After a long first day of presentations at World War D, the international keynote speakers, Marc Faber, Jim Rickards, Richard Duncan and John Robb got up on the stage to answer questions on topics ranging from Bitcoin, to China’s economy and liberty.
You can read a summary of the discussion below, or go here to find out how to see video of the full discussion.
Kicking off the discussion: Bitcoin and Gold
‘Bitcoin feels like currency at this point. I don’t recommend it to investors but I’m not anti-bitcoin,‘ said Jim Rickards. His concern however, was that many bitcoin users are tax evaders. He argued that the US Internal Revenue Service (IRS) has been used for political purposes before – pursuing the Tea Party over tax matters, for example – and that creates a risk for people who use Bitcoin. Bitcoin has been in an upcycle since 2009, he said, and no one knew what it would be like in a down cycle.
He affirmed the importance of gold in every portfolio.
Joining the discussion, Mark Faber said: ‘The question should be how could you NOT own gold.‘ His concern about Bitcoin was how reliant it is on internet and electricity networks functioning properly, something that can’t be taken for granted in the age of digital warfare.
Gold, however, is a physical asset that performed superbly until September 2011, Faber said, and has been in a correction since then, which isn’t unusual in a money printing environment. ’The fact is that gold down is a present from God and I wish it would go lower so I could buy more,‘ he said. The big proviso Faber added was that he had to physically own it, and said people would be ‘mad’ to own any asset in the US.
That prompted the question: does the medium of exchange matter to you in the future? Does money have to be backed by a hard asset?
John Robb answered by turning to a theme that had dominated his presentation: trust. ‘What we’re seeing in terms of how people interact is the importance of online reputation.‘ He sees a fundamental shift afoot. This will be where the online sharing economy gives primacy to permanent, online reputations maintained by buyers and sellers (think AirBnB).
Mark Faber didn’t agree, noting that the terrible reputation of bankers hasn’t harmed them. ‘A lousy whore will still have customers,‘ he added to raucous laughter.
Richard Duncan jumped in, moving the discussion back to bitcoin. ‘I don’t understand the point of bitcoin. If you want paper money or paper currency you have several to choose from. If you want a physical asset you have gold.‘
Discussion moved to a theme that had dominated day one:
China’s Economy. Is a collapse imminent?
‘Chinese banks are less connected to the global system than USA and Europe so there is less risk of contagion,‘ said Jim Rickards. The risk may be lower but is still there – he pointed out that when the mortgage meltdown happened in the US in 2007 the Tokyo Stock Exchange dropped precipitously. Why? ‘When you’re in financial distress you don’t sell what you want, you dump what you can sell, which is why they dropped Japanese stocks and gold,‘ he said.
Mark Faber introduced another element – how the Chinese government would respond to a weak economy or falling asset prices. In that case, he said, the Chinese could easily print more money. That would make the currency decline, and Faber isn’t sure what consequences that would have. It’s not the involvement of Chinese Banks in the global system that could cause contagion but investors who have a strong exposure in China, he said.
Richard Duncan sees China differently. ‘China’s economic model is in absolute crisis,‘ he said. ‘With the US in crisis, and Japan and Europe, there’s no one else left for China to keep exporting to. So if exports aren’t growing why would they keep investing in factories? What’s going to drive China’s economy?‘ He argued that bank loans have been driving the Chinese economy and to survive the impending crisis, China will have to do what Japan has been doing: run up massive government debt.
That may avert a depression but in his view, China won’t grow anywhere near 7% a year.
John Robb’s view: China, like other emerging economies, is in an arms race with technology for middle class jobs. Technology, he believes, will win, which will deny billions of people entry to the middle class.
Liberty – are we effectively living in a police state?
‘The problem is we’re in a zero trust or low trust world. We’ve seen more and more states climbing into this police state overwatch,‘ answered John Robb.
The thing about liberty, observed Jim Rickards, is that once you notice it slipping away, those that have taken it won’t give it back. ‘If you pass enough laws everyone is a criminal. This is modern neo-Fascism, and it’s coming your way,‘ he added, to applause from the audience.
Mark Faber ended by noting that those who benefit most from regulation are established corporate players, at the expense of small business and individuals. Large corporations can afford to keep teams of expensive lawyers on staff, allowing them to minimise their own taxes and twist regulation in their favour in ways that their start-up rivals can’t. ‘The corporate establishment love regulation because it keeps the opposition away‘ he said.
And that ended day one. You can catch the events from days one and two here.
Callum Denness
Roving Reporter for Money Morning at World War D
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