Eric Sprott Discusses BitGold vs. Bitcoin

Eric Sprott spoke at the Sprott-Stansberry Natural Resource Symposium on July 31st, 2015 in Vancouver. He took the opportunity to discuss his thoughts on BitGold, its relation to bitcoin and the role BitGold will play in the development of gold.

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I just know that the economy is not functioning smoothly

I’ve actually been very surprised that there hasn’t been more disruption at the university level for example. I mean here we have all these people taking on all these loans with the promise of some job that they don’t get.

They can’t possibly pay off the loans, and yet nobody seems concerned about them. How about if you’re at university today and you know darn well that when your time comes to get the social security, there’s not going to be any social security? Literally, people of my era are benefiting at the expense of people that are going to be in your era because all these programs that we have, we can’t afford. But nobody wants to cut them down to size -- not on their watch, not while they’re running the government, even though it’s so obvious that there’s no way that when you retire the social security benefits that you’ve been promised can be paid.

For example, they just announced that the disability fund is going to be out of money next year and then the retirement fund will be out of money in 2034. Well, that’s maybe getting to when you might retire.

But there won’t be any money there. So it’s a very difficult situation and I’m surprised that there haven’t been more people complaining. Maybe someday if food prices go up shockingly high -- perhaps because of the drought in California or other things -- when you start affecting food and its availability, then people will be more disruptive.

I don’t like to even contemplate those things. I would much rather just look at the economy. Let’s not get into how people are going to react, although it could be very negative to markets.

I just know that the economy is not functioning smoothly. Sooner or later-- because I have to care about these things -- stocks won’t sustain the highs that they’re at and the banking system won’t be able to pretend that it’s solvent.

And of course it’s the banking system not being solvent that always takes me to precious metals.

I think of the people in Greece, who could only get – what was it? -- sixty euros a day? Well, if they’d had their gold somewhere, they could cash something in. But they go to the bank and they got to get in the line-up and they get 60 euros in a day. I mean that doesn’t carry you too far. So I still believe that’s the ultimate manifestation that there’s no economic recovery. The banks will suffer. People will figure out that banks are risky and the money will go to where it should go -- precious metals.

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Double Digit Inflation With No Growth

They pretend that inflation is low but I don’t think inflation is low. As you would have seen in my presentation, there’s an index called the Chapwood Index that measures 500 different items in 20 different cities in the US. The index, every year from ‘11 to today, has been in the double-digits.

So imagine double-digit inflation with 2% GDP growth. You would be really shrinking at 8%. Today we saw that wage gains in the second quarter were 0.2%. Well, 0.2% in the quarter is like 0.8% for a year. I can assure you that everyone’s increases in healthcare costs this year will suck up more than that wage gain. Somehow these costs don’t go into the CPI thing. I don’t know how they don’t, but they’re just not going to tell us what inflation really is. It’s much higher than is being reported, I think.

It tends to distort all the numbers. It makes GDP way higher than it would otherwise be and tries to keep a certain calmness in a very, very difficult economic environment.

- Source, Eric Sprott via Proactive Investors

Inflation is Way Beyond What is Reported

We have this constant interference by the powers-that-be to not let the markets function properly. In the bond market, it’s through low interest rates. I personally suspect that governments are in the stock market. We know the Japanese buy stocks. We know that the Swiss national bank buys stocks. We don’t know for a fact that the US government buys stocks but there might be methods by which they can convince people to “keep it together.” Every time we get a little correction, it bounces right back up again.

So that’s just the environment we’re in. We’ve spent all this money. We’ve taken rates as low as we can get them and we’re just hanging in there. Even recently we had the GDP for 2011 to 2014 revised down so that it turned out to be 2% a year. Of course the 2% is a function of the inflation rate. Say, if inflation was reported as 1% but is really 3%, then you had no growth because GDP is just a dollar number.

My own feeling is that inflation is way beyond what’s reported. If inflation really was 5%, and you said GDP growth was 2%, then the real growth is -3%.

So I’m not a believer that there is any economic recovery that’s sustainable. I always say we’re trying to get liftoff. But we don’t get liftoff because we haven’t finished the cleansing process yet.

- Eric Sprott via Proactive Investors

The Financial Crisis Nearly Took the Whole System Down

I’ve never been a believer in the economic recovery that we’re supposedly in. I think that the powers-that-be are pulling out all the stops to try to hold it together. I go back to the NASDAQ break which I think should have caused a huge cascade of stock values to stay low for quite a while. And then of course the powers-that-be used whatever methods were available to them to try to stimulate things. Back in those days, it was “cash-for-clunkers,” the new homebuyer tax credits and of course the whole zero-interest-rate thing. Then we had TARP and TALF in ’07 and ‘08.

We had conservatorships of Fannie and Freddie, and AIG, which I’m sure nobody really understands. It’s all “try to keep it together.” I think we learned in ’07 and ’08, when Lehman went down, that the powers-that-be can’t allow a liquidation where a financial organization has to sell something, which unfortunately is what happened to Lehman and nearly took the whole system down.

So subsequent to that, we’ve never had a liquidation. Even, for example, in the Cypriot bank crisis, the Cypriot banks never had to sell anything because they just took from the depositors. It looks like the Greek situation that we have today; the Greek banks don’t have to sell anything because the ECB just comes in and supplies the Emergency Lending Authority. I think if you allowed the market to function as it should function, where values are determined by the market, we would see this sort of domino effect where the Greek banks would have to sell their loans off and then the Greek stock market would collapse, the bond market would collapse and then people [in countries] around them would start thinking, “Well, that could happen to me.”

- Source, Eric Sprott via

The Powers That Be Don't Want To Admit There's A Problem

The market is out of step with reality, Eric Sprott tells Tekoa Da Silva in his recent interview.

“We had no growth in the economy to speak of. Yet these stocks were trading at record-high prices,” he says of the overall market.

He also believes the banking system is over-exposed to assets which stand to depreciate in value.

The strength of bonds and stocks so far has masked these weaknesses in banks’ balance sheets, says Eric, but that could change if markets came under more strain. “When you have people starting to take money out of the banking system,” he warns, “that’s when we all find out what the assets (of the banks) are worth.”

Especially worrying for investors in stocks should be the massive build-up in debt and un-funded obligations in developed countries, says Eric. This is leading towards a big breakdown in world bond and stock markets, he believes.

Eric also discusses his “principles” for success and how anticipating a crash in tech stocks during the late 1990’s led him to first become interested in gold and silver.

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Sprott Provides Update on Central GoldTrust and Silver Bullion Trust Exchange Offers

Please Join Sprott for a webcast hosted by John Wilson, CEO of Sprott Asset Management and Eric Sprott, Founder of Sprott Asset Management and Chairman of Sprott Inc.

John and Eric will provide an update on Sprott’s Exchange Offers for Central GoldTrust and Silver Bullion Trust and will answer questions from participants.

Thursday, September 10, 2015, 10:00 am EDT