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How to weather the Financial Armageddon Ahead

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Welcome to the Holistic Survival Show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper?

The Holistic Survival Show is your family’s insurance for a better life. Jason will teach you to think independently, to understand threats, and how to create the ultimate action plan. Sudden change, or worst case scenario, you’ll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places, and profits you care about in uncertain times.

Ladies and gentlemen, your host, Jason Hartman.

Jason Hartman:

Good afternoon and thank you for joining us for another edition of the Holistic Survival Show. This is your host, Jason Hartman, and this is Show No. 3. This is a fairly new series, and probably, many of you are listeners to my Creating Wealth Show, where we just published our 112th episode.

Today, we are going to talk on the Holistic Survival Show about Financial Armageddon and how to weather the financial Armageddon ahead. We have a fantastic guest, Michael Panzner, and he is a very popular financial expert, who is the author of Financial Armageddon, and also another book, entitled When Giants Fall. He has been quoted on these turbulent financial times on CNBC, Bloomberg, The Wall Street Journal, USA Today, Barrons, Reuters, CNN Market Watch, Business Week Online, The Street.com, Slate, CFO.com, and many other print and radio publications.

Thankfully, Panzner will help us lay out a map to navigate the uncertain waters ahead, and if you’re really interested in the financial topic and you are not listening to the Creating Wealth Show, please make sure you take advantage of that, more information, and that’s really where we discuss 100 percent the financial aspect. On Holistic Survival, it’s only a third of our content because we’re talking about the people, places, and profits that we need to protect in uncertain times.

But for the Creating Wealth Show, visit www.JasonHartman.com or search it on iTunes. Let’s go to the interview with Michael Panzner and let’s talk about Financial Armageddon.

Interview with Michael Panzner

Jason Hartman:

It’s my pleasure to welcome Michael Panzner to the show. He is the author of When Giants Fall: An Economic Roadmap for the End of the American Era. Michael, welcome to the show.

Michael Panzner:

Glad to be here. Thanks.

Jason Hartman:

Tell us a little bit about your book. This is fascinating work and a fascinating roadmap, I’ll say.

Michael Panzner:

Well, fascinating, but also disturbing, and I think that’s the part that people have some difficulty with. I’m basically making the case that life as we know it, in the most general sense, is set to change. Some of that is a result of what we’ve seen over the past couple of years or so, this economic unraveling that’s taken place. But some of it is also related to sort of more broader forces, and I think for Americans, it’s going to have an impact, not only in terms of their finances and their economic circumstances, but also in terms of their social conditions and, really, their worldview. And that’s the thing to bear in mind. It’s a broad based picture.

Jason Hartman:

So what are the four big, looming clouds on the horizon? I think we’re in the midst of some of them now actually, so I don’t know if it’s really on the horizon anymore. But what are the four big problems coming our way in the financial world?

Michael Panzner:

As you noted, some of them are already coming home to roost. At the heart of it, really, was this tremendous buildup of debt. When I first wrote my second book back in March 2007, there was this idea that we had taken on an extraordinary amount of obligations, relative to the size of the economy. One statistic that I like to make reference to was the fact that if you add it all up, total debt between corporate and individual and government, it was about three and a half times the size of the U.S. economy. The last time we saw anything near those sorts of numbers was during the Great Depression.

Other aspects that also are sort of being thrown into the mix are the government guarantees. People have seen the failure of Fannie Mae and Freddie Mac. Well, there are a number of different obligations that the government, both at the state and federal levels, is on the hook for. There’s also the retirement system, which is, again, really another form of obligation. In fact, if you put all four together and say what do they represent, they’re obligations that we can’t afford as a nation and as a people, I guess.

But the retirement system, whether you’re talking about Social Security and Medicare, or whether you’re talking about at the state level, both for public employees, for example, or be talking about individuals, in essence, what people think is going to be there probably is not going to be there. And what we’re already exposed to is way more than we can afford.

The last, but not least, was the topic that originally was not really in the public’s eye, but this idea of derivatives, which, essentially, were paper promises that turned into one big house of cards. And I put that altogether and suggested two years ago, when things seemed pretty rosy, that it all was going to end in tears, and I think that’s what we see unfolding right now.

Jason Hartman:

No question about it that you were correct. In fact, we have obligations just on the Federal government level that are larger than the entire globe’s GDP. It’s almost too strange for fiction.

Michael Panzner:

It’s extraordinary. The problem is that people just assume that a., this was normal, and b., that it could carry on forever, which anybody who had sort of picked up a history book and looked at that kind of mindset and that sort of hubris and that sense of feeling like you’re invincible, well, normally, or at least historically, it never had really turned out that way.

Jason Hartman:

So I’m going to agree with you. I just want you to know that first. I’m a pessimist. I say to people I’m no longer an optimist; I’m an opportunist. I think opportunities are presented in a world like this, although it’s a very treacherous time, no doubt.

But the devil’s advocate would say, Michael, that doom and gloomers have been around for years. I remember in the ‘70s the books. I remember picking up Robbie Batra’s book in the late ‘80s and it never happened. It seemed like the reason to me was the Greenspan bubble of just pumping more and more money into the economy lasted to a certain point and now the jig is really up.

Michael Panzner:

Well, yeah. I think you answered your own question to a certain extent. The fact is that there was a whole bag full of magic tricks. One of them was the Federal Reserve. One of them was a government budget. At one point, we were a creditor nation. Now, we’re sort of really – now, we’re unable to do anything, but depend on the kindness of foreigners to a certain extent in terms of our extraordinary borrowing.
The manufacturing economy back then, right now it’s a shadow of its former self. You had a lot more positives in the old days and in a sense, you’re right here. Our luck ran out; the jig is up. I haven’t always been a bear. I mean I got to this point. My very first book was written back in 2004 and it was an overview of how the stock market had changed through the years. It wasn’t bearish. In fact, it wasn’t bullish either. It was just an observation.

But from that, all of these things that were sort of unfolding over the past decade or so, this big move towards using lots of leverage and this move towards speculation and this idea that you could not have to worry about the future, you could only focus on today, they sort of came out of that first book and really led me down the path to thinking that the world was going to change for the worst.

Jason Hartman:

So the devil’s advocate would say, now, look, everything you say is absolutely true, but America has the reserve currency. It has a brand. It’s known as the land of opportunity. It has a fairly transparent and just legal system. Of course, it has higher and higher taxes we see. It seems to be a lot of it really plays on having a reserve currency and being the customer for countries, like China. China hasn’t been able to decouple. They haven’t been able to create their own consumer banks. They really seem to need us. Like you said, the kindness of strangers. They’re buying our debt like crazy and you would think that any sensible country or institution would stop doing that at some point. But I don’t know. It’s hard to predict what the future holds there. What do you say to those people that say that?

Michael Panzner:

The game is changing there with the Chinese, though. Don’t forget. One of the reasons why they have been essentially supporting us financially was because they had this huge market, they were trying to develop their economy, and build it up into sort of a manufacturing powerhouse. One way they were doing that was with exports. And in fact, they were engaging in what’s known as vendor financing. They were lending us the money to buy what we couldn’t afford in our own right.

But that game is changing now in terms of the American consumer. It is retrenching. People are realizing that it doesn’t make a lot of sense to have nothing in the bank. They’re starting to become aware of the fact that debt does have to get repaid, and so some of them are shrinking those obligations. And there’s a real, whole shift, I guess you could say, in this idea of consumerism, almost as a kind of religion.

So in a way, it takes away one reason for China to support the U.S., which in my mind actually creates a pretty vulnerable situation. But in terms of America as a brand, there are a lot of reasons to question that, and in fact, I go into it quite deeply in my new book. But all you have to do is sort of step outside the U.S. and look at, for example, the perceptions about how people think the U.S. is and where people view the U.S. standing is. There are all sorts of little developments occurring in terms of the U.S., the perception that we are the world leader. People are making arrangements amongst themselves, the Russians, the Chinese, the Iranians, the Venezuelans, really kind of excluding the U.S. from the table.

The view of the U.S. used to be the sort of land of opportunity and the beacon of light. Outside this country is very poor. Foreigners think pretty poorly of the place. Part of it has to do with what we’ve done over in the Middle East in terms of Iraq and Afghanistan, essentially a complete debacle really. Part of it has to do with the fact that we walked around for a long time thinking that we’re exceptional. We don’t have to follow the rules that everybody else does.

So I think we are a tarnished brand and in my mind, we are a decaying brand, and I lay out a pretty, I think, strong case for why that is likely to continue and deteriorate further.

Jason Hartman:

So we’re the customer. We design, everybody else sweats. China is the world’s factory. India is the world’s back office. The U.S. is the world’s customer. I agree with you that the brand is definitely tarnished. I mean people around the world have to be looking at the ugly Americans, so to speak, and thinking why do they have all that? Why does an autoworker in Detroit make $44 an hour, while someone doing factory work in China or Indonesia is making a whole heck of a lot less?

But what really is their other choice? For example, China, what choice do they have but to not let this relationship go on the way it’s going? I mean it seems completely illogical to me. I agree with you. If I were China, I would not buy our debt. I would not do this, but who are they going to sell their products to?

Michael Panzner:

Well, they’re going to turn inward, and like most nations, the goal all along in China and in other developing countries for that matter, has been to create enough momentum that it can become self-sustaining. The idea is that once you get to a certain level of activity, you can start to sell cars and air conditioners and high-end products, meat, staples of life here, which are not staples of life there. They’re luxuries. All of these things they can say we’ve reached a critical mass as a developed country and we can sell those things back home.

So that is the end game for many of these developing countries is to turn into thriving, relatively self-contained versions of I guess the U.S. in some ways. They want to be their own U.S. and that may not be at the point where that transition is easy. In fact, my view is that it’s not there yet. But down the road, there’s certainly a view that the Chinese will look to satisfy their own citizens going forward, partly for political reasons. There’s a great risk of social instability there with millions of people potentially out of jobs and really idle hands being the devil’s workshop.

But also, as a nation, that is ultimately the goal. It’s not just to sell things to other countries. It’s to be an economic power in your own right.

Jason Hartman:

Absolutely. It’s just that they haven’t been able to achieve that goal. That’s really the decoupling argument. They won’t need us anymore. That’s kind of the Peter Schiff line and it didn’t work out so far.

Michael Panzner:

Well, so far is the operative word. In my view, it will and it may take time. It may take a decade. But certainly, they have made progress toward that end goal.

Jason Hartman:

Well, tell us about why globalization will shift into reverse.

Michael Panzner:

The main reason is to be – there are a couple of factors actually. But generally speaking, one of the reasons why globalization was allowed or was facilitated so easily is because everybody was benefiting. And if you think about it, even at the schoolyard level, or at the sort of town level, when everybody’s making money, then it’s easy to cooperate, it’s easy to share, it’s easy to work things out in terms of whatever political or economic issues you might have, essentially to look past your differences.

But you change the game in terms of money, finance, economics, and suddenly, everybody’s attitude about cooperation goes the other way, and I think that’s what we’re seeing in Europe and Asia and even in the U.S. with the whole sort of “Buy American” campaign that’s gaining some momentum. This idea that, well, now times are hard, we need to sort of batten down the hatches and throw up the barriers and make sure trade doesn’t take away jobs from the home market.

The other side of it is the energy equation. I address that in the new book. I’m a believer in Pete Doyle. I’m a believer that, in many respects, the resources that we have come to think are almost limitless, like food and water, as well as energy and other commodities aren’t limitless, and that there’s going to be more conflict and more of a grab, I guess, for people to make sure they have their share. Food security, for example, is going to be a big deal and part of food security is making sure what you need is kept at home and others can’t get their hands on it.

So all of these factors, this sort of resource-related, this spirit of cooperation, this economic boom that helped globalization are disappearing in a sense from what I can see and as a result, the world is going to become less cooperative and less flat, to use an expression from the best seller.

Jason Hartman:

The world is round.

Michael Panzner:

Exactly, and not only that, I think the world is going to become much more isolationist and much more localized. Both of those are related concepts, but people are going to focus on what’s near them and sort of networks of relationships, communities, the kinds of things that really sort of have been lost sight of in the era of the past two decades.

Jason Hartman:

Yeah, which part of that may actually lead to some good things in a way. When you say food security, are you referring to on a national basis or on a personal basis?

Michael Panzner:

Both. I mean I think countries, certainly in those areas, that’s been an issue in Asia, for example. A while ago, about a year or so ago, we were having food riots because there wasn’t enough rice available for the individuals in those various countries. I think there’ll be a greater focus on securing supplies and making sure that stuff does not get exported that is going to be needed at home by the citizens of the countries that are producing them.

So that’s going to create something of a problem in some areas of the U.S. Obviously, we have the breadbasket of the country in the middle of the U.S., but there’s going to be some differences. China, for example, is out there scouring places like South America, for example, looking for land and looking for sort of fresh food supplies just to feed their billion and a half people.

But individually, I think it will be a relevant issue as well. In terms of where you live, I expect that as energy concerns become a greater threat, as food and water issues, droughts, for example, become more and more apparent, people will be forced to think about where they live on the basis of the essentials. Do they have access to clean water? Do they have access to the food nearby? If energy is much more expensive or difficult to obtain, will they have to rely on these long international or even national transportation networks to get what they need to eat? Or should they be looking to live where they can get the food from the community nearby?

All of this is very, very unlike the kind of America that people are familiar with, but in my mind, that is the future.

Jason Hartman:

Yeah, I think Americans were really led to believe they were much more prosperous than they really were.

Michael Panzner:

Yes, it was very much a fantasy in some respects, a lot of it fueled by play money.

Jason Hartman:

Yeah, it really was. I mean it worked for a couple of decades in the post-World War II world, where we owned, really, the Industrial Revolution for quite a while. And then we, in the ‘70s, went off the gold standard, and then we owned the monetary revolution. I’m just sort of giving it that nickname, not in a good way. Now, it seems like that house of cards has really fallen. What do you mean when you talk about what to watch for in relationships with friends and employers and others? I find that to be an interesting bullet point on your book summary.

Michael Panzner:

Well, there are two angles to this. The first is that I think the world is going to become a lot more unstable, a lot more dangerous. Countries are going to be engaged in conflict. It’s a natural outcome of a changing economic circumstance. In fact, most people point out the fact the last time we had this great boom in globalization was prior to World War I, when all of a sudden, things fell apart, and as a result, we saw sort of a really dramatic change in the social mood.

So in a sense, you needed to know who you could depend on and you also needed to know who you could not count on when the chips were down. But even more so, I think in an environment where there’s going to be less government support because the piggy bank is running dry, where states and government at sort of a federal level are going to be devoting resources to maintaining public order in some respects and don’t have the money to honor many of the obligations that they promised. People are going to have to look after their own. In some ways, we’re going to sort of devolve to a kind of environment that you see in some poorer countries, where there’s a big reliance on friends, your network of family, extended families, and those who you can trust, and those who you can’t.

And so it’s really from both angles. Some might say that’s a good thing, returning to our roots as a community, for example, and in terms of appreciating those who are closest to us. But getting there might not be such a wonderful journey.

Jason Hartman:

Yeah, and I agree with you that is one of the bright lights at the end of this dark tunnel because prosperity, generally speaking, Michael, seems to be an isolating factor. People have all they need. They have an abundant financial life and they sort of look at people as sort of secondary to that. You look at Third World countries, and I’ve travelled extensively – or developing countries, I should say – and it seems like the family unit is much closer and the friendships are closer. It’s just sort of different than the more prosperous countries in the West.

Michael Panzner:

Yeah, clearly. Obviously, some of it is out of necessity, so it would probably be a better idea if people had sort of stuck to that perspective when things were good. But in a way, you get lazy and in a way, you get sort of greedy perhaps. You don’t appreciate things when they’re easy to come by. In some respects, maybe it was inevitable that we had to be forced to go back there, but I don’t know. Like I said, there is perhaps a bit of a silver lining to my otherwise downbeat outlook on the future, but it certainly won’t offset all of the negatives, that’s for sure.

Jason Hartman:

Can government, or anyone else for that matter, solve these problems? I know that might lead into the discussion of the monetary future we have in inflation/deflation discussion.

Michael Panzner:

Having spent 25 years on Wall Street and knowing full well anything can happen, and learning the hard way, in fact, that anything can happen, I wouldn’t rule it out. But if you look at history, if you look at the forces that got us here, the excesses and the imbalances, if you look at the fact that empires, great powers like the U.S., have come and gone – before us was Great Britain, and then way back when was Rome, and there have been many in between – it suggests that we’ve seen the up phase of the pendulum swing and, like the seasons, we’re heading into winter. We’re heading into the down phase. And it would be pretty difficult to say we can stop winter, and I think you look at this in the same way.

So from my point of view, I don’t think these forces are stoppable whatever the government does. Unfortunately, government action may be setting the stage for a kind of a pain that wouldn’t necessarily be preferable to most people around the world. Not just in the U.S., but around the world is this idea that people think they can rescue the system by printing currency. Virtually all currencies, major currencies at least, are not backed by anything except government promises, so the sky is the limit in terms of what they can produce.

And while it provides some short term benefit for cash starved economies, longer term, it’s going to lead to a situation where people lose confidence and lose faith in both those currencies and the governments that are issuing them, and creates a whole load of problems in and of itself.

Jason Hartman:

The part that’s hard to understand, though, is why do we see with this huge crisis and these massive, just disgusting level of bailouts, and new Obama social programs and stimulus and all of this, trillions and trillions of dollars just being created out of thin air, total fiat money experience here. Why do we see a strong dollar? I mean it seems to be that they’re defying gravity, at least temporarily.

Michael Panzner:

Well, actually, funny you mention that. It’s one of the things they anticipated in Financial Armageddon. In fact, there were other people, who, rightly so, saw a number of problems and how it was all going to end badly. But I was one of the few that actually forecasted the dollar rally with the early stages of the financial crisis, and there’s a lot of technical reasons, but part of the background is the fact that there’s been so much dollar debt issued through the years, both within the U.S. and around the globe, that there’s suddenly a scramble for dollars. It’s really a short-term technical phenomenon. But bankers are calling in loans; companies are trying to pay down their obligations, so it creates a sort of a short-term shortage for dollars.
The other side of it is it comes down to markets. It’s like I said, I’ve been around a long time and markets tend to do what they can to make sure people can’t really benefit too much. And there have been a lot of people who have been betting against the currency. So in a way, I think there would be the irony, but many of those sorts of people, who perhaps in the long run, will be right about the dollar, are going to end up being forced out because of their bad timing in terms of speculation.

So those are some of the factors, but long term, the prognosis is poor. It’s bad for all paper currencies, but for the dollar, which has been the reserve currency, which has a tremendous number of unnatural holders – people who hold it as part of their reserves, people who hold it for transaction reasons because oil, for example, is priced in dollars – there are a lot of people who hold the dollar not because they need it necessarily as a citizen might, as someone who lives in America might, but because of its status. And once the status changes, they have no real reason to hang on.

Jason Hartman:

It just seems to me, Michael, like the status should have changed already, though. There was news about a year and a half ago, I want to say, OPEC really wanted to do business with Euros rather than dollars. The supermodel Gisele said she doesn’t want to accept dollars. She wants all her pay in Euros. That was kind of funny. You saw a supermodel saying that. Amsterdam was not accepting dollars in exchange places. And then it sort of bounced back, so there’s this demand for dollars at the moment. When do you see that changing and when do you see inflation really rearing its head, and how severe is that going to be?

Michael Panzner:

It’s always kind of hard to get it pinned down to the exact point in time. It’s like saying when was the housing bubble going to burst. I mean you knew there was some sense that it was coming close, but it was hard to pick it to the day. However, when asked this question before, I thought by the end of this year, we would probably start to see the real early warning signs of a change around from this sort of deflationary debt contraction that’s been taking place and this associated rally in the dollar. We’d start to see that turn around and the pendulum swing the other way towards inflation, towards dollar devaluation, towards the kinds of events that I think are lurking on the horizon.

But timing-wise, I thought maybe by the end of the year we’d start to see it, but who knows? Maybe it will happen tomorrow. But as far as the way things have played out so far, it’s never really one event. It’s always a process. It’s like turning around the tanker in the ocean. You don’t just say we’re going to go left now and two minutes later you’re heading left. You’re talking about a few hours to turn the whole ship around. If you put that into the context of economies that are gigantic battleships, so to speak, and it takes time for these forces to play out.

Jason Hartman:

Yeah, it sure does. I wonder how severe the inflation will be. I mean I can certainly see 20 percent inflation coming down, in real numbers, coming down the pike in a few years. But who knows? Maybe it will be a lot more severe than that. It’s just very difficult to know and I think one of the hard parts about it is that you’ve seen so much credit contraction in the last year or so that some of that credit has to come back to the market because the aggregate supply of money versus credit is a negative number now, compared to where it was in, say, 2007. So we have to see some credit return probably. Do you agree with that?

Michael Panzner:

It’s not just credit. It’s really – and I’ve had this discussion with others – it’s not so much credit, per se. What also matters is people’s confidence in the government and confidence in the currency.

Jason Hartman:

On the demand side, yeah.

Michael Panzner:

The truth is, is that if people lose confidence, it tends to push up the velocity of money; in other words, how quickly it turns over. And that in and of itself can create inflation, all else being equal. So you always have to put it in the context of a level of confidence in the government and I think that confidence is waning. You can see it even now in terms of our administration, the dissent, and such. It’s become almost corrupted, looking after the interests of Wall Street at the expense of taxpayers. Whether it’s literal corruption, in the sense that people should be going to jail, I don’t know, but certainly, there is definitely not an interest in preserving or looking at the taxpayers. That’s for sure.

But ultimately, it plays out in a way that I think your 20 percent number could be a good starting point.

Jason Hartman:

What do you think the best case scenario and the worst case scenarios are here for our future, and are we talking the next decade, the next 10 years, the next five – I mean some idea as to your timeframe here?

Michael Panzner:

Well, obviously, what I’ve described, in fact in both books really, but certainly in the latest, is a process. It’s not like you wake up one day and the sky is green. It’s a gradual wearing away. It’s a gradual deterioration. It may come in some kind of lurching starts. I’d have to say, although I anticipated a lot of what’s happened over the past six months in particular, I’d have to say it happened a lot more quickly than I ever imagined it would. That’s for sure.

But I think the best case scenario is sort of a muddle through. Some people talk about what happened in Japan when they had their bust. It was kind of a lost decade. It wasn’t such a great thing, but in some ways, I guess it was better than a full scale depression and the follow up after that.
The worst case, I think, is going to be a world that people are not very happy with and I don’t think it’s hyperbole to think about the idea that we could be seeing something on the same level with or even much greater than the Depression of 80 years ago.

Jason Hartman:

Maybe we really are in another depression now. I know there’s not really any agreed upon academic definition for that, but some people say four quarters of negative growth, recession being two. Some people judge it by unemployment. There are a lot of opinions on that, but it would look so different this time. Look at the changes in technology. It certainly, even if we are a lot poorer, it seems like life will be a lot better in many ways than it was in the ‘30s, doesn’t it?

Michael Panzner:

Well, I don’t think people will be selling apples on the street corner. That was the classic image from the Depression.

Jason Hartman:

They might sell them on a website. I’m just joking with you.

Michael Panzner:

The problem is that as a culture and as a civilization, if you like, in broad terms, Americans have gotten used to a lot of things that the rest of the world doesn’t have, and you could very easily get to a situation, for example, where money becomes increasingly tight, so you start to see things break down. Roads break down because they’re not being maintained. Water treatment systems break down and then you have electrical blackouts.

And then slowly but surely, there’s deterioration. Certain products aren’t in the market anymore because of trade wars and protectionism. The cost of energy becomes prohibitive, so certain parts of the South, Southwest in particular, become ghost towns. In total, it’s not going to be a pretty picture. It’s not going to look like the tumbleweeds of the Depression necessarily, but from a modern day perspective, it’s going to look like a pretty ugly place.

Jason Hartman:

I just want to understand your quick statement on the Southwest. Are you saying they’ll become ghost towns because of heat and lack of air conditioning?

Michael Panzner:

Well, I think water and energy. They’re extremely dependent on both and I think both are in short supply, or will be in short supply.

Jason Hartman:

Yeah, so Arizona would definitely be a victim of that, for sure.

Michael Panzner:

Yeah. Clearly, there will be some oases amongst them. Even in the Deep South, when it was, decades ago, there were towns and things like that. But the truth is, is it’s not going to be like it is now. It’s going to be a shadow of its former self in my opinion.

Jason Hartman:

Yeah, okay. What can listeners do to protect themselves? This is a pretty gloomy view. It’s like talking about The Long Emergency, James Kunstler’s book. What is the protection strategy here?

Michael Panzner:

Well, I think overall, some people tend to sort of dismiss this, but the most important thing is a mindset change. The problem here is we’ve seen tremendous denial going on in Washington. We’ve seen tremendous denial going on in Wall Street in the sense that it’s all going to go back to normal, we just have to ride it out, and it’s just a hiccup. But if you believe as I do that there are a number of structural forces, secular trends coming together all the same time, if you at least accept that and say, okay, I have to rethink the way I’m living my life; I have to think about where I’m going to live, I have to think about what my job is, I have to think about my exposure, think about what resources I have available, how am I going to prepare, that is half the battle. And I think that’s the issue that a lot of people can’t get their arms around.

In terms of more specifics, I think my view on the world is it’s going to become a lot more unstable. The currency is going to be vulnerable. There have traditionally been some safe havens, like precious metals. It’s one of the few investments that I think makes sense longer term. Short term, my background, in Wall Street, in trading gold, it’s probably overheated. But if you’re talking 5 – 10 years out, it’s going to be a place that may just help you get by when the stuff hits the fan, so to speak.

Jason Hartman:

Do you think that will be more from an investment perspective or will that be from literally a day-to-day perspective collapse of the currency, “this is how I trade” perspective?

Michael Panzner:

Very conceivably. One of the things that’s kind of interesting is if you get this sort of levels of inflation that I think we could see, hyperinflation, you get to a point where people have to seek out all sorts of alternatives, among them a barter. And certainly, historically at least, hard assets like precious metals, even bullets, may become the medium of choice in certain circles. I’m being somewhat facetious.

Jason Hartman:

No, you may be very realistic there, actually. Some people say cigarettes and alcohol, literally, will be a good thing to trade.

Michael Panzner:

Certain basic needs and, traditionally, these have been kind of a joke, but I don’t think they’re such a joke. Let’s put it that way.

Jason Hartman:

So I like the fact that you brought up as the first thing “mindset” because I guess the measure of someone’s disappointment or distress would be really a comparison to what they had or what their parents had versus what they have now. And getting one’s mind around that, Michael, is probably the first step, having some acceptance of that.

But on the other side of that, we’ve all heard all of the stuff about the power of positive thinking and the law of attraction and optimism and its literal translation to reality. Where do you come on that, like there must be some happy medium or distinction maybe?

Michael Panzner:

Well, the point I make and the point I’ve raised in the book is the fact that if you look at the course of our nation’s history or many other nations for that matter, we’ve been through the Civil War, which nearly tore the country apart. We’ve been through the Great Depression, which nearly destroyed large cross sections of the economy, the so-called downtrodden. At the end of it, we got through it and arguably, the country perhaps was the better for it. I don’t know whether that will remain the case going forward, but there’s a lot to be said for this path of progress through the centuries in terms of the human race. I think that’s a reason to remain optimistic.

But then again, I can tell you if I was sitting on someone’s doorstep in 1929 and someone had been fortunate enough for someone to say, “Here’s what’s coming, but you better be prepared,” then I know I would have come out of it a lot better than if I was completely blindsided. And I think that’s the take-away. Even if we’re going to end up better down the road five, ten years, which I do think that sort of timeframe applies, wouldn’t it be better to deal with the immediate reality in a way that you could at least have a better shot of making it in the long run.

Jason Hartman:

Very good point. One thing I meant to ask you earlier is in terms of the union of U.S., about 40 states in the country are on the verge of serious financial problems, if not like California, my own state, literally bankrupt for all intents and purposes. Do you think we’ll see a situation where we have states essentially declaring bankruptcy, getting federal bailouts, the Feds printing money to do this, possible cessation movements gaining steam? Any geo-political thoughts there?

Michael Panzner:

Absolutely, and in fact, when I was originally kicking around the idea of this book, I thought of a title. The one I came up with was this notion of splintered states, in other words, things splintering into smaller and smaller pieces, not only as a sort of a cultural, economic, and political perspective, but literally in the sense of nations breaking apart. And I think there’s a real risk in the U.S. You have a serious cultural divide in some respects. On our southern border, you have Mexico looks like Lebanon in the making. There are a number of smart analysts arguing that you’re looking at a potential failed state there because of the narcoterrorism and some other issues, which could create havoc in the southern portion or at least some parts of the southern portion of the U.S.

You have the issues with California. You have some parts of the northeast saying they don’t want to have – Vermont has been a traditional hotbed, for example, of a cessationist-type leaning, not that they’ve actually followed through on it, but you get to an environment where people can no longer count on the Union for the benefits, then they say, well, what do we need them for? Let’s just go our own way. And that’s, in my mind, not an unrealistic outcome.

Jason Hartman:

I’ve always wondered – you remember when you saw Russia fall apart, or the Soviet Union, I should say, fall apart. What will Washington’s reaction to that be? Will they roll tanks into these states? What will happen?

Michael Panzner:

It’s interesting. I do think there will be – in fact, I warned in Financial Armageddon about the risk of martial law in this country as a response to a complete economic collapse and accompanying social unrest. Most people you say that to, they say what are you talking about? America? That’s not going to happen here. I think there’s already been a creeping disintegration in terms of civil rights in this country. All sorts of rule changes have been made that make people less secure than they used to be as Americans.

Jason Hartman:

I agree wholeheartedly, by the way.

Michael Panzner:

And that’s a real concern. The state, in the sense, one of the reasons we’re here is because government has become a beast. It feeds on the taxpayers’ money so to speak and like most beasts, it will defend itself if it comes under threat. And that is a genuine risk. There’s also the possibility, in general terms, people have been used to the idea that they’re free to make those kinds of choices, but suddenly, somebody comes in and says, “We don’t like that idea anymore and as a matter of ‘national security’, we need to change the rules.”

So all of this is out there. I sound alarmist, I’m sure, but if you look at history and the way that social conditions and social attitudes, and really, the overall social moods can shift following as abrupt an economic downturn as we’ve seen and other circumstances, like resource related constraints. It’s not out of the question for a lot of angry people to be running around and battling each other over the spoils.

Jason Hartman:

Yeah, no question about it. That’s a very good point. A lot of this boils down to in terms of a personal action plan, Michael, to this question. Where should someone live? A lot of life is dictated by your geography and the resources you have. Do you have any thoughts? Have you addressed the issue of advice to the listener of should they move to a certain location, not to the Southwest probably? Is there sort of an ideal location that won’t be as affected as others?

Michael Panzner:

I thought about this and I think you brought up James Kunstler before, who has also addressed the issue somewhat, but clearly, you’re going to have to take certain things into account that you didn’t used to because I don’t think it’s anymore the case where you say, “My parents lived there, so that’s where I’m going to live,” or “My friends live there; that’s where I’m going to live.” You’re going to have to take into account where are the jobs going? Where is there access to water? Where is there access to transportation? I think towns and smaller sized cities could be attractive, especially those located near waterways, for example.

The areas that climates that are a little bit more temperate and aren’t totally dependent on having a constant supply of energy to keep them cool or keep them hot, that leaves open a lot of possibilities. But on the other side of it, you have to think this through and certain locations might be more difficult if they are too populated, even if they’re seen as being somewhat dependent now. But they could become targets. There’s going to be lots of crazies running around and governments looking to capitalize on the point at which the U.S. is less of a power than it was, and there will be more terrorists running around, more criminals running around. So very large cities could be vulnerable in a way that smaller cities might not be.

So those are the kinds of issues you have to think about. In terms of a specific city, I don’t have my top-ten list because I think it’s going to evolve over time.

Jason Hartman:

Good point. Well, this has been fascinating talking with you, although gloomy, no question. What would you like to say in closing, just to sort of wrap up this subject, and give us your website and tell people where they can get your books?

Michael Panzner:

Sure. The thing to remember here is that I have a family; I don’t want any of this to happen. When I wrote the second book, it’s where the data took me. When I wrote this book, it’s where the data took me. As far as I’m concerned, I hope I’m absolutely, totally wrong. That said, there’s something to be said for being prepared for the worst as opposed to being blindsided by it. So I think that’s the perspective you want to take away. Right now, it’s part of my mission to both stay informed myself, but also to keep others informed. I run a couple of blogs. One is www.FinancialArmageddon.com. One is called www.EconomicRoadmap.com. It’s a slightly different perspective. One is much more domestic. One is more the kind of global picture. Both are meant to say here’s what’s really going on and it’s a little different than you’re hearing from the mainstream. As far as I’m concerned, if people get something out of it, then that’s great.

Jason Hartman:

Excellent. Michael, thanks so much for joining us on the show and we will hope that your predictions are wrong, although I hate to say I think at least many of them will be very, very true. Thank you for joining us today.

Michael Panzner:

Thanks for having me. Take care.

Announcer:

Thank you for joining us today for the Holistic Survival Show, protecting the people, places, and profits you care about in uncertain times. Be sure to listen to our Creating Wealth Show, which focuses on exploiting the financial and wealth creation opportunities in today’s economy. Learn more at www.JasonHartman.com or search Jason Hartman on iTunes.

This show is produced by the Hartman Media Company, offering very general guidelines and information. Opinions of guests are their own and none of the content should be considered individual advice. If you require personalized advice, please consult an appropriate professional. Information deemed reliable, but not guaranteed.

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Duration: 48 minutes

 

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