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Saturday, September 25, 2010

Overdose: The Next Financial Crisis

Here's some weekend watching for everyone: Johan Norberg's documentary, Overdose foretelling the coming economic collapse:

Posted by Mike Brock on September 25, 2010 | Permalink


Government create problems, then use the same thinking that created the problem .in trying to fix it.
Whats new same thing they do with prohibition , create a problem then use the same thinking that created the problem to try to fix it, good luck people.

Posted by: don b | 2010-09-25 12:01:40 PM

What is it that "We can do (it)"? I got lost at the last comment.

Posted by: Agha Ali Arkhan | 2010-09-25 12:32:59 PM

Thanks for posting this Mike! Been looking forward to it.

Posted by: Kalim Kassam | 2010-09-26 1:26:26 AM

Damn good video! Thanks for posting it.

Everybody's worried about phony man made global warming when the real catastrophe coming is going to be economic.

Posted by: Farmer Joe | 2010-09-26 10:36:04 AM

Good vid. It's interesting to contrast the situation in so many countries like America and Britain where the stim packs got used to the Baltic states which were the first to feel the effects of the crisis. These countries had a scary situation but they bit the bullet and simply accepted short term pain. I don't hear any problems from them now.

Posted by: Cytotoxic | 2010-09-26 6:28:33 PM

Mike, why do you gravitate towards fringe thinkers? If the crisis is as obvious as that, you would expect some mainstream thinkers to be talking it up also. But it's always the self-promoted philosophers and pundits you put forth. Why is that?

And yes, I'm aware that the question is technically a fallacy. Still, in this business reputation counts. Because reputations are usually earned by good overall past performance.

Posted by: Shane Matthews | 2010-09-26 7:31:47 PM


Peter Schiff's past performance is pretty impeccable: http://www.youtube.com/watch?v=2I0QN-FYkpw

Posted by: Mike Brock | 2010-09-26 8:35:49 PM


It's funny how it was the same "fringe" economists who predicted the financial crisis in 2008, like Peter Schiff. And as you can see from the video, the mainstream economists were laughing at Peter Schiff saying the "US economy had never been better" and that his predictions of a housing crash in the US was ridiculous.

Who's laughing now?

Posted by: Mike Brock | 2010-09-26 8:43:55 PM

Most "mainstream" analysts, such as Ben Bernanke and Alan Greenspan, steadfastly denied that there were any problems with financial industries right up to the moment that they collapsed. Other "mainstream" thinkers such as Paul Krugman still maintain that gargantuan deficits are all that is needed to stimulate a recovery. One thing that the video did not mention was that U.S. unemployment remains stubbornly high despite all the stimulus, and despite the fact that these "mainstream" thinkers assured the public that it would be down to 8% by now. How many times will people take the advice of these fools before they realize that most "mainstream" analysts don't have a clue what's going on?

It's high time we started paying more attention "fringe" analysts like Schiff, Celente and Ron Paul. How many times do these guys have to be proven right before people realize that they actually know what they're talking about?

Posted by: Dennis | 2010-09-26 8:51:49 PM

The video dealt with history. It had very little on future prospects, and nothing of significance. On a scale of one to ten, with ten being a top score, the video deserves a big fat zero. Better advice by far is: Buy GICs.

Posted by: Agha Ali Arkhan | 2010-09-26 9:23:34 PM

Our nanny police state is very expensive , the conservatives plan on spending billions with there get tough on crime . With our aging population and a smaller tax base something will have to give, if they cant get rid of the firearm registry i guess it will have to be our social programs.

Posted by: don b | 2010-09-26 9:31:44 PM

The problem with buying GIC's is that they offer such a paltry return that even the mild inflation that we are experiencing now will eventually devour your savings. If we experience severe inflation that is bound to result from a collapse in such allegedly "safe" investments as government debt, GICs will quickly become worthless. I say that because it is a virtual certainty that governments will continue to respond to debt problems with the currency printing press.

Posted by: Dennis | 2010-09-26 9:34:35 PM

"if they cant get rid of the firearm registry i guess it will have to be our social programs."

Never in a million years. The voters would have their heads. They're going to inflate.

Posted by: Charles | 2010-09-27 5:31:36 AM

The problem with that attitude, Mike, is that there were many fringe economists who did NOT predict any meltdown. In one famous example, Jeff Rubin (another fringer with a good reputation) predicted oil would be $200 a barrel by 2012. Well, he's got about fifteen months for that extra $130 a barrel to appear. Tell me, is Schiff also predicting a second crisis? For that matter, did Norberg predict the first one? You do realize it's not kosher to mix and match hand-picked pundits in order to enhance the reputation of all?

People only remember pundits when they guess correctly, which is what they bank on. If they're right even once, their reputation is enhanced, even though the law of averages demands they're going to be right at least some of the time. Fortune-tellers and soothsayers do the same. Let's face it: EVERYONE knew a housing crash was coming, and of COURSE there will be financial crises in the future. Nothing new here.

Posted by: Shane Matthews | 2010-09-27 6:24:44 AM

I don't understand your point, Shane. Is it that we shouldn't be concerned about these issues? Don't worry, be happy?

If hyperinflation is in the cards, which I believe it is, then an investor has to take steps to ensure that this inflation will not wipe out his savings.

Schiff is predicting the bursting of the bubble in government debt. In many countries, such as Greece and Iceland, it has already burst. In countries like the United States, there is very little political will to cut spending to the extent necessary to avoid a collapse of its debt bubble.

Posted by: Dennis | 2010-09-27 7:12:37 AM

Shane clearly hasn't watched the video. It's not Norberg making the predictions. He's just a filmmaker.

Posted by: Mike Brock | 2010-09-27 8:10:58 AM

Mike Brock clearly hasn't read Norberg's bio. He's a well-known author and historian who has long promoted globalized capitalism and is currently working for the libertarian-leaning Cato Institute. He was also once an anarchist but recanted when he stopped to consider the sort of society that would result. In that, he's got one up on most libertarians, who couldn't care less, just so long as they get to beat their dogs and run around naked (and stoned).

In any event, he is not "just a filmmaker." A senior fellow at several think-tanks around the Western world is not a "just a" anything.

Posted by: Shane Matthews | 2010-09-27 8:19:32 AM

My point, Dennis, is that people are always predicting the end of the world. It's a cottage industry. No matter how prosperous or peaceful the age, you have people marching in the streets claiming the end is nigh.

Logically speaking, the source of the information shouldn't matter. In practical terms, it does. Because people most often do not behave logically and the world is full of people who believe it can benefit from their opinion.

Hyperinflation or other financial crisis is always a possibility (a greater possibility now than at some other times), as is nuclear war, an earthquake, and getting whomped by a giant asteroid. But I've learned to take everything the doomsayers say with a very large grain of salt; they kill us a thousand times a year with predictions.

Do what you think best. Just make sure it's you, and not someone else, doing the thinking for you. Because nobody but you has the slightest interest in how your life turns out, and it's not like you can sue these guys later if they turn out to be wrong and you lose your shirt.

Posted by: Shane Matthews | 2010-09-27 8:26:25 AM

Have you watched the video?

Posted by: Mike Brock | 2010-09-27 8:28:39 AM

In detail? No; I haven't that hour to spare. Unless something shows exceptional promise (and this doesn't), my max is 15 minutes. I have skipped through it, however, and found it a potpourri of picked opinions, nothing more. The other side could put together an equally impressive argument that everything is fine, backed by a other current and former economic thinkers with resumes at least as impressive.

And besides all that, you shouldn't be letting the video do your arguing for you, or its authors, do your thinking for you. Debate is the art of making your own arguments. If you must wimp out and send in pinch-hitters, however, try to do it in a way that doesn't require people to change their schedules.

Posted by: Shane Matthews | 2010-09-27 8:45:40 AM


I am fully capable of arguing on my own. But this thread is about the video. You've admitted you haven't watched it and don't find it worth watching, so everyone should take your criticisms of it in that light.

Posted by: Mike Brock | 2010-09-27 9:08:25 AM


Did you at least watch the video long enough to see the details of where a lot of the stimulus money was spent? For things like paving streets in a ritzy area of Beverly Hills, or building a new runway in a nondescript suburban airport that just happens to be in the district of a prominent congressman and after whom the airport is named?

Did you listen to the testimony of a former official in the comptroller's office of the federal government who is obviously not in any way an anarchist or libertarian, but who voices serious concerns about Washington's out-of-control spending? If you lost interest after 15 minutes, then you would have missed it. It's so much easier to just tune it out and make snide comments about drug-induced ravings of anarchists instead.

Posted by: Dennis | 2010-09-27 9:11:04 AM


David Walker did not just work in the Office of the Comptroller, he was the comptroller general. And

Posted by: Mike Brock | 2010-09-27 9:16:26 AM

It's also amusing that Shane claims almost everyone saw the housing crash coming. As someone who used to work in real estate capital markets for a large US bank, I can tell you their heads were in the sand and almost none of them saw it coming before it was too late.

People like Peter Schiff were mocked with monikers like "Dr. Doom" while mainstream financial analysts stuck to the line "US housing prices have never fallen on a nationwide basis and probably never will".

When gold was at $600, the mainstream consensus was that gold was in a bubble, and when Schiff predicted it would go over $1000 an ounce the next year (a prediction that came true) he was laughed off a panel on CNBC for being out to lunch. (video on YouTube)

Posted by: Mike Brock | 2010-09-27 9:24:01 AM

Regarding GICs. At what interest rate would you be happy with. 3%? 4%? 5%? 6%? 7%? 8%? 9%? 10%? 11%? 12%? 13%?

Posted by: Agha Ali Arkhan | 2010-09-27 10:17:26 AM

If Shane thinks they saw the housing crash , who Bush ? name a few would ya

Posted by: don b | 2010-09-27 10:17:38 AM

Agha Ali Arkhan,

The only GIC product I would touch is the 1 year. Do not lock yourself into long term GIC's (or any other fixed-income investment for that matter). You may come to realize that 3% interest in a 5% inflation environment doesn't make for great returns.

Posted by: Charles | 2010-09-27 10:38:49 AM

Don, put down the bong, for crying out loud. It's reduced you to a state of babbling imbecility.

Posted by: Shane Matthews | 2010-09-27 10:59:43 AM

    I am fully capable of arguing on my own. But this thread is about the video. You've admitted you haven't watched it and don't find it worth watching, so everyone should take your criticisms of it in that light.

Yes, they should, except from the first I have been criticizing its use and your general selectivity when it comes to sources, not its content, so they really have no criticisms of the video to consider.

You still haven't answered my original question, by the way, so perhaps we should take your evasiveness as a tacit acknowledgement that the criticism of your highly selective source-picking was valid after all.

Posted by: Shane Matthews | 2010-09-27 11:02:53 AM

Well, as some people here know: I have substantial experience in the financial industry and I do independent investment.

My experience in the financial industry also had me at the heart of the real estate securitization frenzy in the United States when I worked in RECM.

I will admit, that at the time, I didn't see the crisis coming. But I can at least remember a few moments of laughter when people would explain things to me. Things like: "we don't need lending standards, because of the wealth effect that home ownership provides."

Looking back, I realize that even myself was caught up in the insanity. The arguments were never more powerful than... "look at the last 5 years! The real estate market has kept going up... so it will go up forever!"

Market analysts and economists working at the banks, raking in $500,000/year salaries were saying things like this.

It wasn't until early 2008, that I started listening to the doomsayers, and realizing that what they were saying actually much a shitload of sense.

From then on, I've become more involved with investment. Except, my entire investment strategy at this time is predicated on the strongly-held belief that there is a major crash coming.

It is based on the belief that the US dollar will collapse. I bet against USD swings with instruments like TSE:HDD all the time. I have also expanded my gold exposure in my portfolio all the way up to about 40%.

So, it goes without saying, I agreed with this documentary before I even saw it. It is, after all, an expression of the same view I hold on the market.

Posted by: Mike Brock | 2010-09-27 11:06:57 AM

    It's also amusing that Shane claims almost everyone saw the housing crash coming. As someone who used to work in real estate capital markets for a large US bank, I can tell you their heads were in the sand and almost none of them saw it coming before it was too late.

Really? Because the mainstream media had been talking about it for years. Especially here in Canada, in the largest cities, Vancouver more than any, housing prices have become completely unsustainable. Of course, we don't have the same type of subprime lending epidemic either. Do we really need economists to tell us that lending to high-risk debtors is asking for trouble?

    People like Peter Schiff were mocked with monikers like "Dr. Doom" while mainstream financial analysts stuck to the line "US housing prices have never fallen on a nationwide basis and probably never will".

Hmm. Not even during the Great Depression or the interest rate crisis of the early 1980s? By the way, who exactly said that and when? Or are you paraphrasing?

    When gold was at $600, the mainstream consensus was that gold was in a bubble, and when Schiff predicted it would go over $1000 an ounce the next year (a prediction that came true) he was laughed off a panel on CNBC for being out to lunch.

On the other hand, in 2002 Schiff predicted that because of the stock market crash the stock market would enter a bear market lasting 5-10 years, but instead it entered a bull market that lasted until 2008. He had an excuse ready, of course, and maintains that his forecast was accurate, given certain provisos. But you weren't going to tell us about that, were you?

Schiff is like most any other highly successful businessman: driven, opinionated, wins some, loses some.

Posted by: Shane Matthews | 2010-09-27 11:17:04 AM


Are you done picking nits? Just because some of the money does not appear to have been well spent does not mean none of it was well spent. To make that determination would require a detailed analysis, not a sound bite. Of course, most people have neither the time nor the skills for that—a fact that politickers like the authors of this piece keenly exploit.

I hear lots of moaning about out-of-control spending and the colossal American trade deficit, and it is a problem. However, I see few solutions on offer, other than bringing back the gold standard or legalizing pot. Enough already about what the government shouldn't be doing. Tell us what it should be doing. And while you're at it, figure out a way to sell it to the public, who will be the final arbiter of its worth.

Posted by: Shane Matthews | 2010-09-27 11:25:08 AM


I think Schiff's predictions were accurate in terms of the fundamentals. What he didn't predict accurately was how far the government would be willing to go to re-inflate asset bubbles.

Schiff predicted the government would be forced to become austere and raise interest rates to maintain lending credibility with foreign lenders. On this point, he was dead wrong. But by being wrong on this point, Schiff has set himself up to be righter than anyone can imagine in the end.

While Asia surprised Schiff by lending the US inordinate amounts of money, to fuel the lending crazy of the 2000s, it didn't make Schiff wrong by proclaiming the market fundamentals were pointing to crash. What it did, was shift the timeline for his prediction outward.

Had China and Japan not stepped up to the plate by buying up trillions in treasury debt and bond issues of the US market, then Schiff's timeline would have likely been accurate.

Schiff's failing was not that he didn't understand what was going on. His failing was underestimating the stupidity of various governments. He was actually giving the US government, the Chinese government and the Japanese government the benefit of the doubt, that they wouldn't go on a binge of musical chairs with debt.

Ultimately, Schiff's predictions are slowly coming true.

- Schiff predicted the gold boom and the housing crash. More accurately than most.

- Schiff predicted that China would stop buying US debt. He predicted they'd stop a long time ago, and China kept buying US debt. His detractors claimed this proved he didn't know what he was talking about. However, at the beginning of the summer, Schiff's prediction finally came true -- a few years later than he expected -- China has completely stopped buying US treasuries.

This has caused the Federal Reserve to have to start playing the role of China now, directly purchasing US Treasuries that they formally relied on China to buy, and holding it on their balance sheet.

Schiff has been wrong on the timeline of the collapse of the US dollar. He assumed the rest of the world would call the US on it's bullshit shortly after the US financial crisis. Instead, the world responded by "running to safety" by buying up USD in vast quantities, which resulted in a the US dollar appreciating against the Euro.

This fact has been used to say that Schiff is wrong on that count. But I don't think so.

What you are saying here, once again, is a Schiff wrong on timelines. But not wrong in the end. Ultimately, the US is going to have to pay those holding treasury debt. And with the US having a massive trade deficit with the rest of the world, the holders of treasury debt will ultimately get paid back in devalued US dollars.

Since many foreign countries hold much of their currency reserves in US Dollars or equivalents, many countries have been coy about calling the US on it's bullshit. And have instead, sought to shore up support for the USD for their own good.

Schiff did not predict this would happen. He predicted that countries around the world would cut their losses, because that's the most rational thing to do.

Now the problem with Schiff being wrong on these points, is not a problem with Schiffs predictions as I said. It's a problem with the timeline.

Ultimately, the fundamentals that Schiff is talking about have not changed. They have worsened, given all of this activity. By the US managing to find more willing buyers of it's debt in the past 10 years, and after the financial crisis, Schiff has not been proven wrong. What has happened in the US has fallen even more in debt relative to the rest of the world.

And worse, the prediction of the US not being able to find buyers of it's debt has now come true, and the US government is now effectively buying it own debt.

It's only a matter of time until enough holders of US debt around the world freak out over this situation, and when that finally happens, Schiff's predictive accuracy will be made whole. I assure you.

Posted by: Mike Brock | 2010-09-27 11:37:26 AM


Watch this video by the National Inflation Association from the US: http://www.youtube.com/watch?v=eb1n1X0Oqdw

Posted by: Mike Brock | 2010-09-27 11:44:24 AM


I agree with Schiff. As you said, timing is the only question. The problem with calling the level of price increases in the U.S. today is that Americans are repaying debt. In a fractional reserve banking environment, this equates to falling prices. So you have the FED inflating on one side, and the demand for money going up on the other. I personally believe we will see 1970's style stagflation over the next 10 years with hyperinflation only coming when the U.S. has to cover all those unfunded liabilities. What we are most definitely going to see, however, is the USD (and Euro) being flushed down the toilet.

The other question is gold. Gold went through a bear market because Volker killed inflation in the early 1980's and central banks were selling gold. This time around, although central banks still have gold left, I can't see how they will be able to raise rates to kill inflation. The consumer has too much debt.

On another note, have you ever looked at drillers? They have great leverage to gold prices. ;)

Posted by: Charles | 2010-09-27 12:08:52 PM


Overall, the Eurozone is a creditor economy with a trade surplus. So while government debt within the ECU is certainly going to weigh on the currency, it is equally likely that the Euro will be the most heavily weighted currency in the ongoing FCR diversification.

For these reasons, I believe the Euro is not as screwed as others believe. The USD is a complete write-off. The Euro's best days may actually be ahead of it, depending on how things play out.

Posted by: Mike Brock | 2010-09-27 12:18:07 PM


I'm bearish on all fiat currencies in general. The Euro will definitely outperform the USD - but I still don't want any exposure to it.

Posted by: Charles | 2010-09-27 12:35:01 PM


The irony was the Euro was an example of how a fiat currency should be managed insofar as you can manage a fiat currency. The European Central Bank was very restrained and responsible with the currency up until the last 12-months with the Greek crisis.

Instead of holding the line, and defending the currency, they just through in the towel and went all out batshit crazy.

Posted by: Mike Brock | 2010-09-27 12:43:10 PM

Here's a talk by economist Robert Murphy on Bernanke's "exit strategy"; that is, the strategy to sterilize all the monetary stimulus that was dumped into the economy in 2008 before inflation becomes a problem:


Murphy points out, in short, that there is no exit strategy. Hyperinflation is a certainty.

One open question is how America's trading partners will respond to a run on the U.S. dollar. I'm betting that there will be intense competition to devalue so as not to upset the relative value of one's currency too strongly. This means that gold is bound to shoot to the moon.

Posted by: Dennis | 2010-09-27 12:51:01 PM


Yep, and that's exactly why 40% of my portfolio is in gold.

Although, one should be worried about gold confiscation in countries like the US (and Canada to a less extent). The US has confiscated gold in the past, and may very well do so again as the government clamours for a way to prop the currency and prevent complete collapse of the dollar.

For this reason, US gold investors and Canadian gold investors should seek to diversify their gold holdings in other countries -- outside of the reach of the government.

Posted by: Mike Brock | 2010-09-27 1:04:58 PM

That said, if there is a round of gold confiscation in the Western world -- while I'm sure Shane Matthews will call us who refuse to give it up selfish criminals -- it is my hope that individuals resist.

Posted by: Mike Brock | 2010-09-27 1:06:54 PM


Has Canada ever confiscated gold?

Posted by: Charles | 2010-09-27 1:07:17 PM

And for those who don't remember that gold ownership restrictions have been enacted before in the West, I will remind you of Executive Order 6102:

Posted by: Mike Brock | 2010-09-27 1:08:51 PM


Not to my knowledge. However, in Canada, you arguably have somewhat less of a right to your property than in the United States. It's certainly within the power of parliament to confiscate whatever it wants, whenever it wants.

Nobody's ownership of anything in Canada is outside the reach of a vote in parliament, with ascent of the Senate.

If the government wants to pass a law confiscating Mary Jane's iPhone and giving it to Peter Popper, then that's that.

What you own, earned or not, is subject to the will of the body politic. And if the government decides the only way to prevent the Canadian dollar from imploding is by backing it with gold, they will make a public case for it, pass the Protecting Canadian Dollars Act and they'll walk into Scotiabanks gold vaults in downtown Toronto and walk out with several tonnes of gold.

It will be as simple as that.

Personally, I think this is why we need to get rid of gun control. But that's just me.

Posted by: Mike Brock | 2010-09-27 1:21:18 PM

I should clarify the legality of the situation: technically, the crown, or rather the Queen is the ultimate owner of everything within her realms. She reserves the right to anything and everything. What we "own" is technically stuff we're allowed to keep at the mercy of crown.

But fundamentally, we are legally her subjects. She owns our entire lives. Parliament, in practice, has the power to exercise the power of the crown and therefore has unlimited expropriation power.

Posted by: Mike Brock | 2010-09-27 1:43:33 PM

WRT the Euro, I don't think it will do any better than the USD-Hell, the EU will likely get torn apart in the coming economic maelstrom! The EU could hardly handle the implosion of Greece, let alone a big country like Spain and its shitty credit. In that regard, at least the USD will exist in the future whereas the Euro will be a cute antique thingy.

Posted by: Cytotoxic | 2010-09-27 5:38:20 PM

I doubt Shane has any gold, but if leviathan wants to confiscate it, im sure he will be happy to hand it over.

Posted by: don b | 2010-09-27 7:32:52 PM

Mike Brock
when the Charter was being drafted Private Property rights was going to be included, but the then Marxist Socialist NDP Leader Ed Broadbent insisted that it be dropped. He got his way unfortunately.

Posted by: StanleyR | 2010-09-27 8:20:49 PM

The scary thing is that average Canadian household debt as a percentage of our income is higher than an average Greek's household debt as a percentage of their income.

Posted by: StanleyR | 2010-09-27 8:26:45 PM


Well, it wasn't just the NDP. It was also opposed by Prince Edward Island. There was also little support for it from the Ontario government at the time.

Surprisingly, Pierre Trudeau supported the original Section 7 property rights proposal.

Posted by: Mike Brock | 2010-09-27 8:44:08 PM

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