WEBVTT - There Is NO Market Crash Coming and Here Is Why | Fed Insider 0:00:00.040 --> 0:00:03.560 All right, Joseph, thanks for joining me today. Uh, the 0:00:03.600 --> 0:00:06.360 Fed guy. We certainly have a lot to talk about 0:00:06.440 --> 0:00:09.639 in the world of central bank policy. So I'm excited 0:00:09.680 --> 0:00:12.400 for this. Well, thanks so much for you invite me. Mark. 0:00:12.440 --> 0:00:14.880 I'm excited to be here. And also I see that 0:00:14.960 --> 0:00:17.439 you've published in a new book. Very excited to see 0:00:17.520 --> 0:00:19.640 that's well reviewed, and I I've ordered it and I 0:00:19.680 --> 0:00:21.640 can't wait to read it myself. Oh. Thanks, thank you. 0:00:21.640 --> 0:00:23.239 I appreciate that. Yeah, you saw it when I was 0:00:23.280 --> 0:00:25.320 just kind of thrown around the copies. Yeah, yeah, I 0:00:25.560 --> 0:00:28.880 saw it on Amazon now too, writing We're very well reviewed, 0:00:28.920 --> 0:00:31.440 five stars, so I can't wait. Yeah, thank you, So 0:00:31.840 --> 0:00:34.240 thanks for bringing that up. Shameless plug. He's talking about 0:00:34.280 --> 0:00:37.040 the book, The Uncommunist Manifesto. If you haven't got your copy, 0:00:37.280 --> 0:00:40.400 go to Amazon The Uncommunist Manifesto. It's a short read. 0:00:40.400 --> 0:00:42.400 It's about an hour read. Everybody should read it. In 0:00:42.440 --> 0:00:45.040 my opinion, communism seems like an old word, but it's 0:00:45.080 --> 0:00:49.080 just rebranded today. Um. Instead of abolition of private property, 0:00:49.080 --> 0:00:53.520 it's you'll own nothing to be happy exactly. So let's 0:00:53.600 --> 0:00:56.200 dive right in, Joseph, because I got a lot to cover, uh, 0:00:56.280 --> 0:00:57.920 and we'll see how much we can get through. Sometimes 0:00:57.920 --> 0:01:01.360 I get a little too ambusious here, but um, look 0:01:01.480 --> 0:01:04.840 the markets are crashing, real estates getting marked down, stocks 0:01:04.840 --> 0:01:08.400 are going down, currency wars are erupting all around the world. 0:01:09.080 --> 0:01:12.440 The Bank of England just broke again. Um, you know, 0:01:12.720 --> 0:01:15.520 I mean, stuff's going haywire. So I want to dig 0:01:15.560 --> 0:01:20.040 through all this. Um, but let's start with myth or fact. 0:01:21.800 --> 0:01:24.119 Last night on Twitter, you were and I were kind 0:01:24.120 --> 0:01:30.199 of engaged in this thing, and myth or fact does um, 0:01:30.360 --> 0:01:35.840 does the liquidity drying up caused the markets to crash? 0:01:36.040 --> 0:01:38.080 Now I know there's a lot of nuance here. Um. 0:01:38.160 --> 0:01:40.520 Jeff Snyder, I had him on a month two months ago, 0:01:40.560 --> 0:01:43.120 made month or two ago, and he said that, and 0:01:43.160 --> 0:01:44.959 I think, actually you were at the same event at 0:01:44.959 --> 0:01:46.800 George Gammons event where he was at and he says, 0:01:46.959 --> 0:01:49.400 the ft has no control. Uh, the euro dark your 0:01:49.480 --> 0:01:52.920 market so big. The reason why the markets crashes there's 0:01:52.960 --> 0:01:56.320 a dollar shortage. So is the shortage of dollars myth 0:01:56.400 --> 0:02:01.560 or fact? Yeah, so that's a really interesting question. So 0:02:01.640 --> 0:02:04.680 how do you measure a shortage of dollars? So I'll 0:02:04.720 --> 0:02:08.200 tell you how I look at this and now I 0:02:08.280 --> 0:02:10.560 address how I think some other people might be looking 0:02:10.600 --> 0:02:14.440 at this. So shortage of dollars, we usually think of 0:02:14.480 --> 0:02:17.320 that as someone wanting to borrow dollars but not able 0:02:17.360 --> 0:02:20.560 to access it. And the way this is measured is 0:02:20.560 --> 0:02:23.639 something called the f X swap basis, which is the 0:02:23.680 --> 0:02:26.400 premium that a foreigner has to pay when they borrow 0:02:26.480 --> 0:02:30.640 dollars in the market. So when we have major market disruptions, 0:02:30.840 --> 0:02:34.359 for example Lehman going down or what we saw during 0:02:34.440 --> 0:02:40.320 the March uh pandemic panic we saw the epics, swot 0:02:40.320 --> 0:02:44.480 basis widened significantly. What that means is that a lot 0:02:44.520 --> 0:02:47.800 of people who are trying to borrow dollars just can't 0:02:47.840 --> 0:02:50.680 get their dollars at market prices, and so they're having 0:02:50.720 --> 0:02:55.480 to borrow at extremely high premiums. That, in my view, 0:02:55.760 --> 0:02:58.040 is what a shortage looks like when you have money 0:02:58.080 --> 0:03:01.160 to pay and you just can't get it now. The 0:03:01.160 --> 0:03:03.800 way that you can't get it meaning, um, it's it 0:03:04.000 --> 0:03:08.000 costs more than you're able to pay for it. So 0:03:08.080 --> 0:03:11.480 there's a market price for dollars, and there's also how 0:03:11.560 --> 0:03:14.200 much extra premium you have to get you have to 0:03:14.240 --> 0:03:16.920 pay for to to get those dollars. So that's that's 0:03:17.000 --> 0:03:19.359 kind of helps measured. And the market price is usually 0:03:19.400 --> 0:03:22.120 set by the FED because the FED controls short term 0:03:22.160 --> 0:03:24.919 interest rates. So if you have to pay a whole 0:03:24.960 --> 0:03:27.400 lot more than the market rate that's roughly set by 0:03:27.400 --> 0:03:30.680 the FED. I think of that as there's a problem 0:03:30.720 --> 0:03:33.640 with the supply of dollars. There could be, as people say, 0:03:33.760 --> 0:03:37.080 a shortage. And the way that this is fixed is 0:03:37.120 --> 0:03:40.680 the FED steps in and there with a tool called 0:03:40.680 --> 0:03:45.320 the Ethics Swap Facility, where they're basically lending a limited 0:03:45.360 --> 0:03:48.840 dollars for in central banks, who then take those dollars 0:03:48.880 --> 0:03:51.400 and lend it to their own banks, who then take 0:03:51.440 --> 0:03:53.880 those dollars and lend it to let's say a corporation 0:03:53.960 --> 0:03:57.640 or something like that. And so when the FED opens 0:03:57.720 --> 0:04:01.720 up this ethics swap facility, uh, what we see is 0:04:01.760 --> 0:04:04.880 that immediately the premium to borrow dollars in the offshore 0:04:04.920 --> 0:04:08.480 markets disappears or it becomes very small. We see that 0:04:08.560 --> 0:04:13.560 consistently when the ethics facility opened up in UM during 0:04:13.680 --> 0:04:16.920 Lehman's collapse, in U during the Great Financial Crisis, and 0:04:17.120 --> 0:04:20.880 in March. And the thing is the f fex Soft 0:04:20.880 --> 0:04:24.880 Facility UM is actually still open. The FED never took 0:04:24.920 --> 0:04:28.400 it away, so it's operating on full force and there's 0:04:28.560 --> 0:04:31.880 very very little participation in it. And the reason being 0:04:32.240 --> 0:04:35.640 is that the premium premium costs to borrow dollars right 0:04:35.720 --> 0:04:41.440 now is you know, not particularly elevated. So that's me 0:04:41.560 --> 0:04:44.640 suggest that there's no shortage of dollars. Everyone who wants 0:04:44.640 --> 0:04:49.279 to borrow dollars at the market price can get dollars. Now. 0:04:50.080 --> 0:04:52.640 That's the price to borrow dollars now. I think a 0:04:52.640 --> 0:04:55.160 lot of people also point to the U S dollars strengthening, 0:04:55.240 --> 0:04:58.320 and we see what's happening right dollar to euro euros 0:04:58.360 --> 0:05:03.960 below parity. We see the Japanese currency basically imploding, and 0:05:04.000 --> 0:05:06.960 so that's making the dollar very strong. Now. I don't 0:05:06.960 --> 0:05:10.640 think of a strong appreciating dollar as a dollar shortage 0:05:10.880 --> 0:05:13.599 because there are actually very good fundamental reasons for that. 0:05:14.080 --> 0:05:17.200 The first, of course, is that the fits hiking rates aggressively. 0:05:17.839 --> 0:05:21.719 If um, if you're investing dollars in a money market fund, 0:05:21.760 --> 0:05:23.840 you're getting you know, three percent and maybe you'll get 0:05:23.839 --> 0:05:26.160 four percent soon. That's much higher than you can get 0:05:26.200 --> 0:05:29.200 in Japan or Europe. And also there's a lot of 0:05:29.279 --> 0:05:34.240 geo political factors that are encouraging investors to move their 0:05:34.240 --> 0:05:36.839 money from let's say, away from the war zone in 0:05:36.880 --> 0:05:39.600 Europe because Europe is in is in a war zone 0:05:39.680 --> 0:05:44.520 right now, to the US. So dollars appreciating because it's 0:05:44.600 --> 0:05:47.440 becoming more valuable. I think of it as you know, 0:05:47.520 --> 0:05:49.200 Let's say I have a house and I add a 0:05:49.200 --> 0:05:51.800 pool to it. The price of my house goes higher, 0:05:51.839 --> 0:05:54.159 not because it's a shortage, but because I've made it 0:05:54.200 --> 0:06:00.360 more valuable at higher rates. Make a currency more valuable. Um. Honestly, 0:06:00.680 --> 0:06:03.000 that's actually kind of part of the plan of what 0:06:03.040 --> 0:06:05.880 the Fed is trying to do. If you listen to 0:06:05.880 --> 0:06:09.560 trapa discuss his strategy to get inflation down, one of 0:06:09.560 --> 0:06:13.080 the pillars is to have a strong dollar. UM. So 0:06:14.279 --> 0:06:19.240 it's proceeding as he wishes it to be. Now. UM. 0:06:19.279 --> 0:06:22.400 You know, when I look back through through the long 0:06:22.600 --> 0:06:26.039 lens of history, UM, we can see times where we, 0:06:26.279 --> 0:06:29.640 you know, used barley for money, then we used metals, 0:06:29.680 --> 0:06:33.200 and then um in hundred Spain found a huge silver 0:06:33.320 --> 0:06:36.640 mine in U in Peru, and then that increased the 0:06:36.680 --> 0:06:39.719 liquidity of money supply in the world, which caused uh 0:06:39.839 --> 0:06:43.160 inflation and massive acceleration. And then the silver mine ran 0:06:43.200 --> 0:06:45.520 out and then things start contracting. And so we can 0:06:45.600 --> 0:06:48.159 kind of see throughout history. Every time you increase the 0:06:48.160 --> 0:06:50.599 money supply, you get booms and you get inflation, and 0:06:50.640 --> 0:06:53.840 then when the money supply starts running out, um, then 0:06:53.880 --> 0:06:57.719 you get contraction. Now the Fed has obviously said that, 0:06:57.800 --> 0:07:01.480 so they did. Uh, you know, there was a long 0:07:01.880 --> 0:07:04.600 list of que that was happening, right, So they're easing 0:07:04.800 --> 0:07:07.960 the money supply. Now they're going through tightening. And if 0:07:07.960 --> 0:07:10.960 I think about it, just um in super basic terms, 0:07:11.000 --> 0:07:14.320 and maybe that throws me off. But if I because 0:07:14.320 --> 0:07:16.440 we're in a debt based system, money is created through debt. 0:07:16.680 --> 0:07:20.160 So if I lower the cost of borrowing, more people borrow, 0:07:20.240 --> 0:07:22.720 more money is created than you were talking about that, right, 0:07:22.760 --> 0:07:25.480 the cost of the dollars to borrow. If I increase 0:07:25.560 --> 0:07:28.680 the interest rate, then less money is created, less people 0:07:28.720 --> 0:07:32.520 are borrowing. So doesn't that I guess it's it's not 0:07:32.680 --> 0:07:35.600 a shortage of dollars, but it's a shortage of ability 0:07:35.640 --> 0:07:37.640 to access the dollars because now the cost of those 0:07:37.680 --> 0:07:42.520 dollars is prohibitive to what I could spend on it. Well, 0:07:43.080 --> 0:07:45.680 that that's true, but there are other factors as well. 0:07:45.720 --> 0:07:48.960 So if I if I raise an interest rate. You're 0:07:49.000 --> 0:07:52.040 exactly right, there's less of a demand for dollars. But 0:07:52.320 --> 0:07:55.360 what if I'm willing to pay the market price for interest, 0:07:55.440 --> 0:07:58.240 but I still can't get any dollars. That becomes more 0:07:58.280 --> 0:08:01.720 of an accessibility functioning problem of the market. Right. So 0:08:01.760 --> 0:08:04.240 you're saying it's a shortage. I'm not able to get 0:08:04.280 --> 0:08:07.280 them when I want them. I'm thinking even when you're 0:08:07.320 --> 0:08:10.679 paying market prices. I'm thinking a shortage of just there's 0:08:10.720 --> 0:08:13.320 not as much money in the system because less people 0:08:13.360 --> 0:08:15.600 are creating it through debt. So it's not that I 0:08:15.680 --> 0:08:17.920 can't get it, is that I can't get it at 0:08:17.920 --> 0:08:20.000 the price I need it, and so we just don't 0:08:20.120 --> 0:08:25.920 have the new creation amount of money has decreased well, 0:08:26.480 --> 0:08:29.880 because the FED is willing to lend infinite amounts of 0:08:29.920 --> 0:08:32.600 money at the market price. If you're willing to pay 0:08:32.640 --> 0:08:34.880 the market price, you can get all the dollars you need. 0:08:35.040 --> 0:08:37.320 The shortage, in my view how I look at it, 0:08:37.400 --> 0:08:40.679 occurs when even if you're willing to pay the market price, 0:08:40.840 --> 0:08:43.880 as said roughly by the FED, you can't get it. 0:08:44.520 --> 0:08:48.240 That's that's what Yeah. So um, you're definitely right, though, 0:08:48.280 --> 0:08:51.920 So the whole point of raising interest rates in acense 0:08:52.080 --> 0:08:56.040 is to decrease, uh, the credit creation and thus the 0:08:56.040 --> 0:08:58.760 supply of money. But there's something really interesting happening with 0:08:58.800 --> 0:09:02.000 the world now. You know, when we have a world 0:09:02.080 --> 0:09:06.960 where's largely based on private actors, this works because, for example, 0:09:07.480 --> 0:09:10.000 if the interest rate is higher and let's say I 0:09:10.040 --> 0:09:12.920 want to buy a house get a mortgage, I'm less 0:09:12.960 --> 0:09:15.400 likely this willing to do that because I'm sensitive to 0:09:15.440 --> 0:09:19.000 interest rates. So using interest rates as a tool to 0:09:19.080 --> 0:09:23.559 control inflation works when most of the economy is based 0:09:23.559 --> 0:09:26.200 on the private sector. But what if you have a 0:09:26.240 --> 0:09:29.760 world where most of the economy is actually the public sector. 0:09:30.720 --> 0:09:33.840 Now we all know that Congress is never going to 0:09:33.880 --> 0:09:36.360 go into a spending plan and say how we're going 0:09:36.400 --> 0:09:38.480 to pay for it? Interest rates too high? That's never 0:09:38.520 --> 0:09:42.520 a question. So interest rates don't matter to public spending. 0:09:42.720 --> 0:09:45.680 So if you have an economy that's becoming more dominated 0:09:45.720 --> 0:09:50.440 by the public sector, that tool of slowing down credit 0:09:50.480 --> 0:09:54.720 creation through interest rates becomes less effective. Mm hm. That's 0:09:54.720 --> 0:09:56.280 a that's a good point because they don't have the 0:09:56.280 --> 0:09:59.520 same constraints at the private sector exactly exactly. That's a 0:09:59.720 --> 0:10:02.480 kind but that's something that I think is becoming more 0:10:02.520 --> 0:10:05.839 obvious now when when the one hand, the FETE is 0:10:05.920 --> 0:10:08.280 trying to slow down the economy about raising rates. On 0:10:08.320 --> 0:10:11.800 the other hand, Joe Biden just announces he'll forgive you know, 0:10:12.040 --> 0:10:15.000 hundreds of billions of dollars in student loans. So they're 0:10:15.000 --> 0:10:19.320 pushing against each other in a way. Yeah. And now 0:10:19.360 --> 0:10:21.880 with the with the central banks needing to buy money 0:10:21.920 --> 0:10:23.360 to prop up their bonds, which we'll get to that 0:10:23.360 --> 0:10:26.160 in a little bit. Um, that's a really good topic. 0:10:26.160 --> 0:10:28.320 We'll talk about it. Yeah. So I but I want 0:10:28.320 --> 0:10:30.840 to stick on this, so increasing the money supply and 0:10:30.880 --> 0:10:33.199 decreasing the money supply. So you recently had this article 0:10:33.280 --> 0:10:35.400 that came out on barrens Um. We'll put a link 0:10:35.440 --> 0:10:37.800 to it down in the description below. And you were saying, 0:10:37.840 --> 0:10:41.280 how you know, for two years because of quantite of easing, Um, 0:10:41.320 --> 0:10:43.679 it doubled the central banks balance sheet to nine trillion 0:10:44.200 --> 0:10:48.160 UM of the nation's gross domestic product, which helped fuel 0:10:48.240 --> 0:10:52.080 significant gains. That's what you said, Um, and the que 0:10:52.360 --> 0:10:54.840 the easy the increase of the money supply, I put 0:10:54.880 --> 0:10:59.000 downward pressure on interest rates. So the converse of what 0:10:59.080 --> 0:11:02.319 you're saying, so, um, it pushed the borrowing costs down 0:11:02.400 --> 0:11:05.160 because there was so much liquidity, right, which increased liquid 0:11:05.200 --> 0:11:08.280 in the system. Um, so there's that, and now the 0:11:08.360 --> 0:11:11.560 opposite of that is happening. So now they're tightening, and 0:11:11.640 --> 0:11:16.120 so now they're reducing the security holdings by what nine 0:11:16.360 --> 0:11:19.480 five billion per months. It's the opposite of QWI, which 0:11:19.480 --> 0:11:23.160 would then put um upward pressure on interest rates and 0:11:23.400 --> 0:11:25.640 decreased liquid in the finance system, which which is what 0:11:25.640 --> 0:11:29.800 we're seeing exactly exactly right, and we see you see 0:11:29.800 --> 0:11:32.840 the effects kind of obviously right. QWI makes the stock 0:11:32.920 --> 0:11:36.400 market go higher. You reverse QWI, stock market seems to 0:11:36.400 --> 0:11:40.320 be going lower. So there's a lot of factors at play, 0:11:40.360 --> 0:11:43.920 but I think that's one of them. Um. One way 0:11:43.960 --> 0:11:46.320 I think that I look at the money supply since 0:11:46.360 --> 0:11:49.080 I think, uh, it seems like you focus on this 0:11:49.160 --> 0:11:51.720 as well, is that I would also note that when 0:11:51.760 --> 0:11:55.360 you're looking on at money supply, you could broaden your 0:11:55.360 --> 0:11:59.560 definition of money to include not just let's say M two, 0:11:59.600 --> 0:12:03.319 but you could also look at trudury securities. For example, 0:12:03.960 --> 0:12:08.160 if let's say I'm someone working at a company, Um, 0:12:08.200 --> 0:12:11.559 every week I get let's say a wire transfer from 0:12:11.559 --> 0:12:15.120 my company into my bank account, I'd say a thousand 0:12:15.200 --> 0:12:19.360 dollars If instead of receiving a hundred thousand dollars in 0:12:19.440 --> 0:12:22.240 my bank account, I got a hundred thousand a thousand 0:12:22.320 --> 0:12:25.319 in tugury securities instead, will that really make a difference 0:12:25.320 --> 0:12:27.760 to me? And I don't think so. I mean, in 0:12:27.800 --> 0:12:31.880 many ways, just like a hundred dollar bill is money, 0:12:32.000 --> 0:12:34.520 so a hundred dollars in trudury securities is also a 0:12:34.559 --> 0:12:37.160 form of money. So when you're when the FED is 0:12:37.200 --> 0:12:41.280 going out and doing QWI by buying trudury securities a 0:12:41.320 --> 0:12:44.280 lot of times, rather than say it's increasing the money supply, 0:12:44.880 --> 0:12:47.160 I find it useful to think that it's just changing 0:12:47.200 --> 0:12:49.800 the type of money people have. So, going back to 0:12:49.840 --> 0:12:53.040 the example that we just mentioned, instead of being paid 0:12:53.480 --> 0:12:56.640 maybe a thousand dollars in deposits in a bank, maybe 0:12:56.640 --> 0:12:59.800 I'm getting a sorry instead of being paid a thousand 0:12:59.800 --> 0:13:02.599 dollars and tredury securities, I'm getting a thousand dollars in 0:13:02.640 --> 0:13:05.920 a bank. The difference being that ted securities have a 0:13:06.000 --> 0:13:09.079 yield pay interest, but what I have in the bank doesn't. 0:13:09.559 --> 0:13:12.920 So when the FED is doing KIWI on a large basis, 0:13:13.200 --> 0:13:17.160 it's taking away risk free assets that offer interest to 0:13:17.240 --> 0:13:21.000 people and replacing them with um deposits at a bank 0:13:21.160 --> 0:13:24.319 or basically money that doesn't pay interest, and that forces 0:13:24.360 --> 0:13:26.880 a lot of people to go and look for more 0:13:27.320 --> 0:13:30.880 risk or higher interest returns. And that's what kind of 0:13:30.920 --> 0:13:34.480 forces the whole keywi risk on in my view. So 0:13:35.360 --> 0:13:37.719 one day I had a tudury paying let's say a 0:13:37.720 --> 0:13:40.520 two percent. Today I have a bank uptosit paying nothing. 0:13:40.559 --> 0:13:42.640 So maybe I go buy Apple bonds or Apple stock 0:13:42.720 --> 0:13:45.920 or something like that. Now QT does the opposite of that. 0:13:46.400 --> 0:13:49.720 Now interest rates go higher, there are more treasury securities 0:13:49.800 --> 0:13:55.040 for me to purchase, and so maybe instead of buying Apple, 0:13:55.280 --> 0:13:57.120 I go and I buy a two year treasury that's 0:13:57.200 --> 0:14:01.000 yielding four So that's that's out of how it works. 0:14:01.000 --> 0:14:03.600 In my view. You have this huge reshuffling of people 0:14:03.920 --> 0:14:06.720 going out of risk assets to just you know, parking 0:14:06.760 --> 0:14:09.800 it and uh and that showed security or the money 0:14:09.800 --> 0:14:12.520 market fund for for higher return. There's lesson need to 0:14:12.559 --> 0:14:16.840 take risk. The risk free rate right, yes, it's it's 0:14:16.840 --> 0:14:18.920 getting higher. It's going to be four percent by the 0:14:19.000 --> 0:14:20.600 end of the year. A lot of people are going 0:14:20.680 --> 0:14:22.800 to have to look at that and say should I 0:14:23.000 --> 0:14:25.080 that's the stock market where maybe I lose a lot 0:14:25.080 --> 0:14:27.960 of money. Or maybe I can just put this at 0:14:27.960 --> 0:14:30.920 the risk free rate and earn four percent with no 0:14:31.080 --> 0:14:33.400 risk at all. And even though the four percent is 0:14:33.440 --> 0:14:37.600 still um are still in negative real return exactly. At 0:14:37.680 --> 0:14:40.920 least it's at least it's known. At least it's known 0:14:41.000 --> 0:14:44.040 what my risk is as opposed to unknown. You know, 0:14:44.120 --> 0:14:46.560 could could the stock market dropping, you know, we don't 0:14:46.560 --> 0:14:50.000 know exactly exactly. So that's a big headwine two two 0:14:50.080 --> 0:14:54.720 risk assets and we see that already. Yeah, as you suggest. Yeah, 0:14:54.960 --> 0:14:57.520 now it sounds like so just kind of just to 0:14:57.560 --> 0:15:00.000 finish nail this point home on the on the shore 0:15:00.000 --> 0:15:02.800 stage of dollars. You you call that your definition of 0:15:02.840 --> 0:15:04.760 shortage of dollars when people want them but can't really 0:15:04.800 --> 0:15:07.880 get them. Um, I'm looking at it just a total 0:15:07.920 --> 0:15:10.440 amount of dollars being created going up or down. So 0:15:10.480 --> 0:15:12.840 when the total amount of dollars being created goes up, 0:15:12.920 --> 0:15:15.720 we have more liquidity. We see assets go up. When 0:15:15.760 --> 0:15:17.920 the total amount of dollars goes down, then we see 0:15:17.960 --> 0:15:20.800 us go down. Not that people can't get them, but 0:15:20.840 --> 0:15:22.920 there's just less of them because they're not as cheap 0:15:22.960 --> 0:15:28.560 as they were before. Right, Um, yeah, so there you 0:15:28.600 --> 0:15:31.920 have more alternatives when when you do QT you have 0:15:32.000 --> 0:15:35.120 higher interest rates, right, there's less than that for assets 0:15:35.160 --> 0:15:38.120 in general, when you have safer alternatives, like like we 0:15:38.240 --> 0:15:39.840 just talked about, well, and if I was going to 0:15:39.960 --> 0:15:43.760 borrow short at you know, zero point five percent and 0:15:43.760 --> 0:15:46.680 then go along at two or three percent, right, I 0:15:46.720 --> 0:15:48.560 may take those dollars because I can make that to 0:15:48.720 --> 0:15:51.920 three spread. But when those numbers change, I'm not gonna 0:15:51.960 --> 0:15:53.680 I'm not gonna borrow the dollars because now that deal 0:15:53.760 --> 0:15:57.120 is not available to me anymore. Right, Yes, the cost 0:15:57.200 --> 0:15:59.520 of carry goes higher, so there's going to be less leverage, 0:15:59.600 --> 0:16:03.480 less ring, and let's barring obviously decreased this amount of 0:16:03.600 --> 0:16:08.200 money in the system now, So if we keep moving 0:16:08.320 --> 0:16:13.400 on to that. You know, Chairman Pal he's been pretty 0:16:13.440 --> 0:16:15.840 strong with his wording. I think he got hammered a 0:16:15.840 --> 0:16:18.160 little bit a couple of months ago. He at the 0:16:18.280 --> 0:16:20.680 end of the meeting he got a little devish, and uh, 0:16:20.920 --> 0:16:22.440 they had to kind of backtrack that. In the last 0:16:22.440 --> 0:16:26.400 two meetings, he's been more harsh, more hawkish. I guess. Uh. 0:16:26.520 --> 0:16:30.720 He says that you know, they'll stay at it until 0:16:30.960 --> 0:16:33.600 it is done right, So like, stay at what right? 0:16:33.640 --> 0:16:37.680 I guess, continue tightening and tell what until inflation comes down. Um. 0:16:37.720 --> 0:16:40.120 He doesn't seem to be concerned about the stock markets 0:16:40.240 --> 0:16:46.000 at all. Um really just focused on um inflation. It 0:16:46.040 --> 0:16:49.760 seems like, Um, you hear a lot of talk about 0:16:50.440 --> 0:16:52.600 you know, a pivot, a pivot, a pivot, a pivot. 0:16:52.600 --> 0:16:54.720 But again he doesn't care about the stock market. And 0:16:54.720 --> 0:16:56.520 and and ultimately, if you look at it, maybe the 0:16:56.520 --> 0:16:59.360 stock market hasn't even been hammered that bad as of now. 0:17:00.040 --> 0:17:02.720 But what we are seeing is the bond market, right, 0:17:02.760 --> 0:17:05.320 so there's a lot of volatility coming there. The vixus 0:17:05.400 --> 0:17:10.439 spiking credit default swaps. Is that where you think the 0:17:10.480 --> 0:17:14.480 focus is, like the liquidity in the bond market exactly, 0:17:14.640 --> 0:17:18.120 that's where I think the big risk is. So when 0:17:18.160 --> 0:17:21.639 you're doing so so I imagine many of the viewers 0:17:21.680 --> 0:17:25.240 here are familiar with how bitcoin trades. Right, So if 0:17:25.240 --> 0:17:27.879 you have, for example, in bitcoin, when you look at 0:17:27.920 --> 0:17:29.919 the market, if you have a whale come in and 0:17:30.119 --> 0:17:32.440 unload a whole bunch of bitcoin, prices are going to 0:17:32.520 --> 0:17:34.920 drop a lot. Right, that's a liquidity issue. Right, if 0:17:34.960 --> 0:17:36.760 you go and you sell a whole bunch of bitcoin, 0:17:37.119 --> 0:17:41.920 supplyingmand supplying exactly it's not just now. The trugury market 0:17:42.160 --> 0:17:44.600 is just like bitcoin in that sense, there's just supply 0:17:44.640 --> 0:17:47.600 and demand. You can you sell a lot of trudguries, 0:17:47.800 --> 0:17:52.000 you're going to get unstable prices, and that's exactly what's 0:17:52.040 --> 0:17:56.520 going on right now. So QT at a high level 0:17:57.080 --> 0:17:59.600 means that the public is going to the market is 0:17:59.600 --> 0:18:02.240 going to have to absorb a lot more trosury securities. 0:18:02.760 --> 0:18:06.800 Now how much more? A lot more um? This sierra 0:18:06.880 --> 0:18:12.040 looks like the total issuance that it's okay, So issuance 0:18:12.080 --> 0:18:14.639 including QT that the market will have to absorb is 0:18:14.680 --> 0:18:18.320 about one point five trillion. Now, before the pandemic, the 0:18:18.359 --> 0:18:22.520 market absorbing about five billion UM a year, So it's 0:18:22.520 --> 0:18:24.359 going to have to absorb one point five trillion this 0:18:24.440 --> 0:18:28.680 year and the next and going forward because of our deficit, 0:18:28.920 --> 0:18:31.160 it's going to be at least a trillion a year 0:18:31.200 --> 0:18:34.959 or forever. So that's a lot of supply into the market, 0:18:35.800 --> 0:18:38.840 and at the same time, the demand in the market 0:18:39.160 --> 0:18:44.199 it's not that strong. So during after the pandemic, the 0:18:44.240 --> 0:18:47.040 FED was basically the major buyer of troedery securities, and 0:18:47.119 --> 0:18:49.440 the FED is going away right now, so you're gonna 0:18:49.440 --> 0:18:52.040 have this huge supply and demand mismatch, which we kind 0:18:52.040 --> 0:18:55.120 of see manifesting in the troasury market. You see, sometimes 0:18:55.119 --> 0:18:58.360 the tenure goes up twenty point pony basis points a day. 0:18:58.600 --> 0:19:02.159 That's pretty unstable. And we've trended steadily higher over the 0:19:02.200 --> 0:19:05.840 past few months because we have to find these new 0:19:05.880 --> 0:19:10.080 marshal buyers to absorb all that supply. And I don't 0:19:10.119 --> 0:19:13.280 know who that is. Like you mentioned, inflation is high, 0:19:13.400 --> 0:19:16.960 and who wants to buy a tenure treasure security yet 0:19:17.240 --> 0:19:19.680 four percent? You can get the same thing and money 0:19:19.720 --> 0:19:24.720 market account. Yeah so, and that's what happened on the 0:19:24.720 --> 0:19:30.040 Bank of England as well, which I'm sure we'll get into. Yeah. So, um, 0:19:30.119 --> 0:19:31.840 if we if we stick with what you're saying, so 0:19:32.000 --> 0:19:34.600 just supplying demand, it's it's it's the most simple thing. 0:19:34.720 --> 0:19:36.960 You can take these super complex subjects and just break 0:19:36.960 --> 0:19:39.439 them down to just the equilibrium of supply and demand. 0:19:39.480 --> 0:19:42.000 And so back to just where we started with the 0:19:42.000 --> 0:19:45.920 money supply. When money is cheap, there's more demand for it, right, 0:19:46.400 --> 0:19:50.159 and so back to the supply of treasuries. Um, so, 0:19:50.200 --> 0:19:51.919 if the government is going to mean to need to 0:19:52.040 --> 0:19:54.040 issue more trade they already are you said, it's gone 0:19:54.080 --> 0:19:56.800 up from there, having absorbed five million owns up to 0:19:56.840 --> 0:20:00.560 one point five trillion yea probably billion to If we 0:20:00.600 --> 0:20:04.639 look at the FED, seems to be focused on crushing demand, right, 0:20:04.680 --> 0:20:06.639 that's what they've said. They believe that if they can 0:20:06.680 --> 0:20:09.040 crush the demand side, then people will spend less money 0:20:09.119 --> 0:20:12.679 and maybe they'll bring inflation down. Um. The problem to 0:20:12.720 --> 0:20:17.760 me seems that it's asset prices that are getting hammered. First. Um, 0:20:17.800 --> 0:20:21.000 if asset prices come down, then there's no cap gains, 0:20:21.000 --> 0:20:26.439 there's no iary distributions. We already have a huge balance problem, right, 0:20:26.440 --> 0:20:28.560 We're already running a deficit to the point that you're making. 0:20:28.960 --> 0:20:32.840 And so if we see asset prices come down, Um, 0:20:33.000 --> 0:20:35.000 then we don't see, like I said, the cap gains. 0:20:35.000 --> 0:20:36.840 We don't see that. We also see the reverse wealth 0:20:36.840 --> 0:20:39.719 effects of people spend less. So total tax receipts are 0:20:39.800 --> 0:20:44.200 just going to plummet. Most likely seventy percent of the 0:20:44.240 --> 0:20:47.840 taxes come from the top ten percent of earners, which 0:20:47.880 --> 0:20:50.560 most likely make the majority of their income from cap 0:20:50.600 --> 0:20:54.520 gains distributions and things like that. That's seventy access eats 0:20:54.560 --> 0:20:56.879 come from that. Uh, And so we could see a 0:20:56.960 --> 0:21:00.240 massive it. We could see this, uh this f five 0:21:00.480 --> 0:21:02.439 million to one point five trillion or even more. We 0:21:02.440 --> 0:21:05.640 can see this deficit grow by levels that maybe they're 0:21:05.640 --> 0:21:09.640 not even anticipating or do you think that's too apocalyptic? 0:21:11.280 --> 0:21:14.240 I think you're exactly right. That is the big picture. 0:21:14.320 --> 0:21:16.080 How are we going to pay for all these things? 0:21:16.200 --> 0:21:20.720 Or deficit? Is there's a forecast put out by the 0:21:20.760 --> 0:21:24.879 government based on law on the books. It's forecasts to 0:21:24.920 --> 0:21:27.560 basically be at least a trillion dollars a year forever. 0:21:28.000 --> 0:21:30.640 And that's just what it's on the books. Eventually, I'm 0:21:30.680 --> 0:21:33.880 sure they're going to give more free stuff. So, um, 0:21:33.920 --> 0:21:36.800 so that that that is the problem. It does seem apocalyptic, 0:21:36.960 --> 0:21:39.760 and um it seems like I think Stanley Drunken Miller 0:21:39.800 --> 0:21:42.720 recently made a similar point just just last week. I think. 0:21:42.760 --> 0:21:46.320 So it's a big problem. So the way that I 0:21:46.359 --> 0:21:49.760