HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hey everybody, welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. My guest today is David McAlvany, who is the CEO of McAlvany Wealth Management. David, thanks very much for coming on the show.

David McAlvany, McAlvany Wealth Management (McAlvany): Good to be with you.

Norman: Let’s start off with your big-picture view right now. How do you see things? It’s recently started to look like the U.S. economy may be coming back a little bit. But still, growth worries in Europe. China is still a question mark, although there have been some new reports of a turn possibly in their monetary and fiscal policy. How do you see things right now?

McAlvany: Well, I think you start with the debt picture. We’ve gone through a 30- to 40-year period of credit expansion. And that’s something that world central bankers would like to perpetuate. We like the idea of growth. We don’t like the idea of either a slowdown or even a correction. So, anything that they can do at this point to keep things getting back to normal, that’s what they're trying to do.

They’ve tried fiscal options, and it’s not worked. Austerity was not popular. If you wanted to look at 2011 as sort of the year of experimentation with austerity, they're going to find that 2012 is really the response to that. It’s a year of anger.

Norman: So you think they're going to stop the austerity? It seems to me like that austerity and that whole mentality, as a policy, is very entrenched.

McAlvany: It’s something that’s not popular. And I think what you’ll find when you look through the G-20, is that you have actually 50 percent of the leaders changing this year. So we’ll get to see just how people vote in terms of those austerity measures. You implement a policy. The question is, can they keep it in place?

We would argue that fiscal policy is not going to be the solution. It should be. It could be. But it won't be. The monetary solution is what they have continued to seek. Take the U.S. for instance. We run an official rate of inflation of about 3 percent. If they can cheat on that number by 2 percent, that extra 2 percent—do your time value of money calculation— will take our $70 trillion stock of debt and cut it into $35 trillion over a 16-year period. That’s compelling to them. And so there is motive, if you will, for fudging the numbers in terms of the CPI, and having us believe that inflation is less than it is.

The other benefit, if you will, of understanding inflation, is that you end up overstating GDP, which certainly helps your advertising and PR campaign. The consumer needs to feel inspired to get out and spend. We have a consumption-oriented society. And our economy is 65-70 percent based on consumption.

If the consumer remains on strike, because he’s concerned about the economy, because he feels he needs to tighten his belt, then the government has to step in. That, in fact, is what we’ve seen. So you’ve got monetary intervention on the one hand—QE1, QE2, Operation Twist. And then you’ve got intervention, if you will, from the government—deficit spending, between …