Interview with Howard Ruff

The author of How to Prosper during the Coming Bad Years talks about his controversial "sell gold" recommendation, the sexual revolution, and libertarianism.

When the Ruff Times newsletter first appeared in REASON's office, we thought it must be a joke. But it turned out that the man behind it is really named Howard Ruff, and his name just happens to correspond with the "gloom and doom" message he sells.

Unlike most other forecasters of hyperinflation and depression, Ruff did not just advocate gold, silver, and Swiss francs. Instead, he urged a total program of survival preparedness, beginning with a year's supply of food. His first book, Famine and Survival in America, was a comprehensive presentation of the case for food storage. But since food storage seemed to have had its heyday in the early '70s. It was all too easy to dismiss Ruff as someone whose time had passed.

And to anyone outside the direct-mail/list-rental field, that's how Ruff and his newsletter might have appeared—all the while the Ruff Times had circulation figures climbing through the roof, becoming the largest hard-money newsletter in the country. The tremendous underground growth of the newsletter led, in 1977, to the birth of a weekly (non-network) TV show, "Ruff House," on which Ruff interviews financial experts, political figures, and innovators in such fields as energy and survival equipment.

It took until 1979 for the general media to notice Ruff. They could hardly help doing so, when his decidedly unconventional book—How to Prosper during the Coming Bad Years—was published by Times Books (a subsidiary of the New York Times's parent company) and climbed onto the bestseller list, there to remain month after month.

REASON interviewed Ruff in mid-October at our Santa Barbara office. He had flown into town as a featured speaker for the City College adult education series—where he proceeded to draw the biggest crowd in the series' history. Editor Robert Poole sat down with Ruff to find out more about this man whose views are in such demand.

REASON: How does it feel to have a national bestseller? Did that surprise you?

RUFF: Well, no. To be perfectly candid, we knew we had one as soon as we wrote it. I had an advantage over most authors in that I have a marvelous way of taking the pulse of what the public is concerned about and the questions they'd like answered. At our member services department, we've had literally tens of thousands of questions, which are carefully tabulated on the computer, so we know what questions people need answered.

REASON: How many subscribers do you have?

RUFF: We have 115,000 now. And the second reason we knew it would work is that I think I have a very good feel for the economy, and we knew that our timing was right, with the rising levels of concern over the same things I am concerned about. And, third, we had a commitment, a total commitment, from our publisher to make it the number one book of the season, and that makes a difference, too.

Let me make another point. Actually, the book was written as a basic text for subscribers, so when a new subscriber comes in or calls in on the services line, they won't be asking the same old questions over and over again.

REASON: It was going to be self-published by your company?

RUFF: Well, originally that was our intent, but when it was done we decided it was worthy of presenting to publishers. So I sent my partner to New York, and he showed it to seven publishers. Six of them made bids—a nice little bidding war—and Times Books won out.

REASON: Could you give a bit of background on how you came to hold the views that you have—views on personal responsibility, economics, and politics. Have you always had the views you have now?

RUFF: That's the first new question I've had in a long time. Well, I think all of us are the product of experience. There are several major factors that influenced me. First, of course, is my Mormon upbringing. And the old 19th-century work ethic—be independent, self-sufficient; don't rely on anybody, including government; man's free agency is a critical part of the divine plan; be self-sufficient in terms of food storage and concern about debt—all of these things influenced me very much. They're not so much theological concepts as they are the product of the 19th century when the Church rose, and the Mormons are pretty good at passing their values on to their children.

I think the second major factor was that I went broke in 1968, went bankrupt, and it was such a tragic time in our life, just preceded by four months by the death of one of our children, that I decided that somehow I was going to make some good out of all that. So I just became determined to study every mistake I'd ever made, and that led me deeper into the study of economics. Some of it was fortuitous; when I was in college I was majoring in music education and I had to pick a minor, so I picked economics out of thin air and found I loved it. There's also my training and background in show business—I was preparing for a singing career.

REASON: But in economics, weren't you exposed to the standard Keynesian interventionist sort rather than free-market economics?

RUFF: Well, I was, but you also hear a lot about free-market economics at Brigham Young University. I was really exposed to a fairly broad spectrum, and I got out of college before it did me any permanent harm in that respect, anyway. I never finished. I ran out of money my senior year. Then I was bored with the four years I spent as a soloist with the Air Force Band, because I only worked an hour and a half a day in Washington, DC, so I took a job as a stock broker. Then I had a speed-reading business—that was the business that went broke in '68, when my franchise was cancelled—and I learned to read rapidly. I have a love of reading and just began delving into the subjects I was interested in. So it's really a culmination of things that has led me to where I am.

REASON: I understand that shortly before gold broke the $400 mark recently, you advised your clients to sell gold. Is that correct? And if so, why?

RUFF: It was just after gold had broken through four hundred. Just two weeks earlier, I had said: "Gold looks like it's breaking out. I've been very cautious up to this point; now let's buy. I am less afraid of a decline than I am of whatever is scaring the people who are buying the gold, because most of that buying is coming out of the Middle East." But within the two-week interval, about eight days, the nature of the market was just suddenly and abruptly transformed—gold went up $75 an ounce in that very brief period. And those Middle Easterners weren't buying it now. Now it was a speculative mania. All of a sudden, people were throwing money at coin dealers and commodity brokers all over the country and saying, "Make me rich." And the quality of phone calls to our membership service changed. We had people calling in and saying, "Should I borrow against my home and buy gold? Or should I borrow against my survival silver coins and buy silver?" Silver was going absolutely crazy. It was not reacting in relation to any kind of fundamentals, in my opinion. The dollar hadn't really broken that much, of concern to anybody. And I said to myself, this is crazy. Hedging against inflation, hedging against anything, has to be done with something that is relatively rational and relatively predictable. And all of a sudden, gold was neither rational nor predictable.

So I said to myself, adding all that up, What principles really apply? Now I had three basic principles here. One was, gold and silver are long-term inflation and chaos hedges that you should buy and hold forever. The second was that I want to help people beat inflation, plus a little bit. And three, I do not want to lead people into high-risk speculation. Those principles were in conflict. I decided that the principles of bailing out of a speculative situation and of trying to rationally beat inflation precluded the first one, which is buy and hold forever.

So I said to my subscribers, here are three options: One, hang on if you've got the guts to go through some terrifying swings and probably a dramatic, highly leveraged margin-call crash in those markets. If you can handle that, hang on, be my guest, that's rational. Because a year, year and a half from now, it'll be back up there and it'll be okay. Second was, sell enough of your coins to put your money back in your pockets, and then you'll ride free with the rest, and that shouldn't be too traumatic. You ought to be able to live with that. Or third, bail out entirely—I have a hunch we'll be buying bags of silver coins under $6,000 one of these days, and we'll have twice as many bags for the money or we will have the same number of bags for a lot less money and an investment nest egg to work with. But, the decision was up to the individual based on his temperament and his circumstances. I knew I was going to lose some subscribers over it. There are a lot of people to whom gold is a religion. They worship the golden calf, and I deserted the true faith for some of them.

REASON: In the discussion of cities in your book, you warn about breakdown of services, and you talk about the tax revolt as contributing to that…

RUFF: Well, my characterization of the tax revolt as a problem for the cities was based on two or three assumptions. One, that it would not be accompanied by corresponding cuts in spending. I was making a bet, in effect, that we will not have the political will to really seriously cut the spending, that when it really begins to bite, the public will revolt against the revolt. The second assumption was that if two or three big cities get in trouble at the same time—in serious financial trouble—and their bonds get rated down or they go into temporary default like New York and Cleveland, the entire municipal bond market will be severely damaged. And if the bond market is down and interest rates for that kind of borrowing are driven up by, first, the long-term rate of inflation, second, Federal Reserve moves, and third, fear over the safety of such securities—of the municipal bond market in general—this becomes a horrendous drag on the finances of even cities who manage their affairs well.

REASON: That's a good point. They all get swept up.

RUFF: Yes. That's my concern. So I myself prefer to live in a town that has a minimum of social problems, that will not have one big plant or industry that will shut down and put everybody out of work, needing help from the city or the county.

REASON: You advise people to go to small towns. How small is small, and what other characteristics would you give as a guideline for choosing where to live?

RUFF: Well, first let me tell you why I'm asking people to move to small towns, because it's not quite as obvious as you might think. I was on "Wall Street Week" recently, where Lou Rukeyser said that I was telling people to leave the cities, to flee them because of personal danger, and to leave the suburbs. Well, I didn't move out of Danville, California, to a little town in the central valley because I was afraid Danville wouldn't be safe. I moved out of Danville because I felt that the real estate bubble in those big cities, the highly leveraged bubble, was about to burst. Home prices had risen beyond their economic value as measured by going rents in the area. Also, I wanted to invest in real estate, and I refused to take on negative yield in buying an apartment building. You cannot get positive yields in big cities.

REASON: You're getting positive cash flows on rental property?

RUFF: Yes. And I have the feeling that if there is a real estate decline in small towns it would be nowhere near as much as in the highly leveraged areas where there are negative cash flows.

So the characteristics of a small town are that, one, it does not have a large government-dependent population or a potentially government-dependent population with high unemployment and severe social and racial problems. Because that's going to hit the taxpayers in the suburbs severely and create the kind of problems that can disrupt the distribution of goods and services for unpredictable periods of time. Second, I want to make sure it has a diversified agricultural economy so it can be relatively self-sufficient as a community if the worst possible case materialized. It could be a city as big as Salt Lake City which meets my criteria—the work ethic is still alive in Salt Lake City; a lot of Mormons there are prepared for hard times. Or it could be as small as 1,000 people. Many people have interpreted my position on this to mean, get a retreat in the mountains somewhere, but that's not the case. If the worst case really developed, I think it'd be kind of dangerous to be out there alone all by myself. But I don't expect the worst case to develop, anyway.

REASON: You advise people to either own their home outright or to have it mortgaged to the hilt. Isn't owning it outright a waste of capital in today's interest rate market?

RUFF: Oh, yes, it is. But you have to remember that a home is two things. It is both an investment—for many people the most important investment they have. And, second, it's the place where you live—a secure place, your castle, your personal retreat. And there are those who probably should own their home outright so they could never lose it, so that it could never be taken away from them. They will have a place to live, and if they followed my advice about food storage they'd have something to eat, they could be self-sufficient on zero income if their home is paid for. I myself am leveraging my home. I went into it with the smallest down payment possible. When I have built my liquid investment estate to the point where I could liquidate some specific percentage of it that I have in mind, and pay off my home, I will do that.

REASON: That's one of your goals?

RUFF: Yes. Even though from a strictly dollars-and-cents point of view I shouldn't do it, it's my home, and for my family and security that's important. My argument in the book was that anything in between these two alternatives is a compromise combining the worst features of both courses of action.

REASON: But isn't the level of risk of having it highly leveraged pretty tough in terms of a depression? Do you really have evidence that in a depression the banks would not want to foreclose on a home in which you had little equity?

RUFF: You bet I do. In the depression of the '30s there was a period of about six months when the banks were foreclosing all over the place, and all of a sudden they found themselves on the verge of insolvency because of their foreclosures. For example, if you have a home worth $100,000 and an $80,000 loan on it and the bank forecloses, they're going to take on a $20,000 equity and write off an $80,000 loan. Whereas, if you had a home with a $20,000 loan on it worth $100,000, they'd love to take that. They pick up a nice, big, healthy equity. I think there's more security in being highly leveraged. Now in that period in the '30s when they foreclosed all over the place, all of a sudden they had to stop, because when everybody's in trouble, nobody's in trouble. So they made deals—pay us what interest you can, and we'll reinstate the loans later on. One of my recommendations, if you do get highly leveraged, is to make sure that some of the money that you pull out of there is invested in liquid assets, so that you can liquidate some of it at a time, like your gold coins, for example, and make the mortgage payments and keep your home. Also, I don't believe in borrowing against a home to put money into non-income-producing assets.

REASON: One argument that's raised against general gloom-and-doom kind of analyses, that I think has been raised against yours, is that a lot of South American countries are surviving and coping with inflation rates of 30-40-50 percent. It doesn't go into runaway inflation and collapse. Now is there something different about the United States that makes the Latin American model not apply?

RUFF: The premise is unsound. Brazil, Argentina, Chile, ended up with serious flirtations with communism and military dictatorships. Now, if you think that's a nice solution for this country, then be my guest. That's point number one. Point number two, they've been smart enough there to try to obviate the effects of inflation by indexing. That postpones the day of collapse.

Brazil is a very interesting case in that they really pulled themselves out of a much higher inflation rate and reduced it by one very important decision—they decided that nobody could import an automobile into that country. All automobiles had to be manufactured domestically, and every major automobile manufacturer in the country built plants in Sao Paulo—a city of 14 million people—and built automobiles like crazy. And they were able to increase the productivity of the average Brazilian by anywhere from four to six times in a relatively short time. You can produce yourself out of an inflation. But how are we going to increase the productivity of our workers four or six times?

Last point. In Argentina, political assassinations from the left and the right are the order of the day. But the Argentinians do know how to fight inflation. There is no Regulation Q limiting the amount of interest the banks can pay you. They'll shift their money in 30-day CD's from one bank to another, and they can equal the rate of inflation with their investments and maintain the value of their holdings. We don't do that in this country. And last of all, these countries have survived because they have received help from the international financial community, and primarily from this country. Dominant civilizations can't tolerate these high rates of inflation, whereas small countries which are bailed out by their big brothers can.

REASON: Let me briefly touch on a controversial chapter in your book. You say, "Sexual revolution represents a great threat to our economy. It may be the one factor that can cause all of our optimistic forecasts of economic recovery to go astray." What's the connection?

RUFF: The argument that I make is really based on John Adams's statement that, "the Constitution of the United States was designed for a moral and religious people and is inadequate for the government of any other kind." Now, remember, John Adams was also opposed to the combination of church and state, so he wasn't talking about the establishment of a religion. So what did he mean? My opinion is that he was telling us that the Constitution assumed a certain amount of self-restraint in many areas of life that can never be regulated by law. That if you do not have that self-restraint, the Constitution won't hold up, because the only alternative will be to come up with a web of regulations that will stifle society—precisely what we are seeing today. Societies perpetuate themselves if they pass their values and their wealth on to the next generation in a systematic and orderly fashion.

Now, the sexual revolution basically weakens the nuclear structure of society, the family. Even with our supposedly enlightened attitudes toward sex today, the chief cause of divorce is still adultery. I'm concerned about the million and a half family units that were started without a marriage, into which a child was born, last year. Four out of five of those relationships will break up, leaving a dependent mother and children to be supported by the state or the county or the HEW or somebody. Now, that has an immense effect upon our pocketbook. But more than that, the odds of that child being into drugs, shoplifting, heavy crime, truancy, rise almost exponentially. And what's more, the chances of the basic structural values of our society, that we passed on pretty well for 200 years, being passed on to those kids is really pretty nil, because the mother is probably out working and the kids are at a day-care center.

Basically, it boils down to one simple principle. An economy can only be interpreted in the light of the background of the society in which it functions. If the society is crumbling at its basic, most nuclear structure, which in our society is the family, it's like hiring a Picasso to paint a great masterpiece on a rotten canvas; and the Picasso is the people manipulating the economy, the painting is the economy itself, and the canvas is society. So I am very worried about anything that assaults that basic structure. But I'm even more worried about laws regulating sexual behavior.

REASON: I was going to get to that. I was very pleased to see that in your book you make a distinction between people's own moral decisions and laws regulating them.

RUFF: We have no good choices right now. If we continue our present course, I think we may see the destruction of our society. If we come up with laws to try to regulate human sexual behavior, we may see the destruction of our liberties. Bad choices, and I am not one of those who considers himself smart enough to know which choice to make.

REASON: Do you consider yourself a libertarian?

RUFF: In the economic and political area, I'm much more a libertarian than a conservative. I fall short of being a complete libertarian for one very important reason. I cannot fully accept a philosophy that's based in humanism as such.

REASON: Not all libertarians do, either.

RUFF: I understand that. But the core of libertarian thought is humanistic—for example, Robert Ringer's new book, nine-tenths of which I absolutely love. But I have to back away from his humanistic, totally libertarian philosophy because I accept some absolutes in life. I also, however, accept the fact that I cannot impose my absolutes on the next guy.

REASON: Do you see the Libertarian Party as being a serious political force or potentially serious political force?

RUFF: Not in this election. I try to deal with the art of the possible. In fact, I've come to the conclusion that we ought to elect Teddy Kennedy president of the United States.

REASON: Well, I'll have to ask you to justify that statement.

RUFF: He's much too dangerous as chairman of the Senate Judiciary Committee. We've made our last five presidents impotent, destroyed their influence—it took about two years to go from being elected to zero influence. I don't think Kennedy could stand the daily light of publicity on his character, his family, his attitudes, his policies, that the press corps would give him. So let's get him isolated in the White House where he can't do us any harm. I'm only two-thirds convinced of that, but the more I think about it, the better it sounds.

One last point, and this is serious. Whoever is in the White House in the next four years is going to be sitting on top of a runaway inflationary depression. And for the next 50 years the opposing party is going to be running against whoever that is. The presidency is relatively a weak office now, so I'd just as soon have somebody sitting there that I would feel good about having blamed for the mess we're going to be in, even though I have to admit it won't be his fault.

REASON: He'll be another Herbert Hoover.

RUFF: That's right.

REASON: That's very plausible. Let's go back to some of your investment and survival advice. Most of the other people who are advocates of hard money, as you are, tend to neglect or ignore the opportunities for making money in real estate. How would you characterize your basic investment strategy?

RUFF: Well, I think that most people in the hard-money area tend to make it a kind of religion. But I really have no particular ideology relative to investments. You have to maintain a very high degree of objectivity when it comes to money.

I'm trying to find ways for people to diversify across the spectrum. There's no perfect investment. Gold's not a perfect investment. The government can bomb the gold market down a hundred points in a day if they want to. Its advantages outweigh its disadvantages in normal market conditions. Diamonds—heck, the Russians could decide to dump all their diamonds on the market. You could worry about that. You could worry about real estate, because of rent control. I can think of all kinds of reasons to not buy anything. But I try to be pragmatic and spread my risk across as many markets as I can come up with that deal with inflation.

But even more than just investments, we've been exploring, more so than anyone in the country, ways of preserving wealth so it can be passed on to the next generation. Some of the traditional financial planning techniques of freezing estates and trusts and so forth have been inadequate, because they have not taken into account inflation. They pretend it doesn't exist. We have really married these two concepts. We have come up with programs for helping people freeze their estates, pass their wealth on to their children, and using inflation to benefit them. Hans Sennholz has done a lot of work in this area, and we have too. That, combined with precious metals and real estate investments, gives you a relatively safe, diversified way to beat this immoral, vicious inflation game that the government's playing with us.

REASON: So it's a more comprehensive approach than simply hard money.

RUFF: Oh, it is. Hard money's an important part of my philosophy, and I want us to remonetize gold just as bad as Jim Blanchard or Ken Gerbino or any other advocates of it like Jim Dines, but you have to recognize that you must be pragmatic.

REASON: Most of those who are promoting gold are talking about it, at least partly, as a survival factor. But as you point out in the book, they neglect other things that have survival value as well—food, medicine, ammunition, and so forth. Why is this?

RUFF: They didn't have the advantage of growing up a Mormon.

REASON: Well, that may be the key.

RUFF: You know, I have all kinds of people say to me, "I like everything you say. I've really taken your advice. I haven't gone so far as to buy food, however." And so I just say to those people, "Are you expecting financial chaos, runaway inflation?" They say, "Yeah, that's why I'm buying gold and silver." And I say, "Well, do you honestly believe that in a period of financial chaos, runaway inflation, interest rates going through the ceiling, credit markets breaking down, you can drive down to the supermarket three times a week and select everything you want from a dazzling array of products on the shelves that appeared magically overnight?"

REASON: How do you answer the charge that you're advocating hoarding, and it's antisocial?

RUFF: Hoarding is going out and acquiring more than your fair share of something which is scarce, depriving others of the opportunity to get it. But when you go out and store food, for example, wheat, when we have mountains of surplus and farmers are screaming to sell to China or to the Soviet Union, you're not hurting anybody at all. If shortages do arise, you'll dip into your supplies and there will be more for the others to share. And would you really want, if you lived in my town, to be in a line at the store for rationed food and see Howard Ruff and his wife and nine kids in line in front of you?

REASON: In the book you say, if it looks as if we're headed for a real international chaos, get out of Swiss francs. Why do you make that recommendation?

RUFF: Well, I don't think I said it in exactly that way. What I said was that a lot of people in the hard-money field have advocated that you should send all your money to Switzerland because it's safer there. But if you have international financial chaos, runaway inflation, the whole international monetary system coming unglued while they're waiting to come up with another one that'll work for a while, you may not be able to send money back and forth across international borders. The Swiss bankers could just say, "Hold it," or the United States government says, "No money's going in or out." That can happen. And just at the time when you want to get your hands on it the most, it's in Switzerland.

On the other hand, Harry Browne, in my opinion, has a very sound idea when he says that maybe 10-15 percent of your money could be in Switzerland, because there it's protected against irrational moves by our government. And at least you have something out of the country that might be safe if the banks have serious problems and literally have to freeze withdrawals from the banks, which they have the power to do under present law. I have a stack now of about a hundred statements from a hundred different banks that my subscribers have sent me that have come to them in their regular monthly statements from banks, saying that we want you to know that we have the right to require 60 days' notice on withdrawals, but don't worry, we won't do that except in "cases of financial excitement"—which is precisely the time when I want to get my money out of the bank. So the law is there.

I prefer to keep my money in this country if I can, most of it; some of it overseas is a good idea. I prefer to have it in liquid form—outside the banking system for that which I must keep liquid. So I like the money market funds that invest in T-bills. And then there's some of it I want in inflation hedges that I can just hang on to, and it'll come out the other side with real value.

REASON: Compared with the time you wrote your book, are you more or less optimistic with respect to the prospects for "coming bad years"?

RUFF: Am I more or less optimistic? You mean optimistic about being right or pessimistic about the future?

REASON: However you want to take it.

RUFF: I am even more persuaded that we're going to find runaway inflation. But there are about three major changes in stance. In the book, on the back cover, it states that there's a 70-30 chance that this recession will turn into a major inflationary depression. I would say that those odds have shifted roughly 60-40 in favor of one more recovery, that we will manage to inflate ourselves out of one more recession, and I'm basing my own plans on that assumption. I think we'll see a recession that will look deflationary; in fact, it will look like those in the hard-money camp who have a deflationary scenario are right. We'll see bankruptcies, we'll see falling prices, falling interest rates, and falling gold prices, falling silver prices, maybe a year-, year-and-a-half-long bear market in those metals. But we will inflate ourselves out of it with a rush. The government that is enthusiastically fighting inflation with monetary policy will just as enthusiastically fight recession and lay the groundwork for the next huge round of inflation, and that's the one I think will break away from us, will get out of hand.

The other changes I would like to have made in the book would be to kind of update my advice on gold. We're trying to figure out how to get that into the paperback. There're going to be two million paperbacks on the market by January 15. We did go back and rework all the numbers, because when I wrote the book, silver was $4,200 a bag, and gold was $200 an ounce, so we had to readjust those numbers and come up with different mixes of investments for portfolios of $10,000, $50,000, and $100,000. Other than that, I'm prepared to stand where the book stands.

REASON: Very well. Thank you very much.