Introduction: Legendary hard-money expert Alexander (Al) Korelin, the Founder, Chairman and CEO of A.B. Korelin & Associates. Al Korelin has been involved in the Financial Community since 1978 when he received his MBA in Finance and International Trade from the University of Puget Sound. Since founding A. B. Korelin in 1982, he has assisted hundreds of companies with Regulatory Compliance, including conducting seminars in conjunction with the Alberta and Vancouver Stock Exchanges for their listed companies wishing to register in the U.S. In addition to his responsibilities with the firm, he is the founder and co-host of The Korelin Economics Report, a nationally syndicated radio program. On the air Al and Paul Warren discuss political and financial issues with well-known experts in the investment and hard-money field.
Daily Bell: Thanks for spending time with us.
Al Korelin: Thanks for having me.
Daily Bell: You are one of the more knowledgeable observers of the economic scene in our opinion. What is the outstanding issue that the economy, globally, is grappling with today?
Al Korelin: In my mind there is no one outstanding issue that the global economy is grappling with today – but there are many. As I wrote in a recent article entitled "The New Business Paradigm," I am convinced that, in a macro sense, the current demise of capitalism is going to prove to be the major economic issue of this century. If you are asking the question in a micro sense, there are many answers. Examples include the loss of the manufacturing base in the United States; the socialization of the automobile industry in our country; the dangers associated with the alliance forming between Iran, Russia and, very possibly, China; and, the lack of an asset based currency system anywhere in the world.
Daily Bell: Are we headed toward a depression, hyperinflation – both or neither?
Al Korelin: We want to pretend that we have all the answers, but only a fool believes that to be true. Let me just say that either one of these conditions is a possibility. At the rate that the U.S. is printing money it is highly plausible that hyperinflation could be right around the corner.
Regarding depression, of course that is a possibility. Some would even say that we are already almost there. Look at the unemployment numbers in the U.S. today. The man in the street thinks it is something just under 10%. That is ridiculous! When you factor in the underemployed, the discouraged and the folks simply not being counted the number is over 18%. Let's then consider real estate values. My wife and I recently purchased a very nice condominium located on a great golf course. We paid 40% less for our dwelling than it was selling for a short twelve months earlier. How about auto sales? A good friend of ours recently purchased a luxury car that had a sticker price of $44K. He offered the dealer $26K and drove the car away. (Not a demo or what have you, but a brand spanking new car with zero miles!)
The statistics that are being fed to the masses say that a minimal level of growth exists and that this proves that we are nowhere near conditions resembling a depression. If you believe that you should look for ocean view real estate in Arizona.
Daily Bell: How could we escape the worst of these disasters?
Al Korelin: The answer to this question is so simple it is staggering. We need to go back to an asset based currency; the U.S. needs to shift away from the socialistic direction in which it is headed and bring back free market capitalism. People need to take responsibility for their own actions and stop looking to the government to take care of them. My parents were immigrants who had to run from their home country. I simply cannot imagine either my mother or father saying to me, "Sorry no thanksgiving dinner this year, we ran out of food stamps." My father's response to a lack of money was to work more overtime.
Daily Bell: You've seen economic hard times before. Where does this rank?
Al Korelin: Yes, I have seen economic hard times before. Where we are today is as tough as I have ever seen it to be. The really frightening thing is that today's conditions could evolve into unimaginably hard times. Not to say that the people depicted in John Steinbeck's great novels, "The Grapes of Wrath" and "Of Mice and Men" didn't have it bad, but we have today the potential of major social chaos.
Daily Bell: Is it the end of the fiat money world as we know it?
Al Korelin: Not right now. Even Congressman Ron Paul, a major proponent of asset-based currencies, conceded on our radio program a while back that the change will take time. Fiat currency is all that there is today. It is simply not feasible to change that overnight. Will fiat money ultimately go the way of the Dodo Bird? Of course, it will. History has proven that time and time again. Unfortunately if cats' have nine lives these Dodo Birds seem to have even more.
Daily Bell: Let's go back in time. Tell us something about your childhood and young adulthood. How were you attracted to economics and investing as a profession?
Al Korelin: As I told you earlier, my parents and grandparents were immigrants. They all fled Russia in 1917. My mother's father was an admiral in the Navy and my father's father was a fur merchant. My mother's father and his family eventually ended up in Seattle, Washington, where he got a job with the telephone company as an engineer. My dad's father fled to China where he eventually opened a good sized department store. He then fled China in 1949 and ended up in San Francisco where he died as a janitor at the Macy's department store.
Notice, that none of my relatives ever asked anyone for anything, they simply, even after devastating financial set-backs, obtained money the old fashioned way, they worked for it. These people were incredibly positive role models for me. I remember my mom's dad sitting me down when I was probably twelve years old and showing me a copy of the Wall Street Journal telling me as he leafed through the pages, "The freedom of the United States and the capitalistic structure is the best thing that ever happened to the world." I made up my mind right there that I would eventually be a vocal advocate for freedom and capitalism. The rest is, as they say, history.
Daily Bell: You're obviously a hard-money entrepreneurially oriented man. When did you figure out that there was life after Keynes?
Al Korelin: When I studied Keynesian economics as an undergraduate at the University of Washington and, then again, when my friend Jay Taylor told me for the thousandth time that Keynesian economics simply doesn't work long-term. My response to him was, "Jay I know that. What do I have to do to get you to stop saying that?" His response was, "go out and convince 10,000 people." I think that I have done that and I am now on my way to one million!
Daily Bell: Would you classify yourself as an Austrian?
Al Korelin: I am definitely an "Austrian," as you put it.
Daily Bell: Tell us about your company and how it fits into the larger picture. Give us a history please. When did you start it and how did it grow?
Al Korelin: I started A.B. Korelin & Associates back in October of 1982. We began doing regulatory work in 1984 (assisting small public companies in their reporting to the U.S. Securities and Exchange Commission.) and, from day one worked almost exclusively with small Canadian companies. I was asked to join the Board of Directors of a small mining company that was exploring for gold in Nevada – certainly not for my mining expertise, which at the time was almost non-existent, but for my general experience in the business community. I decided to take this as an opportunity to learn all that I possibly could about mining and, as it turned out, the five years that I spent with this company was easily as valuable as the two years I spent in graduate school.
Interestingly enough, we actually put the property into production. We were not doing big production numbers, but we were mining about 40,000 ounces of gold per year. Needless to say, I developed a real affinity for the industry. That activity evolved into doing more regulatory work and we ultimately reached the point where our little organization was involved in submitting more voluntary registration statements to the U.S. Securities and Exchange Commission than any other organization of its kind.
I was very fortunate in that without my colleague Ken Golden we certainly would have never reached that point. I learned a very valuable lesson from Ken and that is that none of us is the smartest person in the world. When a person starts to think that way he or she is right around the corner from failure. I also learned the importance of being able to work with other people and to not center everything on yourself. That is one of the reasons that doing the radio show came so easily to me. I realized from the first day that the show is not necessarily about Al Korelin but about his guests. To this day, I give all the credit to them and don't give myself a second thought.
Daily Bell: You are known for humility, but, nonetheless, you have accumulated considerable economic and hard-money expertise. Where do you see gold going from here?
Al Korelin: My common thoughts, which are certainly not shared by everyone, are that the price of gold will continue to increase. Back in 2001 we changed the entire focus of our radio program from general business to asset based investing, specifically gold and silver. We made that decision because at the time an ounce of gold was selling at about $250. Looking at the economic environment, I was convinced that this price could never hold and we would ultimately see a significant increase. We knew back then that the economy in our country was in trouble and we knew that people would turn to gold as they had done in hard times for the past hundreds of years. Let me tell you, it did not take a brain surgeon to see that.
I feel exactly the same way today. Some people are saying that the only reason that gold is appreciating in price is because the U.S. dollar is going the opposite way. I strongly disagree. There are other things to consider. Sure, the direction of the U.S. dollar is important but don't forget the other factors. Political instability, international turmoil and other events also play an important role. As an example, we have a situation in the Middle East today that is critical to the rest of the world. If that goes the wrong way, you will see an immediate jump in the value of gold regardless of the value of the U.S. dollar.
Daily Bell: What about silver?
Al Korelin: Exactly the same argument.
Daily Bell: Can the fiat dollar recover in your opinion?
Al Korelin: Recover is an interesting word in this particular context. Will it collapse in the short run? No, the struggle will continue. Long term, will it survive? Of course it will NOT survive. In the entire history of mankind fiat currencies have never survived.
Daily Bell: Will we have a China-centric or Asia-centric world in the 21st century?
Al Korelin: My vote is a China-centric world because the Chinese economy is projected to be the largest in the world in a very short period of time.
Daily Bell: Is the US finished as the world's sole superpower?
Al Korelin: I believe that it is and I do not think that is necessarily bad. Hopefully my answer will not be taken as being unpatriotic to other Americans. I have never believed that you had to be the toughest person, live in the nicest house in the neighborhood or have more money that anyone else. I believe that God created us to live together and help each other and that no one country necessarily needed to be the "world's sole superpower" as you put it. We were there for a period of time but now other countries are evolving to the same position. What's wrong with that?
Daily Bell: The Anglo-American monetary elite is a very powerful and crafty group. Have they miscalculated in your opinion?
Al Korelin: I think that anyone who believes that they can control events long term is miscalculating. No one ever has and no one ever will. Notice that I said, "long term".
Daily Bell: Is the Internet making life tougher for them?
Al Korelin: The Internet is making life a lot tougher for unscrupulous individuals. It is impossible to keep anything away from society thanks to the Internet. And, that is a good thing.
Daily Bell: Are markets manipulated – especially gold or silver? If they are in your view, how long can the manipulation go on? Aren't we reaching a point where metals markets are simply going to be too big to constrain?
Al Korelin: I believe that markets, especially gold and silver, are managed. Rather than write a book about this question, let me just answer in the context of gold and silver.
A couple of years ago I addressed this subject at a conference sponsored by Bill Murphy, Chris Powell and my other friends at GATA. My comment to the audience was that I believed that the gold and silver markets were managed for one simple reason. That reason in my mind is that the respective prices of these metals have proven to be very accurate barometers of economic conditions. When times are challenging that is reflected in strong precious metals' prices and people know that.
The U.S. economy is based, to a large extent, on consumer confidence. When that confidence erodes and spending is curtailed the economy suffers and literally stops functioning. Stop and think about it, if magazine covers, television talk shows and the local media began to report on high gold and silver prices wouldn't people begin to realize that the "emperor wasn't wearing any clothes"? Wouldn't that erode the confidence needed to keep consumer spending going? I think that the question of the existence of manipulation or management can be easily answered by any clear thinking individual.
Daily Bell: What are some of your favorite companies?
Al Korelin: My favorite companies are those that have banners on our website. They are all run by people who I have known for quite some time. These are the companies that make my radio show possible. Why do I say that? Simple, if I talk about companies on my program that are paying me to specifically do that I am morally obligated to disclose the fact that I am being paid for the interview. I do not want to do interviews on the air where I am being paid by the interviewee. If that were the case, "The Korelin Economics Report" would be comprised to a large extent of, what we call in the business, advertorials. I am not saying that advertorials are bad; I am simply saying that I have chosen a different business plan. If I ever discuss a company that is a banner sponsor or that I own any stock in, I very clearly disclose that fact.
Daily Bell: Is this the era of the entrepreneurial company despite the economic crisis?
Al Korelin: In hard times and in good times you will always have entrepreneurial companies. You cannot hold human nature back and human nature being what it is; these types of organizations will always exist.
Daily Bell: Do you see any metals or mining companies that you like?
Al Korelin: I will beg the question on the mining companies, but I will say enthusiastically that my wife and I are purchasing gold and silver. I will tell you that our purchases help me to sleep better at night. It is like having a nice car only much better. We have something that has intrinsic value. If, God forbid, economic chaos does happen, we will still be able to eat. You don't get much more basic than that.
Daily Bell: You are both an author and radio interviewer. What are some of your favorite interviews and articles?
Al Korelin: I rely on the Internet where I start with a homepage that provides links to the media all over the world. I read the editorial pages of the Wall Street Journal every morning because I want to know what others are thinking. I also read the editorials in the New York Times because I want to know what that side is thinking. I watch both CNN and Fox because you get two entirely different perspectives and can reach your own conclusions.
In terms of one of my favorite interviews, I would have to say that Bill O'Riley's interview with Hillary Clinton was fascinating. I never thought anyone would ever make Mr. O'Riley "roll over".
Daily Bell: Where can readers find out more about your services and radio programs? Where can they read your fine articles?
Al Korelin: I would invite everyone to visit our homepage which is www.kereport.com.
Daily Bell: Thanks for answering some questions for our readers and for the fine work you have done to encourage entrepreneurialism and honest money. It was a pleasure to conduct this interview with you. We're certainly fans.
It was great to get Al Korelin's thoughts on the market because he sits down regularly with free-market thinkers to discuss the state of the global economy from a hard-money standpoint. His points in the above interview are well-considered, and we especially like the one about the market being managed rather than manipulated.
We think we will adopt the term managed when we speak of the markets as being overseen and moved by higher forces in the short term. This is another great point of his, that markets are moved short-term, and we agree with this as well. As can be seen from the larger economic history, gold, silver and fiat money all have points of entry into business cycles, but business cycles themselves are beyond control in the long term.
The business cycle of the most recent past began in about 1982, we figure, and the fiat part of it began to stagger in the early 2000s and blew off pretty much for good in 2007-2008. The reason for the current business cycle is very obviously Federal Reserve money printing. It causes euphorias of increasingly dramatic proportion, which then result in great crashes. It is a cynical proposition – as we think Korelin would agree – because those at the top of the pyramid understand absolutely what the results of fiat money printing must be.
Once the blow off occurs, gold inevitably goes up in price because the market has recognized the increasingly worthlessness of the fiat dollar. It is not gold that is appreciating (or silver) but the dollar (and other currencies) that is getting weaker. The weaker the currency, the more of it is necessary to buy an ounce of gold or silver.
The management of markets continues throughout the boom/bust fiat cycle in our opinion. In America some of the manipulation is even formalized under the "Plunge Protection" federal-government rubric. What's the goal? From beginning to end, the sole purpose of those running the central banks, in our opinion, is to stretch out the fiat cycle and to reduce the amount of credibility and power that gold and silver wield. This increases both wealth and power. When the inevitable occurs, and the markets begin to turn, the cycle is fought with ferocity by those who have the most to gain from the continuance and credibility of fiat currencies.
Managing fiat currencies, if you can get such a job, is incredibly profitable. You can obviously net trillions at the very top of the food chain. This means you can buy substantive interests in major blue-chip industrial companies as well – another reason to support the meme of "public markets." One only needs to see the amount of money dumped into the market worldwide (US$10 trillion – more?) to see the amount of money power that a relative handful of individuals control.
Until the Internet, the management of economic markets was not well understood by more than a handful of people. Even 20 years ago you could fill a room with those people. Today they number in the millions, even tens of millions throughout the West and especially in America which is culturally dissimilar from Europe.
The question for us is not so much at this point WHETHER markets worldwide are managed (those at central banks admit it every day) so much as whether this sort of management will continued unabated even though more and more people understand the incredible damage that is being done by the current system. During good times, waste is abundant. In bad times the regulatory authorities use people's disgust to cynically pass even more restrictive laws that benefit only those who are doing the managing at the very top – because inevitably law does not apply to those who "have the gold."
Again, this mechanism, for the first time in nearly a century, is fully understood by millions, even tens of millions, and their numbers are growing. We are proponents of the Internet and of realistic knowledge of one's world. We call it "free-market thinking" – and it contagious because it focuses on the truth. Thanks to the Internet, it is spreading. We like to help with that.
We are in the money metals part of the economic cycle at the moment, of course, and thus regulatory authorities are flailing about with more than the usual vigor, trying to pass as many new regulations as possible to restrict the market. They have used the current crisis to try to increase the powers of the IMF and to set up a truly worldwide currency while trying, once again, to regulate and expose every nook and cranny of private financial dealings.
This time we note with some satisfaction, that those who predictably exploit such crises are having difficulty. The ole machine is not working quite right. There seems to be some confusion. Lip service is being paid, but the popular outrage seems lacking. Too many people are in on the game.
The authorities, worldwide, of course, will continue their regulatory rampage, squeezing whatever life they can out of the markets, but it seems to us there is a level of artificiality that we have never detected in the past. This does not mean the machine will stop turning. Just yesterday it was revealed that authorities used wiretapping for the first time on an insider trading case. Thirty years ago, insider trading was hardly ever heard of.
A question lingers, with increasing urgency as knowledge spreads about the true nature of the current economic system. If markets are manipulated (managed) in all sorts of ways that are never fully acknowledged, then doesn't this sort of management cost investors and small savers money? One supposes there is a certain level of gratification in putting a billionaire in jail. But who compensates the every day person who has lost his or her retirement to the very "management" that occurs throughout the business cycle? Aren't these people entitled to compensation for their losses? What about the endless management of gold and silver markets that have ruined investors over the years? Does a class action suit await some courageous legal shark? That would be some fee!