The central theme of Wealth Formula Podcast is that there are two investing worlds. One is for the poor, middle class, and the upper middle class. The other is for the ultra-wealthy.
Now the funny thing is, that many of those in the middle and upper-middle classes could be investing like the ultra-wealthy but one thing gets in the way—knowledge.
The world of the ultra-wealthy is hidden behind a veil that you have to actively pursue to access.
That is the purpose of this show…to illuminate the secrets of the ultra wealthy and make them accessible to anyone who cares to use them to their own advantage.
When I started down this path, I had no idea how little I knew and that’s probably still the case. In fact, the more I learn, the less I realize I know.
In 2008, when the financial crisis happened, I was just finishing my surgical residency. I was broke so I didn’t lose any money. But I had no idea what was going on in the world.
Meanwhile, the global elites were colluding to save the entire economy from collapsing. I didn’t even realize that I should be panicking. Did you? I guess sometimes ignorance, indeed, is bliss.
Now, when I read about what led up to the crisis and the inner workings of those deals, it is like reading a gory post-mortem report.
Why do I read this stuff anyway? Well, I am a firm believer that history repeats itself and that knowledge is power. I also like to feel in control as much as possible.
There is a lot of activity in the world that is the underbelly of the global elite and if you don’t try to keep up with it, you’re not going to know what hit you when the next financial crisis comes along.
No one knows this more than my guest on this week’s Wealth Formula Podcast, Nomi Prins. A former Wall Street insider, Nomi Prins left the dark side and now she writes about it. On this week’s show, Nomi tells us about the role of the federal reserve and banks that led up to 2008 and the new world order that has ensued since then.
It’s a world that you and I have little access to and it’s something you should not miss!
Nomi Prins is a renowned journalist, former international investment banker, author and speaker. Her new book, Collusion: How Central Bankers Rigged the World, explores the recent rise of the role of central banks in the global financial and economic hierarchy. Her last book, All the Presidents’ Bankers, is a groundbreaking narrative about the relationships of presidents to key bankers over the past century and how they impacted domestic and foreign policy. Her other books include a historical novel about the 1929 crash, Black Tuesday, and the hard-hitting expose It Takes a Pillage: Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street (Wiley,2009/2010). She is also the author of Other People’s Money: The Corporate Mugging of America (The New Press, 2004) chosen as a Best Book of 2004 by The Economist, Barron’s and Library Journal.
She has appeared on numerous TV programs: internationally for BBC, RtTV, and nationally for CNN, CNBC, MSNBC, CSPAN, Democracy Now, Fox and PBS. She has been featured on hundreds of radio shows globally including for CNNRadio, Marketplace, NPR, BBC, and Canadian Programming. She has featured in numerous documentaries shot by international production companies, alongside prominent thought-leaders.
Her writing has been featured in The New York Times, Forbes, Fortune, Newsday, Mother Jones, Truthdig, The Guardian, The Nation, NY Daily News, LaVanguardia, and other publications.
Her engaging key-note speeches are thoughtfully tailored to the auidence. She has spoken at numerous venues including the Federal Reserve / IMF / World Bank Annual global central bank conference, Purdue University/Sinai Forum, University of Wisconsin Eau Claire Forum, Ohio State University Law School, Columbia University, Pepperdine Graduate School of Business, National Consumer Law Center, Environmental Grantmakers Association, NASS Spinal Surgeons Conference, the Mexican Senate and the Tokyo Stock Exchange.
She was a member of Senator (and presidential contender) Bernie Sanders (I-VT) Federal Reserve Reform Advisory Council, and is listed as one of America’s TopWonks. She is on the advisory board of the whistle-blowing group ExposeFacts, and a board member of animal welfare and wildlife conservation group, the Elephant Project.
Nomi received her BS in Math from SUNY Purchase, and MS in Statistics from New York University, where she completed coursework for a PhD in Statistics. Before becoming a journalist, Nomi worked on Wall Street as a managing director at Goldman Sachs, ran the international analytics group as a senior managing director at Bear Stearns in London, and worked as a strategist at Lehman Brothers and analyst at the Chase Manhattan Bank.
[06:56] Buck introduces Nomi Prins
[12:56] Formation of the FED
[27:38] Collusion: How Central Bankers Rigged the World
[36:54] Nomi’s thought on our current economy
[43:50] Where does cryptocurrency fit?
Buck: Welcome back to the show everyone. Today my guest on Wealth Formula podcast is Nomi Prins. Nomi’s a former Wall Street Superstar, that’s where she held numerous positions. She was a managing director at Goldman Sachs she ran the International analytics group as a senior managing director at Bear Sterns in London, she was a strategist at Lehman Brothers, and an analyst at Chase JP Morgan Manhattan. She was as you can, it sounds like the quintessential Wall Street insider before becoming a journalist and really a prolific author. Her latest book is called Collusion: How Central Bankers Rigged the World. She’s got several other books including All the Presidents’ Bankers, Black Tuesday, It Takes a Pillage (I like that name in particular) Behind the Bonuses, Bailouts, and Backroom Deals from Washington to Wall Street, and Other People’s Money: The Corporate Mugging of America. She’s appeared on numerous TV programs and documentaries and has spoken, as she’s captured the attention of global elite, having spoken in numerous venues including the Federal Reserve, IMF, the World Bank annual global conference. And I could go on forever really on this I mean this is Nomi’s got incredible accomplishments under her belt. Suffice it to say she’s super smart and she’s here to shed light on some very important issues for us. Nomi, welcome to Wealth Formula podcast.
Nomi: Thanks for that intro. And thanks for having me on.
Buck: So before we dive in, I mean it’s always kind of nice to get to know somebody a little bit, of where they came from. Your journey, as what I would think is fair to call an insider, really of some of the most powerful banks in the world, to writing incredibly comprehensive and you know actually pretty critical books about them. Tell us a little bit about that journey.
Nomi: Well I started out in math, so I start out grounded in sort of numbers and so the reality that those represent. And from there sort of made my way to to Wall Street. Actually I was still in school at the time so I kind of merged into working at Chase when I went to New York and from there I became an analyst. The program I was involved in a lot of the what are now very more types of esoteric securities that all those sorts of things from the very beginning of them in terms to happen to programming them so I really understood the guts of what was what was happening with with money with cash flows of how things reacted to the market to politics to to whatever from from the real ground up and I just sort of parlayed that into grad school I worked at Lehman Brothers and ultimately moved to London, for Bear Stearns, and got involved on the international banking side of things. And you know for a time a lot of that was was actually very it was very interesting. It was an intense atmosphere, there’s a lot of travel involved, meeting a lot of people, going to a lot of different countries ,you know working a lot of hours. But as things started to get more I say predatory on the street, relative to clients in particular, starting with a lot of corporate scandals, about my first book Other People’s Money, which is predominately about the Enron scandal in the WorldCom scandal back in the early part of the 2000s, which was around when I decided to leave the industry, and how banks were really a part of that. Basically a part of sort of faking what books look like and sort of creating these off-book kind of you know aside from public transparency elements of ways that they worked, and that started to sort of get to me and also this general nature of the environment started changing along the same time, and ultimately I left Goldman Sachs, which I moved back to New York to be at Goldman Sachs in the beginning of the third derivatives, credit derivatives market, which became the crux of the financial crisis. So around the time when I left there was a lot of sort of bad credit that was being repackaged as good credit. Now we know that as the subprime mortgage crisis which became the financial crisis back then it was sort of a nascent of that. And I decided that it was time for me to leave personally, like morally it just didn’t work for me. And also from a standpoint of I always like to explain things to people, you know whether they’re clients of the banks are people within the institutions. And so that translated into I think my need to be a journalist and to talk about what’s really going on on the inside how that impacts the outside, and since I left which is back now in 2002 is a long time ago so much has happened on the financial horizon. I’ve had to just basically keep on sort of going back to the well and writing.
Buck: They give you plenty of material right? They’re giving you plenty of material.
Nomi: No shortage forever. So yeah.
Buck: So a year ago, let’s get in sort of around the topics of the current book, I want to just sort of set the framework for that. You know a year ago we had the author of The Creature of Jekyll Island, G. Edward Griffin on the show and he described the formation of the Fed, you know he described this sort of gosh this is, the description is is fantastic the way he describes it a bunch of wealthy bankers on a train you know secretly going to Jekyll Island and creating what he describes ultimately as a banking cartel. Now I’m sorta, I’m curious on your take on the formation of the Fed and and ultimately how did this set the stage for what the Fed evolved into from there?
Nomi: Yeah that’s interesting because I mean that that train ride that he talks about in the creature of Jekyll Island happened. I mean a lot of the things that he writes in his books and other people that sort of get away from conspiratorial sort of conjecture and actually I go to the back, actually really did happen. In my last book actually, All the President’s Bankers, I follow the evolution of relationships of bankers, major bankers to Congress to presidents in particular. I went to Jekyll Island, I went to, it’s now a resort hotel, at the time you know it was a club. It was a place where the most elite people in the country, the industrialist, the the bankers, would come you know, their wives and their kids would be somewhere else. They’d have lots of sort of, a ratio of waiting staff to them and etc. And they would sort of talk about matters of the world. And the way the Fed was born not only was it a clandestine sort of train ride there, it came out of, it was an accident actually that it happened there. It happened because Nelson Aldrich was going back with it but try to understand how these things come together, Nelson Aldrich was who was a senator from Rhode Island. He also happened to be the father of a man named Winthrop Aldrich who became the head of Chase after the Fed was was established. He was going to visit his son in New York, he was working at another Bank, and he got hit by a trolley car on Madison Avenue in New York. And as a result of having to convalesce, JPMorgan who actually was the only member of that sort of allowed the people that went to Jekyll Island to be there. You had to have a membership in order to go there. He was not at the meetings in Jekyll Island. He gave his membership to effectively Nelson Aldrich and he said you know you got to go somewhere quiet to sort this out. And that’s really how Jekyll Island even happened. Take some bankers, in other words take my friends who are actually running banks around Wall Street. That’s how that happened, and go there. So the senator and a bunch of major bankers from the largest institutions at the time at the request of the membership of JP Morgan who was the most powerful banker in the world at the time, went there and talked about how to create what became a Federal Reserve or a place where money was held in reserve technically to be lent out in emergencies to banks so that they would continue to function and the idea was that if they could function well the economy would function well. Credit wouldn’t stop, everything would flow it will be all very seamless. But but the personal relationship with JP Morgan was very interesting to this. He died when the Fed was actually created. He died by December 1913 when the Federal Reserve Act came out. But before that he had been basically the money behind other panics and crises. He basically had lent in the past the government money. So he didn’t trust that the government would have money. He wanted a Fed or some other central bank to be there for banks. So it all started because bankers wanted to protect themselves. That’s how the entire thing was fashioned. And that happened most recently in the financial crisis of 2008. That Fed helped its own. And still is.
Buck: So when you talk about sort of the changing role of that Fed over the years, you know specifically, you know when I think about the Fed, and one of the questions I asked G. Edward Griffin, actually we were on a cruise one time, that I saw him on was, you know I get the idea, I get the idea with the cartel and the banking cartel, but when you look at who’s actually on that Fed now, they’re a bunch of academics, right? So how it is how does this all work together now, I mean how do you go, how has the work fed evolved into what looks like sort of a pseudo-academic, pseudo-independent, non-governmental institution. I mean how how did that, if you want to talk a little bit about that? Probably ultimately culminating into you know what came with the crisis in 2008 I think things have changed since then. But to that extent, how did that evolve?
Nomi: At the beginning, people who sort of made the decisions there in Washington weren’t academics. They were in fact from the banking sector they they had come from being senior members in that arena so they were coming with that experience in the beginning. And yes as things went went forward they were replaced by in some cases bankers and ultimately by academics. A lot of the reason for that was that academics sort of left an extra layer of independence. When the Fed was first created, it was created independent, supposedly, of the government, of the President, and even of the private banks, although they are members of the Fed. The Fed actually exists, is kind of a separate like semi-corporation within Washington. It sits right near the White House and everything else, but it’s it’s comprised of its members its members are the private banks the private banks owned shares in the Federal Reserve. They’re also regulated and receive subsidies from the Federal Reserve. It’s a very symbiotic relationship regardless of who runs it. But over the years, as these academics were chosen, a lot of them were chosen because of the the sort of philosophies they had about banking. So what happened was they allowed the the bankers to kind of take a step back and say, look this is an independent body, you know people that running are running this, you know, yes they’re coming from the same Harvards and Yales and so forth that we graduated from, yes we know them, yes we’re friends with them, but you know, they’re they’re different. They are academics so they’re gonna have independent thought. But their independent thought is very much about the same school of thought that the bankers have, which is that you know the Fed is there to support them. And in the process if it helps you know produce liquidity or if the economy looks like it’s better and they can say it’s because of Fed policy. Well that’s a good thing because it enables that idea of Independence to sort of be prolonged, even though in reality the Federal Reserve was constructed and continues to focus on preserving the largest banks in the country and now by extension the world, it’s all sort of codependent upon each other.
Buck: Right. So if you get to, you know, I’m looking at in reading your book, you know, it seems like there’s this you know obviously there’s this inflection point at 2008. But then when you think about it, you you mentioned the Glass-Steagall repeal in 1999. It seems to me that that’s really what set up 2008 in the first place. And then that ultimately led to this new world order of the Fed and the government and globally. Do you do you think that’s a fair assessment?
Nomi: Yeah because what happened in 1999, and there was a lot of years before 1999 where the largest banks wanted to roll back to how they had looked before the great crash and the depression, the great crash in 1929 depression that took place in the early 30s, before which banks had been able to take deposits, give loans, create new securities, trade those securities, create esoteric securities, sell them off to like people’s grandmothers, and do lots of other things. Those activities were all separated by the Glass-Steagall Act of 1933. That was an act going back to mention Winthrop Aldrich in the beginning of our conversation. He was a banker that time running Chase. So he was now one of the more powerful bankers in the world in 1933. He actually helped FDR, with whom he yachted on the weekends, so this is all very connected, to separate the banks. Actually helped internally within Washington this idea of passing Glass-Steagall to separate the banks so that he would choose, which he did, Chase did choose to just do the deposit and loan business, and sort of forego all the risky businesses. All the businesses that had caused the great crash, all the businesses that people were not confident in, so that he could amass deposits and move off and that was very smart move.
Buck: In other words, banks were banks, investment, you know, and hedge funds were hedge funds. And there was a line there where you couldn’t take bank deposits of, you know, people on Main Street and make risky gambles with them. That was the mainstay of ultimately of what Glass-Steagall was. And then what happened in 1999?
Nomi: So in 1999, after a lot of swipes it sort of end-running these functions and merging them together anyway, two large banks basically a set of travelers and Salomon Brothers and then Citibank got together and decided they were going to merge anyway, and as a result of their merger they had to change the law sort of retroactively so they hung out a lot again. This is in my last book All the Presidents’ Bankers with the Clinton administration, with people in Congress there and they should have pushed the idea that America, American banks could only be competitive with the world and this is kind of relate to some of the stuff that’s happening today if they if they could become bigger. They could do all these multiple new activities under one roof, have the deposits, do the loans and do everything else like they said the Europeans were doing otherwise they would be left behind. This was a big argument for Glass-Steagall to be repealed. So in 1999, ninety senators basically both sides of the aisle repealed Glass-Steagall through not called the Gramm–Leach–Bliley Act. As a result of that, big banks could merge again. They’d already been doing like Department merges and stuff like this but all of a sudden JPMorgan which was an investment bank that created securities, did mergers and acquisitions, didn’t really deal with a lot of real like regular people in their deposits, could merge with Chase Manhattan Bank and, who did deal with people’s deposits and loans and also some complex stuff as well, and become one entity that allowed them to have what was called a balance sheet. It’s the stuff we talked about when I was at Goldman in ’99 when this was happening. I was in Bear in ’99 before Glass-Steagall was repealed. And then when I was at Goldman in 2000, the idea of balance sheet, the idea of being able to say to two companies, look, we will merge you together, we will extract a lot of fee for it, and by the way we’ll also lend you some money too like pay for over whatever you need to do going forward because we have balance sheet. Why do we have balance sheet? Because of all these deposits behind us that will be collateral to the money that we will lend to you so we can do your more complex more profitable business. And that’s how all of these merger started to happen. Companies like Goldman Sachs that didn’t have balance sheet, that didn’t deal with real people in deposits, had to do something called leverage. They had to borrow and borrow and borrow against the little capital they did have in order to play in the same games that the banks were now coming in to. As a result of that all of the big banks on Wall Street, whether they had deposits or didn’t have deposits and were just leveraging and borrowing to be in the same camp, started to do more and more complex securities, take fees out of them create more and basically it just just throw a whole lot of risk onto the financial system because now they were betting and betting and betting again on the back of other people’s money, on the back of other people’s mortgage loans and so forth. And ultimately that caused the financial crisis in 2008.
Buck: Right way and that was the point I was gonna next to ask you about is without the Glass-Steagall repeal, would have 2008 have happened in the first place?
Nomi: See, I don’t believe so because of what we just talked about, because I understand how balance sheets work. Now there are there are a lot of people on both sides of the aisle and and in the media and so forth that would disagree and say well there was only Lehman Brothers, it was only Bear Stearns two companies I worked at that went under, they’re investment banks. So the big banks that were merged by the Glass-Steagall Act, as a result of the Glass-Steagall Act, Citigroup, Bank of America, JP Morgan Chase, they’re all fine, they didn’t collapse. So it really wasn’t Glass-Steagall. However the only reason that Lehman and Bear and Goldman and Morgan Stanley who ultimately had help from the government’s that did not collapse even though they were on the precipice of collapsing did collapse was because they had taken on too much leverage because to compete with what the big banks could do, they had to borrow more money on the back of what they had in order to play the same game. So therefore had they not been able to do that, had they not been feeling that they, you know had to compete at that level, they would not have leveraged as much, they would not have failed also. The big banks that were creating a lot of these toxic securities at the at the crux of the financial crisis, they were lending money to Lehman and Bear to buy the toxic securities they were creating. They were giving leverage to Bear Stearns and Lehman Brothers which ultimately helped to collapse them. So this entire system of big banks creating stuff that they then lent money to the investment banks to buy from them was also commingle and all a result of the fact that Glass-Steagall was repealed. And had Glass-Steagall not been repealed there would not have been as much leverage. Banks would not have been to create as many toxic assets, they will not have leveraged subprime loans by as much as they did because they wouldn’t have that buyers. And there might have been a crisis, but it would have been far less significant.
Buck: Is it even possible to, you know, to go back to pre-repeal days, given the way the banks are structured now? I mean is that even in, I mean it certainly there’s no political will out there, I’m sure. Given given the strength of the banking lobbies and stuff, but is that even something that could be done?
Nomi: It can be done for really two reasons. One is that banks as their job long do mergers and acquisitions. That they take pieces of one company with pieces of another company, subtract another couple pieces that are like not necessarily. They can figure out how to create new from old and how to restructure and spin things off. That is like what they do. So that the technological ability is there. As you’re saying the political will isn’t there. But you know you go back to 1929’s crash, and even though now we have more technology computers and even more trades in less than a second, back then, what we’re called trusts which were just collections of shares and stocks and bonds and companies that might not really have been as healthy as they were marketed to be all in one. And the idea was you know you buy a trust of a certain bunch of companies and ultimately maybe one fails the other one does okay your trust is gonna do fine. And people bought into that. And that was one of the reasons that there was a crash because it turned out a lot of those companies were not fine. And the bankers knew that, that’s why they were stuffing their shares into these trusts. Those trusts were not that different really besides you know less computer power then the CDOs the sort of collateralized debt obligations sort of new trust with new language and new acronyms of now. Of going into 2008.So back then if they could do it, given where they were technologically and given where they were in what was perceived to be a complex banking system, it’s not actually I think less complex now relative to technology. Everything moves forward so it is possible I think — therefore separating the will is definitely another thing. Banks don’t want to split up then they did. Now they don’t.
Buck: Let’s move on to 2008. So now as Americans of course we know how the financial meltdown affected us. In your latest book, Collusion, really dives into something that you know certainly I hadn’t really heard much about or thought much about and that is ultimately how our overly powerful banks and really the dominance of the US Federal Reserve’s hurt not only us but ultimately had a profound effect internationally. And you talk about how it affected you know the interplay between central banks and government it all gets very complex. And I was wondering if you could try, it’s a complex topic, I mean this is a very interesting book but it’s certainly nothing to read while you’re working or something. Tell us about some of the themes of the big themes of that collusion that you think that are important for us.
Nomi: Right so in the beginning of the days and weeks following the financial crisis and fall 2008 now coming on ten years that the Fed had a real problem, which is that the banks under its purview and particularly US banks and to a smaller extent some of the international banks that were working with them, were facing basically bankruptcy, meaning they did not have enough liquid money to pay their costs, their operating costs, their expenses. As some things were imploding and some things were we’re trying not to and as a result of that the Fed went into sort of you know emergency mode. And one of the things that did and has done over the last 10 years is to give the banks free money in order to get through their liquidity problem, is to render interest rates at 0%. Now and also just start to buy securities from the banks and also from the government in order to basically take the securities on its own book and provide and return cash into the market cash into banks. So the Fed for example bought 1.75 trillion dollars worth of mortgage assets from the big banks and gave them money now whether they were worth one point seven five trillion dollars is a completely different thing. I don’t think they were but that’s the money they got from the Fed for example. That couldn’t just continue in the problem by itself. Because all these banks are international because their assets had gone international, because they’re lending to other countries, nations, pension funds, whatever to buy their assets, had gone international. They needed the help of the basically G7. So they needed the Bank of Japan to do the same thing. They needed the European Central Bank to do the same thing. They needed the Bank of England to do the same thing. You know to a sort of lesser extent Switzerland and Canada and so forth and as a result of that they could render the cost of money at zero on average throughout the the major developed countries of the world. Now the other countries that were developing weren’t necessarily able to do the same thing without causing a lot of real inflation in their real economies and causing real problems for their real people. And they were also dealing with the aftermath of the economic depression that the US financial crisis had caused. So a country like Mexico which is where I open the book, you have this real quandary. The head of the central bank of Mexico is like well, I don’t want to reduce rates because that’s gonna like inflate food prices and you know it’s gonna hurt people and we just can’t do that in our economy, but the Fed was like yeah but you are our neighbor and you kind of have to. So there was just you know there’s a political and economic sort of back-and-forth going on. And as a result you know real people got shifted from real jobs, running these institutions when they spoke out, and other people were replaced to sort of try to do either what the Fed was doing or decide to do something different at the sort of peril of their country’s sort of geopolitics with the US as well as other things so for example in Brazil they decided to do something different, they they kept their rates high for a while and they lower them in then raised. And the Brazil chapter’s incredibly complex. That’s the most complex chapter. Brazil is complex. Brazil was in the middle dealing with the US. Brazil’s also getting some help and some new relationships with China. So on the one hand it’s changing geo-politically because of the financial crisis and because of how it’s reacting to monetary policy and politics within the US after the financial crisis. On the other hand it’s kind of in our section of the world and there’s trade that’s in place and there’s currency relationships in place. So a lot of shifting I followed around the world took place that elevated China and to sort of de-elevated other countries that fractured a lot of Europe because some central banks had cheapened money and given money to the companies and countries they wanted to and didn’t give it to the countries and companies they didn’t want it to so that’s also created inequality throughout the whole rest of the world and that’s just created you know a lot of people feeling that individually or from a nationalistic perspective that’s caused you know voting patterns to change. I personally, think all of this relates to the policy that was enacted ten years ago. It’s not to say these things won’t have happened potentially anyway, because the economy has been actually more shaky than sort of, I think that the main stats wouldn’t read. And an overall G7 growth has been under two percent for the last ten years even with all of these policies of throwing money into the system and manufacturing money by the major central bank. So it hasn’t really helped. But all of these things together ,I’m so going through all these themes in the book, sort of combine where we are at today in the world, back to the financial crisis.
Buck: You talk a little bit about one of the themes being that you know, the United Federal, United States Federal Reserve Bank and really all these major banks that dominate really dominate all the other countries in the world are walking sort of a fine line these days because after 2008 you had you know sort of increasing presence of China and some of the other alliances forming that really potentially started a weakening American dominance. Is that, is that right?
Nomi: They have been, because although America remains dominant that the dollar still the neighbors the the really insisted shifts that for example China relative to its regional partners or Japan relative to Europe they kinda and signed a big trade agreement a number of months ago that had been in the works because they are trying to sort of protect what they are doing outside of the US. So what’s happened is because there was such instability that was caused by and we know it was caused by the financial system of the US. Well that the Fed you know create a foreign have trillion dollars you know encouraged or demanded or colluded with other central banks to create similar amounts to sustain the financial system and there hasn’t really gone into the main economy because we see the growth numbers, we see the wage numbers, it hasn’t had the same impact the stock markets up but that stuff creates countries that weren’t part of that process to determine that they maybe need to develop other partnerships. So for example the BRICS countries which I talk about in the book a lot they answer Brazil Russia India China and South Africa, a term coined by a former Goldman colleague, you know they decided and they have over the year since the financial crisis develop more and more relationships with each other. They’ve created sort of their own Development Banks to be able to finance their own projects together without having to rely on the US those are the more growth that happens more structural and infrastructural growth that happens and trade that happens outside of the US amongst these countries as a result of these changes in the last ten years that the less dominant ultimately the US will be. It’s not an overnight thing you know. There are people who say oh the US dollar is crashing or yes you know I mean these are these are shifts that will probably come to fruition after our lifetimes? But there’s certainly shifts that are happening and they are changing not just the world order but the way in which countries and their power hierarchies have been established.
Buck: And along that line, it it seems to me that maybe it’s not such a bad thing to have some checks and balances in place. Right now we have you know you part of part of the collusion that occurs is because of desperation right? I mean they have to do this to survive. And we created a problem and it’s affecting all these other countries and they’re saying well gosh I mean we need these guys to make it. Now if there were some checks and balances in places where they didn’t necessarily need you know to cooperate in order to survive, it might not be the worst thing in the for them and for us.
Nomi: Well that’s true. I mean if there was more of a balance for example instead of currencies throughout the world, or which could be the outcome of where the shift is going but if we’re not there yet, and you would have more of a checks and balance, and maybe there would be as much of a requirement for the European Central Bank to do exactly what the feds been doing, creating cheap money and destabilizing ultimately Europe in the process while saying it’s helping Europe, that would be less of a necessity. If things are sort of more stable more equal and just more sort of diversified to begin with.
Buck: So you know I’d like to go back a little bit just to your thoughts on the current you know global economy. And it’s it’s an interesting time a very interesting time and I think that we live in you brought up nationalist sentiment, you know with with Trump being elected here and the rise of nationalist movements throughout the world. And it seems to me you know that in some ways is a reaction to what’s happened with the experiment of globalization. And I’m just curious on what your thoughts on that are and and how that affects you know the economy today and where you see this going.
Nomi: So I mean without globalization the last 10 years of what’s it’s permutation of basically what the Fed has done and the subsidies that central banks have colluded to provide their financial systems…You know it’s not like all that started 10 years ago, but that globalization has been the sort of bedrock. The financial globalization the fact that banks can operate anywhere the fact that banks can lend to any nation, to any town, to any whatever, to challenge any whatever to to basically sell and create from their new debt securities or new derivative securities or mergers and acquisitions across the world and everything. The fact that these the power sort of centers have been able to accumulate to such an extent as as a result of globalization. When we say power centers I mean bigger multinational companies in a sort of companies and banks where there’s this more sort of concentration of capital in the largest banks then you know sort of throughout the whole banking system. All of that is a result of globalization. And the fact that you know in the recent period the central banks which have kind of been on the background to a lot of this sort of just calibrating rates are now providing extra capital into this system is because you know some of the financial results of globalization the biggest banks have been able to also incur therefore the biggest risk. Their footprint’s bigger so therefore when they screw up it has you know sort of a bigger effect. Which is what we saw in the crisis and what we could see in another crisis. So all of it is connected to globalization.
Buck: So what happens in the next financial crisis? We’re clearly we’re not really ready for it but there’s certainly some I mean you’ve got a lot of people, I mean some people will always say we’re about to you know fall off a cliff, but I mean there’s certainly you know we’ve got a lot of debt, we have you know we’ve got some some issues with rates being as low as they were for so long and and you know the slowly coming out of that now we end up with another…let me ask you another way. What do you see happening in the course of the next 10 years I mean from your past experience and from the research that you’ve done?
Nomi: So I mean 10 years is a good time frame to look at because the sort of prediction of are we gonna fall apart in six months or year is a little higher and the reason for that is because these central banks and this policy has been going on for so long that it’s sort of become that you know that the new normal in sort of… and therefore they can sustain it if things start to crack a little bit. It’s when things and I would say things I mean all the debt that’s been created in the world within the emerging market countries, within the developing countries and so forth, starts to have to be repaid at higher and higher levels. So whether rates rise because they put them up higher which they’re very reluctant to do right now the feds smooth them a little bit but it’s reluctant it’s concerned or they could do actual inflation which there hasn’t been because there are scarcities of things. Then you start to see an inability of people and companies to repay the debt they’ve taken up. Any crisis is really caused by too much borrowing that isn’t being funded anymore. And some sort of retribution for that. And so in the next five or ten or two years that could easily happen we could start to see more defaults which are already seeing in some of the emerging market corporates, we could start to see more capital flowing out of those countries into the US because rates are rising which is already happening, we could also see it’s just rising because inflation is happening throughout the world and so that the periphery countries starting to really have problems that then infuse into countries mix into that trade wars and geopolitics and everything else and you have a lot of uncertainty that reduces any growth that we were having, because companies don’t like to sort of grow and hire and stuff when they don’t know if they can trade or if it’s gonna be too expensive, the product they’ve been trading and a bunch of their you know instead of mainstay countries, I mean that starts to impinge upon like your money coming in. So little money coming in whether it because it’s cheap or whether it’s because its limits expansion doesn’t match the debt, that’s how you start to have crises. And we can have that. And it might not be a situation next time where central banks can mitigate it. If it’s a question of velocity it’s question what happens faster. That happens faster than central banks can contain it. They’ve been very good at containing it in the last ten years that’s when you start to see major crises happening again.
Buck: Right and in that situation I know you know Jim Rickards for example has talked about you know his belief that if you know there were another crisis because the the central banks essentially have no dry powder left that that there would be potentially a intervention and maybe the SDR Special Drawing Rights would come into play. Is that something that you kind of buy into as well is in terms of what could happen?
Nomi: Well it’s the IMF and Special Drawing Rights basket and and now it’s of course grown recently to include the Chinese so it’s come out of just simply the sort of core older powers and and sort of increased it’s um it’s certainly a way to to provide liquidity a sort of multi currency basis in other words if there’s a crisis rather than to just pour dollars somewhere or just you know see that the demand for the others goes higher because that’s the currency that the demand for SDRs could be higher because currencies are more diversified so I think that is a solution it plans these become more diversified or if countries start to can well continue this path that I’ve been talking about which is that they start to trade more with each other and start to not trade in US dollar as much which we’re also seeing I think the SDR can definitely and will definitely be used in another crisis by way more than it was in the last one I mean really more than the last one. Also that these other central banks will try to maintain whatever control and power that they have, that they’ve seen or believed to be effective sort of from the last crisis.
Buck: I have one last question for you, I don’t want to keep you too long, but I’m curious given kind of your position with the banks in the past and we’ve got this new phenomena these days of Bitcoin and cryptocurrencies and, where does this, where does this fit? I know a lot of people kind of, sort of laugh it off and say it’s a fraud and it’s gonna go away but, you look at what’s happening and I’m you’ve got you know you’ve got a CBO ease trading futures, it looks like there may be an ETF coming up now through the CBO ease application to the Securities and Exchange Commission. This is potentially real stuff, right? So I’m curious what you think about this in the context of central banks and banks who you know this is an existential threat, potentially to them. Have you have you thought about this issue much? Is this, you know, I know it’s kind of out in left-field from what we’ve been talking about, but I love talking about this issue with people who are in the know and on Wall Street.
Nomi: So I mean to an extent, the whole evolution of cryptos, aside from blockchain, what they actually, how they actually comprised, I kind of think of it like calculus. There’s nothing in calculus which is in the limit. Like if you keep on going further and further in time and further further in numbers you get to a certain result. And in that limit of some sort of scenario that result can occur now in the limit of bastardizing calculus a little bit, so in in the abstract of where cryptos can go, in the pure sense of what they’re supposed to be, which is basically a more sort of democratic way of having currencies exist or having a system of exchange happen along cryptocurrency or digital currency which doesn’t have influence by, and can’t be created by the central bank or the current system and if everybody can partake in that and if there are safeguards for everybody in that and if it’s consistent across you know all the merchants and all of those sort of savers and all the buyers that involved in that then it becomes a very viable alternative to current currencies. That said, where we are at right now, is that it is very much a speculative activity because we are not there. So there’s the current situation there’s this a limit. The limit that’s a potential that is why central banks are hiring reams of people to you know sort of deal with digital currencies and develop systems. I know the European Central Bank it’s like one of the main you know programmer requests on their you know job search lists you know we need someone who could be in this space. They’re definitely going they want to understand, it they want to be involved in it, and to an extent that it grows, they want to control it. Same way they control regular currency. So there isn’t an issue of losing that power over currencies and you know their jobs. And in the limit they would. But but the problem is that right now we’re in a situation where there’s a lot of kryptos that that aren’t sort of consistent across many platforms, that are simply speculative securities and you can’t have a regular person you know running the bar down the street, you know buying his beer and selling it to his customers dealing only in crypto, when crypto is going or bitcoin is going from like you know 20,000 you know the beginning of a month to like 5,000 a couple of months later, because they cannot run a business that way. So in the potential I think it makes a lot of sense and I understand and talk about a little bit in the book why central banks are looking at it and consider it you know possibly for the future want to be involved and want to sort of you know front and center. On the other hand I am concerned about it right now for regular people to use in regular transactions and you know there’s a time gap in between because of the speculative nature of it and instead of the lack of insurance or security that people if they really were gonna run their businesses and it was their only livelihood and their only money was all converted into crypto and reduced by 75% in a very short period of time.
Buck: Well that’s a, thank you for that just a little aside. But again, Nomi, first I want to thank you for being on. The book, the latest book is called Collusion: How Central Bankers Rigged the World we will put put the name of the book and the link in the resources section and definitely in the show notes as well. I want to thank you again for being on this has been great.
Nomi: Thank you so much. Great questions. I really appreciate it.
Buck: We’ll be right back
The post 116: Central Bank Collusion with Nomi Prins appeared first on Wealth Formula.