Jamey Hecht: I'm talking with Mike Ruppert, who is the founder, editor-in-chief, and major writer of From The Wilderness Publications. That's a website--FromTheWilderness.com. He's also been and a major speaker on peak oil, and one of the pioneers in explaining the connections between resource scarcity, and American GO Politics. How are you, Mike?
Michael Ruppert: I'm fine, Jamey. It's good to be with you and very good to be participating with Global Public Media.
JH: Thank you. I'm wondering what is your outlook for the U.S. dollar in this turbulent period. Where do you expect it to go?
MR: I think I and most other savvy financial experts, people with much longer resumes that I have, are all uniformly of the opinion that the dollar is going to crash and tank. The question is, how severely and how soon. There are enormously clear trends around the globe, from Russia, to China, to India, to Norway, to Iran, that countries which have held U.S. dollars as reserve currencies, are moving out of dollars. They're also beginning, as is the case with Shanghai Cooperation Organization, another organization in Southeast Asia, to move to establish regional currency. Regional currencies as opposed to dollars, whether they be baskets of local currencies or whatever the case may be; a new currency, or a ruble, euro launch, would shift, or if they're strong, would prove to be buffets against an economic collapse, having a domino effect throughout the entire world economy. Currencies that are separate from the dollar are going to be less risky, but to briefly describe some of the recent, major indications showing that the dollar is faultering, before the, quote-unquote, run on the bank. Russia has moved to sell its oil and other assets only in rubles, which is meaning to say that it will no longer accept dollars. People will have to buy rubles to buy Russian oil. Russia is the world's second largest oil exporter.
We have seen Iran with an on-again, off-again kind of a comic situation, preparing to open an Oil Bourse, which is an exchange to trade oil. This would now be open to everybody all over the world, not just to sell Iranian oil, but to trade oil, denominated in Euros. It has a number of problems, and I think the chief problem with that is, that the Euro is not a strong enough currency, there aren't enough euros in the world, there aren't enough euros that denominated treasury assets from the European Central Bank, to replace the dollar. But, I think that Iran's objective is not to replace the dollar, but to drive another nail into the coffin, so to speak. Iran, of course, is the--I believe--fourth or fifth largest oil exporter in the world, and Iranian oil is crucial to many countries including: China, Japan, and much of the Far East, and Europe. So this would offer countries who chose to buy oil or trade oil on The Bourse from other regions, the opportunity to do so in dollars which means they could dump dollars and acquire euros to began a gradual move away from the dollar. We've seen Norway move to liquidate the dollar assets, Mexico has been dumping them, almost every major country has been slowing moving out of dollar dominated assets and diversifying into either the euro, in most cases, or into gold, which Russia is doing very strongly.
The fate of the U.S. dollar, I think, it's probably most directly tied to the peg of the Chinese yuan, the dollar, which has been loosen twice recently; they're only floated in small increments. The U.S. Treasury, which is actually moving, speaking out of both sides of its mouth, on one hand advocating a strong dollar policy; on the other hand making moves that they really want China to float the yuan, which would sink the dollar immediately. But, the link between the dollar and the yuan is probably the single best bellwether of when and how the dollar's gonna crash; this is like any run on the bank. If everybody tries to cash-out dollars, than the dollars become worthless. The idea is to progressively move away from the dollars, to diversify out of dollars, as much as possible, while the dollar still has value. And one could argue, as I do, that China has been making tens and hundreds of billion dollars of purchases of either weapon systems or oil leases around the world with U.S. dollars, which is another way of liquidating their dollar holdings, and picking-up hard commodity assets in the process.
So, it's just literally a matter of time. The U.S. can no longer sustain its enormous balance of trade deficit, which is now way out, extremely high percentage of gross domestic product, never been higher, and most of that is sustained by China and Japan being the two principal buyers of U.S. denominated notes and currency. And there isn't a quid pro quo, which I sense, which will be the ultimate bellwether for the crash of both the dollar and the U.S. economy, which is that China, because there seems to be a correlation, has agree to devalue its yuan progressively only as long as the Federal Reserve continues to raise interest rates, which amounts to a slow strangulation of the U.S. economy and a drive to move out of dollar denominated assets. The dollar is toast one way or another, it just depends upon how dramatic that crash is going to be and how long its gonna take. I would say it certainly, probably can not continue to hold its value for more than a year.
JH: On the one hand, it seems that the Fed is forced to continue raising rates in order to fight inflation; and on the other hand, it needs to keep rates low so that people don't suddenly begin to faulting on their mortgages and collapse the housing bubble.
MR: Which, of course, is already underway, which leads to this process that is known, conventionally speaking, as stagflation--stagnate economic growth coupled with inflation. And we have several horribly disingenuous moves by the U.S. Government, two of which, are actually hiding how much impact--actually three events. One is in the consumer price index, which they use for fundamental measure of inflation. They have removed the cost of food and gasoline, from the consumer price index, to convince people that there's no inflation. The second move was, that in March, the Federal Reserve stopped publishing data on the M3 money supply, which is probably the best measure of the amount of currency in circulation. So, we have no way of knowing how fast the printing presses are turning, and these are metaphorical printing presses, because most of the currency created now is created digitally. But, we have no way of knowing how much cash the Fed is creating, so, they're hiding inflation that way. The third thing that has been done recently, which was the prime mover for From The Wilderness' Fourth Ruppert Economic Alert, which we published yesterday, June 14th; is the fact that the President by means of a very almost overlooked memo--administrative memo--if you will, as granted to John Negroponte, the National Director of Intelligence, the authority to exempt any corporation doing national security contract work with the U.S. Government from all SEC recording requirements.
This is just fundamentally trashing anything that has to do with transparency or trust in the market. I did follow-up calls for the "Economic Alert" with the DNI's office--Director of National Intelligence's office--and the SEC, and both of them said emphatically, naw, there ain't nobody gonna publish a list about which companies were given these exemptions. The only way to find out would be to do a line by line comparison of all the ten, twenty thousand companies that file with the SEC to see which companies haven't filed all or just part of their required financial reporting, in the public record. Stockholders need to know what companies are doing with their money. In 2002, we published an economic alert warning of the stock market crash immediately before the Dow loss about 1200 points, and wiped-out more than a trillion dollars in shareholder equity. These were the major accounting scandals of Enron, WorldCom, Dynegy, Merck, all of the major corporations that have cooked their books. Well, this new move opens the door for John Negroponte to excluded certain companies from filing certain key lines where money laundering could actually take place, on a wholesale basis, and it would, in affect, be legal or untraceable. Now, this is in contexts with the fact that people like I and Catherine Austin Fitts, have been writing for years, that we have documented 4.1 Trillion, with a "T," dollars missing from the U.S. Treasury. This money is going some place. Where's it going? The point is that the U.S. financial system no longer operates in anything remotely resembling a trustworthy fashion, and is being run like a criminal enterprise, and we can only expect more from this from the U.S. Government from here on out.
JH: That brings me to a question about another commodity whose price behavior is linked to that of petroleum, and that's gold. Apparently, the all time high of gold occurred in 1980, at the height of an oil price explosion, that was driven by the Iranian Revolution of 1979. And it seems that the only reason that gold prices ever went down again is because there was new petroleum injected into the economy, and with it new liquidity; we found Prudhoe Bay in Alaska, and the British and the Norwegians found the North Sea. This time around, as you've argued, there will be no redemption from scarcity; we've burned half the petroleum on the planet. Oil discoveries peaked in 1964, and we found 94 percent of all the oil we gonna find. What's your outlook for gold prices in the future?
MR: I am probably the most bullish guy on gold--around. Of course, there are others who are well-known like, James Turk and Gold Anti-Trust Action Committee. But, I am a strong advocate of gold prices. And people should absolutely not be dismayed by the fact that gold has kind of run-up to what, seven hundred and eighteen dollars an ounce, and now it's back down to five seventy-seven; a lot of profit-taking occurred. There is a lot of market manipulation--there was probably a short bubble drive-up. I thought the rise of gold to seven hundred dollars was a little too quickly. Gold will probably hit eight hundred dollars an ounce, in 2006, but only after the summer driving season, and whether or not there are any hurricanes, or riots in Nigeria, destruction of oil flows in Iraq, Iran, and elsewhere. And I easily see gold at a thousand dollars an ounce within a year and a half, and very likely sooner. Gold is the best long play I can imagine.
Historically, gold and oil prices do tend to march in lock step, and I think they will continue to do so. And I have spoken to global financial experts who asked me not to name them, but people will recognize their names immediately, who have said, very clearly that, if peak oil is real, and if we're anywhere close to peak oil, then they see literally no ceiling to where gold prices could go. And I stress that this is for physical gold in possession; I tend to shy away from gold mining stock, and certainly from paper gold, as its called in the trade. But, I have seen one expert predicting eight thousand dollars an ounce gold within two to five years. I don't share that quite bullish of view. But, gold is the best one play that I can recommend to people, like me, who don't have exceptionally large portfolios, who want to just hedge a little bit against thriving oil prices and against this inflation, which is becoming pretty seriously common looking at the collapse of the housing bubble, etc. Gold is the best place I can think of to put my money in, and that's where I recommend people put theirs.
JH: This brings me to China. Among the reasons for holding on to U.S. dollars, there is the need to purchase dollar denominated petroleum, chiefly from the Saudis. President Nixon broke from the gold standard in the turmoil of the Vietnam War, when the French and other European nations begin trading in their paper dollars for gold, in their doubt that the militarized U.S. economy would ever be a robustics porter of real goods and services again. And then Nixon in order to rescue the dollar, having cut it loose from the gold standard, seems to have gone to Saudi Arabia and made a deal; whereby the United States would arm the Saudi royal family against all opponents, internal and external. And in exchange, everyone in the world would need to trade real goods and services for dollars to get petroleum; whereas the United States simply prints those dollars up for nothing. As these bourses open using euros and rubles, the U.S. is losing that hold on the world financial system, but there's another reason to hold dollars, and that is to keep the American economy going, so that the United States can consume what the rest of the world, particularly China, exports.
And I'm wondering--Do you think peak oil, and indeed environmental derivation, will crash the Chinese economy before China becomes wealthy enough to purchase its own goods rather than export them?
MR: By and large, yes, I do. And I think China understands this pretty well. China, from all of my years of research on peak oil, and I should mention that our website From The Wilderness has published more original reporting on peak oil than any other site on the web, over the course of the last five years, is that China is very, very aware of peak oil; China is planning for peak oil. China is aware that one point three billion Chinese are never going to be living at the same standards of living that Americans currently are or think they are. Exponential growth is the funny thing, and Congressman Roscoe Bartlett has done some excellent work on that.
But, I've also seen other stories that show today, right now, there's probably seven hundred and fifty to eight hundred million in internal-combustion powered vehicles on planet earth. If China continues an eight to nine percent rate of exponential growth, year-over-year, the nine percent one-year is on top of the nine percent the year before; then in roughly twenty-five years or thirty years there will be eight hundred million internal combustion powered vehicles in China. Now, God only knows what that would do to the environment. But, it will certainly increase oil consumption far beyond what the planet is able to sustain. We're seeing more and more evidence on a daily basis that we are at or have passed peak production already. So, I think the odds of China getting to that point were China is like America is--I wouldn't bank on it.
JH: China and Japan are contesting one another over some disputed deposits of natural gas and of petroleum in the deep waters, which are neither the clear property of Japan nor of China. Do you suppose that those conflicts might become "hot" wars in the South China Sea or the Sea of Japan?
MR: I'm very concerned about it. There are--to correct you, this is drilling on the continental shelf. The Asian continental shelf, which is disputed. China has claimed sovereignty over the entire Asian continental shelf, which includes Japan. Japan, of course, can not live with that situation, because there are some small, but with the relatively important deposits of oil and natural gas, in the south China sea, in between Japan, China, and Korea, which Japan and China dispute; and whichever nation gets those, China and Japan are going to fight for them. There have been clashes, there have been instances where warships from both countries have kind of faced off. And this is the underlined reasons for all of the polemics and the recent disputes, last year, about Japanese history books, etc., which is all nonsense. It's all about claiming oil and gas rights on the Asian continental shelf. So, that region is a particular area of concern, because that could to lead to a global conflagration, fast than anything else. The U.S. is bound and committed by treaty and financial obligations, Japan being the second largest purchaser of U.S. Treasury Bills. To back-up Japan--the U.S. must go back-up Japan in the event of a conflict with China. So, everything can go sideways in a heart beat over that.
Another region I am extremely concerned about, that FTW has written about, is the strength of Melaka--between Malaysia, Singapore, and Thailand--through which eighty percent, of very narrow Strait, of all of China's energy--imported energy--now passes, as well as energy that's going to Australia and other Southeast Asian nations. The Straits of Malacca are a critical show point. And in fact, we wrote recently that, we were aware of a bestselling novel in China which has to do you the Chinese Navy defeating a U.S. carrier battle group in a battle over the Straits of Malacca. The sea lands are going to become very important ,and if there was any region--I'm not so much concerned about a nuclear war over Iran, and much more worried about a nuclear confrontation between super powers, because Russia now has invested interest. Let me talk about that, briefly. Russia has been waffling about a pipeline, there will be only one that will neither supply China exclusively, going in to China, or will go to the Pacific Coast to supply Korea, Japan, and China, as well. Russia will be taking sides here, as of the latest development it looks like the pipeline is going out to the Pacific Coast. But that may change, and I see signs that Russia is playing the cards very close to the vests. They are gonna make a decision until the last possible minute, to get the best possible deal, and I think Russia will sign ultimately with China. So, if I have any fears for a nuclear confrontation, this is the region of the world, the Far East, were I see that it could happen.
JH: Apparently, the United States has enhanced the power of Iran, in the Middle East , and in Central Asia, in general, by taking Iraq out of the game. Iran is now a major player in the Shanghai Cooperation Organization. Do you view that group as a potential rival to NATO?
MR: I would tend to call the Shanghai Cooperation Organization more of a competitor to the G7 or G8, than I would to NATO. And it's not setup primarily as a military organization, although it obviously follows it so. It's a fact though that the major players are Russia and China, lesser players being India, some of the South East Asian Nations; but, now, Iran is assuming a role by invitation from both China and Russia, in it. That military force would follow the economic interest. We have documented in recent years that China has invested about two hundred billion--more than two hundred billion dollars in Iran, therefore, if the U.S. were to attack Iran, they would be directly attacking Chinese vessels.
The Shanghai Cooperation also is kind of the precursor of a military treaty organization which I would say would follow as an adjunct or corollary with the economic evolution. And this again falls precisely on the map drawn by From The Wilderness, and by me and my book, "Crossing the Rubiconi: The Decline of the American Empire at the End of the Age of Oil." Wherein I said, "As peak oil becomes apparent, you will see globalization fall apart, and you will see geography become the ultimate trump card." As energy prices rise the cost of transporting goods and services, over long distances, makes it prohibited for China to have close relations with the U.S. As collapse begins to occur behind peak oil, regional alliances will become dominate. That is why I look for China to become the regional superpower in the Far East. I don't see how Japan can hold out on that battle for a long time. But, the SCO is very much an organization to be watched for many reasons, but simply because it also now seems to be leading the non-aligned nations of the world; and the independent nations who really don't like the U.S. policy of either the Iraq, Afghanistan, and everything else, to begin the coalesce into an economic coalition that will exclude Europe and the U.S.
JH: And exclude Japan to I should think.
MR: More than likely--yes. But, Japan could go in any direction, we're not sure. Japan and Mexico are two of the nations that I think are gonna have the biggest identity crisises in the next five years. Having to decide whether they are, in Mexico's case--a lot--an American nation or an America colony; Japan having to decide whether it's an Asian nation or an American colony.
JH: That bring me to ask you about the United States in Iraq. What do you think is the actually intended scenario there? Since a peaceful democracy doesn't seem to be in the cards.
What do you think of the true intentions of the U.S. administration of peace in Iraq?
MR: Well, I could speak to what I think the true intentions of the U.S. Government are or what I think the outcome would be. Because clearly from my assessment, and the assessment of From The Wilderness, and many other keen observers around the world; the U.S. empire is in decline, we are now in a period of retraction, we are over extended militarily, couldn't possibly evade or attack Iran with anything short of the boy scout, which is not gonna do much good. So, the U.S. is showing weakness on all fronts, that's what's to be reckoned with. In the face of that, everybody should not get their hopes up that the Congressman John Murtha, or anybody else, is going to lead a movement to withdrawn U.S. Troops from Iraq, it's just not gonna happen, because the U.S. is now building the largest most expensive Embassy it has ever built anywhere in the world, in Iraq. It is building hugely expensive, permanent military bases near oil fields in the south near Bushehr, and around Basra, and in the north around Mosul, in Kurdistan, and this is all around the narrow sliver of land in Iraq where the oil fields are known to be. The U.S. has no intentions of leaving Iraq, however, I draw the analogy that its much easier to balkanize Iraq, carve it up into small states where then the only region the U.S. really has to protect is the oil region as opposed to the whole country that could allow for a substantial withdrawal of troops provided the bases are built; this I think, is the long-term strategy.
But to be fair, the U.S. is getting its butt kicked in Iraq; we are facing with the exposure of massacres like Haditha, and other massacres. The fact that the U.S. Military could be on the brink of a theater collapse in terms of its ability to effectively operate in the region, if popular resistance, whether Sunni or Shia takes over. So, this is a very, very unstable situation; I don't look for any stability in Iraq. And just to give a brief overview, Iraqi oil production peaked in 1990 before Gulf War I, at three and a half million barrels a day. Today, it's well below two million barrels a day, and much of the Iraqi infrastructure has been blown-up. And I've seen estimates of between fifteen and fifty billion dollars, and many years needed to get Iraqi production back up to where it would make a difference.
JH: We've just passed the twenty-five hundred mark in United States casualties in the Iraq War. I want to move to the United States and ask you about the possibilities for survival and perhaps even human flourishing in the aftermath of what some people are calling petrocollapse. Do you suppose that there are more advantages to relocation in a rural area than there are to relocation in an urban one?
MR: Generally, I would say, yes, but there are enormous problems with this. Three hundred million people can't leave the city and move to the country. There aren't enough sustainable regions. Just as, on a global perspective, six and a half to seven billion people can not all move to the beach in Costa Rica and pick bananas and enjoy warm tropical weather all day. On the whole, I do not issue a blanket recommendation that everybody aught to relocate to a rural area. I have just moved my company to Ashland, Oregon--Southern Oregon--because that's what I chose to do, and I was able to do it. That does not mean, however, that those who choose to remain in urban areas are all going to be screwed when it hits the fan. We have seen movements, and most notably the South Central farmers, which I know you will follow closely, as From The Wilderness will follow closely, which is a fourteen acre plot, in South Central, that was feeding three hundred families, which is being torn down. But there was a lot of work done there with soil restoration. There are some cities in the United States, big cities, that are way ahead, and could be very good places to live, as a result of what is now--proactive planning--being taken to prepare for peak oil recentralization, putting homes and businesses very close together in central urban areas; planting urban gardens.
One of the most important films that we are gonna be selling here on our website soon, it's called, "The Power of Community: How Cuba Survived Peak Oil," which is a great lesson about how Cuba having hit its own artificial peak oil, with the collapse of the Soviet Union, in 1990, had to completely reorganize its economy and its social structure; and it is now more or less flourishing as a result of following these practices, many of which could be helpful here. I do think some urban areas in the U.S. are going to be much, much harder hit than others, and here I would include the Southwest: Phoenix, Tucson, Las Vegas, Santa Fe, Albuquerque, and areas in arid deserts where water must be pumped by electricity, which is powered by burning fossil fuels; or air conditioners must be run, etc. etc. Others cities and regions seem to be doing pretty well, Portland, I think, ranks the top of the list in the U.S. for cities that are preparing. But other major cities, even including, Denver, are making strong preparations for peak oil. So, its very much a regional question, and anybody listening to this who's trying to make those decisions, needs to find out what's going on in their specific area, before making a decision.
JH: My last question also concerns the fate of Americans in a post-collapse situation. What do you think will be the outlook for the many, many American homeowners who do not own their homes outright, but who are dependent on mortgage loans, many of them adjustable rate mortgage loans, as the Federal Reserve raises interest rates to the point where those people lose their ability to live where they do?
MR: Well, clearly the housing bubble is popping or collapsing. Inventories are way-up, the length of time that houses remain on the market before selling is way-up, and defaults are reaching record levels; we have all kinds of problems. Anybody who puts faith in their home's value, as something that will save them when they need money, or they need to survive, is going to be very seriously disappointed. That doesn't mean everybody should sale their home. People who are currently on multiple acres that have arable land with fresh water and trees should very much consider staying there, if they can avoid the death trap. However, people who with mansions, in the middle of Los Angeles, or Phoenix, or someplace else, are gonna have some serious problems, again, this is an individual situation. But, by-in-large, we have to face the reality that most American consumers are screwed; they're literally up the creek without a paddle.
What is encouraging to me is, thanks to the efforts of Post Carbon Institute, Global Public Media, thanks to ODAC--Oil Depletion. There's a whole numbers of movements out there--and From The Wilderness--a whole number of sites out there that have been educated. And it's very clear to me that communities are starting to become very much aware. We don't even know how fast this process is taking place. It's once, twice a week now, that I see a story about some small town or medium size city some place that's making rapid moves to prepare for peak oil. That will save some housing market value, because of the fact that they are in sustainable communities, and that's why we have to keep hammering on this theme of relocalize now; strengthen your local neighborhood where you are going to stay, because that will probably be the best insurance to protect housing values where you live, that's a big uphill challenge if you live in Los Angeles, New York, Chicago, Detroit, etc. It's a much more doable challenge if you live in a smaller urban area.
JH: Michael Ruppert, thank you for the benefit of your insight today.
MR: My pleasure to be with you, Jamey. And thanks so much to Global Public Media for everything you guys do.
- 10900 reads
