Rubino: We Are Inflating Away Our Debt, Huge Drop in the US Dollar Coming

Ilene from Phil Stock World did a great interview with John Rubino co-author of "The Collapse of the Dollar and How to Profit From It" (Doubleday, 2007), and author of "Clean Money: Picking Winners in the Green-Tech Boom" (Wiley, 2008), among other books.

I publish this because Rubino says something I have been saying here many times: That the currents debts will never be repaid, not with the current currencies. He says many other interesting things, please read his full interview. I am not sure I agree that the current rally has ended, this can go on a while longer (that is why I like straddles so much, please see my other posts), but he makes a lot of sense on the debt issues. He also talks about clean tech.

Ilene: So you believe 2009’s trends are going to reverse but the timing is questionable?

Rubino: I think in the end it doesn’t matter who is borrowing, because we’re all responsible for it. We’re at the point where we could never pay our current debts off in today’s dollars. So we’re left with a choice of disasters: We’re either going to collapse under all this debt and repudiate it via bankruptcy, as we did in the 1930s, or print so much new currency that we end up paying our creditors in greatly depreciated dollars. Our creditors, the Chinese, Japanese, and Saudis, will get far less value back in return for what they gave us, much less than they expected to get back. And savers will have a lot less than they thought they had saved.

We’ve chosen the second course, to try to inflate away our debt. The end result will be a huge drop in value of the dollar. This will cause interest rates to go up, which will end up crushing the financial system in the future, giving us a 1930s style depression anyhow.

So our choices are limited: a depression now or a hyperinflation followed by depression later. This is the inevitable result of too much debt.