Introduction: John Browne, a well-respected financial observer and free-market commentator, is the Senior Market Strategist for Euro Pacific Capital, Inc. He is also a distinguished former Member of Britain's Parliament and served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee and was a close associate of Prime Minister Margaret Thatcher. A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point, and retired British army major, he served as a pilot, parachutist and communications specialist in the elite Grenadiers of the Royal Guard. In addition to careers in British politics and the military, he has a significant background, spanning some 37 years, in finance and business. During his career he has served on the boards of numerous banks and international corporations, with a special interest in venture capital. He is a frequent guest on CNBC's Kudlow & Co., former contributing editor and columnist of Newsmax Media's Financial Intelligence Report and Moneynews.com and writes for the Pittsburgh Tribune Review and Euro Pacific Capital. John is a regular contributor to TheDailyBell.com.
Daily Bell: We would like to begin by thanking you for taking the time from your busy schedule to share your views with readers of the Daily Bell.
John Browne: It is a great pleasure to make a contribution to your publication.
Daily Bell: Based on your experience as an important member in Margaret Thatcher's administration of change, how difficult would it be for real change to take place in America today – politically speaking?
John Browne: First, America is a far bigger wheel to shift.
Second, most people in England are freedom loving capitalists at heart- ‘a nation of shop keepers' as Napoleon described them. Thatcher gave freedom and her changes were capitalist. Most Americans are freedom loving and capitalist. Obama promised change and won the election against heavy odds. However, at first blush Obama's changes appear socialist and call for more, not less, Government control.
Third, with the Monarch out of party politics and the House of Lords merely and amending chamber, the Prime Minister, with majority control of the House of Commons (with far stricter whipping than in the American Congress), is virtually an elected dictator for 5 years. He is therefore, far more powerful in day-to-day politics than the American President.
Daily Bell: Barack Obama promised to bring ‘change' to America. Is he doing so? Do you agree with his change?
John Browne: President Obama was handed a can of worms by Bush-Greenspan. I feel his policies to date are more dictated by events than by his own view. Therefore, I prefer to give him time to define his own policies, outside of emergency action, before passing a judgment.
Daily Bell: How do you feel about his administrations recent new proposal to create private/public partnerships, or funds if you will, that can support banks and other financial entities by purchasing illiquid assets, thereby injecting them with capital?
John Browne: I have always felt the best, most efficient, least damaging and quickest method (and there is great need for speed) solution is to form a massive 'bad bank' to buy the toxic assets from the banks at par. The banks would be charged for losses as they occur, over time. The taxpayer would benefit from any profits. This would clear the financial system fast. It would also avoid the difficult issue of pricing. The Administration solution will have a good effect. But, will it be big enough or fast enough to stop the frozen banking system from driving the recession into a depression? There will also be great difficulties over asset pricing. It also places most of the risk and little of the profit in the lap of the abused taxpayer.
Daily Bell: How about Ben Bernanke? Isn't he, like Obama, doing exactly the opposite of what he should be doing – printing more fiat money to try to save an inverted pyramid of debt?
John Browne: We are very lucky to have Bernanke, a man well versed in the dangers of depression. Although slow, he led the world towards lower interest rates. As I said before, he was handed a ‘can of worms'. We are all fighting for survival against an economic and political catastrophe. In a fight for survival all normal strategic rules for long-term success must stand second to the extreme short-term tactics of immediate survival. Although inflation does the most damage to an economy in the long-term, depression could trigger insurrection and must be defeated first. My main concern is that although vast by historic measures, the present reflation may prove too small when faced by the massive forces of deleveraging and likely depression. If this happens we are headed for acute stagflation-financial hyperinflation and economic depression at the same time. Then look out as catastrophe will be upon us!
Daily Bell: We believe that neither the Federal government or the privately controlled Federal Reserve seem to be intent on addressing the failings of the current fiat money system that is plaguing America. One US Congressman, Dr. Ron Paul, suggests that the United States, and by extension other countries with substantial US dollar exposure, could be facing a replay of runaway inflation similar to that which destroyed the wealth and savings of millions of Germans and Austrians between 1919-1923. Do you think things can really get that bad?
John Browne: As I have just mentioned, it is unfortunately, the most likely outcome. That is why it would be political dynamite as well as economic disaster, with the seeds of revolution (anti tax) and insurrection (shortages). Indeed, although most governments say they fear terrorism (justifying the massive erosion of individual rights and privacy), I believe their real fear is insurrection.
Daily Bell: Dr. Paul also thinks that in order for paper money to maintain its value and be a reliable means of exchange, it be needs to be anchored with a real asset – one that cannot be easily inflated. Do you think, as Dr. Paul does, that an honest-money based monetary system, one anchored by gold and/or silver, would provide us with a much more stable financial system?
John Browne: Undoubtedly, good monetary order is unlikely to be re-established without a link to gold, as the British proposed at Breton Woods in July 1944, but which was vetoed by America to maintain the supremacy of the U.S. dollar. Now the idea is being proposed by China (our new strategic challenger) and Russia.
Daily Bell: It seems quite obvious to us that the IMF, the very same organization that has aided the central banks in ongoing efforts to abolish gold from the monetary scene, is now being touted by Western leaders as the ideal organ to manage and control the issuance of a new ‘global' reserve currency. Central bankers are naively intent on consolidating their depreciating currencies – but how will this have the desired effect they are seeking? Why don't they ever consider a precious metals based standard?
John Browne: We have already abused trust in fiat money to the extent that powerful nations are revolting. In addition, ordinary citizens are exchanging their fiat money for physical gold. I think we are now passing the point of no return. I do not see true monetary order being re-established short of returning to a gold link.
Daily Bell: Let's move on to the Euro zone. Related to the last question, we have seen that when you amalgamate the currencies of a bunch of systemically dysfunctional economies, what you end up with is exactly what you would suspect – a whole that is nothing more than the sum of its parts. That is why the Euro experiment is now failing. Germany, the economic engine of the region, is now being asked to pony up and support the failed economies of former Soviet block countries, which are now completely bankrupt. What do you think be the outcome of this Euro love affair?
John Browne: The EU is the first major experiment on ‘post democracy' and is a budding tyranny. I think it is destined for failure and will be taken over by Germany, forming the empire for which Germany has yearned for over 150 years. Under German leadership, Europe is likely to become a major world player capable of facing the US, India and China on equal terms.
Daily Bell: How about the EU in general. Sarkozy seems intent on forcing the Irish into submission with yet another referendum. And then there's the prevailing wisdom out of Brussels, somewhat contrary to the ideals of Czech President Vaclav Klaus that massive government spending and tighter regulations are the way out of this mess. Eastern European countries are drowning in debt. These are just a few of the many issues threatening to tear apart the EU. Do you think we are witnessing the end of the European Union here? And if so, is that a good thing in your opinion?
John Browne: Having endured may years under Communist tyranny, President Klaus, values freedom and free enterprise-an anathema for the EU. Any freedom-loving democrat will have no regret at the end of the EU, a super power structure imposed upon hundreds of millions of people without consultation. If the EU were put to a referendum, it would be defeated overwhelmingly as it has been in most countries allowed to vote (e.g. France, Denmark, and Ireland). Those countries, like Spain, that vote for the EU, have been massive recipients of EU financial handouts, provided largely by Germany and Great Britain.
Daily Bell: As you well know John, here in Switzerland we have a democratic republic. It is a political system that has a significant amount of power decentralized into the hands of the various cantons. The point here is that there are three distinct cultures living together in this country, Germans, French and Italians. We share a common currency, the Franc, but we respect our political differences and the various regions maintain their autonomy from the central government in Berne. The reason we see the EU and American political systems failing is because they are intent on centralizing political power further and further away from those who know best how to govern for their needs. Our question is this: Do you fear that by further centralizing political power, and by concentrating financial regulatory oversight over supranational central banks into the hands of other unelected international agencies, such as the IMF and the World Bank, that European and Western leaders are basically paving the way to a much-discussed New World Order?
John Browne: Yes, the circumstances lead me to believe so. In many ways Switzerland is a shinning model of a well-run, democratic country, where freedom and sound money are highly valued.
Daily Bell: Given the unwillingness of world leaders to reduce the size of their governments, slash spending programs, or stop printing money, do you feel that now is a good time for Americans to consider owning gold and silver as a form of portfolio insurance against the uncertain times that lie ahead?
John Browne: Yes, of course. Even Jim Cramer (CNBC) now recommends a prudent holding of gold.
Daily Bell: One final question. Many financial commentators are now predicting that gold will have a fairly substantial increase over the coming months. In fact, just last week we interviewed, G. Edward Griffin, author of The Creature From Jekyll Island, and he suggested that a gold price of US$2,000 an ounce was very realistic. What is your prediction for the price of gold?
John Browne: In today's highly volatile and uncertain world that is increasingly controlled by big government, predictions of price have become foolhardy. Suffice it to say that Gold has three main influences on its price. It is priced as an ‘industrial commodity'. As such, its price should fall in recession. It is also a ‘store of wealth' against inflation. With coming inflation or stagflation its price should rise. Gold is also priced as an ‘insurance' against panic over war, civil breakdown and economic or financial meltdown. In the meantime, Western politicians have, for the past 40 years, tried; by manipulating the so-called ‘free' market price, to make the gold price follow a highly volatile but downward path. They have tried to ‘demonetize' the metal by making it appear as an imprudent investment. Given my view of the future economic, political and financial catastrophe that faces us, I see the price of gold exploding. To what price is anyone's guess? I could see it priced at $2,000, $5,000, or even $10,000 an ounce, given the tens of trillions of unearned fiat money now being injected into the economies of the world and depending on how badly things fly out of hand.
Daily Bell: John, on behalf of all of our readers we thank you for sharing your views with us and hope to hear from you again soon.
John Browne: Thank you. It has been a great pleasure. I hope my views will help people to defend themselves and their families. In the very least I hope it may prove interesting.
It was a great pleasure to discuss the state of the world economy with John Browne. Most of the points he made we agree with, though we do not have his patience with Ben Bernanke, chairman of the American Federal Reserve. In our opinion, and we have watched Bernanke's presentations to Congress, the current Fed chairman has more arrogance than depth and is certain that his monetary nostrums will cure what ails Western fiat money. It won't. You can't simply continue to print money over decades, in excess of what an economy needs, and expect that economy to continue to function without significant misallocation of resources.
When resources are misallocated you inevitably get a collapse, which is just what we have got. At this point, what is necessary is a return to some sort of asset-based money, as John points outs. Gold and silver are the obvious underlying assets that come to mind and as John says, the world will probably revert to some sort of de facto metals standard as the current crop of fiat solutions fail.
John also makes a very good point about the European Union, which in our opinion is fading rapidly. The EU means many things obviously to the power elite but at its most basic level it was apparently a trade off between France and Germany. Germany backed the EU and received East Germany in return. France gambled that it could control the EU and continue the EU's evolution – but that is a gamble that has turned out wrong. The EU is failing and Germany has no need to continue the game. Eventually, Germany may well become Europe's pre-eminent power.
Of course, there are many milestones before Germany effectively takes over Europe from an economic standpoint if it ever does. And those who created the EU – and they are more than the French – are heavily invested in its success. The G20 is meeting in early April, and this will be yet another attempt to build on the massive regulatory entity that is the EU.
As John points out, the EU is not representative of the larger European population at this point, certainly not after both its constitution and then a further regulatory runaround (intended to "backdoor" the constitution) have both failed in the few nations where they were put to a vote.
Yet the regulatory mechanism rolls on. Modern governments are no more than scarcity providers in this day and age and the next inevitable set-piece for scarcity will be provided by the G20. By scarcity, we mean that the current crop of world leaders will react to perceived crises by attempting to pass laws that more severely restrict how people can prosper and what they can utilize to create prosperity.
This is actually going to be the hallmark of the 21st century – government imposed scarcity that will be grounded in the financial system and spread throughout an increasingly married worldwide economy.
It is above all, a financial scarcity. The scarcity begins with the inevitable failures of fiat money. The more paper money that is printed without an underlying asset-link, the more the Western world mis-directs its investments. After a point, the mis-allocation becomes too onerous and the economy and markets collapse. The result is scarcity throughout the economy while a recovery gradually takes place.
But the recovery can be retarded by pouring yet more paper money into the economy and propping up the players – banks and other financial entities – that were the most responsible for the mis-allocation to begin with. Thus it is that scarcity, created by our current economic system, lapses only slowly while governments pour more resources into various failed projects and services.
The scarcity we face, similar in scope if not in depth to the Great Depression, is said to be a great governmental challenge. John is worried about disinflation and even deflation. My concern is more oriented around scarcity itself — as I have pointed out above. From artificially created and maintained scarcity will flow an ever-larger number of legislative endeavors and economic dampers. Wage and price controls will be the first area of attack and then various forms of resource control as well. This is in our opinion an outcome of the ever-more complex legislative processes that lard Western economic system.
We have said above that we agree with John that the EU itself is probably going to be a casualty of the expanding Western regulatory regime. But that does not mean that Germany's expansion into the EU role, if it does happen, will take the West in a radically different direction. The German government is an orderly and fairly weighty affair. The socialist tendencies that we perceive in the EU are also to be seen in Germany. Thus it is that while the players may change, the direction and thrust of policies may not. I think John would agree with this point and would like to thank him again for the interview. Great talk. Great insights.