Listen to or download part 2 of the interview with financial expert Albert Spits. In Dutch, MP3, 7 Mb, 15 minutes, recorded on 23 May 2008.
Spits is an advisor for pension funds and co-founder the Frédéric Bastiat Foundation. More on Spits and his quest for financial clarity in part 1 of the interview.
Interview by Daan de Wit.
Transcript by Michiel Bezemer.

Translation by Ben Kearney.

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-Ten percent of that mortgage...

 

In gold or in silver. Gold is still at an historic low now. If we look at the ratio between the amount of credit and the amount of gold that's out there, or better put: the amount of monetary instruments - that's money, euros, dollars, etc. - then we can see that gold represents approximately one tenth of that value. Because we're currently heading toward a crisis situation, we're starting to see a flight towards things of value, a flight to gold. So the price of gold is going to have to go ten times higher in order to keep pace with all of the paper money in circulation.

 

-So even if you get in now, the price is still going to increase tenfold?

 

Yes, ten times higher. I expect that the price of gold, which is now at 500 euros, will be somewhere between 4500 and 5000 euros in 2016.

 

-Is it a good idea to buy other precious metals as well?

 

If you're smart, you'll purchase half in silver and half in gold.

 

-But your advice is to actually buy it, to physically have it in your house?

 

Yes, in a place where it can be stored. I wouldn't buy a gold certificate at the bank because banks can fail.

 

-But if you don't buy it on paper but rather as actual gold, and you store it at the bank, the bank can still shut down.

 

Right, but not in a separate safe. You would need to have a separate safe at the bank. You could have it stored at a place like Shurguard. That's a kind of big storage shed with safes, you can store it there yourself.

 

-Or you dig a hole and stick it in the ground...

 

You can do that too. Or you can procure your own safes, a very good safe, and rivet it into the wall. That way you'll always have it within arm's reach.

 

-Still it all sounds rather extreme.

 

It may sound absurd, but if worst comes to worst - and we've experienced it before in the depression and also during the war - then gold and silver are the only currencies that you'll be able to buy food with or that you'll be able to survive off of. For people who have never experienced this it sounds very strange.

 

-But you've never experienced it either, have you?

 

No, I haven't. But my parents experienced it, and I heard it from them firsthand. Most people get this secondhand because their parents didn't experience it either, but their grandparents did. That's the problem. You remember what your parents told you, but you don't remember what your grandparents told you.

 

-Willem Middelkoop says: Monetary systems have collapsed 220 times throughout history. So it's not crazy to think that it might happen one more time. Relocating, moving away from the densely populated Netherlands - does that continue to be an option?

 

If you're looking for a kind of value-based system, then big cities are not preferable. See, in a big city you're always going to have the problem of riots that could break out, uprisings, revolutions.

 

-Or if the supermarket isn't stocked anymore...

 

Right. So then you have to get to the countryside, out of the city. There you could purchase a farm, for example, or you could occupy one. You should live close to farmland anyway, so that in a time of crisis you can provide for food.

 

-This time of crisis will come after the dollar has collapsed?

 

When the ATM's are no longer accessible. When the banks close their doors.

 

-And you consider this situation possible?

 

It's already happened once.

 

-Right, in Argentina. But do you have a time frame in mind for when this might happen?

 

We're now in a period of time in which things can change very quickly. I think that starting in 2012 we'll have to take into account the possiblity that banks or the banking sector could shut down. Then you're really dependent on the government, the government will step right in of course. At that point you'll be dependent on the government for your income, just like we saw right after the Second World War.

 

-Why 2012?

 

I've done my own research into the demographic situation: At that point we will have had the biggest bubble - the baby boomers that spent the most. The peak of the baby boom was somewhere between 1958 and 1962. That is the wave that is now heading in the direction of retirement age. By 2012 this largest wave will already be in decline. That also means that stock markets in the West will collapse. That has implications for businesses that are dependent on consumption, because consumption will naturally decrease. Then we'll probably find ourselves in a heavily deflationary situation. On the one hand prices will fall because businesses will still have to provide goods to the public. On the other hand monetary inflation, which the government attends to, will increase. Raw materials and vital necessities will then become more expensive.

 

-How does this insight affect your work as an advisor to pension funds, and how does it affect your personal situation?

 

I've already hedged my own capital by putting 10% of it into gold. I've already transferred my pension into raw materials and raw material shares. I sold my house in 2002, and I've been renting since then. As far as pension funds go, we're currently advising that a minumum of 10% of pension assets be put into gold.

 

-Is 10% enough?

 

Ten percent is the foundation - you still have the raw materials as well. That's another story, that's above and beyond precious metals. That's also something that I've done some research into: At a certain point gold and silver are going to decouple from raw materials and become monetary metals. Right now they are still seen as raw materials, but soon they will be considered monetary metals. That's the money that we'll be left with when the mountain of paper money collapses.

 

-OK, so that's your advice. But how does this information sit with the pension funds, these rather extreme ideas?

 

There are already a few pension funds that have come around to it. Unfortunately I can't name names without their approval. Obviously they don't want to broadcast it. But we're working on it. I think that it will most likely be a few years before a number of them are on board. As far as the bigger pension funds like ABP and PGGM go, we don't advise them.

 

-ABP is heavily invested in the U.S. dollar, is it not?

 

That's correct.

 

-Are they not running a huge risk?

 

Yes, they are running a risk, PGGM as well. They're very deep into stocks. That makes sense because they are really big pension funds. These are the great hulking supertankers of the pension fund world, so they're difficult to budge. If they were to put 10% of their assets into gold, the gold market would explode right now. So that's not advisable. But I do believe that they are going to have to make a shift in their entire way of thinking.

 

-How does it look for all the employees of ABP? Are they not in danger because of all this?

 

They are, and that's why I'm also advising them to invest in gold and silver so as to secure their personal assets. So that they are not solely dependent upon their pension and the government, but have instead secured their assets themselves a little bit.

 

-If I could ask another personal question - have you purchased a boat, or some land in Paraguay, like president Bush?

 

No, all my assets are liquid. That is to say: Gold, silver, as well as savings in the bank. You see, I'm waiting until everything collapses, and then I'll go ahead and buy something. To give an example: Recently I heard in the news that you can buy a single family home in Miami, Florida - right now - for 45,000 dollars. Four or five years ago, just before the collapse, those houses went for between 150,000 and 200,000 dollars. That's just an example...

 

-But is that an investment then?

 

Well, not an investment, it can also serve as a place to live. And with your retirement pension you can live anywhere you want.

 

-But is America really a smart place to live?

 

Personally America wouldn't be my choice, I'm just using it as an example.

 

-Why not?

 

Because in America you still have the same problems as here, especially if you live in the big city - riots and uprisings.

 

-But wouldn't you have even more issues in America because of the possible accumulation of harsh legislation?

 

That's true, it's definitely not my land of choice these days, with the Patriot Acts... Personal freedoms are being heavily restricted. And that's going to start getting worse soon because people tend toward extreme measures in a crisis situation. That's within the government, but the people will ask for it as well. We saw this in the 1930's with the election of Adolph Hitler: When people find themselves in extreme circumstances, they want extreme people in power. They want someone who will start solving things right away.

 

-I spoke with Willem Middelkoop about departing for another country. He made mention of some specific places that would be good to go to. He said: When it is warm, then...

 

South America is a nice example. I know some folks who live there and they also say that the climate is great. The problem with Brazil* is that there is an awful lot of crime - I wouldn't be so quick to recommend that country. Though Australia would be good. I myself have lived in New Zealand , that could be an option. Again, these are countries that are involved in the credit crisis, they have also built up a huge amount of debt.
* Also read the interview: DeepJournal interviews an expatriate who did what Willem Middelkoop is advising.  

 

-What are you going to do?

 

At the moment I'm thinking things over. I think I'll go with an early retirement. And then I'll be thinking more about South America.

As long as things are going fine, then it's okay. But if you find yourself in a situation in which you need to find a way out, if you can buy a piece of land for not too much money, a place where you can grow your own vegetables and have alternative sources of energy like wind and solar on your own property... Then you'll be less dependent than you would be if you lived in a big city and were dependent on someone else for your energy, for your shopping, for your garbage pick-up, etc. In the countryside you're less dependent.

 

-Is there still time to get there if things go wrong?

 

If you have money! Most people who are in debt have few options. That's why I also advise people: Try to conserve your assets now. You don't need to worry about increasing your assets; conserving your assets is good enough. The money that you have from your house or from your investments can serve as an escape route.

 

-But at that point is there still really time? Won't everyone be standing in line, or stuck in a traffic jam?

 

By that time they very well could. But also by that time there will be a lot of people who can no longer get away. They'll have to put up with it. If you're in the middle of a credit crisis and the value of your home has dropped by 60%, then your alternatives have dried up.

 

-Credit crisis, food crisis - Middelkoop's new book is called The Permanent Oil Crisis. What does this situation say about us and our leaders?

 

Firstly I accuse the central banks, because they are the most responsible for creating this system. The Dutch Central Bank, the Federal Reserve, the European Central Bank - they are the ones that have actually created this situation thanks to their fiat currency system. Since the introduction of the euro, monetary inflation has been exceeded 10% per year.

A lot of people don't know it, but monetary inflation is the real, true inflation. The CPI , the Consumer Price Index, which we see as inflation, published by the Central Bureau for Statistics, is a manipulated index. There is a specific portfolio, and a weighting of commodities is done. And substitutions are made. For example if steak becomes too expensive, then it gets replaced with a substitute, like pork chops. But it's no longer the same thing that's getting weighted. That's also why you end up with some very distorted figures.

 

-What does the Central Bureau of Statistics say the inflation is?

 

At this moment the CBS is saying that it's heading in the direction of 3%.

 

-But in reality everything is getting 10% more expensive each year.

 

Yes. Currency devaluation actually. Now people are saying, ‘Yeah but I didn't really see that because I've been able to find cheap stuff'. That's because China is exporting deflation, goods are very cheap. It used to be that those goods were all made here in Europe or in America . Now they are being made in East Asia, in particular in China, where salaries are approximately one tenth of ours. Everyone knows that 80% of an industry's costs is payroll. That 80% in China is one tenth of ours. In China the value of what they produce is just 28% of the value of what we can produce in the West. That's also why China could export cheap products to us whereby the price index of China 's industrial production dropped. That has put an awful lot of pressure on the CPI.

A currency devaluation of 10% means that your euro is worth 10% less each year. I asked for the data from the Dutch Central Bank, the M1 and the M3 data. The M1 data was pretty impressive. (I always use M1 as monetary inflation, the M1 is the growth in the money supply plus money on deposit). It has risen 499% since 1982. That's a gigantic increase. Compared to the worth of a euro and/or guilder back in 1982, today it's worth about 17 or 18 cents. Not even a fifth of the original value is left.

 

-That's front page news, but I'm not reading it...

 

That's right.

-What is your scenario for the future?

What I see is that…
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Part three of this interview will be published soon.