In this week’s Fatal Conceits Podcast, we are joined by long time friend of the Bonner Private Research group, Mr. Byron King...
A Harvard-trained geologist, ex navy pilot and nuclear weapons expert, Byron lends us his unique insights into the unfolding situation in the Ukraine… including sanctions blowback, the bifurcation of the global monetary system, a gold/methane-backed ruble… and what it all mean for the US and Europe.
We also touch on the continued erosion of trust in America’s once-great institutions in the wake of the Supreme Court leak, why inflation is here to stay, where the stock market is headed from here… and what individuals can do to avoid the fallout.
It’s always a pleasure catching up with Byron. We hope you enjoy this conversation, a transcript of which will be available – gratis – on the website (or below)…
Please feel free to drop your comments in the section below and to share it with friend and foe alike.
Cheers,
Joel Bowman
Host of The Fatal Conceits Podcast
“[T]hat's not central banking. That's band-aiding a hemorrhaging, suppurating compound fracture of a wound. It's a sucking chest wound and you're giving the patient an aspirin saying, ‘I hope you feel better.’ Doesn't work.”
~ Byron King, geologist and editor, Lifetime Income Report
TRANSCRIPT:
Joel Bowman:
All right. Well, welcome back to the Fatal Conceits Podcast, dear listeners, a show about money, markets, mobs, and manias. If you haven't already checked out our Substack page, please feel free to do so, where you can sign up for our daily e-letter. We have hundreds of articles on the sites there, covering everything from lowly politics to high finance and everything else in between. Of course, you'll find research reports and more conversations just like this one.
That's bonnerprivateresearch.substack.com. And now, today, I'm very, very excited to welcome our special guest, longtime friend of the show and of the Bonner Private Research family, Byron King. Byron, welcome to the show, mate. How are you doing?
Byron King:
Very well. Thank you, Joel. It's a pleasure to be here. And hello to all of our Bonner Private researchers out there who subscribe and make it all possible. Thank you.
Joel Bowman:
Yeah, outstanding. Mate, as you and I discussed over a couple of emails before we scheduled today's show, there's so many things that I want to get your insights and expertise on, not least of which the unfolding situation on the Eurasian steppe. We've got supply chain issues to talk about, we've got inflation heating up, there's market meltdowns, there's all kinds of things going on here. But I thought just out the gate, worth speaking the day after Federal Reserve Chairman Jerome Powell's announcement of his 50 basis point rate hike, which, for those at home paying attention, puts the Fed a long way behind the curve with regards to real inflation, which, pick a number, is running anything from 8.5% officially to maybe some multiple of that, depending on how you calculate it. Markets, I'm just looking at right now, are awash in red this morning after a brief window of optimism yesterday afternoon. Byron, what's your take, 24 hours in?
Byron King:
Well, I wasn't surprised to see the 50 basis point raise. It was telegraphed well in advance. But if you want to see central banking, that's not central banking. That's band-aiding a hemorrhaging, suppurating compound fracture of a wound. It's a sucking chest wound and you're giving the patient an aspirin saying, "I hope you feel better." Doesn't work. You want to see central banking? Look what the Russian Central Bank did two months ago when the sanctions hit. The conflict started in Ukraine they jacked up their interest rates in Russia to 20%. Bam, just like that. That was their way of saying to the world, "You might not like us. You might not like what we're doing and you're putting sanctions on us and kicking us out of SWIFT and everything else, but our rule book is still a valuable item and we're going to pay you 20% for the rubles. And oh, by the way, we're going to buy gold based on rubles."
Joel Bowman:
Right.
Byron King:
You want to see central banking, that's central banking. What we saw yesterday is just American politicking. And it's the same silliness that we've seen in monetary policy and so much of everything else that passes for policy in America these days. We have an ungovernable country run by people who don't know how to govern and a lot of people who don't want to be governed. Where does that leave us?
Joel Bowman:
Right. Something of an ineptocracy at hand here. What would the Fed have to do, in your opinion, to kind of “pull a Volcker,” if you will, and stand strong behind its currency? What would it have to do to get out ahead of the curve and send a strong enough signal to the market that it was serious about protecting the integrity of the greenback?
Byron King:
Well, if they did pull a Volcker and they raised interest rates to well above what we see as inflation, they would have to do, I would say, at least 10 or 12% rate rise, which, of course, is politically impossible. And it's utterly fantastical to even think of our Washington DC policymakers doing something like that because they're cowards and they can't really do things that require bravery. The markets would crash, people would hate them. We would certainly get the Supreme Court and the Roe v. Wade decision off the front page for at least a day or so if they did that. But of course, America's concentrating on that, as opposed to other things that are important, like, oh, the value of the dollar going forward, or perhaps even a nuclear war with Russia. Who cares about that when we have some little toady in the Supreme Court who can leak out a decision in advance. This gets into a lot of different things, but Paul Volcker should just be rolling in his grave.
He did what he had to do, he jacked interest rates up to 19% and he killed inflation and the country lasted another, let's say, 35 or 40 years, although monetarily it's been just sort of falling apart, certainly since the 2008 crash, which was never properly addressed. Gets into a lot of different things. But people write books on this stuff. We're just having a conversation.
Joel Bowman:
It is almost unfathomable to think about what kind of havoc a 10 or 12% rate hike would wreak upon the markets. I'm looking at the tickers on the broader indexes this morning after just 50 bps and we see, as I'm reading the scroll here, the Dow's off 3%, over 1,000 points down. S&P down 3 1/2. The NASDAQ, tech-heavy NASDAQ, of course, was down over 5% earlier this morning. So this is with just a half a percentage. It's almost unthinkable to imagine the carnage that would come down the pike if they pulled a Volcker or jacked up as did Putin.
But you bring up an interesting point there, of many interesting points, Byron, and maybe this is a little off topic here, but just given the Roe v. Wade leak and the timing of it all, without getting into that sort of quagmire of a debate, what do you think this says about the confidence or the lack of confidence, just in the institutions of the United States which have been the backbone, the scaffolding of the democracy, or the republic, rather, that the founders envisioned. They've become extremely politicized and one can't help but imagine that this leak whiffs of timing with the upcoming election and whatnot, but it does seem to indicate a kind of erosion in the confidence of America's institutions. Is that the way that you read that?
Byron King:
Oh, I think it's a major crack in the dam. And I mean, nobody trusted Congress. They leak like a sieve. Nobody trusts the executive office. They leak like a sieve. You can agree or disagree with what the Supreme Court does in its decision making. I don't think anybody who really follows the court would ever have a question, though, that they are a collegial bunch who, they engage in their debates behind closed doors. And when they are finished, out come the decisions. Whatever the decision is in Roe v. Wade, it is what it is. I mean, there's going to be a decision one way or the other. It is what it is. All that the leak did was put it into play in a public sort of way. And you lose confidence in the whole process.
People may know it. I have a Navy background. I was in the anti-submarine warfare business. Rule number one of electric boat, you don't talk about electric boat. Rule number one about submarines, people who know a lot about submarines don't talk about submarines. People who don't know a lot about submarines try to tell you, convince you that they do. You don't talk about submarines, you know? Yeah, that's where I come from. You don't talk about submarine stuff because that's how quiet you want to keep it. You don't talk about what happens in the Supreme Court. If you're a clerk and you go there and I don't care how much you really want to, "Oh, I know this, I know this. I have to tell somebody."
No, no, no, no, no. You cut your wrists, you jump off a bridge, you take a pill, whatever you have to do to not... You don't do that. You don't do that. Somebody did it. I mean, was it a clerk? I don't know. We may never know. But it's just the idea that in a broad sense, the US is becoming more and more ungovernable. It's big country, 350 million people. They say 330, but really there's like 20 million that the Census Bureau doesn't count just for political reasons. But big country, it's widely diverse, massive disparities of wealth, massive disparities of opinion. And can the country still function? Well, there was this one little place on the top of Capitol Hill, the white marble building with these stone statues in front of it where we could at least have a little bit of confidence that, okay, there's rational thinking going on behind the bronze doors. I guess not. I guess not.
Joel Bowman:
It seems like just another in a long list, or a long convoy of institutions, from academia to corporate America that now seems to, as you said, enter the fray for hyper-politicization. And I'm wondering as we can talk a little bit about the situation on the Eurasian steppe and sort of get into all that. But just to kind of preface that, it does seem, to your point about political polarization, it does seem now that every week there's a shiny new object, a shiny new subject on Twitter or on the social media channels, whereby everybody has to fall immediately in line with their partisan kind of checkbook. And it seems that no matter where a rational, level-headed, circumspect inquiry might lead you, there's no time for that.
You immediately need to make up your mind on subject A, B or C, and it needs to be in complete alignment with the rest of party left or party right politics. And of course, we saw that with everything happening over in the Ukraine. You know a lot more about this than I do, but I was very, very surprised to see the rapidity with which people who I had long friendships with who had never mentioned the Ukraine before, who gave no indication that they were experts on Eastern... I've got some traffic outside here, but who gave me no indication in our 20 or 30 years of friendship that they were PhDs in the history of Eastern European geopolitics, and within three days, knew exactly which flag they needed to put up, whether it was a Russian flag or a Ukrainian flag, to indicate their position. Talking about an ungovernable country, I'm wondering what role our media platforms play in this polarization of the body politic.
Byron King:
If you have studied, let's say, World War I, for example, the First World War, and as it played out in Europe, if you studied what happened in the United States, there are a lot of eerie similarities. In the US, they took the British side, although there was a very large German population in the United States. First thing the British did when the war broke out was they cut the cables under sea from Europe, from mainland Europe, to the United States. So the only news that came to the US was filtered through London, through the British sources.
And in the US, as World War I progressed and eventually as the US entered the war there was a tremendous war fever, an anti-German fever. They banned speaking German, they banned teaching German, they burned German books in the United States. A big part of the Prohibition movement that eventually became the Prohibition Amendment had to do with bias against beer, which was considered a German substance. The ancient Egyptians actually invented beer, but that doesn't matter. Doesn't matter when you're trying to make a certain point here. And so here we are today. I mean, you are in Argentina, I'm in the US. I'm not in the Ukraine, okay? I watch what's going on.
I'm a Navy guy. I was combat-coded air crew in the US Navy. I was a nuclear weapons guy. If they had said, "Go out there and bomb that spot," that's me. If there had been a nuclear war that would've been me blowing holes in the ocean. I hate war, man. I want nothing to do with it. I did Desert Shield, Desert Storm. I was in the Middle East in the '90s. I visited a lot of people in the last 20 years who got their legs blown off in Iraq and Afghanistan. What's going on over there is just human tragedy. Russia invaded Ukraine. They should not have done that. There's a lot of things that could have happened to keep that war from happening, but it happened and it's there.
But the idea that a whole lot of outsiders are now... We're all in it to win it, as certain politicians in Washington are saying. Politicians on the outside are saying, "Oh, we're behind you. We're going to fight to the last drop of your Ukrainian blood against those terrible Russians." I have to wonder about that. When the politicians go to Kyiv and they're getting medals for bravery, we're trying to reenact World War II again. We talk about World War I, trying to reenact World War II. We got Churchillian rhetoric. "We're going to fight on the beaches and on those forests and on the hillsides." Okay, I get it if your country's being invaded, you say things like that. But we're talking about Lend-Lease. It's like, oh, for God's sakes, we're going to do Lend-Lease again.
We give 50 crappy destroyers that leak to Britain and we get all this other stuff back. I don't see the balance of what's going on there. We're feeding these weapons into Ukraine and we're prolonging this conflict. And people are saying, "We're going to fight this war for months, for years. We're going to weaken Russia. We don't want Russia." I mean, if you're the Russians what do you think about that? There was an article, it was in The New York Times, the headline of The New York Times at the top of The New York Times just yesterday that US intelligence is going to Ukraine and this is how the Ukrainians have killed these Russian generals.
And even if it's true, even if it's true, you don't say things like that. For me to help this guy kill a general, I'm an accessory to murder. That's an act of war, by the way, when you feed information to somebody and say, "Here, go kill that guy." And especially a Russian general. I mean, what are we doing? What are our policy makers doing? People say, "Well, should we just let Ukraine get overrun?" Here we are. I'm thousands of miles away from this situation. We're dealing with two people. I've met real Ukrainians, real live Ukrainian Ukrainians. I can't say I've ever met a Nazi, though.
Maybe I have, I just didn't know. But I've met Ukrainians and I understand kind of this Ukrainian conception, and I know a lot of Russians, and I understand this Russian conception. These tribes have this thing that goes back centuries, 1,500 years, something like that. And I'm over here in the United States and I don't quite get it. I get that they have something, but why is there something, my something? And as a great power, as the United States, as a great power, even though it's ungovernable, even though we can't decide on policy, we can't decide on how much to spend or not to spend, we fight over leaks from the Supreme Court, despite all of that, we're a great power and we have to be careful about getting involved in big wars with big countries.
And Russia's a big country. It's big geographically, and it has lots of nuclear weapons. These guys have 6,000 nuclear weapons and they have ways to deliver them. We're not talking about embargoing Cuba. We're not talking about beating up on Iran. We're not talking about beating up on North Korea, not that that has ever done us any good either. We're not talking about fighting some little third-rate army, like Iraq or something like that. We're talking about a nuclear superpower, and it's very troubling from my end. I'm not making policy, I'm not in Washington DC, but I don't know that the people in Washington DC know what the hell they're doing either.
Joel Bowman:
No, well, they're giving us plenty of reason to think that they don't know what they're doing, which brings me to this concept of this law of unintended consequences. And as we all rush to formulate and broadcast our opinions, sometimes called virtue signaling, as quickly as we possibly can to show that we're on one side or another side and let all our friends know that we're with them, I wonder that in our haste to enact policies such as the various sanctions that have been visited upon not just Russia as a state, but also Russian individuals.
And we're talking about confiscation of private property and extra-jurisdictional confiscation of private property, which, if you were trying to set an example of not acting like a global authoritarian dictatorship, you might want to have a look at some of the things like the rule of law and start abiding by those. But all that aside, just from a kind of reputational standpoint, how have these sanctions, particularly those from the West against Russia, do you think, damaged our credibility in the eyes of other nations that may not be so sympathetic to our causes, such as, obviously China, India, et cetera?
Byron King:
I think sanctions have been an ongoing disaster for many years. When I was writing Whiskey & Gun Powder and other newsletters with the Agora Group over the years, I often mentioned that sanctions are not working, sanctions are not effective. They don't change behavior of people who don't want to change their behavior. And so with the sanctions against Russia, we've basically backfired against ourselves. To say that, we don't want to buy your oil or your gas, or we're going to kick you out the SWIFT system, we're going to kick you out of all these other international organizations, we're confiscating your sovereign wealth, we're confiscating your oligarch wealth.
It's a disgraceful abuse of the US Constitution in the sense that... The idea that we go to, let's just pick oligarchs for a second here. I don't think I know any oligarchs. Again, it's kind of like, I don't... I've met Russians. I don't know that I've ever met a Russian oligarch. I've never been on a Russian oligarch yacht. I have seen a couple in my travels and they're pretty impressive, but nobody ever invited me on board. But the idea that okay, you're a Russian oligarch and we don't like you, and we're going to take all your money and we're going to seize your yacht, and we're going to take your real estate from London, or wherever it happens to be, I was kind of, wait a minute. This Russian oligarch, did he drop a bomb on somebody and kill them in Ukraine?
Was he driving a tank? I missed that part of the logical connection here. What'd this guy do? Why are we taking his money? And then the sovereign part of it, the sovereign wealth, "Oh, Russia, you have, whatever the number is, $300 billion. We're going to scoop that and just drag it off the table." It's kind of like, whoa, we just told everybody in the whole world, every country in the whole world that buys US treasuries or that keeps money in US banks or US institutions or US bonds or US... That if we don't like you, and maybe it's something very bad that we don't like you about, but if we don't like you, we're going to take your stuff.
You've just diminished the credibility of the dollar, you just diminished the credibility of your whole system. During the Crimean War in the 18- early '50s, 1853, Russia was fighting Britain, France, over Crimea, of all places, but Russia and Britain were still having commercial dealings. Russia paid interest on bonds, Britain paid interest on... Because this is what proper businesses did. And this was during a real war. Right now, it's Ukraine and Russia, with obviously NATO's backing it up. But call me old-fashioned but I missed the declaration of war against Russia if there was one. Technically, we are not at war with these people although we're doing everything short of it. And who knows? Perhaps we're doing everything necessary to egg it on eventually, which talk about...
Joel Bowman:
It does seem a little bit, just watching some congressional testimony from... It used to be the case that, and I'll just use sort of air quotes here, if we're doing audio only for this podcast so listeners know, but it used to be that there were neocons on the Republican side who were hawkish, who never met a war that they didn't want to march somebody else's son off to, but then you had this socially progressive liberals at home in the United States who were again, air quotes, supposed to be dovish when it came to interventionist foreign policy.
But it does seem now on Capitol Hill that you have, to use your term, egging on, you have a whole bunch of congressmen and women from the floor that are looking for any excuse to, "When do we get to send the fighter jets in? In what scenario would we deploy the next level up of weapons?" You almost get this kind of mad rush for war. And I'm just wondering if we're not sort of thinking all of the consequences through as the situation escalates.
Byron King:
Absolutely. Outside of the certain cadres within the military, very few people in America, and very few people in American policymaking understand the military and/or war making. You can study all sorts of history in colleges across the country: social history, diplomatic history, environmental history, history insight, history in this, history in that. You can study all different species of history, but try to find a program at a reputable university in military history. You won't. There are a couple, they're very few.
So Americans tend intellectually, and certainly in our policymaking intellectual classes, they tend not to understand issues of military, military thinking, military history. To understand modern military matters takes a degree, and probably an advanced degree, in a hard science, lots of math, lots of physics, whatever. I think the last war that people could have understood without knowing chemistry, physics and math was maybe the Spanish-American War, because by World War I, with radio, with sonar, with long-range artillery, it was starting to get into calculus. World War II-
Joel Bowman:
The cavalry was already the last war by that stage.
Byron King:
Exactly, exactly. By World War II, we were doing lots of math and lots of physics and lots of chemistry. Again, radio, radio electronics, radar, sonar, nuclear power, jet engines, things like that. If you don't understand some of the basics of those things you don't really get... You can read a lot about it, and you can read a lot of comic books about it. You can read a lot of fantasy fiction books about it and think that you know what's going on. But the people who are out there banging the drums, saying, "Oh, let's do a no-fly zone," they don't know what they're talking about in terms of what that involves and what you're up against.
Certainly when you want to do a no-fly zone against Russia, are you kidding me? Give me a break. And one more thing, let me just add to that. I've talked to people and they say, "Well, you know the Russians, they suck. Their tanks blow up or kill other guys. I've seen the pictures." Yeah, they have bad equipment, bad training. They had a bad plan when they started out. But a lot of people start their wars with bad plans and they learn and I think the Russians have learned. And when you've got a country like Ukraine with whatever the number is, 44 million, or 40, or 35 million, or 32 million, whatever that number is now because people have been moving out and this and that, versus Russia with 144 million people, and the legacy of the Soviet militarization of that entire continent, you got a hell of a fight.
When people say, "Oh, the Russians, they're going to run out of weapons. They're going to run out of missiles," and I say, "Are you kidding me? No, they're not." They have entire cities devoted to cranking out ammunition. "Well, they were using junky artillery shells that didn't explode." Yeah, so what? They've got train loads of that stuff that's going to come in and it will explode. And "Well, they're going to run out of advanced missiles." I don't think so. They have entire factories in the mountains that crank out those missiles like sausages. So I'm just saying that if you want to get into a fight with these guys, you better appreciate what that involves. For the last, pick a number, 75 years, the United States has never fought against a country that can really, truly hit back at us.
I mean, the Korean War, we fought China. Soviet pilots fought against American pilots in the Korean War and they actually did pretty well, frankly. And in North Vietnam, Soviet equipment and Soviet advisors and Soviet trainers were right behind the North Vietnamese. And although it's hard to really say that technically we ever fought mano-a-mano, American against the Soviet in North Vietnam it's not hard to imagine that they were right behind. And the Vietnam War in certain respects was a real slap in the face to American military might. We lost 10,000 aircraft in the Vietnam War. 3,500 were high-performance jets shot down.
I talk about this a little bit. I was fortunate in my life and in my Navy days to be... I went in the Navy after the Vietnam era, but I had instructor pilots who were there. I was trained by guys who had dodged service-to-air missiles over Hanoi and Haiphong. And we talked about this stuff. And the Soviet equipment in the '60s was pretty good for its time and it has gotten better and better and better over the years. So when people say, "Well, the Russians..." Do not dismiss what's going on over there, just because over what we've seen in the last month and a half. Okay? You saw a line of burnt out tanks. Okay, yeah. That happened.
But don't dismiss them as a military power. The policymakers are so cavalier in Washington about this. They just think that war is a video game, war is a comic book, because they don't understand it. They never studied it in college. Never studied it in grad school. A lot of them, most of them, never spent one day of their life in a US military uniform, never did one push up for one drill instructor, and they don't know what the hell they're talking about. They're more than happy to send the kid down the street over there to get his legs blown off. Just saying.
Joel Bowman:
Right. What's that old Creedence Clearwater Revival song? Reminds me of the Fortunate Son. I always have that lyric, "I ain't no senator's son." They aren't going to be marching off to war anytime soon. But it's interesting that you mentioned the resilience of the Russians. As if we needed to underscore that point, surely the most of the 20th century went to illuminating the point that Russians can go scorched earth, they can hunker down, they can withstand sieges. And I even saw during the last few months certain reports that they were going to be running out of energy. And that's when I thought that surely we've jumped the shark here. Russia run out of energy?
Anyway, so we can maybe use that to segue-way into speaking a little more broadly about the energy markets, because it does seem that Russia have a lot of aces up their sleeve, and again, this isn't a commentary on the political situation, this is just sort of hard facts on the ground. You've written fairly extensively about a version of either a gold or methane or gold and methane-backed ruble. First of all, maybe just sort of tell us what you mean by that and then we can get into some of the ways that impacts the situation, both in Russia and in the US directly.
Byron King:
Okay. It goes back to what we were talking earlier about what does a real central bank look like? Russia, when they got sanctioned, they raised interest rates to 20% and they said, we're going to pay 5,000 rubles per gram of gold. Now, since then, they've said, well, we'll negotiate that 5,000, but it's still around that number. So when you do the math, a gram of gold, 31.1 grams is an ounce, you do the math, you translate it from rubles to dollars on the exchange rate or whatever, depending on what your ruble rate is, the Russians are saying that we will pay, back then it was about not quite $1,600 an ounce of gold. Today with the exchange rate of the ruble, that 5,000 rubles per gram, it's up well over $2,000 an ounce for gold.
What the Russians did with that was they basically put, let's call it a bumpy floor underneath the price of gold, or, well, they backed their ruble indirectly with gold and they put a floor under the price of gold. Because if you're a paper gold trader, if you're a paper trader and you try to trade it down and really crash the price, if you get too far below that Russian gold ruble number you're going to get arbitraged, right?
Joel Bowman:
Yeah.
Byron King:
But then the next thing they did, and this is part of it, these things all fit together, the Russians said, we're only going to sell our natural gas for rubles. We want rubles. And so it's like, wait a minute. They want rubles for their gas, that they got rubles over here that they'll pay for gold. All of a sudden, you've just connected the price of natural gas, methane gas, to the price of gold. Now they're saying, over time, we're going to sell our oil for rubles as well. We just haven't got there yet because there's been a lot of contracts in the way and there's a lot of legalisms that worked out, and there's just a lot of mechanics involved in something like that. And then just the other day... And I forwarded it to you, in fact, I believe you saw it. The Russians are saying that if you sanction us, we're going to sanction you, unfriendly countries, we're not going to sell our products to you; oil, gas, uranium, which is a big part of what Russia exports, other metals; nickel, titanium, fertilizer, whole list of things.
So to the extent that Russia has now said, we're not going to take your dollars or your euros or your yen or your pounds, or what have you. We're only going to take rubles for the goods that we export. And they've tied their ruble to the price of gold. Russia has just basically created a commodity global economy that is tied to the price of gold. And now, you can say, "Well, we're not going to play that game. We in the West, we're not going to play that game." Fine. Go without the Russian gas, go without the Russian oil, without the Russian titanium, without the Russian fertilizer, without the Russian you name it, without the neon gas that you use to make the computer chips, without the sapphire substrates that you need to make the computer chip, without all that stuff that the nuclear-armed gas station over there exports, you go ahead.
Be yourself. We're creating, in a sense, instead of a global world, we're deglobalizing, that's for sure. Then we're creating two different economies. There's going to be this debt-based fiat economy where the central bank doesn't have the guts to raise interest rates to kill inflation. And then we've got this commodity-based economy over here where Russia says, "We have lots of oil. We have gas, we have nickel, we have palladium. You come and pay us in rubles." But now you've got to get across that barrier and "How do I get some rubles? How do I get me some of those rubles?" So, there's your commodity-based ruble, a commodity-based global currency. And then the other side of that, the big 800-pound gorilla on the other side of the room here is that here's Russia, here's China. China needs everything.
They need the oil, they need the gas, they need the nickel, the palladium, you name it. Whatever Russia exports, China will take it all if they can. It's the Halford Mackinder concept of the world island on steroids. It's the Heartland theory. It's these geopolitical theories that have evolved in the last 120 years or something. You got the Alfred Mahan navalist Influence of Sea Power theory. You've got the Julian Corbett theory of sea power influencing land. You've got Halford Mackinder with his Heartland theory. You've got Nicholas Spykman in the 1940s with kind of that Rimland theory. But basically, you've put Russia with its resources and China with its industry and its people together and they've created that core world island. And China's already well on the way with its Belt and Road to kind of tie the Heartland together. Add up the numbers of people involved; China, throw in India while you're at it.
Joel Bowman:
I was going to say, India, yeah, it's right there.
Byron King:
You're looking at four and five billion people on the face of this earth. And you can have a hell of an economy when you take four billion people and you tie them all together with resources and a form of trading where people settle their accounts routinely. The West is just going to be... We're going to be on the Rimland, so to speak, on the outside.
Joel Bowman:
And I think are the Indians buying that sort of Urals blend at whatever discount it is now, 20% or something? There's some meaningful discount, isn't there, between West Texas, Brent and the Urals blend? It was about 20% when I last checked, but it might have come up a bit since then.
Byron King:
The numbers that I saw, and this was just a couple days ago I was looking at it, if the global number was $105, $110 a barrel, Russian oil was going for about a $25 to $30 discount. So let's say $75. Well, guess what? Russia produces oil at an internal cost of far less than $75. Their production cost per barrel could be... Let's say that it's $25 a barrel. It's actually less than that, but I'm just going to use it because the math is easy. But if they sell it for 75, they're still making 50 bucks a barrel.
And okay, so they're leaving that $30 on the table for some Indian guy or some Chinese guy or some other global trader or whatever, that's the slot that they're going to get out of it. And there's all sorts of tricks going on where the Russian tanker will come out off shore and they'll offload their oil into another tanker and then they'll put some other oil in it from a completely different source. But as long as you got 51% not Russian oil, or only 49% Russian oil you can still sell it as just... Nobody can say, "Oh, this isn't Russian oil anymore." Only the chemists would know and even-
Joel Bowman:
And they're probably paid not to know at some level.
Byron King:
When you have a refinery to run and you've got to put the product in over here to get the product out over there sometimes you just don't worry about where it came from as long as you can check off the boxes on paper.
Joel Bowman:
Yeah. And you can turn the light on. Talk us through a little bit, because you and I spoke about this, we've spoken about it a couple of times now. And of course, when we first touched base after some time at our emergency winter catastrophe summit, this was back in December 2021, we can't have known all that was going to come down the pike geopolitically within just a few months from then. But you were banging the table back in late last year about Germany having surrendered a huge amount of its energy independence by sort of decommissioning its nuclear plants, and this kind of green pipe dream, and then having to revert to lignite.
Now they're in a very precarious situation indeed. But just with regards to taking Russian raw materials, and you can take Ukrainian raw materials off the table for that matter as well, while we're speaking. But what does it mean for people in the West to no longer have access to, or have very restricted or very conditional access to, for example, 30% of the world's fertilizer or chicken feed or organic seed, all of the things that you just mentioned. How, when an American goes to a grocery store, three, six, nine months from now, what is the reality that is going to confront them that they might not have fully processed yet?
Byron King:
Well, here we are. We're talking in the early part of May and it's the spring planting season in the Northern Hemisphere. And you plant the seeds, you put the fertilizer on there, and a whole lot of other inputs and hard work and expenses over the growing season. Without the upfront fertilizer, which you might say it's available, but it's very expensive. So this reports I hear that a lot of farmers are just, we're going to use less, we're not going to use as much, whatever. Come the fall, come the harvest we're going to have lower harvests.
And in terms of where the ags are going, as the commodity traders say, price of wheat, price of corn, price of everything's going to be going up, so there's going to be less just raw food being produced from the farms and the fields. The processing isn't going to be any cheaper at all, because costs of energy are high and getting higher. Diesel, which is what we run tractors on and what we run tractor trailers on and generators and things like propane or the things that farmers use to dry the grain when they harvest it, it's wet and they put it in the silo and then they pump warm air through it to dry it out, so otherwise it rots.
All of those inputs are going up in price. So in terms of individuals, what are you going to do, Joel? What am I going to do, Byron? The listeners out there, the watchers, what are they going to do out there? You're going to go to the store and you're going to say, "Oh, my goodness. A gallon of milk is almost as expensive as a gallon of diesel fuel." That's a joke. It's a macabre joke. A loaf of bread is pick a number, $2, it's going to be $5. There will be things that happen. Farmers will say, "Oh, I can't afford to keep these livestock fed." So off they go to the slaughterhouse.
So great, there's going to be a time when pork chops are cheap or there'll be a time when certain kinds of beef is cheap or something like that. Yeah, that's because they're killing all the cows, killing all the hogs, because can't afford to feed them. And so off they go. As this unfolds, I expect to see scarcity across the world. Parts of the world are going to experience extreme scarcity. Parts of the world that have money and have supply chains and sophisticated logistical systems, there will still be things on the shelves.
But I remember about two years ago, little over two years ago, just when COVID was kicking off, I wrote an article in Whiskey & Gun Powder, and I actually said something like, we're probably going to see National Guard units guarding supermarkets to control crowds as people go in and out just to buy their food with their masks on and all their anti-COVID gear and everything, because everybody bought into that narrative as well. I certainly think that the price of food historically has always been a revolutionary point in time. When Marie Antoinette said, "If they have no bread, let them eat cake, ha ha," well, she got her head chopped off, didn't she? When you look at all those color revolutions 10 years ago, 11, 12 years ago, that started... The Tunisia revolutions-
Joel Bowman:
The whole Arab Spring?
Byron King:
Yeah, the whole Arab Spring. It started in Tunisia with a food seller who had a little cart. And he was just eking out a bare existence, a bare living. And along came the cops to rough him up and take his cart. And he killed himself and the next thing you know the country was in revolution.
Joel Bowman:
I think he set himself on fire.
Byron King:
Set himself on fire?
Joel Bowman:
Yeah, if I remember correctly. Yeah. I don't think many of us are wondering what's going to be on the shelves in a few months time, our favorite cereal or whatever. But for those who don't have a whole lot of wiggle room, you dip below that minimum daily caloric intake level and all of a sudden civil unrest becomes not just an attractive alternative, but the only thing you've got. And you get enough people together who feel like that and all of a sudden governments can topple and dominoes can fall.
Byron King:
Well, it takes us back to what we mentioned at the beginning about the US becoming an ungovernable country. Because you don't have to read too many news articles or go too far to see articles about these store lootings that go on. And certainly in big cities where people just crash into some drug store or a convenience store, whatever, and these flash mobs, and they just kind of loot everything off the shelves they can stuff into their bags and run away. And it has to do with the whole concept of how hard do we police the country anymore. Are the district attorneys going to prosecute? California has the $950 law, so that if you steal anything under $950, they won't even bother. You just walk away with it. There's that. But transform that. Imagine that transformed into supermarket mobs, where hungry people are out there saying, "Oh, no, I only have 50 bucks in my pocket and it's going to take $200 to buy the food that I need to feed the family."
Next thing you know there's going to be a flash mob down at the Shop 'n Save or a flash mob down at the Vons or something like that. And you're going to have National Guard troops outside with their vests and their guns and their helmets and stuff kind of letting people in, one at a time, one at a time. It's going to be like the Soviet Union, where you'd walk into some store, you'd go and some shelf that had almost nothing on it, you'd say, "Oh yeah, I want one of those." They give you a ticket. You go and you pay for it, take the ticket back. Then the surly clerk behind the counter, okay. They wrap it up in a piece of greasy newspaper and hand it to you, something.
Joel Bowman:
Rock hard piece of bread and some crusty, brand imitation gruel or some such. I feel like it's not as if we haven't... Not to sound conspiratorial, but we have been conditioned, or gaslit or whatever terminology you want to use, to expect boots on the ground in certain cities to ward off so-called, euphemistically-termed “peaceful protests.” We have gotten accustomed to a lot more authoritarian overreach from the state, especially during the past couple of years of lockdowns. Who would've thought that just a couple of years ago you had told or, say, 30 months ago, if you had told an American, maybe just in heartland America, "By the way, there will be officers of the law handing out fines if you don't have your face covered in public areas. You won't be able to leave your home or your apartment. There'll be all these kind of mandates that encroach in a way that we had never experienced before." They would've thought you had lost your marbles.
Byron King:
It has been surreal. It has been surreal. I remember I wrote about this in Whiskey & Gun Powder two years ago where the Los Angeles police arrested somebody for paddle boarding in the Pacific Ocean.
Joel Bowman:
I saw that. Yeah. Amazing.
Byron King:
This guy is like... He's like 200 yards offshore.
Joel Bowman:
He couldn't be more socially distant.
Byron King:
He's just paddle boarding and they send out the boat police or whatever, the fish police or whatever to arrest him. But we saw it everywhere. We saw it in Britain. We saw it in Australia. We saw it in New Zealand. The cops brought out their inner whatever it is that makes people not like them. Obeying these stupid edicts from the people above, if you're walking in the park without a mask and there's nobody within a quarter mile, "Oh, we're going to cite you for that." Not too far from where I live there was a woman who was sitting in the far section of the stands in front of a sports field, watching her kid play soccer or football or something, I don't know. And some cop just sort of walks up to her and arrests her for not wearing a mask. Well, there was nobody there. And then she resists and now it's sort of like, "Oh, well, you resisted arrest so now we're really going to arrest you."
Joel Bowman:
Goodness gracious.
Byron King:
This is a country where a year ago or a year and a half ago people burned down entire sections of cities and got away with it. But at the same time, little old ladies got ticketed and hauled into court for not wearing a mask. I mean, it's crazy.
Joel Bowman:
It is certainly an opportunity for everybody to bring out their little Eichmann, I like to call it, their little petite fonctionnaire rule-following impulses, and get to boss a bunch of other people around. Byron, I know I'm pressing up on your time, which you've generously given to us today, but I do want to get just your take on one more issue, which just came across the news wires this morning. And I would be remiss if I didn't get your input on this. And this is news that the Biden administration have announced that they will supply bids to restock the SPR, the Strategic Petroleum Reserve. I know you had been writing about that. I wrote about them having drained it not so long ago, after many senators... By the way, just a little backstory here for our listeners.
It was a couple of years ago when a fashionably unpopular president suggested refilling the Strategic Petroleum Reserves at, I think, something like 22 or 25 bucks a barrel. When prices are low, you're supposed to buy, according to conventional wisdom. Anyway, that was quashed because it was marketed to the public as an unwarranted and unearned subsidy to big oil and big gas. And so you had people like Senator Chuck Schumer skiting and gloating that he had put the kibosh on refilling the nation's Strategic Petroleum Reserve. And then we saw late last year, and then earlier again, in 2022, the Biden administration tap that Strategic Petroleum Reserve. And now with prices way back up over 100 bucks, he's talking about... Well, not just talking about, he's giving the markets advance notice that he will be purchasing something in the order of 60 million barrels.
Then there'll be three tranches, so it'll be 180 million barrels, thereby sending the price even higher in expectation. It reminds me a little bit of Gordon Brown's Brown Bottom when he told the market in advance that he was going to be unloading half his majesty's gold coffers and that way tank the price in advance of the auctions. But is this just more unintended consequences? Is it stupidity? Is it arrogance? Is it just something that we're not seeing? Is it genius in the disguise of idiocy? What are we looking at here?
Byron King:
I actually hope that it's not stupidity because if it's stupidity, these people really are pathetically stupid. I had an old professor who used to talk about the too dumb to live rule, the guy who crawls underneath the bus to get his hat after it blows off his head and the bus pulls out and squashes him. Well, some people are just too dumb to live.
Joel Bowman:
Another Darwin Award contender, yeah.
Byron King:
Yeah, really. You've summarized it very well. My real worry is that these people actually do understand what they're doing. We're going to drain the Strategic Petroleum Reserve for some political spectacle. We're going to say, "Oh, we're selling the oil. We're going to sell the oil and drive the price down." Of course, it didn't drive the price down. And of course that particular oil, those barrels that have been coming out of the SPR, most of them have been going on a tanker and sent off to foreign destinations. They're not going to some refinery in Houston or some refinery in Philadelphia, some refinery in Long Beach so that Americans can put it in their tank and burn it up as they drive around. No, no, no, no, no.
Most of that oil went overseas. It still is. But here we are, we're going to refill the reserve. My solution, my suggestion to that is that what the US government should do is what it has long done. It should take a royalty, what's called a payment in kind, from oil companies that are producing oil on US federal leases; federal lands, federal offshore. Okay, let's say you're an offshore oil production platform out in the Gulf of Mexico and you produce, pick a number, you produce 10,000 barrels a day. Well, your royalty to the government's 12.5%. But rather than write a check to the government, give us 12.5% of the oil that comes out and that'll go to the salt domes in Texas or Louisiana. That's what they ought to do.
And that way there's no real cash burn that goes. But for the US government to just go out and say, for whoever it is that's going to buy this, Department of the Interior, the Defense Logistics Agency, whoever, to say, "Oh, yes, we'll write you guys checks and we're going to bring in tanker loads of oil, from where? From Nigeria, from Saudi, from whatever and we're going to pump it into... It's just crazy economics. And it actually brings us back to the very beginning of our talk today, which is the US has this incredible debt. And our federal bank, our central bank, is doing these tiny, little baby half percent steps to address the inflation problem.
And it's all just window dressing, it's all narrative and it's not even good narrative anymore. It's kind of like really dumb comic book narrative. It's dumb comic book governance, governance by imbecility or something like that, policymaking by imbecility. I'd like to think that Winston Churchill was right when he says America will always do the right thing after it's tried everything else. Maybe we will, but for now just invest the best you can. Go for hard assets, energy, mines and minerals, gold, silver, land, ag, real stuff. Companies with real factories full of smart people that make real things, that kind of stuff.
Joel Bowman:
Yeah. Well, speaking of that, Byron, tell our readers and our listeners or our viewers, depending on the medium in which they're imbibing this, your insights and expertise, tell everyone where they can follow you, where they can get your latest research and keep up to date with your thinking as America tries everything else but the best thing on that long road.
Byron King:
Well, you'll find me writing a periodic article in a St. Paul research pub called Lifetime Income Report. And you'll sometimes find me here at Bonner Private Research. I know that I promised the readers a couple of times that I'd give them a few updates, and I'm behind on that so I do need to catch up. I am going to be at the Vancouver Resource Investment Conference in Vancouver in May, 16 and 17, I'm giving a talk on the 17th. That'll probably be on YouTube. And I sometimes write for an outfit called Investor Intel, which is up in Toronto. I send them an article every now and then. So I get around. But I certainly enjoy talking with you, talking with the old hands from the olden days of Agora, because everything has changed and transformed so much.
Joel Bowman:
Indeed, it has.
Byron King:
I'm around and I'm not going anywhere. I'm not writing Whiskey & Gun Powder anymore, which was a publisher's decision. And it's too bad because I kind of miss that format.
Joel Bowman:
Yeah, I love that. One of my long time favorite reads from the Whiskey Rebellion onward. Well, Byron, as you know, your insights and expertise always have a grateful home at Bonner Private Research. Whenever you want to flick us over an article, we're more than happy to forward it on to our readers and listeners. And so on that note, do check out our Substack page. Again, it's bonnerprivateresearch.substack.com, and I'll include all the links to Byron's various writings. And he is a man of letters, so they are prolific and they can be found in many different places. So I'll put links to all of those down below where you can follow on with Byron's work. And Byron, I think I got to about a quarter of the things that I wanted to ask you today, but maybe that just means we've got many more productive conversations in the near future.
[Ed. Note: See more of Byron’s work at St. Paul Research, right here. Also his many, many memorable columns at Whiskey & Gunpowder.]
Byron King:
What it means is we have to do this again, huh?
Joel Bowman:
Outstanding. Byron King, thank you so much for your time today, mate. I really appreciate it. Until next time.
Byron King:
Thank you, Joel. And good luck to everyone out there.
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Fatal Conceits Podcast with Byron King