Mike Gleason: It is my great privilege now to be joined by Steve Forbes, Editor-in-Chief of Forbes Magazine, CEO of Forbes Media, and author of many fabulous books, including Flat Tax Revolution, How Capitalism Will Save Us, and Money: How the Destruction of the Dollar Threatens the Global Economy and What We Can Do About It. He's also a two-time presidential candidate, having run in the Republican primaries in both 1996 and in the year 2000.

Mr. Forbes, I really want to thank you for your time today and for joining us again. It's a tremendous honor to have you back on, welcome.

Steve Forbes: Good to be with you. Thank you.

Mike Gleason: Well, let's start with one of the big topics on Wall Street these days, that being tariffs and trade. The president has been working to rewrite trade deals and reduce the trade deficit. Recently, the dispute with China escalated and tariffs were increased to 25%. There has been some volatility in the equity markets, but so far, at least, investors seem to be optimistic that a deal will be reached, or perhaps trade tensions don't matter as much as they should, because the Federal Reserve is already signaling they will ride to the rescue.

Do you think the tariffs will be effective, and we wonder if America's hand is as strong as the president thinks it is, or are people really prepared for much higher prices as the extra costs associated with tariffs get passed along? What are your thoughts there?

Steve Forbes: Well, so far the tariffs have been more of a border skirmish than a real all-out trade war, and the markets are assuming that some sort of agreement will be reached, as you saw in the case of Mexico, you saw in the case of, related to that obviously, NAFTA. If the markets really thought we were going to have a full-scale trade war, you would see it clipped 10, 20% pretty quickly. The thing to keep in mind about tariffs, tariff is another word for sales tax, and so when you put tariffs on, you're taxing American consumers and American businesses.

In the case of China, there are very real trade abuses, and we should hold them to account for it. We really haven't done so consistently in the past, and I think that by going after specific companies as we now did with the CFO of Huawei, or specific abusers, we almost could have taken a company called ZTE, a major Chinese telecom company, we could've knocked them out, if we'd denied them parts from Qualcomm. President Trump chose not to cut them off, even though they once before had engaged in abusive practices. He got no credit for it, but if you knock a company like that out, or take a bank that does anything overseas, this so-called SWIFT system of international payments, you would decapitate that bank.

So I think going after specific abusers, and if we have to update the WTO, World Trade Organization, so we get these things resolved far more quickly and not have the loopholes we have now, that countries like China take advantage of, I think we can move forward. But one of the things we should do vis-a-vis China is unite with our European allies and Japan and Canada and Mexico and others, because they suffer the same thing in China. If you present a united front, the Chinese would hate that, but they would respond very, very quickly.

Mike Gleason: A lot of gold has been flowing from West to East in recent years. That trend seems to have accelerated lately. The U.S. has certainly been more and more aggressive at using the dollar and the U.S. financial system as sort of a weapon. Nations that don't toe the line are threatened with loss of access. This has even included strong allies like Europe. We wonder if this movement of gold to the East another side of nations working to end the U.S. dollar hegemony in trade. What do you make of the growing central bank gold reserves, particularly in the East?

Steve Forbes: Well, the dollar is the currency of the world, just out of convenience and the size and importance of the U.S. economy. Our capital markets, for example, are much broader, deeper, sophisticated than those of any other country. In Europe, for example, most of their capital still comes from large banks, one reason why they don't have the vibrant smaller company sector that we traditionally have had in the U.S. But the flow of gold to Asia, part of that is hedging, and part of it too is, I wouldn't be surprised if one of those countries doesn't move towards more of a gold-based standard, monetary system.

Just the other day, the prime minister of Malaysia proposed a gold standard as a way of replacing the dollar, having gold-backed currency. If China did it, that would be an enormous change. And so I think, one, they want the gold just as a hedge, but two, I think one of them may have the idea of going to a new gold-based monetary system, which would be good. The dollar needs the competition.

Mike Gleason: On that note, there's been a tremendous amount of gold flowing from western vaults to eastern vaults over the last few years. Obviously, Russia is another big accumulator of gold here in recent years. Do you look at that as maybe an issue of national security in the long run, where we're losing a lot of our gold to these other nations?

Steve Forbes: It doesn't really matter who holds the gold. It's a broad international market. Every ounce of gold that's been mined is still with us on Earth somewhere. And the national security comes from not somebody holding some gold but from the fact that we haven't learned yet, even though we once knew how to do it, of a stable dollar, strong, stable dollar, which would be tying it to gold as we did under a gold standard right up until the 1970s. We did it for 180 years, and it worked pretty well. So the threat is an unstable currency, not who owns particular pieces of gold.

Mike Gleason: The fact that there's really no currency left in the world that's not fiat, obviously you talked about Malaysia talking about maybe doing some sort of a gold-backed currency there, but for the most part, we live in a world of fiat currency. Has that really allowed the U.S. dollar to last as long as it has, just because you’re not talking about nations that have a true gold-backed currency. Everybody's playing the same game.

Steve Forbes: They are, and the dollar wins out, just because of the U.S. economy and our markets and the convenience of denominating commodities into a single currency. But the U.S. would be far better off if it did what it did for most of its existence until the 1970s, and that is a stable gold-backed dollar. And there are various ways you can do a gold standard. We outline them in the book Money, which you mentioned, and also Reviving America also lays it out, very simple way to do it.

Gold is like a measuring rod, a ruler. It just measures value. It's not using gold coins to buy stuff at Walmart. It's like 12 inches in a foot or 60 minutes in an hour. And it's worked for 4,000 years when people have done it and done it right. Again, in terms of the currency, we once knew how to do it. I think we can learn quickly how to do it again. If not, I'll be glad to show them in my books. That's the threat, is we have an unstable dollar, because it hurts us and the world.

Mike Gleason: U.S. Congressman Alex Mooney of West Virginia recently introduced a bill in Congress to eliminate capital gains related to sales of gold and silver. Give us your thoughts on that bill and the IRS rule that not only taxes nominal gains on metals, which the Constitution says is money, we should remind everyone, but does so at a discriminatory rate by lumping them in at the 28% collectibles rate. You've written on the general topic of taxation on gold. Share your comments on that subject, if you would.

Steve Forbes: Well, if you buy, say, 10 $1 bills for a $10 bill, you would be very surprised if the government said, "Oh, you should pay sales tax on that purchase," or something like that. So, what should be done is the capital gains levy should be eliminated anyway on all things, and it should be eliminated certainly on gold and perhaps sliver as well, because it hurts having an alternative currency. Governments like to have monopolies, but the best way to have governments behave themselves is by people having an alternative. I'm surprised the cryptocurrency world hasn't come up with a stable cryptocurrency, but in the meantime, gold should not be subjected to capital gains tax. It should not be subjected to sales taxes, any more than buying 20 $1 bills should be subjected to a sales tax.

Mike Gleason: I'm curious, how do you view gold as an investment? People call it an investment, but it's really just a different form of savings. After all, gold and silver are money, as the Constitution outlines it. Some also consider it more like an insurance product, financial insurance in a way. How do you view it in terms of an asset class or an investment?

Steve Forbes: Gold is an insurance policy. And you should have it, because you never know what our political leaders are going to do. Whether you're comfortable with 5%, 10%, pick a number, but it should be there, even though people say well, other assets have done better over time. Well, that's just a reflection of currency fluctuations. Gold keeps its intrinsic value better than anything else. When you see the nominal price change, that's not the value of gold changing, that's the value of the dollar or whatever currency you're talking about, changing in value. Gold is the constant, like the North Star. Yes, you should have it, a piece of it, just for peace of mind.

Mike Gleason: Yeah, well put. Let's change gears and talk about Fed policy for a moment. The central bank put additional rate hikes on pause late last year, which was their response to falling stock prices and pressure from the Trump administration. Now stock prices have recovered. Unemployment remains very low, and price inflation is rather low, at least for the moment, yet the Fed is signaling rate cuts are on the way. It looks like they've been caught in a tricky situation here. Yield curves have inverted, the Fed funds rate for overnight lending is higher than both the 2-year and the 10-year Treasury yield. Where do you think the FOMC is headed on rates, and what do you think it will mean for U.S. markets, including precious metals?

Steve Forbes: Well, the Fed should not be in the business of fooling around with interest rates. Remember, "interest rate" is another word for rent. When you go and borrow money, you're in effect renting the money. You pay a price for it. In this case, they call it interest. When you rent an apartment, they call it a rent payment. But it's rent, and controlling the price of money, borrowing money, just leads to mischief. It's only a question of how much mischief are you going to do? So, I don't think that the Fed should be in the business of trying to control the economy, but it does and will.

It never works the way they think it'll work. You read their forecasts for the last 15, 20 years, a monkey throwing darts at a dartboard would have a better success record than they've had, and you don't have to pay the monkey's tuition at the university. The Fed should just stand on the side, keep the dollar stable, otherwise go home early.

Mike Gleason: One other thing that I've heard you say the Fed shouldn't be doing, in fact you said it on this podcast three and a half years ago when we had you on last, is that they should not be having this inflation target. You called it a travesty that they've somehow decided that our dollar should lose 2% in purchasing power every year. Comment on that again for our listeners that maybe didn't hear that.

Steve Forbes: Well, the Fed worships this theory called the Phillips curve, which posits that there's a trade-off between inflation and unemployment, that if you have high unemployment, you will have low inflation. Or if you have low unemployment, that means you have to accept high inflation. There have been at least seven Nobel-winning economists who say that's junk. You have the current reality. We don't have very much inflation, and we have very low unemployment rates. So how do they square that circle? The answer is, they don't. They blame the weather or something.

But it just goes to show that the Fed will hold on, like any agency will, to an obsolete theory, because they aren't subject to free market forces. The Phillips curve is nonsense, but the Fed believes that prosperity causes inflation. So, the word you should always watch out for, especially if the economy starts to really do well – and we’re going to have a slower second quarter – but if the economy is really doing well, which I think it would really boom, far better than what it's already doing, if we got rid of these trade uncertainties. But the word you have to watch out for is the word "overheat". The Fed will start talking about the economy “overheating”, as if the economy was a machine in your automobile. Well, it isn't. The economy is made up of individuals, 330 million in this country, seven billion around the world, and just ask yourself this question. Do you feel yourself overheating, getting a temperature if your income goes up?

Mike Gleason: Yeah, interesting thought there, certainly. In terms of precious metals, if we have an inflationary environment, if the Fed does get the inflation that they're looking for, what is your outlook for precious metals over, say, the medium to long term?

Steve Forbes: Well, it's very basic. Here you can really plot a curve. When a central bank undermines the integrity of its currency, hard asset prices go up. Precious metals have been doing that for long before any of us were born, or even our ancestors. We know it's going to happen. That's why you have a little bit as an insurance policy. These people don't know better.

Mike Gleason: Now, we can't let you go without asking you about presidential politics. As people know, you were a candidate for president two times, so you know a thing or two about the subject. Now the 2020 campaign promises to be interesting, to say the least. It seems to us that Trump is in the driver's seat here. Nobody too credible has emerged on the left to challenge him. But one Achilles heel is the U.S. economy. If we fall into a significant recession before 2020, Trump could be held responsible. We would love to get your thoughts on Trump's chances for reelection, at least as things stand now. What do you think there?

Steve Forbes: Well, if the economy does well, and it would if we got rid of these trade uncertainties – it’s already doing splendidly now, but you always worry about the future, business investment, a lot of it's been put on hold until we learn the rules of the road on the trade front – but if these trade disputes were resolved or put off indefinitely, you'd see the economy do extremely well, even better than it is now. And for reelection purposes, that's pretty hard to beat, and Trump would make that, I think, his key issue, in effect saying, "Do you trust these guys? Here we have a good economy. Why put it in jeopardy?"

Mike Gleason: Well, we'll leave it there. Mr. Forbes, I can't thank you enough for your fantastic insights and for being so generous with your time. It was a real pleasure, and we wish continued success to you and Forbes Magazine and Forbes Media. I just want to thank you for everything you do for the causes of freedom, capitalism, and liberty. And thanks so much for joining us again. Take care.

Steve Forbes: Thank you. Have a good one.

Mike Gleason: Well, that will do it for this week. Thanks again to Steve Forbes, CEO of Forbes Media, Editor-in-Chief of Forbes Magazine, and author of many bestselling books, and a true business icon.


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