You must be prepared for the next financial crisis...

Porter Stansberry: So I was just getting ready for this interview, and I came across a very ominous recording where you talked about ATMs not working, gas stations closing, people not being able to get into their banks to cash or deposit checks – sort of the apocalyptic scenario of an end-of-the-world banking crisis. What makes you think that this is something people should be worried about now?

Bill Bonner: Now is now. Now is where we are, but nobody knows when this sort of thing will happen, and when it does happen, it's inconvenient. I mean, if people were fully prepared for something like this, it wouldn't happen at all.

But things like this don't happen that way. They always come as surprises to most people. And so it's hard to say... The "now" question is tough because I don't know why now and why not in 10 days or in 10 years.

We're in a situation where there's more and more debt in the world. The response to the authorities of the crisis of 2008-2009 was simply to add more debt to a situation that was already caused by too much debt. And so the problem that we had in 2008 was not resolved at all. It was made worse and postponed.

What we're going to see at some point is a re-enactment of the crisis of 2008-2009, but worse... because there's more debt. And the interest rates are already at zero now, so they can't lower rates much more.

So the next time this occurs, it's going to be much worse, and people have to be prepared for what almost happened last time, which was that the banks closed... and they were ready to shut the ATMs down, when meanwhile, people need cash. And so that's what I keep saying make sure you have some cash on hand.

Porter: Yeah, I had a hard time explaining that message as well. It's not contradictory to say that we fear a collapse of the dollar and then suggest for you to have some in reserve... Because in the immediate days and weeks following a run on the dollar, that paper currency is going to be very important.

Bill: Well, yes. In all fairness, there are not that many instances of it, so it's hard to form an average. But in a banking crisis, which is what we had in 2008 and what we expect now, the banks seize up because they're going broke.

And people realize it. So their reflex is to go and get their hands on something they can hold onto, and that is cash. You've got a bank account, you've got money in it, you want to run to the ATM and get that cash out before the ATM runs out of money.

And they will run out of money, because there's not enough cash in all of the United States to cover the obligations and the needs that people will have.

Porter: There's not enough cash in the United States to cover the liabilities of two banks – Bank of America and JP Morgan.

Bill: No, no, there's not much cash because the country has shifted to credit. The whole story of the last 50 years has been the expansion of credit, and credit is what people use.

You've got to stand in line at a grocery store, and often the person in front of you is paying with credit. Maybe you are, too. And so when the credit stops, the whole economy comes to a stop.

I think people have to get a lot more sophisticated about money because we are so used to an economy and a society where the money was fairly reliable and you could say...

"Oh, I've got cash. I'm not worried about anything. I've got cash." We'd say, "Where is the cash?" "Well, it's in the bank."

But having money in the bank is not the same as having cash. When you have cash, you have what they call trustless money. That means you can go and buy stuff with it. But when you have an account in a bank, it means the bank owes you money.

Now, you've got a counter party. You've got somebody on the other side, and if you study these statements of the banks, the balance sheets of these banks, those banks are all in danger of going broke because they've lent so much money to so many flimsy, flaky projects.

And all of that collateral that they've got on houses and the money they lent to companies for mergers and acquisitions... the equity... it disappears.

And so all of a sudden, the bank, which has very little in real reserves, is illiquid. It's illiquid and bankrupt, so you have a credit.

Your bank account is not cash. It's what you have as a credit against a bankrupt institution. So you're going to be in big trouble.

Porter: I wanted to get to a deeper question with you, because one of the things I enjoy with our private conversations is the philosophy that we share about the foolish things people will believe... and the lengths they will go to defend them.

And one in particular, which you've written about in your daily e-letter, Bill Bonner's Diary, is the fallacy of war and the war state... and the whole idea that underpins the idea of conflict, both in modern times and historical times.

How many more senseless wars can we lose before people begin to doubt the wisdom and authority of their elected leaders when it comes to leadership of the Army, Navy, Marines, etc.?

Bill: This one is, unfortunately, my interest. It's very depressing because I think we can lose lots of wars and, in fact, we intend to lose the wars. These wars are meant to be lost. They're not meant to be won, and winning would be the worst thing that could happen.

I mean, we're set up in a system where the wars are designed to keep the war industry in business. You can't win a war and stay in business, because if you won a real war, then you'd have to send the troops home and stop spending so much money.

But these wars are not intended for that. They're intended to go on forever. The military does not want to win them. The military has no way of winning them, because there's no enemy that could be defeated.

I mean, they're designed just to go on forever. They are an extension and a corruption of the defense industry, really, and so they'll just go on and on.

What will happen, though, is that the defense industry will become corrupted by doing things that really don't involve national defense. And this happened in Argentina, by the way, in the 1970s, when the military was put to service killing people.

You know, they would have these – they call them "disappearances." They would make people disappear – people they thought were a threat. Often, they were journalists, or they were authors... or people who had a message that the government didn't like. And those people would be picked up, their bodies would be dumped in the river, and they would never be seen again.

By the early 1980s... the generals were in trouble, the inflation was running at 10,000% per year, and they decided to invade the Malvinas Islands (otherwise known as the Falklands). And they did that expecting that it would rally the people, which it did.

Even after all this time, even after using the military just to suppress and oppress their own people, people were still behind the military. I think it's almost impossible. People almost never abandon their military, no matter how dumb it is, no matter how bad of a service it gives.

And so what happened was this military, which was so used to killing weaponless people, got sent to the Malvinas. They were certain they were going to just settle this in some long negotiation with Britain. But instead, Britain sent the Army. They sent the fleet. And they went, and they attacked these poor Argentines who were totally unprepared to really fight a war because they had been so used to just killing civilians.

A military that is corrupted in this way becomes a tool... not to defend the nation, but really to divert funds from the nation to itself. This includes its suppliers and military men who have luxury cars and planes.

Well, these people are not prepared to fight a real war, and their defense budgets are all set up to take money from one group of people and give it to them instead. They're not set up to defend the country.

In the U.S., we see these huge, huge expenses for material – war material that is suitable for fighting World War II. And now what's probably going to happen is we're going to keep these wars going for as long as we can.

And then when a real war comes up against a real enemy, like, say... China, that real enemy is developing new weapons that will work against America's clunky old material.

And who knows how that will go. But I think until that happens, the imperial power gets fatter and fatter and bigger and bigger, spending more and more money on the military... Mind you, this is a military which is less and less able to really defend the country. And then you have a real war, and it's defeated.

Now, how long that takes, and whether it'll happen like that, I certainly don't know, but that's kind of the classic story.

Porter: Yeah, and the story from World War II that's so ironic is the Billy Mitchell story. Here you had an Air Force guy who warned the Navy to quit building those battleships, because a battleship will sink with just one bomb from one plane.

And he demonstrated that he could do so off the coast of North Carolina around 1922, and he was run out of the military, court marshalled, and he died in poverty in 1936.

But what happened, of course? Well, the Japanese figured out it was easy to sink all of our battleships with airplanes. And I wonder how our aircraft carriers are going to do against China's cruise missiles.

How do you think they'll do, Bill?

Bill: Well, I have no idea. I'm certainly not a military hardware guy, but I suspect that China is going to think of something. And I suspect it's going to be something that we hadn't thought of. And it's probably going to be a whole lot cheaper and probably a whole lot more effective.