do you see economic opportunity? Do you as the household want to take out another loan? 

You were worried about your job before the virus, you're worried about your income increases. So those four things. 

So we look at the volume production and we say, great, it must be inflationary, but does it really get out into the system? And there's a number of obstacles.

George: I'm just trying to envision a world where there would be a transfer mechanism for the Fed to get that money or additional money into the real economy without the commercial banks or without the retail banks. 

Let's just say there were no laws and there was no politics involved. Is there a way for them to do that? 

I've tried to think that through, and I guess they could just create additional reserves and the accounts of Wells Fargo and they could create the deposits based on what the Fed was trying to get them to do. 

I guess now that would probably be illegal, but I guess it would be physically possible.

Taking Control Of The Banking System: A Matter Of Will

Emil Kalinowski: I want to take us back to the 1930s, you play the role of Kevin Costner and I'll be Sean Connery, we're in a church. 

You're Elliot Ness and Sean Connery is telling Elliot Ness, what are you prepared to do? And he says, I want to put away Al Capone, anything within my power and whatever's legal. And then Sean Connery says, and then what are you prepared to do? 

See, it's a matter of will, do they really want to take control of the banking system?

Do they really want to make this happen? Like Volcker and Reagan, do they really want to take control? Are they prepared? What are they prepared to do? 

Is the Chicago way from this, from the movie The Untouchables. I assume that's everyone's favorite movie, but maybe I should let everybody know that's where it's coming from.

What are you prepared to do? And as you said, whatever about the laws, can they make it happen? 

I don't know by what method, but if they're prepared, if it's in alignment, it doesn't even matter if their laws are against it. 

If the executive branch, if the Central Bank wants to do it, they'll make it happen. I think the only way that it comes about is via crisis. 

Something to convince them, just like in the 1930s, that this is a national emergency and we need to get rid of this deflation. 

We need to get money to the people, we need to commandeer the banks and instruct them who and how to get the money just like in Japan. So it's a matter of will, the Chicago way, will it happen? Probably via crisis.

George: But do you think they would see the need to do that so much so that they would create the crisis? I mean going right back to Warner and the Princes of Yen. 

I doubt Warner would watch this, but if he is watching this I'm sure he's just shouting at the screen saying, exactly that's what I'm talking about. 

Yes, they need a crisis, but they're going to create a crisis. They're not just going to sit back and wait for it to happen because maybe in their minds they think there's such an urgent need for this transition, this change, that it's justified.

Emil Kalinowski:

Maybe call me naive, but the way I see it is it seems like they're trying to hold on to the current era. They're trying to avoid the crisis. They've had many opportunities to kick it off and it doesn't seem to have happened. 

So maybe that's just me being naive.

The Inflation-Deflation Debate

George: I'm not disagreeing, I'm just going back and forth and throwing it out there. 

So as far as inflation and deflation, I know that's something that my viewers always try to get their head around. 

Everyone's got an opinion on what they think is going to happen over the next 10 years. Where do you stand on that debate?

Emil Kalinowski: I'm with the nothing, the deflation. 

If we continue our present track, we need a crisis, a deflationary shock to produce inflation. 

I believe that Dr. Ben hunt was on the Macro Voices podcast with Erik Townsend just this last week and that's exactly what he said. 

In case your viewers aren't familiar with Russell Napier, he is fabulous. 

Have you interviewed him, George?

George: I haven't. I'd love to though. Definitely on my shortlist. Yeah.

Emil Kalinowski: I'll put in a word and we'll see how far that goes. But I'll reach out to him and tell him to come on your show. He's fantastic. Same thing. 

He has been writing for decades about deflation and disinflation, and he has said that it's coming to an end. 

Maybe not tomorrow, maybe not this year, but the conditions are such where the government is now going to get involved and push aside the academic central bankers and they're going to get involved and that will be inflationary. 

Not yet, if more Central Bank actions won't do it we need to see government getting involved, the universal basic income, helicopter money, people's QE, what are modern monetary theory? 

We need something truly radical.

George: Yeah, because that's I guess, a transfer mechanism. 

Going back to what we were saying earlier is how does the Fed increase the money supply, is there a way to eliminate the commercial banks so they don't have to depend on them? 

I guess that's the way to do it. The government just spends the money and it increases the deposits, it increases M2 while the Fed just monetizes it. 

They just buy the treasuries as soon as they come off the press at the auction and there you go. Maybe that's it.

Emil Kalinowski: The key there is though, that doesn't seem sustainable, that doesn't seem like that's going to convince people, households, and businesses to believe in the future.

George: Confidence.

People’s Lives And True Costs We Need To Address…

Emil Kalinowski: Yeah. It seems like that would be a short term, probably catastrophic policy pursuit. 

And that's what we're really discussing. What kind of more gauze and Band-Aids can the government apply? 

What they really need to do is be honest with the people and convince them that there were mistakes made, it wasn't working, address the issues, be less partisan. 

Maybe I'm talking pie in the sky, but you know, let's bring it down to the visceral level. All this stuff that we're talking about right now, the economics, that we're talking about people's lives and true costs. 

That was looking at the fertility rate for the United States, Britain, Italy. You could see that it was rising, per woman. 

The people were having more babies since the nineties, it was rising, and then it hit 2008, and it's been sloping downwards ever since.

That's the true cost. It's an unmeasurable, catastrophic loss. I'm not even talking about the deaths of despair that, mostly men, are experiencing now because there's no, because you're stuck, you're in the doldrums. 

There's no economic opportunity, no progress. That's what we need to address. The real stuff at the bottom of the root issue, not more QE stuff.

Economics In One Lesson

George: Yeah. Remember it goes back to Hazlit between the seen and the unseen really.

Emil Kalinowski: Yeah. I have not read economics in one lesson. Is that right?

George: Yeah, yeah, yeah. No.

Emil Kalinowski: I have not read it. It's one of my deepest shames and embarrassments, and I'm bearing it right now to 109,000 people.

George: They've got the audiobook on YouTube. It's such an old book I think it's free now or something. 

In fact, I'm almost positive because my email guy sent out a PDF to our email subscriber list the other day. 

So, if you're not on my email list, make sure you do so at georgegammon.com But before we go, Emil, you're a precious metals guy, so I would love to get your take on gold, silver, just everything, I'd love the download.

On Gold, Silver, And More…

Emil Kalinowski: Well, gold is not the answer. That's part of the problem that people think it's the answer, but it's an answer. 

On my Twitter account recently, I redenominated the stock markets in the United States for the last 150 years to try to get the long depression. Which was from 1873 to 1896, as well as the great depression. 

And what I like to think of now is the silent depression. So I wanted to get three global worldwide depressions and look at how equities performed. 

It turned out, you know what, after you hit that little kind of crash, even during a depression you're rising so you can't avoid that downturn. 

That's the key. Anyways, I redenominated it in gold, and wow, what did I learn? I learned that in some respects we've never recovered from 2000, even though we're at nominal highs in dollar terms.

So is gold the answer for everything? No. But I think gold is something important that one should own and look into, in some proportion of their portfolio. 

And if you want that little extra, you know, you're all the way up with gold. You're all the way up at 10 year all the way up. 

Where can you go from there? Where? Where? Nowhere, exactly. 

If you need that little extra push over the cliff, and yes, I'm reciting there's a spinal tap with the amps, if you want to go to 11, silver. 

Silver is that extra little bit that'll push you over the cliff. Silver has got that beta, right now the gold-silver ratio is at 300-year lows by one measure and 5,000-year lows by another measure. 

So, silver crashes during disinflation, deflationary time periods. That's where we're all right now. 

I'm not seeing it crushes to zero. It crashes relative to gold.

But once we get into inflation, if you look back at the last 150 years back to the long depression, silver runs away from gold. 

I was very happy to help out the good folk at the In Gold We Trust team. They put out an annual publication, this year will be the first one with silver, so maybe you can have of the months. 

So that'll be a good place for people to turn to if they want to learn more.

George: What is that Emil, In Gold We Trust, is that a website or something?

Emil Kalinowski: Oh yeah. 

I would say In Gold We Trust is the biggest, most popular, most reputable private annual gold report. Right? 

There's the industry associations, the Silver Institute and The World Gold Council. There are the private consultancies like GFMS and Metals Focus and CPM Group. 

And then there are kind of like the private one, the individual, they do a great job and they've been doing it for 13 years. Good stuff.

ETFs Compared To Physical Gold


How do you see the ETFs compared to physical?

Emil Kalinowski: I'm more of a physical kind of man because what I look for is not an investment, I look forward to as insurance, as you often talk about on your show. 

And, if you want insurance then owning an ETF within the financial system doesn't make up a lot of sense. 

You have so many of your assets already in the financial system, if you're a regular general individual. 

I prefer to have some of it outside, whether it be in a business like you've got George, Real Estate, crypto, physical gold or silver. 

Why have everything in the financial system? If you're going to go for gold, get the physical kind, and leave the investments maybe for a capital market activity like stocks and bonds.

Gold: Is It Cheap Or Expensive?

George: Yeah, I think that's great advice. 

How do you determine as an investor yourself, whether or not gold is cheap or expensive?

Emil Kalinowski: Maybe Mr. Daniel Oliver at Myrmikan would be a good person to turn to. 

Where I get this idea from is he measures the price of gold, or at least the amount of gold held by the Federal Reserve, relative to the money supply. 

What you can see if you go back to, since 1914 or was it 15, that the Fed has been around.

George: 13.

Emil Kalinowski: So you can see the stock value of their gold rising and falling. 

And I guess he's looking for something like 30, 20, 30, 40% of the gold held by the Federal Reserve to back the M2 that sort of a thing. During the 1980s, they went to 100%. So that's too expensive. 

That's too much. So that'd be one good measure. Maybe redenominate it into the stock markets because, like I said, you don't want to be all gold. 

Redenominate it across various asset classes historically, and then see where it is in the range, and then you can determine if gold and silver are cheap. What do you think George?

George: Well, where I start with any asset class is I just try to find the oldest chart I can, adjusted for inflation. 

So gold is a little different because we had the gold standard and you really kind of take it back to 1971, and go from there. 

But with oil or the housing markets, any type of commodity, that's really where I start. 

Just the oldest chart I can find adjusted for inflation, and just going back through history is it cheap, is it expensive? 

Then I try to look in the case of gold, I think looking at the money supply would be the next step. So you say, okay, well based on M2 money supply, where is gold if you make those adjustments.

Then, for silver, I've heard that from Rick Rule as well, he says generally silver moves later than gold, but when it gets done it goes a lot further as far as a percentage gain. 

But I don't know how I would measure silver against gold. I had that conversation with Rick Rule and he was saying that it's a little difficult with the supply of silver because when it's mined there are very few pure silver mines. 

Most of the time it's mined as a byproduct of digging for something else. How do you see silver that way?

Emil Kalinowski: No, that's absolutely right. I believe it's 70%, 75% of mine supply comes from copper, gold, and zinc mines plus a smattering of others. 

But that's kind of good news though, is because there hasn't been a lot of investment in mining. 

So should there be a price increase? We're not going to see a mine supply become price elastic. Right? 

There's not going to be a mine supply response. So there's been a lot of capital expenditures being pulled from the mining industry for years now. 

If we get into another inflationary cycle, it'll be years before mine supply reacts. So whatever Rick Rule says, obviously he's the expert. 

But how do I measure silver versus gold? Just the gold, silver ratio. You can go back 300 years by going on measuringworth.com 

They have great historical information for all manner of measures from the United Kingdom.

I believe they have a gold, silver ratio that goes back to 1667, they have the gold price going back to 1200. 

So, look at those charts and you'll see the fluctuations. I have noticed at least in the last 150 years, silver falls during depressions, deflations, monetary disorders. We're in one now. It's no coincidence that silver was at 120 in March.

George: Right. 100, you mean at 12?

Emil Kalinowski: I think for the month it was 112 and then 121 day, if I remember correctly.

George: For the price of silver?

Emil Kalinowski: Gold to silver ratio. The gold to silver ratio.

George: I'm sorry. Okay. I've got you. Got it, got it. Got it. Okay Emil, well I sure appreciate your time. 

It's really been fun talking to you. For my viewers who want to find out more about your company or more about what you do, where can they go?

Emil Kalinowski: Well, I'm on Twitter @emailKalinowski. I'm on YouTube as well. You can look for my channel and Jeff's channel. 

I answer all the questions. And then you'll find my writings most recently at the Wheaton Precious Metals blog, and that's it, George. 

I really appreciate the kindness that you've shown our channel, our fledgling little enterprise here. I wish you continued success. Again, thank you very much.

George: Emil what's the name of the channel?

Emil Kalinowski: It's the Alhambra Investments channel, and then just my own personal channel. 

I have the videos on there as well. So the Emil Kalinowski channel.

George: Okay. Awesome. Well, I appreciate your time. I can't wait to do it again.

Emil Kalinowski: Thank you, George.