The Perfect Economic Storm
In this video, Mike Maloney talks about how he come up into the perception that there is something wrong with the global economy. He also discussed his predictions ways back year 2005 about the economy. He reiterates the gold and silver trends and prices as well as history of both metal’s ups and downs.
It would be an impossibility that this is a coincidence. The only reason the stock market is up is because of this gift to Wall Street that Ben Bernanke created. The coming charts here they should scare the hell out of anybody that is not a precious metals investor. We are in the Bernanke bubble and it's going to be followed by the Bernanke bust and Janet Yellen is left to do the cleanup work after this bust is over with. That is stored economic energy and the free market, it will visit a rage upon the people that did this. And it'll be -- the energy will be released in the opposite direction. Economics is a closed system. It's not an open system where you can meddle with it here and not expect some unintended consequences.
I'm very happy to introduce our next speaker. He's the founder of GoldSilver.com, a global leader in both silver and gold bullion sales and the author of the top selling gold investment book of all time Guide to Investing in Gold and Silver. Ladies and gentlemen, please give a warm welcome to Mr. Mike Maloney.
Thanks. I'm Mike Maloney. Back when the NASDAQ crashed in the year 2000, I became very interested in the markets and I started studying them just day and night. And by 2002, I had determined that gold and -- had begun a brand new bull market. There were some moving average cross overs and some other factors that said that the brutal bear market that it had been from 1980 to the year 2000 was over with. But I kept on studying and I became absolutely convinced there was really something wrong with the global economy. And so by 2004, I had determined that I was going to make this my business. In 2003, I was interested enough to go to a convention and hear a couple of speakers and that was at the Cambridge House Vancouver Convention. And I heard James Turk and Dave Morgan back there. Hi, Dave. And I became very, very inspired by these guys. They knew monetary history. And so I really started studying monetary history and just absolutely fell in love with it. I then went to The Gold Rush 21 Conference where Dave and I started to become friends. And then after that I spoke at the Silver Summit. I spoke at the second one. The third one in 2005 is the very first conference that I have that there's a recording of. Silver Summit 2005, I just want to show you something real quick.
I think we're going to have a short deflation. I think that what's going to happen is that we're going to have Ben "Burn the Currency" Bernanke as our next Fed head. We're going to have the housing bubble pop. There will be a contraction in the M3 money supply because of all the wave, the tsunami of bankruptcies that's coming. And at the same time, people are going to be dumping all their dollar denominated assets on the international markets. Anybody that's in any dollar denominated asset if they're a foreigner and they see the US Dollar index break its support, they're going to be dumping these and if foreign central banks start dumping the dollar plunges internationally. But that caused skyrocketing import prices and we don't make that much stuff anymore. So you're going to see in-deflation I call it. Jim Puplava used to call it that a while back. But you get everything in the United States, houses and your wages and the things that you don't need are going to go down in price. While the things you do need, anything like oil is going to skyrocket as the dollar plunges they have to offset that by raising the price to have the same purchasing power overseas.
Okay. So it's been 10 years. I don't have the beard anymore. I've got a few more wrinkles. And so but I do have the ties. And it's aged better than I have actually so. Some of the predictions that I made I just wanted to go through some of them and take a look at where we are. I didn't know how to pronounce this man's name when that convention happened. I called him Bernanke and Bernanke. And home price index and there it is and there's where I made the prediction that it was going to go -- the bubble was going to pop. It was another -- I can't remember how many months it was but Ben Bernanke didn't admit that there was a bubble for many, many months. I mean, it was all -- it had popped by the time he admitted it. And really nobody was talking about it. I said the M3 currencies supplies, it's not money by the way its currency. There's no nation on the planet that uses money. Please when you go home start differentiating between money and currency.
Currency has to be a medium of exchange, a unit of account. It's got to be portable, durable, divisible, something called fungible. If I loan you a $20 bill you can pay me back five one's or five and a ten and I don't care. They're interchangeable units. Money has to be all of those things plus a store of value. The dollar has lost 96% of its value since the Federal Reserve was established and therefore it does not qualify as money. All currencies on the planet are debt based. There's more -- we only borrow the principal into existence but we promised to pay it back with interest and the currency to pay the interest does not exist yet. Therefore, all currency supplies on the planet have to inflate indefinitely. So none of them qualify as money by their very design they have to lose value.
But I said the M3 currency supply would contract and you see there a big contraction after 2008. But we added 17 trillion in October of 2015. So just a month, yeah, a month ago. But we -- Ben Bernanke increased base money tremendously. All of the QE's and that is sitting on bank's balance sheets as excess reserves. It's not circulating. So if you deduct that from the M3 currency supply this is M3 less base money and that difference there. So it's at 13.1 before the bubble popped. There was a $1.7 trillion collapse. This is what deflation really is. Inflation and deflation is either an expansion or contraction of the currency supply prices follow. They are the symptom of inflation or deflation. This is based on Austrian economics. But today, we are at 12.9 trillion. So seven years after this collapsed we have yet to recover.
This is the currency supply that actually circulates, the rest is just sitting on the bank's balance sheet. So we have not recovered from the crash of '08. This is the trade weighted dollar index. I said if it broke support it would plunge and so the silver summit was right there. And there it goes. And this is -- I said the crude oil would skyrocket, the silver summit was right there when it was just over -- it was close to 60 and it went to 140. This is the -- I've showed -- you can look on our YouTube channel. Mike Maloney predictions 2005 and you'll see that one of the charts that I showed is the homebuilders index as compared to the NASDAQ. And the homebuilders index when I was showing it was right at its peak. And I was saying that it's going to end up looking like the NASDAQ because there's something called the insider buy-sale ratio. And all of the owners of these companies were selling a whole bunch of their own stock. And I predicted that it was going to crash and it did. This is total debt to GDP. So this is both public and private debt. And when the silver summit happened it was at about 290 I think and it exploded up to 364. Now right here is 1929. This goes up either when debt rises or if GDP goes down and debt stays the same that means that the ratio of debt to GDP is higher. So this rises if GDP shrinks.
This is the 1929 stock market crash causing the GDP to shrink and debt to rise. And then this is a bunch of liquidations and debt getting cleared off the books. And then this is GDP growing again. We were starting from here. So I'm sorry that I had a bunch of coffee and the distance here so. This is the GDP shrinking after the crash of '08 and then it peaked. And then some debt got liquidated and the economy started growing again. So that line shrinks. But when the second half of this storm comes, we are starting from extraordinarily high levels.
So the next -- the coming charts here they should scare the hell out of anybody that is not a precious metals investor. They have me shaking in my boots when I think about them but then I remember I'm invested in precious metals. And I don't worry as much. I do think that this coming other half of the storm is going to change not just the economy but change this country politically. Because when there is political strive there's -- when there's economic strive there are political leaders that come forward that people will vote for and these guys are dangerous.
So here is some of the evidence that I brought to show you that we are in an extreme emergency. It never stopped since the crash of '08. This is base money or base currency. This is the Wilshire 5000 total market cap index. So that's the value of the stock market basically. This is long-term interest rates or not long-term, short-term interest rates I'm sorry. And when we zoom up here one of the things you see these interest rates also reflect bonds. They are showing that there's a cycle to it. Basically, there was about 34 years on the first half of the cycle where it was rising. During that period of time, bonds earned the nickname Certificates of Confiscation. Because they did not -- they underperformed inflation. So if you invested in bonds you had -- even though you had more currency by nine -- you know from '52 here whatever they were ever that starts up to 1980. Even though you had more currency you had less purchasing power. You could buy less stuff.
But we've taken the bonds down -- we've taken short-term interest rates down to zero. And if I zoom up on this a little bit more, what you see is that with the inflation of base money the correlation of the stock market rising. This isn't -- it would be an impossibility that this is a coincidence. The only reason the stock market is up is because of this gift to Wall Street that Ben Bernanke created. The excess -- most of this base currency is held as excess reserves on the bank's balance sheets. It doesn't circulate in the public. But they can use it for margin debt and such. So it's inflated the stock market and all the excess reserves are -- its Wall Street not Main Street that benefited and this is the proof.
One of the interesting things here is that we stopped QE in November of last year, of 2014. And the stock market kept on going like it didn't need the training wheels. But then it rolled over and crashed right back down to the level where the base currency sort of supports it. So I believe that there is a second half coming to the… all of this energy that is created by the Fed, creating all of this base money that is stored economic energy and the free market will visit a rage upon the people that did this. And it'll be -- the energy will be released in the opposite direction.
Economics is a closed system. It's not an open system where you can meddle with it here and not expect some unintended consequences. This is M2. M2 is more -- when you measure M3 which the Fed hid from us in October of 2006 they stopped reporting M3. Except it was only one tiny component that was less than 1% of M3 that they had discontinued as the excuse of not no longer reporting M3.
So, a couple of places John Williams of ShadowStats.com and another website called NowinFutures.com reconstruct M3, but without that component that was less than 1%. So, it's pretty accurate within a percent. And however, M2 is a smaller measurement. This measures mostly accounts that are $100,000 or less. And so this is more of Main Street's money and not Wall Street's money. Now, this X -- the QEs is here, quantitative easing one, two and three . This is mostly on bank's balance sheets as reserve. And so if I deduct M -- if I deduct the reserves from M3 you see the purple area was the excess reserves. And instead of 12 point something trillion, we've got 9.6. I'm going to go back, okay.
This is the gift to Wall Street right there and the interesting thing about this is that today, the difference between base currency and the rest of M2 that doesn't have reserves in it that is actually less than it was before the crisis. So the amount of Main Street currency is less, the amount of Wall Street currency is more. So, this was a wealth transfer from the public to the financial industry.
And now, I'm going to go to -- the reason I'm going to bond prices here is this is from 1980 to today and this is a perfect bull market that goes for 35 years. Is there any such thing as a perfect bull market that goes for 35 years? This has to come to an end soon. It's an old bull market and all bull markets end. They turn into -- remember that chart that had interest rates? It had 34 years on one side. It's got 35 years now on the other side. I do believe that there's going to be one last pop in bonds. Because there is something coming that I call the Bernanke bust.
Alan Greenspan created the NASDAQ bubble and with excess liquidity he was afraid of the Y2K bug. And he created liquidity during the long-term capital management meltdown in 1998. Those things created the blow-off top in the NASDAQ and caused the crash of the NASDAQ, which is the Greenspan bust. So, you've got a Greenspan bubble followed by the consequences of the bubble that he created. Then he took interest rates down too low and he kept them there too long to try to get the stock market reflated. But the -- what happened is he accidentally created a Real Estate bubble. So, that was another Greenspan bubble and the consequences were a Greenspan bust.
Even though Ben Bernanke presided over the Greenspan bust it was still Alan Greenspan's fault, not Ben Bernanke's. Then Ben Bernanke created all of that currency and took interest rates down to zero and pumped the stock market. We are in the Bernanke bubble right now. Even though it's a Janet Yellen that's Fed chairman. We are in the Bernanke bubble and it's going to be followed by that Bernanke bust and Janet Yellen is left to do the cleanup work after this bust is over with. But this is going to be the biggest crash of all.
The first crash the -- first Alan Greenspan bubble was stocks. It was the NASDAQ and it crashed. The second bubble was stocks and real estate and it crashed and that was the crisis of '08 and it was a lot worse than the NASDAQ crash that was a Global Financial crisis. The next one is stocks, real estate and bonds. And I'll show you that stocks and real estate are very overvalued and like I said bonds are in -- they're nearing the end of a 35 year bull market.
So, this is Treasury yields and it's just the inverse basically of price. As the price goes up, the yield you get from a bond goes down. So, this is actually a bull market even though the chart is descending. It's just more proof that bonds are in this aging bull market that has to come to an end soon. No bull market goes forever. Now we're going to turn toward what the world is doing. They're hyperinflating their base currency. The Swiss have always had a reputation of being very conservative and very careful with their currency supply. They've increased it tenfold. In the United States we've increased our currencies to the base currency fivefold. The Swiss have been twice as reckless as the Federal Reserve has. This is the UK. Here we have Japan. Just I mean, look at that this is hyperinflation of base currency. Here is Hong Kong. And then I'm going to turn toward the deflation that's trying to happen.
These central bankers, they're all Keynesians. They think they can actually control the free market. But they do not have all the information that the free market has. The free market knows every transaction that goes on in a society. And these guys have the arrogance to think that they can control the free market that they know better. But what you're seeing even though they are all creating currency on a suicidal scale what you see here is deflation. This is the CRB index which is a basket of commodities. And here we are setting -- we're about to start setting record lows for this century. This is copper. Copper has been called Dr. Copper by many economists because it sorts of predicts the future state of the economy. And what you see is it is also deflating.
This is a crude oil and I believe that you're going to be seeing this down here somewhere. There's a lot of support in this zone. And so, deflation is happening around the world. How many here have seen my series Hidden Secrets of Money? Okay, very good thank you. How many here have seen the latest one that just came out last Tuesday? Excellent. It's about deflation and the reason the deflation has to happen before big inflation or hyperinflation can happen. And so, for anybody that hasn't watched it, please watch the sixth episode of Hidden Secrets of Money. It is the first of the 2016 season. The last release was actually in November of 2013. So, it's been a couple of years since we've released any new episodes.
This is the Baltic Dry index. So this isn't showing inflation or deflation what it's showing is this is global trade. This is a measurement of all the ships that are shipping… all those big shipping containers from Asia to the United States and such. And it took off and it exploded during the real estate boom. But it's back down to levels -- I mean the world trade is grinding to a halt right now. We are in for deflation. At the same time, we have a government that is growing like this monster and it never stops, and it consumes everything in its path. And so, this is the total national debt divided… and the total income down at the bottom. And it's just -- I mean it's insane. It's gone crazy. This is basically the same two data sets divided by each other. So it gives you a ratio of and the higher this ratio is the harder it is to pay off the debt. And this doesn't look too bad except when you look at the time scale this starts in 1794. And so, we are at levels now that we've only experienced during World War II, the Great Depression, the Civil War, the War of 1812 and the debt left over after the Revolutionary War.
We've got debt levels that reflect a global emergency, World War or this was the actually the most the Civil War was the most expensive and deadly war for the United States. Not World War II. Then we have government expenditures exceeding all private investment. I mean, there were years here where the private investment was higher than government expenditures that doesn't happen anymore. The last time was in 1999, when we were in the midst of the NASDAQ bubble. Here I just show you this. This is the Dow Jones industrial average how many people here know of John William's Shadow Government Statistics.com. Okay and he not only recreate M3. But one of the things he does is recreates the Pre-Ronald Reagan CPI, the Consumer Price Index.
So, he goes back to before the point where government started fiddling with the inflation statistics to make inflation look lower than it really is. Now I do think that the Pre-Reagan CPI, the basket of goods in there does not reflect modern life today necessarily. So, the truth lies somewhere in the middle. Somewhere between the CPI or the CPI. I call it that the government puts out and the Pre-Ronald Reagan CPI. But the reason I show you this is this is the Dow Jones Industrial Average taken back to the year 1913. When the Federal Reserve was established. And this is the CPI deflated Dow Jones. This is the shadow guard the Pre-Reagan's CPI. And what's interesting is 1929 was higher than today. In other words, if you were invested in all of the stocks in the Dow and you cashed out and bought stuff, you would have been able to buy more stuff in 1929 than you can today.
So, this is the proper way to look at things as an investor. Isn't how many dollars something is worth. You've got to look at how much stuff does it by you that is what's important. This is the Dow gold ratio. I'm going to blow through these and we're going to revisit it in a minute. But it was at two in 1932 and it was at one in 1980. What that means is every day on here what you're doing is taking the points on the Dow and dividing it by the price of gold. And so in 1929, the Dow Jones Industrial average was 18 times the price of gold. Then it was two then it was 28 then it was one. So there was a day in 1980 where the price of a gold and the and the Dow were the same. Then it went into the biggest bubble in history and hit 45. We're reverting back toward this mean area along here where things are in balance. Except we didn't even come down to fair value. And then, we bounced back into what I consider a bubble for stocks. And under-valued for gold and I'll show you that in a minute.
And then, this is silver. And silver, you know gold was a one to one ratio with the Dow in 1980. Silver hit 16 to one against gold. And so that means it's 16 to one against the Dow. And here we are up over 1200 and it's probably going back to this range. Which means that I mean that is huge performance going from 1200 from 16 to 1200 is just an enormous percentage gain.
Now the precious metals bowl, there are a lot of people saying that 2011 was the peak. And that was it for the precious metals bull. It's all over worth and metals are just going down. And nothing could be further from the truth. This is not the way a precious Metals bull ends. Silver peaked in April. Gold peaked in August and September. This is the way a precious Metals bull ends. This is the precious metals bowl of the 70's ended in January of 1980 and gold and silver peaked on the same day. This is a panic-driven bull market. What you saw in 2011 was a greed driven blow off top things went into an exponential curve and you had a blow-off top. And now we're -- it cleared out what we're seeing right now is a whole lot of capitulation where precious metals investors are giving up and selling thinking that the precious Metals bull is over and we needed that to clear out all of the dumb money that the get rich quick people. They can't ride all the way to the top of a precious metals bull.
This is the gold, silver ratio and what I'm going to do here is invert it because people have a tendency to think that up is good and down is bad. And on this chart down is it -- for a silver investor down is good and up is bad. So, I'm going to turn this upside-down. And I do believe that we are going into this short-term deflation. So I believe that you can see silver fall to single digits again. It could fall to like seven bucks or something like that. I think that there's a good possibility that you can see the gold silver ratio go back to 100. Now, I might be wrong. The bottom might be in. But I see a deflation before the world's central bankers overreact and start printing their currencies into oblivion because they have the -- they're so conceited they think they can control things. And they really can't. All they do is they build up -- they create a bunch of excess economic energy that gets released by the free market later. They can do short-term manipulations. But the market always balances it out.
So, one of the things if we do see, a single digit silver, you're probably not going to be able to buy physical for that. What happens is all of the futures contracts and options and stuff you'll be able to buy those. Because those are unlimited you can make as many promises to deliver gold or silver as you want. You can't actually create the gold and silver to back up those promises. So you might see the price fall to nine bucks or seven bucks or something like that. But what will happen is, the spreads will go huge and you'll actually be paying more for an ounce of silver than you will today just buying it right now. So, personally what I do people say well if I love gold and silver so much why am I selling it. Well, I buy gold and silver on a regular basis for myself. But I'm also a dealer where I purchase out of the wholesale market and sell to the public and make a tiny little spread. That's how a dealer works. So I'm not selling my own gold and silver. I buy and I buy every month. I do accumulate some gold and silver. And then, sometimes I make larger purchases based on technical factors or something or fundamental factors such as gold and silver are just undervalued right now.
But if it does hit 100 to one then it'll probably bounce higher I think you're going to see something that might resemble this. Well that means, that if you buy silver instead of gold. If you buy it right now you're going to get about seven to eight times the performance of gold. That is huge. Gold is going to do very, very well. Silver is going to be a really scary ride for anybody but you know what? I back up everything with data and right now I'm still purchasing… I take my cash I split it like 80-20 and I buy 80% silver, 20% gold. Sometimes I've just been buying silver. And if it hits this 100 to one. Even though your instinct will tell you to buy gold I am going to be buying silver. Because what happens is as the bull market nears its end gold becomes too expensive for the common man. And the public changes their preference from gold to silver. And so here we have inflation adjusted gold and silver. So that's gold nominally the bull market from then this goes back to 75. This is gold adjusted for the CPI and this is shadow stats. So you're talking somewhere between $2500 gold and $12,500 gold inflation-adjusted. Have we hit a peak yet? No!
So, here's silver. So with silver… what Bull market ends before it hits its high of 35 years ago. Is there any Bull market that ends that way? Not exceeding its previous high in the last bull market? No. So, this bull market is not over. We have not -- the best is yet to come for a precious metals investor for anybody else I pity them. So, I've shown this before this is the amount of base currency or paper dollars that exist basically. And then this line is the value of gold held at the Treasury. So the number of ounces times the price. And what you see here is that in 1934 -- in 1971 and in the year 2000. These bottom and then gold started doing an accounting of the currency supply. And what happens is the free market and the will of the public bit it up. The first time in 1934 is actually exchange rates changing. They would unpeg gold for a day and then re-peg it and over a month and a half it went from $20 and 67 cents an ounce to $35 announce. The second time, Nixon took us off of gold and it became freely traded in the will of the public in the free market. Bid it up until the value of the goal that the Treasury exceeded. The value of all the currency printed from George Washington to Jimmy Carter.
And now or yeah Ronald Reagan actually and now the same process I believe has started. But the spread here is actually the greatest opportunity in history, it's bigger than all of the previous times. That is what I wanted to point out by showing this again is that. Right now is your greatest opportunity. The Dow gold ratio logarithmically when it's somewhere between three and five and you can adjust these numbers a little if you want. But what you have to do is look at it very long term and decide where stocks and gold are in equilibrium. And I believe this is the range where stocks and gold are fairly valued against each other. If the Dow Jones is five to ten times higher than the price of gold. Stocks are overvalued gold is undervalued. Anything over ten times higher than the price of gold stocks are in a severe bubble. Gold is severely undervalued.
If you're somewhere between the price of the -- the points on the Dow being double the price of gold to three times the price of gold, stocks are undervalued and gold is overvalued. And anything where the points on the Dow is double the price of gold or less. Then gold is in an extreme bubble and it's time to sell. And stocks are severely undervalued and it's time to get out of precious metals and go back into stocks. So, here's what the data looks like on this graph. And you can see the green area where it's, I claim that stocks and gold are in equilibrium is just because of how much time -- this was under the gold standard. This is the stock market bubble of the roaring 20s. And this is under the inter-war and the beginning of the interwar standard in the beginning of the Bretton Woods system. And it's spent through the years it spent quite a bit of time in here. But the reason for showing this is you know it starts in 1897. There's the peak in 1929 where it was 18 times the price of gold stocks were. 1932, stocks were just two times -- the Dow Jones Industrials was two times the price of gold. 28 times the price of gold in '66. I'm sorry, one in 1980 the same golden and stocks being the same. That was a bubble it was time to sell and get into stocks. And then 45 ounces of gold in the year 2000. But we visited very overvalued and gone back into a bubble in stocks and severely undervalued for gold. So, anybody that claims that, this precious metals bull market is over with isn't looking at the evidence. So, this is just you know these are some trend lines and I think you're going to see some spectacular performance. Because this time gold will be rising against a stock market, a real estate and a bond market crash. Probably accompanied by a change in world monetary systems. We've had the classical gold standard before World War I, the gold exchange standard between the wars, the Bretton Woods system from '44 to '71 and the global dollar standard today. They are very different world monetary systems. The previous monetary systems were all baby steps off of gold.
And now we're going to go from basically nothing but debt backed currency probably back to something. That's going to be a huge transition and everybody on the planet will feel it. Previous transitions only the banks and governments felt. This time it's going to affect everybody on the planet. So, when and how high, I do not know. I just know that it's impossible for it to stay down at the bottom where it was down right now it's at a ratio of 16. Now, this is something that I discovered recently and I call it the financialization of government, this chart is mislabeled. The reason I call it the financialization of government is I was on the Fed's website one day just generating charts and I generated a chart of tax revenues and I noticed that it had this dips. And I went oh my god, that looks like the stock market. So, I laid the stock market on the same chart and there's an amazing correlation there.
And what I noticed was that going back in history there's very little correlation. The correlation really started in the year 2000. If you go back, this is a chart of the 1987 stock market crash and the stocks crashed. But government revenues continued to increase and GDP did not shrink. And so, I'm going to read you a little bit. I recently updated my book so it's available with a 2015 update and it's out now, it's on Amazon. So this is the best selling precious metals book of this century. It is available in 11 languages the updated version is only available in English right now.
I'm dyslexic. But what I did was it will sound probably sound like I read decently because I read it about 20 times last night and this morning just to rehearse. So I can anticipate the words. We stand atop a massive bubble created by Alan Greenspan and Ben Bernanke's reckless and completely unprecedented economic meddling and are now staring into a deflationary abyss. I look back at all the economic crossroads and wonder about the ifs. If only Alan Greenspan hadn't created the NASDAQ bubble by meddling with bank liquidity there wouldn't have been a crash in 2000. If only he had allowed the crash to continue, until it was done and allowed the free market to clear out the excesses and imbalances by just letting it work we would have had a healthy recovery. If only he hadn't goosed the economy and kept interest rates artificially low creating the real estate bubble.
If only Ben Bernanke hadn't committed the biggest economic crime in history when the real estate bubble popped by meddling with the currency supply so much that it has caused the greatest wealth transfer in history thus far. That is -- oh, thus far. From the middle class to the super rich on Wall Street, this was the single greatest theft in history but it's nothing compared to the wealth transfer that is yet to come. The dangerous fog the financialization of government.
We are in completely uncharted territory the world's central banks are hyperinflating their base currency while trying something that has never been tried before in human history, negative interest rates. We are driving at 100 miles per hour in the fog. Recently I overlaid a chart of the stock market with a chart of US Federal tax revenues. And an alarming fact stuck out at me. I discovered the financialization of the US government. Before the year 2000, if we had a recession and the stock market fell tax revenues would fall a tiny percentage or just go flat. But since the year 2000, Federal tax revenues rise and fall with the stock market.
In the crash of 2000. the market fell by more than 45 percent and tax revenues by almost 20 percent. In 2008, the stock market crashed by more than 50 percent and tax revenues fell by 28 percent. This means that from now on because of the crushing debt and future obligations the Federal Reserve and the Government must come to the rescue of Wall Street every time there is a stock market crash or they risk their own demise.
Remember that in order to levitate the stock market from the crash of 08. It took a 400% increase in base currency. Each time they do this, their power is diminished. So the next time we suffer a downturn they aren't going to get the same economic pop from creating another $3.2 trillion. In the next crash, it will probably take a similar percentage increase or more. But this time instead of starting from a base of 0.8 trillion they're starting from a base of $4 trillion. A 400% increase would mean the creation of $16 trillion which would bring the total monetary base to $20 trillion.
The problem is that according to the Federal Reserve M2 currently stands at $11.8 trillion and according to John Williams of ShadowStats.com M3 is just over 16 trillion. So, the next time the stock market crashes in order to save the government the Federal Reserve may have to create more currency than currently exists. And that, my friends, is the hyperinflationary end to our economic roller coaster ride.
So precious metals have been the number one investment of this century. This chart starts in the year 2000. Not only has it been the best performing asset of this century but all these financial advisors that will tell people put just 10 -- you got to be careful with gold and silver. Put just 10% -- 5 or 10% of your portfolio into gold and silver because it's volatile, it's dangerous and buy these stocks that I can make a commission on instead. Well, to them I want to show them this chart. These are bonds, real estate, the stock market and gold from 1970. So if you start it in 1980 when gold was in a bubble there's some people that want to start it when gold was in a bubble to show that stocks outperform. I'm showing it from the time that gold became freely traded. Something that's on the exchanges that you and I can participate in the price and not manipulated by government. And since it has been at freely traded asset it has been the number one performing asset.
Thank you very much. We'll see you next time. One last thing tomorrow at 4 pm I've got a breakout session that's not on this schedule. So if anybody wants to come, I've got just a whole bunch of random charts and it'll be more of a discussion. You can ask me, put up a chart we'll discuss it, put up another chart will discuss it. But I've got some really good information that you may want to see. Thank you. 4 p.m.