1
00:00:00,560 --> 00:00:04,000
Speaker 1: What's up everyone, Welcome to financial heresy, where we talk

2
00:00:04,040 --> 00:00:06,560
Speaker 1: about how money works so that you can make more,

3
00:00:06,840 --> 00:00:09,760
Speaker 1: keep more, and give more. Got a huge guest on

4
00:00:09,800 --> 00:00:12,719
Speaker 1: the show for you today. His name is James Lavish.

5
00:00:12,840 --> 00:00:16,240
Speaker 1: If you don't already follow him on Twitter, highly recommend

6
00:00:16,280 --> 00:00:18,560
Speaker 1: giving him a follow there. He calls himself a reformed

7
00:00:18,880 --> 00:00:23,320
Speaker 1: hedge fund manager, brilliant guy. And we talk about what's

8
00:00:23,360 --> 00:00:26,639
Speaker 1: going been going on in Japan recently last couple of years,

9
00:00:26,680 --> 00:00:30,000
Speaker 1: the bank failures, the debt spiral situation that the United

10
00:00:30,040 --> 00:00:32,600
Speaker 1: States is in right now. Just looking at the numbers

11
00:00:32,720 --> 00:00:37,360
Speaker 1: of taxes and the interest on the debt and mandatory spending.

12
00:00:37,760 --> 00:00:41,080
Speaker 1: Where just those raw numbers, nothing political, no ideologies there,

13
00:00:41,240 --> 00:00:44,600
Speaker 1: Where those numbers, the math Where that puts us. He's

14
00:00:44,600 --> 00:00:47,800
Speaker 1: got a fantastic Twitter, just constantly putting out great information

15
00:00:47,880 --> 00:00:51,080
Speaker 1: there and that I also highly recommend. If you like newsletters,

16
00:00:51,360 --> 00:00:57,080
Speaker 1: that you subscribe to the Informationist newsletter on substack. You

17
00:00:57,120 --> 00:01:00,960
Speaker 1: can find that at James Lavish dot substack dot com.

18
00:01:01,600 --> 00:01:05,040
Speaker 1: I highly recommend following him there. Really excited for this

19
00:01:05,080 --> 00:01:08,720
Speaker 1: conversation with James Lavish. Well, thank you so much James

20
00:01:08,760 --> 00:01:11,119
Speaker 1: for joining me today. I'm really excited to have this conversation.

21
00:01:11,280 --> 00:01:14,039
Speaker 1: So much is going on. A lot of people are

22
00:01:14,440 --> 00:01:16,959
Speaker 1: looking to you for answers to explain what's going on.

23
00:01:17,120 --> 00:01:19,319
Speaker 1: So thank you so much for joining me today.

24
00:01:19,800 --> 00:01:21,440
Speaker 2: Yeah, of course, it's great to be here, Joe, and

25
00:01:21,600 --> 00:01:24,680
Speaker 2: I'm happy to be a first time guest on your show.

26
00:01:24,720 --> 00:01:27,360
Speaker 2: This is exciting, so now it's great to be here.

27
00:01:27,760 --> 00:01:30,120
Speaker 1: Well, So I'd like to kind of get into some

28
00:01:30,160 --> 00:01:32,760
Speaker 1: of the stuff that is going on today, some of

29
00:01:32,800 --> 00:01:34,760
Speaker 1: the stuff that's going on the news, bank failures, things

30
00:01:34,800 --> 00:01:37,240
Speaker 1: like that, But we have to set up the context

31
00:01:37,319 --> 00:01:39,440
Speaker 1: for that because this is not something that came out

32
00:01:39,440 --> 00:01:42,240
Speaker 1: of the blue for anybody who's been paying attention to

33
00:01:42,280 --> 00:01:45,760
Speaker 1: the way things work for a while. So I'd like

34
00:01:45,840 --> 00:01:48,360
Speaker 1: to start off with something you've talked about a lot,

35
00:01:48,360 --> 00:01:50,800
Speaker 1: which is the situation that's been going on in Japan

36
00:01:50,960 --> 00:01:54,440
Speaker 1: for a long time actually, and how they basically own

37
00:01:54,480 --> 00:01:57,280
Speaker 1: all their own debts. So can you give us an

38
00:01:57,320 --> 00:01:59,600
Speaker 1: explanation of what's been going on there, because I think

39
00:01:59,640 --> 00:02:02,720
Speaker 1: that gives some insights what's gonna where we're going today here.

40
00:02:03,320 --> 00:02:06,320
Speaker 2: Yeah, of course. So you know, we started talking about

41
00:02:06,320 --> 00:02:10,799
Speaker 2: this back in the summer when Japan all the central

42
00:02:10,840 --> 00:02:15,560
Speaker 2: banks are trying to they're trying to control the flow

43
00:02:15,600 --> 00:02:18,960
Speaker 2: of money right in and out of their own border,

44
00:02:19,200 --> 00:02:22,160
Speaker 2: right So, and they do that with interest rates, and

45
00:02:22,200 --> 00:02:28,720
Speaker 2: interest rates impact the currencies and the bonds that they're there,

46
00:02:29,040 --> 00:02:33,320
Speaker 2: their own treasures, their own government bonds. So as everybody

47
00:02:33,480 --> 00:02:36,720
Speaker 2: started as all these countries, the western developed countries started

48
00:02:37,200 --> 00:02:41,440
Speaker 2: seeing inflation tick up after the lockdowns and a massive

49
00:02:41,440 --> 00:02:44,480
Speaker 2: amount of money printing in Europe and in the United States,

50
00:02:44,880 --> 00:02:47,760
Speaker 2: they started seeing inflation tick up, and they realized that

51
00:02:47,760 --> 00:02:50,520
Speaker 2: we're going to have to raise rates here to you know,

52
00:02:51,120 --> 00:02:56,600
Speaker 2: to tighten up liquidity and make and kind of take

53
00:02:56,680 --> 00:02:59,280
Speaker 2: money out, money supply out, or make it more difficult

54
00:02:59,320 --> 00:03:06,320
Speaker 2: to access. So that's central bank playbook one oh one manipulation. Right. So,

55
00:03:07,200 --> 00:03:10,560
Speaker 2: But as as the United States was doing that and

56
00:03:11,520 --> 00:03:14,240
Speaker 2: Europe started doing it, and we can talk about Europe,

57
00:03:14,280 --> 00:03:17,000
Speaker 2: that's a whole nother can of worms, it's a whole

58
00:03:17,040 --> 00:03:22,720
Speaker 2: nother dumpster fire. But the problem in Japan is they

59
00:03:23,080 --> 00:03:28,480
Speaker 2: they were not experiencing inflation, right, so as their bonds

60
00:03:28,639 --> 00:03:33,519
Speaker 2: started to tick up in yield, right down in price

61
00:03:33,560 --> 00:03:39,880
Speaker 2: and up and yield, they Japanese government, the Japanese Central Bank,

62
00:03:40,840 --> 00:03:43,000
Speaker 2: you know, the Bank of Japan said, we're going to

63
00:03:43,120 --> 00:03:47,840
Speaker 2: keep the tenure, which is the it's the bogie government

64
00:03:47,880 --> 00:03:50,560
Speaker 2: bond for each country. We're going to keep the tenure

65
00:03:50,720 --> 00:03:54,760
Speaker 2: priced at twenty five basis point yield. That's it. We

66
00:03:54,800 --> 00:03:58,480
Speaker 2: will buy every single bond that trades that twenty five

67
00:03:58,520 --> 00:04:01,800
Speaker 2: basis point yield to keep it there. Why did they

68
00:04:01,840 --> 00:04:04,480
Speaker 2: do that, Well, they did that because they didn't want

69
00:04:03,920 --> 00:04:08,440
Speaker 2: their rates to go up higher, right, making it making

70
00:04:08,800 --> 00:04:14,840
Speaker 2: financial conditions tighter, which would cause inflation to come down. Well,

71
00:04:14,880 --> 00:04:18,440
Speaker 2: they weren't experiencing inflation. They need inflation desperately. They've been

72
00:04:18,760 --> 00:04:21,800
Speaker 2: they've been trying to get inflation for a long time now, right,

73
00:04:21,920 --> 00:04:23,840
Speaker 2: So what are they doing. They're out there buying their

74
00:04:23,880 --> 00:04:28,280
Speaker 2: own bonds and trying to get that inflation up. Okay, well,

75
00:04:28,279 --> 00:04:30,080
Speaker 2: why are they doing that. We'll get to that in

76
00:04:30,120 --> 00:04:33,479
Speaker 2: a second. But the function of what was happening Joe

77
00:04:33,600 --> 00:04:37,480
Speaker 2: during the summer was that as they were buying their

78
00:04:37,480 --> 00:04:43,520
Speaker 2: own bonds, so anybody who owned Japanese treasuries, right, they

79
00:04:43,560 --> 00:04:47,320
Speaker 2: would sell those treasuries, receive yen, and then take those yen.

80
00:04:47,360 --> 00:04:50,160
Speaker 2: They didn't want to, They didn't know, they didn't want

81
00:04:50,160 --> 00:04:53,360
Speaker 2: to sit on yen, right, So then they would turn

82
00:04:53,400 --> 00:04:56,400
Speaker 2: around and buy something that would that had a better yield,

83
00:04:56,560 --> 00:04:58,960
Speaker 2: which would be the US treasury. So if you saw

84
00:04:59,000 --> 00:05:04,400
Speaker 2: the spread between the Treasury and the JGBS, the Japanese

85
00:05:04,440 --> 00:05:10,200
Speaker 2: government bonds, well, that spread would follow the yen dollar

86
00:05:10,480 --> 00:05:15,279
Speaker 2: interest rate. It's called instrate arbitrage, and that's just money

87
00:05:15,320 --> 00:05:18,000
Speaker 2: is looking for yield. Investors are looking for yield, So

88
00:05:18,360 --> 00:05:20,880
Speaker 2: it's just natural that would come across the border here

89
00:05:21,160 --> 00:05:23,640
Speaker 2: and get invested here. So what would happened, Well, they

90
00:05:23,640 --> 00:05:26,840
Speaker 2: were selling yen and buying US dollars. So you saw

91
00:05:26,880 --> 00:05:28,920
Speaker 2: the yen collapse to one hundred and thirty hundred and

92
00:05:28,920 --> 00:05:32,920
Speaker 2: forty hundred and fifty late this fall because of that

93
00:05:33,080 --> 00:05:36,360
Speaker 2: dynamic right there, And the pressure was so great on

94
00:05:36,880 --> 00:05:41,520
Speaker 2: that JGB ten year by December and January they had

95
00:05:41,560 --> 00:05:44,599
Speaker 2: to move. They had a surprise move where they moved

96
00:05:44,640 --> 00:05:47,800
Speaker 2: the ten year rate up to fifty basis points and

97
00:05:47,880 --> 00:05:50,320
Speaker 2: they said, okay, we'll stop at fifty basis points down,

98
00:05:50,400 --> 00:05:53,960
Speaker 2: we'll just hold it there. Now, there's a couple of

99
00:05:54,120 --> 00:05:57,760
Speaker 2: things here. First of all, that created a situation where

100
00:05:57,880 --> 00:06:01,200
Speaker 2: the Japanese government, as you say, the Bank of Japan

101
00:06:01,320 --> 00:06:04,760
Speaker 2: owns more bonds, more Japanese bonds than any other investor

102
00:06:04,800 --> 00:06:07,240
Speaker 2: in the world. They now own over fifty percent of

103
00:06:07,240 --> 00:06:10,640
Speaker 2: their own bonds, right, So that's just crazy. And then

104
00:06:11,200 --> 00:06:14,120
Speaker 2: their debt to GDP is over two hundred and fifty percent,

105
00:06:14,360 --> 00:06:17,160
Speaker 2: So of course they need inflation. The reason they need

106
00:06:17,200 --> 00:06:21,760
Speaker 2: inflation is to inflate away that debt. You absolutely must

107
00:06:21,839 --> 00:06:26,160
Speaker 2: have inflation in order to have a higher nominal GDP

108
00:06:26,839 --> 00:06:29,479
Speaker 2: to have a higher tax base to pay off that

109
00:06:29,560 --> 00:06:33,520
Speaker 2: old debt. Right, So, I mean we're operating in deficits here,

110
00:06:33,600 --> 00:06:36,520
Speaker 2: and that's the problem. Now. There is a difference in

111
00:06:36,839 --> 00:06:40,120
Speaker 2: Japan is that Look, they're a net exporter, we're a

112
00:06:40,120 --> 00:06:44,120
Speaker 2: net importer. And they have totally different demographics their population

113
00:06:44,200 --> 00:06:46,600
Speaker 2: than we do, so it is a different beast. I mean,

114
00:06:47,040 --> 00:06:50,360
Speaker 2: we can't extrapolate exactly what's going on there with what

115
00:06:50,400 --> 00:06:52,839
Speaker 2: would happen here if we have the same program. I

116
00:06:52,839 --> 00:06:54,760
Speaker 2: think it would be much worse if we did that here.

117
00:06:55,360 --> 00:06:57,719
Speaker 2: But that's called yield curve control, and they were deep

118
00:06:57,720 --> 00:07:02,080
Speaker 2: in it and they they're still doing it. So okay,

119
00:07:02,120 --> 00:07:06,520
Speaker 2: So when you talk about yield curve control, many people think, well,

120
00:07:06,560 --> 00:07:08,479
Speaker 2: that sounds just like what the Fed was doing with

121
00:07:08,600 --> 00:07:13,600
Speaker 2: q and I think it's important to point out the

122
00:07:13,680 --> 00:07:18,520
Speaker 2: difference in targeting a specific price for a bond versus

123
00:07:18,520 --> 00:07:22,160
Speaker 2: targeting how many bonds you're going to be buying, and

124
00:07:22,360 --> 00:07:24,320
Speaker 2: how when you get to the point of targeting the

125
00:07:24,360 --> 00:07:26,200
Speaker 2: price for the bond, it means you're going to buy

126
00:07:26,200 --> 00:07:28,520
Speaker 2: an unlimited amount to get that price, which means it

127
00:07:28,520 --> 00:07:30,760
Speaker 2: gives other people an incentive to sell it to the

128
00:07:30,800 --> 00:07:34,680
Speaker 2: central bank. Right, that's right, So it's they become the

129
00:07:36,280 --> 00:07:40,840
Speaker 2: marginal buyer and so and that's pure manipulation. So it's

130
00:07:40,840 --> 00:07:43,040
Speaker 2: a difference. The difference is if they're out there in

131
00:07:43,080 --> 00:07:44,800
Speaker 2: the market, so the central bank is out there in

132
00:07:44,800 --> 00:07:47,320
Speaker 2: the market just doing QE, where they're out there buying

133
00:07:47,840 --> 00:07:51,240
Speaker 2: treasuries or mortgage backs. Well, what they're doing is they're

134
00:07:51,280 --> 00:07:54,280
Speaker 2: just putting liquid into the market. They're taking dollars that

135
00:07:54,320 --> 00:07:56,760
Speaker 2: they've printed and they're dumping them into the market and

136
00:07:56,800 --> 00:08:00,320
Speaker 2: taking and retiring some of that debt or putting are

137
00:08:00,400 --> 00:08:02,800
Speaker 2: the Fed's balance, she is what they're really doing, right,

138
00:08:02,880 --> 00:08:05,680
Speaker 2: So when they do that, they're just dumping money into

139
00:08:05,680 --> 00:08:08,800
Speaker 2: the system. But what you're talking about, which is exactly right,

140
00:08:09,320 --> 00:08:12,160
Speaker 2: they when they target a specific instrument that I mean,

141
00:08:12,200 --> 00:08:16,640
Speaker 2: that's that's pure manipulation of that specific security, and that

142
00:08:16,760 --> 00:08:20,520
Speaker 2: then it becomes problematic, it causes other problems. So as

143
00:08:20,560 --> 00:08:24,120
Speaker 2: we saw in Japan, and especially with the ten year

144
00:08:24,640 --> 00:08:29,840
Speaker 2: being the benchmark treasury across the world, well that that

145
00:08:30,000 --> 00:08:33,800
Speaker 2: ends up impacting your currency pretty pretty heavily. And so

146
00:08:34,080 --> 00:08:36,640
Speaker 2: and then we saw the same thing happen in Europe. Right,

147
00:08:37,160 --> 00:08:42,120
Speaker 2: So in the summer Europe was they still have negative

148
00:08:42,280 --> 00:08:46,520
Speaker 2: yielding rates. Okay, they had negative yielding bonds excuse me,

149
00:08:48,000 --> 00:08:51,319
Speaker 2: all the way into July, right, so here they were

150
00:08:51,400 --> 00:08:55,000
Speaker 2: experiencing tremendous inflation. The inflation was hitting double digits, and

151
00:08:55,040 --> 00:08:59,200
Speaker 2: they still the ECB, the European Central Bank, still held

152
00:08:59,280 --> 00:09:03,800
Speaker 2: rates under zero all the way into July. And so

153
00:09:04,000 --> 00:09:07,760
Speaker 2: when they suddenly raised rates, well, the markets down in

154
00:09:08,120 --> 00:09:11,000
Speaker 2: the south, the southern countries which have not had very

155
00:09:11,040 --> 00:09:15,679
Speaker 2: strong government bonds, they kind of freaked out, right, So

156
00:09:16,160 --> 00:09:19,160
Speaker 2: you saw that the Italian bonds immediately sell off the

157
00:09:19,720 --> 00:09:23,840
Speaker 2: ten years and so within I think it was hours,

158
00:09:23,960 --> 00:09:29,040
Speaker 2: the ECB came out. Christine Legard and you know, I

159
00:09:29,120 --> 00:09:33,559
Speaker 2: don't typically want to talk poorly about people, you know,

160
00:09:33,720 --> 00:09:36,480
Speaker 2: in public, but I just can't believe this. This person's

161
00:09:36,520 --> 00:09:39,880
Speaker 2: in charge of them, but this is just incredible to me.

162
00:09:40,000 --> 00:09:42,600
Speaker 2: But anyway, she came out and said, oh, don't worry,

163
00:09:42,920 --> 00:09:46,640
Speaker 2: don't worry, we have we have special tools to deal

164
00:09:46,640 --> 00:09:49,800
Speaker 2: with this. We've just implemented a new tool. It's called

165
00:09:49,840 --> 00:09:54,040
Speaker 2: the Transition Protection instrument. And so what that meant was

166
00:09:54,360 --> 00:09:59,880
Speaker 2: they what transition being from negative rates to positive or

167
00:10:00,040 --> 00:10:09,120
Speaker 2: it's protection protecting the southern countries and the southern banks Italy, Germany,

168
00:10:09,280 --> 00:10:13,880
Speaker 2: I mean sorry, Italy, Spain, Portugal, Greece, you know, protecting them.

169
00:10:14,000 --> 00:10:17,600
Speaker 2: And then the instrument is just manipulation. It's yield curve control.

170
00:10:17,960 --> 00:10:20,240
Speaker 2: And they said they will do everything to make sure

171
00:10:20,280 --> 00:10:23,520
Speaker 2: that they shore up that market, that it doesn't lock up,

172
00:10:23,640 --> 00:10:27,400
Speaker 2: and so you know, and this is just it's been

173
00:10:27,440 --> 00:10:31,719
Speaker 2: ongoing for so long and these the central banks are

174
00:10:31,720 --> 00:10:37,080
Speaker 2: manipulating the currency so badly that it's the cracks are

175
00:10:37,120 --> 00:10:39,960
Speaker 2: beginning to show. So you have it in Japan, you

176
00:10:40,080 --> 00:10:42,080
Speaker 2: had it in Europe, and you still have it in Europe.

177
00:10:42,120 --> 00:10:44,800
Speaker 2: I mean, there's there are many problems in Europe. And

178
00:10:45,600 --> 00:10:48,480
Speaker 2: just think through what just happened in the United States,

179
00:10:48,520 --> 00:10:51,040
Speaker 2: and nobody's talking about this, which is just incredible. But

180
00:10:51,320 --> 00:10:54,080
Speaker 2: what just happened in the United States with well, you

181
00:10:54,160 --> 00:10:58,160
Speaker 2: had all these banks that have this debt, the long

182
00:10:58,280 --> 00:11:00,960
Speaker 2: term debt that they didn't hedge out properly. Okay, they

183
00:11:00,960 --> 00:11:04,080
Speaker 2: didn't hitch out the indust rate risk properly, and then

184
00:11:04,520 --> 00:11:07,880
Speaker 2: be partially because they had guidance from the FED that

185
00:11:07,960 --> 00:11:10,040
Speaker 2: was so flawed that the FED said, oh, we're not

186
00:11:10,040 --> 00:11:13,040
Speaker 2: going to raise rates for a long time. You look back,

187
00:11:13,160 --> 00:11:15,360
Speaker 2: there's a lot of information I'm throwing at people here,

188
00:11:15,440 --> 00:11:18,080
Speaker 2: So if you need to ask questions about it, please

189
00:11:18,080 --> 00:11:20,880
Speaker 2: we can go back and review it. But back in

190
00:11:20,960 --> 00:11:23,920
Speaker 2: December of twenty twenty one, the FED put out their

191
00:11:23,960 --> 00:11:26,120
Speaker 2: dot plot where they think that the interest rates are

192
00:11:26,160 --> 00:11:28,960
Speaker 2: going to be. And back in December of twenty twenty one,

193
00:11:29,559 --> 00:11:33,240
Speaker 2: the average FED official thought that rates would be zero

194
00:11:33,240 --> 00:11:36,319
Speaker 2: point eighty six percent at the end of twenty twenty two. Well,

195
00:11:36,360 --> 00:11:38,640
Speaker 2: they missed by about four percent. I mean, it's just

196
00:11:38,800 --> 00:11:44,240
Speaker 2: absolutely abysmal how poorly they've managed this whole situation. Okay,

197
00:11:44,280 --> 00:11:46,640
Speaker 2: So what happens, Well, you have a bunch of banks

198
00:11:46,640 --> 00:11:51,000
Speaker 2: that take their treasury there, they have the deposits that

199
00:11:51,040 --> 00:11:54,280
Speaker 2: they keep their in their on their own balance sheet

200
00:11:54,520 --> 00:11:58,320
Speaker 2: that they don't lend out whatever's left right that they're

201
00:11:58,360 --> 00:12:01,720
Speaker 2: the deposits that are left balances, they have to invest

202
00:12:01,760 --> 00:12:04,960
Speaker 2: those and they invest in them in long term treasuries. Well,

203
00:12:05,080 --> 00:12:08,600
Speaker 2: when the rates go straight up like that, the treasury

204
00:12:08,760 --> 00:12:11,120
Speaker 2: falls in value and so you have a mark to

205
00:12:11,200 --> 00:12:13,880
Speaker 2: market massive loss. And that's what we saw this last

206
00:12:13,920 --> 00:12:17,800
Speaker 2: week right with Silicon Valley Bank. They had massive losses,

207
00:12:17,800 --> 00:12:21,760
Speaker 2: as do other banks. Well, when you have enough depositors

208
00:12:21,760 --> 00:12:23,959
Speaker 2: that want their money back and they make a run

209
00:12:24,040 --> 00:12:26,719
Speaker 2: at that bank to get their money, and then that

210
00:12:26,760 --> 00:12:29,640
Speaker 2: bank is forced to sell those treasuries in the market

211
00:12:29,640 --> 00:12:33,720
Speaker 2: and take massive markdowns, will they go they become insolvent,

212
00:12:34,000 --> 00:12:37,880
Speaker 2: And that's what happened. Well, let's go back to Europe. Well, Europe,

213
00:12:37,920 --> 00:12:42,360
Speaker 2: they had negative yielding bonds, right, they had fifteen Joe,

214
00:12:42,600 --> 00:12:47,360
Speaker 2: fifteen trillion dollars of negative yielding bonds back in the

215
00:12:47,400 --> 00:12:53,360
Speaker 2: fall of twenty twenty one, Right, so we're talking about

216
00:12:53,400 --> 00:12:55,760
Speaker 2: just over a maybe year and a half ago, and

217
00:12:55,840 --> 00:12:59,960
Speaker 2: not even that, they had fifteen trillion dollars worth of

218
00:13:00,080 --> 00:13:02,560
Speaker 2: bonds in Europe that were negative yielding. Well, what do

219
00:13:02,600 --> 00:13:04,520
Speaker 2: you think has happened to those bonds? As rates have

220
00:13:04,600 --> 00:13:08,439
Speaker 2: gone straight up there too. Of course they're way underwater

221
00:13:08,520 --> 00:13:10,520
Speaker 2: and that's a problem. So there are banks there that

222
00:13:10,559 --> 00:13:13,320
Speaker 2: are probably insolvent, but we don't know, we don't know

223
00:13:13,360 --> 00:13:16,000
Speaker 2: what the situations they have different you know, they have

224
00:13:16,080 --> 00:13:20,600
Speaker 2: different capital requirements. So but this is a problem that's

225
00:13:20,760 --> 00:13:24,520
Speaker 2: beginning to show everywhere. I mean, I could just keep going.

226
00:13:24,520 --> 00:13:27,360
Speaker 2: We could talk about the UK this last fall. You

227
00:13:27,400 --> 00:13:32,240
Speaker 2: know the UK pension situation. Well, again, when you have

228
00:13:32,280 --> 00:13:36,520
Speaker 2: a situation where okay, we'll start at ground zero, pension

229
00:13:36,559 --> 00:13:40,160
Speaker 2: funds they have pensioners that give them money and expect

230
00:13:40,200 --> 00:13:42,559
Speaker 2: to have a payout in the future. Well, those are

231
00:13:42,600 --> 00:13:45,640
Speaker 2: obligations for the pension fund. They know what the obligations are,

232
00:13:45,720 --> 00:13:48,240
Speaker 2: they can calculate it out and they can figure out

233
00:13:48,320 --> 00:13:49,960
Speaker 2: just how much they think they're going to owe in

234
00:13:50,000 --> 00:13:53,079
Speaker 2: the future. Well, in order to get in order to

235
00:13:53,400 --> 00:13:57,480
Speaker 2: have their investments match inflation and meet the requirements of

236
00:13:57,480 --> 00:14:00,320
Speaker 2: what they believe they're going to oh these penchion in

237
00:14:00,320 --> 00:14:02,400
Speaker 2: the future, they have to get yield. They have to

238
00:14:02,440 --> 00:14:05,839
Speaker 2: invest that money in stocks, bonds, private equity, whatever they

239
00:14:05,840 --> 00:14:09,000
Speaker 2: may do in order to get enough yield that they

240
00:14:09,040 --> 00:14:11,160
Speaker 2: will be able to pay out those pensions. Later, Well,

241
00:14:11,200 --> 00:14:14,280
Speaker 2: when you have so many negative yielding bonds, or zero

242
00:14:14,400 --> 00:14:18,240
Speaker 2: yielding bonds, or very low yielding bonds, what do you do.

243
00:14:18,320 --> 00:14:21,000
Speaker 2: You have to have a mix of stocks and bonds

244
00:14:21,040 --> 00:14:24,800
Speaker 2: in your portfolio if you're a traditional pension fund manager,

245
00:14:25,200 --> 00:14:28,320
Speaker 2: So what do you do? Well, in the UK, they

246
00:14:28,320 --> 00:14:33,040
Speaker 2: did something that's called an LDI. It's a leverage debt instrument. Okay,

247
00:14:33,120 --> 00:14:36,000
Speaker 2: so everybody hears the word leverage to hear you know, swaps,

248
00:14:36,040 --> 00:14:40,160
Speaker 2: and they immediately think, oh, more risk. Well, swaps in

249
00:14:40,200 --> 00:14:44,360
Speaker 2: and of themselves, aren't they aren't bad? Right? You can

250
00:14:44,480 --> 00:14:46,520
Speaker 2: use a swap to hedge out risks. I used to

251
00:14:46,520 --> 00:14:49,840
Speaker 2: do it all the time, especially currency risks and interest

252
00:14:49,920 --> 00:14:53,080
Speaker 2: rate risks. Right, So if I owned something that had

253
00:14:53,320 --> 00:14:56,000
Speaker 2: a variable interest rate and I didn't want a variable industrate,

254
00:14:56,080 --> 00:14:59,000
Speaker 2: I could swap that out as long as I felt

255
00:14:59,040 --> 00:15:04,520
Speaker 2: I had a strong intermediary as my counterparty, you know, manager.

256
00:15:04,640 --> 00:15:07,560
Speaker 2: So it wasn't Lehman, but it was somebody that was

257
00:15:07,600 --> 00:15:10,120
Speaker 2: strong in between that I could trust that the other

258
00:15:10,200 --> 00:15:13,680
Speaker 2: counter party would meet the obligation. Well, I could have

259
00:15:13,760 --> 00:15:17,240
Speaker 2: that swap and get rid of that that variable rate

260
00:15:17,400 --> 00:15:20,680
Speaker 2: and get a fixed rate, and that would help my portfolio,

261
00:15:20,880 --> 00:15:24,080
Speaker 2: or if I had if I had if I had

262
00:15:24,120 --> 00:15:28,480
Speaker 2: a fixed rate for a excuse me, if I had

263
00:15:28,520 --> 00:15:33,480
Speaker 2: a currency FX exposure and I didn't want that, well

264
00:15:33,520 --> 00:15:35,640
Speaker 2: I could swap that out with a swap. So swaps

265
00:15:35,640 --> 00:15:39,280
Speaker 2: are not terrible in and of themselves, right, So go

266
00:15:39,360 --> 00:15:43,160
Speaker 2: back to the ldis. While you have these pension funds

267
00:15:43,640 --> 00:15:46,320
Speaker 2: that realize they can't meet their obligations in the future,

268
00:15:46,360 --> 00:15:50,600
Speaker 2: that they've got to do something to get higher yield, Well,

269
00:15:50,600 --> 00:15:53,920
Speaker 2: they figured bonds are super safe, especially UK gilts. I

270
00:15:53,960 --> 00:15:57,520
Speaker 2: mean those are the UK treasuries, right, So what they

271
00:15:57,560 --> 00:16:02,560
Speaker 2: did was they would they would lever them up three, four, five, six, seven,

272
00:16:02,640 --> 00:16:06,440
Speaker 2: more and more times to one in order to get

273
00:16:06,480 --> 00:16:08,840
Speaker 2: a better yield. If you're only getting half a percent yield,

274
00:16:09,320 --> 00:16:11,680
Speaker 2: you've got to lever that up six times just to

275
00:16:11,720 --> 00:16:15,640
Speaker 2: get three percent, right, So some of these guys were

276
00:16:15,640 --> 00:16:18,680
Speaker 2: probably levered up ten or fifteen times just to get

277
00:16:18,840 --> 00:16:21,840
Speaker 2: four or five six percent yield on those bonds as

278
00:16:21,960 --> 00:16:27,080
Speaker 2: part of their portfolio. Right. So what happens, Well, then

279
00:16:27,120 --> 00:16:30,480
Speaker 2: you've got this this situation, You've got you've got inflation running,

280
00:16:30,600 --> 00:16:33,160
Speaker 2: you've got rising interest rates, and then you've got a

281
00:16:33,240 --> 00:16:35,760
Speaker 2: finance minister that comes out and announce that they're going

282
00:16:35,760 --> 00:16:39,040
Speaker 2: to have they're going to have historic tax cuts across

283
00:16:39,080 --> 00:16:41,480
Speaker 2: the board. It's going to be the biggest tax cut ever.

284
00:16:41,920 --> 00:16:43,920
Speaker 2: And of course the first question is, well, how are

285
00:16:43,960 --> 00:16:45,360
Speaker 2: you going to pay for that? And when he didn't

286
00:16:45,400 --> 00:16:49,600
Speaker 2: have an answer for that, well, the the bond market

287
00:16:49,720 --> 00:16:53,000
Speaker 2: just absolutely freaked out and they said, this is clearly

288
00:16:53,040 --> 00:16:55,480
Speaker 2: going to be inflationary, it's going to be bad for bonds.

289
00:16:56,120 --> 00:16:59,400
Speaker 2: Sell them. And so the guilt started to go down

290
00:16:59,400 --> 00:17:02,920
Speaker 2: in value and pretty quickly, and then it got to

291
00:17:03,000 --> 00:17:06,879
Speaker 2: a point pretty rapidly where some pension funds started getting

292
00:17:06,880 --> 00:17:09,959
Speaker 2: margin calls, because remember when you have a swap, you

293
00:17:10,000 --> 00:17:13,119
Speaker 2: put up margin for that and it hits that margin, well,

294
00:17:13,160 --> 00:17:16,160
Speaker 2: you have a choice. You can either add more capital

295
00:17:16,800 --> 00:17:22,120
Speaker 2: right to add to your position in order to have

296
00:17:22,160 --> 00:17:25,520
Speaker 2: the right collateral there, or if you don't have that

297
00:17:25,560 --> 00:17:28,840
Speaker 2: capital to add that, the bank is going to just

298
00:17:28,920 --> 00:17:32,479
Speaker 2: sell your swap. They're going to sell your collateral and

299
00:17:32,720 --> 00:17:36,400
Speaker 2: make sure that they don't get hurt. But in effect,

300
00:17:36,480 --> 00:17:39,719
Speaker 2: you've lost your you've lost your basis right, And so

301
00:17:40,080 --> 00:17:43,840
Speaker 2: this is what was happening. So as the guilts were falling,

302
00:17:44,520 --> 00:17:47,400
Speaker 2: the ldi's on the gilts were being sold, which made

303
00:17:47,440 --> 00:17:51,640
Speaker 2: the guilts fall more, and then more margin calls were triggered,

304
00:17:51,680 --> 00:17:54,040
Speaker 2: which made them fall more, and it just snowballed. And

305
00:17:54,080 --> 00:17:56,720
Speaker 2: so it all happened so quickly, in about a day

306
00:17:56,760 --> 00:17:59,920
Speaker 2: and a half, and then the pension funds just they

307
00:18:00,080 --> 00:18:02,919
Speaker 2: they went straight to the Bank of England and they said, look,

308
00:18:03,040 --> 00:18:05,760
Speaker 2: you've got to step in here. You've got a rescue

309
00:18:05,800 --> 00:18:08,320
Speaker 2: us in this market, or we're going to be insolvent

310
00:18:08,640 --> 00:18:12,840
Speaker 2: this afternoon. And so, I mean, this is all these

311
00:18:12,840 --> 00:18:16,400
Speaker 2: are all cracks that are showing, and they're big cracks

312
00:18:16,600 --> 00:18:20,879
Speaker 2: that are showing in the system. Why because of just

313
00:18:21,000 --> 00:18:26,439
Speaker 2: outright manipulation for decades from the central banks, okay dating

314
00:18:26,640 --> 00:18:30,800
Speaker 2: back before the two thousand and eight crisis and all

315
00:18:30,840 --> 00:18:33,600
Speaker 2: the money printing and now the inflation and now the

316
00:18:33,600 --> 00:18:37,040
Speaker 2: manipulation on the other side, tremendous leverage in the system.

317
00:18:37,440 --> 00:18:40,160
Speaker 2: And so when you've got when you've got, you know,

318
00:18:41,720 --> 00:18:44,600
Speaker 2: the debt to GDP of the so many of these

319
00:18:44,640 --> 00:18:47,679
Speaker 2: developed countries, which the UK just tripped over one hundred percent.

320
00:18:48,080 --> 00:18:50,600
Speaker 2: The United States is at one hundred and twenty one

321
00:18:51,240 --> 00:18:55,000
Speaker 2: on government and one hundred and thirty plus on all

322
00:18:55,080 --> 00:19:00,000
Speaker 2: debt and then if you add in the unfunded liabilit

323
00:19:00,080 --> 00:19:03,440
Speaker 2: of these, I mean, it's it's almost incalculable. It means

324
00:19:03,480 --> 00:19:06,520
Speaker 2: we have two hundred trillion dollars of debt instead of twenty,

325
00:19:06,680 --> 00:19:10,119
Speaker 2: instead of thirty one. I mean, it's just it's incredible.

326
00:19:10,480 --> 00:19:13,160
Speaker 2: But when you have so much debt in the system

327
00:19:13,760 --> 00:19:17,840
Speaker 2: that just pulling one string, you know, I mean, it

328
00:19:17,880 --> 00:19:22,080
Speaker 2: can it can produce effects that that people aren't even

329
00:19:22,119 --> 00:19:25,120
Speaker 2: aware of, and it can happen like that. And that's

330
00:19:25,119 --> 00:19:31,200
Speaker 2: what we're seeing right now. That was a yeah, no,

331
00:19:31,359 --> 00:19:31,960
Speaker 2: that was perfect.

332
00:19:32,000 --> 00:19:34,159
Speaker 1: We there's there's so many things that we can we

333
00:19:34,240 --> 00:19:37,000
Speaker 1: could we could touch on there that I have I

334
00:19:37,040 --> 00:19:40,560
Speaker 1: have questions about. But basically it sounds like, you know,

335
00:19:40,640 --> 00:19:42,400
Speaker 1: you said, these are cracks in the system. So it's

336
00:19:42,440 --> 00:19:46,479
Speaker 1: not as if these are all isolated little you know,

337
00:19:47,359 --> 00:19:51,520
Speaker 1: their own little crises that popped up for their own reasons,

338
00:19:52,080 --> 00:19:55,520
Speaker 1: isolated from the rest of the system. These are all

339
00:19:55,600 --> 00:19:58,159
Speaker 1: like the way that it sounds like to me is

340
00:19:58,200 --> 00:20:01,480
Speaker 1: like a hydra for two debts aids central banks have

341
00:20:01,520 --> 00:20:05,040
Speaker 1: been cutting off one head and three more spring up

342
00:20:05,119 --> 00:20:07,879
Speaker 1: in its place. So all these little cracks in the

343
00:20:07,880 --> 00:20:11,479
Speaker 1: system that we're seeing right now. Are are the you know,

344
00:20:11,560 --> 00:20:17,320
Speaker 1: the dozens or the hundreds of hydra heads that central

345
00:20:17,359 --> 00:20:19,840
Speaker 1: banks have created, and.

346
00:20:19,760 --> 00:20:23,160
Speaker 2: They're all connected to one big hydra underneath the water.

347
00:20:23,240 --> 00:20:26,800
Speaker 1: And that's part right, which to me sounds like the debt,

348
00:20:27,080 --> 00:20:31,640
Speaker 1: the debt build up, the leverage and then that seeps

349
00:20:31,680 --> 00:20:32,800
Speaker 1: out through the system.

350
00:20:33,200 --> 00:20:36,679
Speaker 2: Is that is that right? Absolutely fair? Yeah, it seeps

351
00:20:36,680 --> 00:20:38,919
Speaker 2: out through the system. And that's the problem is that

352
00:20:38,960 --> 00:20:42,720
Speaker 2: people are starting to become aware of this and they're realizing, Man,

353
00:20:42,560 --> 00:20:44,879
Speaker 2: I don't know if the central bankers really have a

354
00:20:44,920 --> 00:20:47,359
Speaker 2: handle of what's going on out there. I mean, look,

355
00:20:47,520 --> 00:20:49,960
Speaker 2: we've talked about this so many times, and I've only

356
00:20:50,000 --> 00:20:52,280
Speaker 2: been in the business for thirty years, right, I've seen

357
00:20:52,280 --> 00:20:54,320
Speaker 2: a few things, you know, but I haven't seen some

358
00:20:54,359 --> 00:20:56,199
Speaker 2: of the things other people have seen. And there are

359
00:20:56,200 --> 00:20:59,920
Speaker 2: people who've been talking about this for decades about how

360
00:21:00,119 --> 00:21:02,600
Speaker 2: it's the system has a problem and that it cannot

361
00:21:02,600 --> 00:21:05,960
Speaker 2: sustain itself. Well, I can tell you, Joe, it's just math.

362
00:21:06,960 --> 00:21:11,600
Speaker 2: It's simple math. So if you look at the US Treasury, right,

363
00:21:11,680 --> 00:21:13,760
Speaker 2: and then so I have a thread about this that's

364
00:21:13,840 --> 00:21:17,280
Speaker 2: pinned to my Twitter profile. It's so if anybody wants

365
00:21:17,320 --> 00:21:19,760
Speaker 2: to read a really quick breakdown. It's right there. I

366
00:21:20,480 --> 00:21:23,440
Speaker 2: go into it deeply on my newsletter. We can talk

367
00:21:23,440 --> 00:21:28,840
Speaker 2: about that later. But here's the situation. If the United

368
00:21:28,920 --> 00:21:31,680
Speaker 2: States was a company. Okay, if the United States was

369
00:21:31,720 --> 00:21:33,639
Speaker 2: a company list on the New York Stock Exchange, it

370
00:21:33,640 --> 00:21:37,760
Speaker 2: would be labeled a zombie company. What does that mean? Well,

371
00:21:37,760 --> 00:21:41,879
Speaker 2: it means that they don't make enough money every year,

372
00:21:42,040 --> 00:21:46,600
Speaker 2: they don't generate enough profits revenue net profits, in order

373
00:21:46,640 --> 00:21:50,080
Speaker 2: to pay off the the interest of the debt on

374
00:21:50,119 --> 00:21:53,120
Speaker 2: the prior year. That means they're a zombie. They're literally

375
00:21:53,400 --> 00:21:56,639
Speaker 2: they're like a dead man walking, right. This is the

376
00:21:56,720 --> 00:22:00,840
Speaker 2: United States Treasury. Why do I say that? Right? Well,

377
00:22:01,080 --> 00:22:04,080
Speaker 2: how does it work in general terms for your listeners.

378
00:22:05,000 --> 00:22:10,920
Speaker 2: The US, the population creates GDP, the gross domestic product.

379
00:22:10,920 --> 00:22:15,040
Speaker 2: That's our productivity, all right, So we generate that productivity

380
00:22:15,359 --> 00:22:19,240
Speaker 2: and then the Treasury, right, their earnings is really just

381
00:22:19,359 --> 00:22:23,160
Speaker 2: tax collection. They're collecting off of our productivity. So they

382
00:22:23,240 --> 00:22:26,040
Speaker 2: go in and take those taxes and that's what their

383
00:22:26,200 --> 00:22:29,800
Speaker 2: earnings are, right, So that's their revenue. The revenue line

384
00:22:30,240 --> 00:22:34,359
Speaker 2: expected this year is three point eight trillion dollars. Okay,

385
00:22:34,560 --> 00:22:36,639
Speaker 2: so these are not numbers I'm pulling out of nowhere.

386
00:22:36,680 --> 00:22:39,360
Speaker 2: These are from the Congressional Budget Office. They put out

387
00:22:39,359 --> 00:22:42,320
Speaker 2: a report periodically. There was one in May that I

388
00:22:42,359 --> 00:22:47,080
Speaker 2: did a long thread on and then a newsletter piece on,

389
00:22:47,240 --> 00:22:51,000
Speaker 2: and then it just came out again in in the

390
00:22:51,400 --> 00:22:55,960
Speaker 2: middle of January, I believe it was. Okay, you know,

391
00:22:56,040 --> 00:22:59,640
Speaker 2: maybe it was middle of February. Everything's happening, yeah, middle

392
00:22:59,680 --> 00:23:02,120
Speaker 2: of Februar. Worry anyway, So I put out another piece

393
00:23:02,160 --> 00:23:05,360
Speaker 2: really quickly about it. But here's the situation. The Congressional

394
00:23:05,359 --> 00:23:10,359
Speaker 2: Budget Office has very they have very optimistic view on

395
00:23:10,440 --> 00:23:14,359
Speaker 2: the world, right, But the sad part is as optimistic

396
00:23:14,520 --> 00:23:18,760
Speaker 2: as they are, they realize that they have a problem, right,

397
00:23:18,840 --> 00:23:22,919
Speaker 2: So what's that problem? Going back to debt to GDP. Okay,

398
00:23:23,000 --> 00:23:26,320
Speaker 2: so they're going to collect they think three point eight

399
00:23:26,320 --> 00:23:29,760
Speaker 2: trillion dollars in taxes this year, so put that over there. Well,

400
00:23:29,760 --> 00:23:33,960
Speaker 2: then they have three what we call mandatory expenses. Okay, Well,

401
00:23:34,000 --> 00:23:37,120
Speaker 2: the mandatory expenses that are these are these are either

402
00:23:37,680 --> 00:23:41,520
Speaker 2: they're they're either signed into legislation or they're long term

403
00:23:41,560 --> 00:23:46,000
Speaker 2: contracts that they really need to own up to defense contracts. Right,

404
00:23:46,400 --> 00:23:52,360
Speaker 2: So if you look at the mandatory obligations that are

405
00:23:52,359 --> 00:23:55,840
Speaker 2: signed into law. You've got Social Security, Medicare, Medicaid, right,

406
00:23:56,200 --> 00:24:01,719
Speaker 2: and those all add up to they all add up

407
00:24:01,760 --> 00:24:06,359
Speaker 2: to three point eight trillion dollars. So I'm going to

408
00:24:06,440 --> 00:24:08,280
Speaker 2: go back here, and I'm actually going to take a

409
00:24:08,320 --> 00:24:11,239
Speaker 2: peek at my notes here just to make sure that

410
00:24:11,240 --> 00:24:13,200
Speaker 2: that I'm not getting these numbers on because I haven't

411
00:24:13,240 --> 00:24:15,520
Speaker 2: talked about them in a little bit. So just bear

412
00:24:15,600 --> 00:24:18,480
Speaker 2: with me here for one second. I'm sorry. You can

413
00:24:18,520 --> 00:24:23,600
Speaker 2: cut this when we when you edit it, so apologize. Oh,

414
00:24:23,680 --> 00:24:25,359
Speaker 2: no worries. I want to make sure I get these

415
00:24:25,400 --> 00:24:35,000
Speaker 2: numbers right for you, all right, Yes, okay, I got

416
00:24:35,000 --> 00:24:38,480
Speaker 2: it all right. So I said three point eight trillion

417
00:24:39,640 --> 00:24:42,200
Speaker 2: back when I was talking about the revenues. It's four

418
00:24:42,200 --> 00:24:45,439
Speaker 2: point eight trillion, okay, okay. So when you when you

419
00:24:45,480 --> 00:24:49,560
Speaker 2: when you look at when you look at those those obligations, right,

420
00:24:49,760 --> 00:24:54,719
Speaker 2: the mandatory expenses that they can't get out of, the

421
00:24:55,119 --> 00:24:57,920
Speaker 2: Social Security, Medicare, and Medicaid, all that adds up to

422
00:24:57,960 --> 00:25:01,040
Speaker 2: three point eight trillion. Okay. So now you're at three

423
00:25:01,040 --> 00:25:04,600
Speaker 2: point eight trillion. Plus you've got your defense spending, which

424
00:25:04,840 --> 00:25:07,199
Speaker 2: is about eight hundred billion dollars. But then You've got

425
00:25:07,240 --> 00:25:10,240
Speaker 2: a lot of other discretionary spending around that. But let's

426
00:25:10,320 --> 00:25:13,720
Speaker 2: just stay at that eight hundred right, eight hundred billion dollars.

427
00:25:13,760 --> 00:25:15,560
Speaker 2: You got three point eight plus eight hundred billion, that's

428
00:25:15,600 --> 00:25:20,560
Speaker 2: you're now at four point six right rough math. So

429
00:25:20,720 --> 00:25:24,920
Speaker 2: then you add in the last main expense that's mandatory

430
00:25:24,960 --> 00:25:27,239
Speaker 2: you can't get out of is your interest expense, and

431
00:25:27,280 --> 00:25:29,280
Speaker 2: that's the expense and the debt that you already have

432
00:25:29,359 --> 00:25:30,960
Speaker 2: out there. Right, So you've got thirty one point five

433
00:25:30,960 --> 00:25:33,479
Speaker 2: trillion dollars a debt that's out there you can't get away, like,

434
00:25:33,560 --> 00:25:35,159
Speaker 2: you have to pay the interest on that. If the

435
00:25:35,240 --> 00:25:39,680
Speaker 2: United States defaults on our debt, it's game over, right, Well,

436
00:25:39,760 --> 00:25:43,440
Speaker 2: no country that has that issues debt in their own

437
00:25:43,440 --> 00:25:45,920
Speaker 2: currency whatever do that. They'll just print more money and

438
00:25:46,320 --> 00:25:49,320
Speaker 2: pay the interest, which is precisely what we do. Right.

439
00:25:49,400 --> 00:25:54,359
Speaker 2: So now that we're we've got somewhere around they think

440
00:25:54,640 --> 00:25:58,080
Speaker 2: Congressional Budget Office thinks that as of this the date

441
00:25:58,119 --> 00:26:00,920
Speaker 2: of the support, it's going to be about six hundred

442
00:26:00,960 --> 00:26:06,040
Speaker 2: to seven hundred billion dollars of interest on debt. Okay,

443
00:26:06,600 --> 00:26:09,760
Speaker 2: let's unpack that. So now you're at four point five

444
00:26:09,880 --> 00:26:14,040
Speaker 2: trillion dollars of expenses and that's just the mandatory stuff.

445
00:26:14,040 --> 00:26:19,040
Speaker 2: That doesn't include another nine hundred billion dollars of not

446
00:26:19,200 --> 00:26:23,280
Speaker 2: mandatory or discretionary spending okay on top of it. So

447
00:26:23,680 --> 00:26:29,760
Speaker 2: we're way over. But they the CBO admits that, they say, yeah,

448
00:26:29,800 --> 00:26:31,520
Speaker 2: we're going to have we're going to we're going to

449
00:26:31,560 --> 00:26:35,439
Speaker 2: be in deficit of about one point four trillion dollars

450
00:26:35,480 --> 00:26:37,520
Speaker 2: this year. Okay, so they admit that they're going to

451
00:26:37,520 --> 00:26:41,560
Speaker 2: be in deficit. But the problem is, as as bad

452
00:26:41,600 --> 00:26:45,040
Speaker 2: as that looks, it's way worse than that. Why Well,

453
00:26:45,080 --> 00:26:47,720
Speaker 2: first of all, okay, you're operating in deficit and you

454
00:26:47,840 --> 00:26:52,679
Speaker 2: know that. So the one of the issues is we

455
00:26:52,760 --> 00:26:56,320
Speaker 2: have debt that's rolling off, it's maturing every single year,

456
00:26:56,840 --> 00:26:59,280
Speaker 2: and about fifty percent of our debt matures in the

457
00:26:59,320 --> 00:27:04,240
Speaker 2: next three year. Okay, So what why is that a problem? Well, remember,

458
00:27:04,800 --> 00:27:09,439
Speaker 2: we we don't have we're not operating in in you know,

459
00:27:09,520 --> 00:27:12,560
Speaker 2: in the black. We're operating in deficits. So in order

460
00:27:12,600 --> 00:27:17,280
Speaker 2: to retire that debt when it becomes, when it matures

461
00:27:17,359 --> 00:27:19,360
Speaker 2: and it comes due, we have to pay the principle

462
00:27:19,400 --> 00:27:22,159
Speaker 2: back to the original investor. How do we do that

463
00:27:22,160 --> 00:27:25,520
Speaker 2: if we don't have any money in our in our treasury.

464
00:27:25,680 --> 00:27:28,000
Speaker 2: How do we do that? Well, we issue more debt.

465
00:27:28,640 --> 00:27:32,080
Speaker 2: And so when you issue more debt and it's it's

466
00:27:32,200 --> 00:27:35,800
Speaker 2: priced at a higher yield than they were paying here,

467
00:27:35,880 --> 00:27:37,840
Speaker 2: that means they have to pay more interest on this debt.

468
00:27:38,320 --> 00:27:41,240
Speaker 2: So that interest expense is growing and growing and growing.

469
00:27:41,359 --> 00:27:45,360
Speaker 2: So first of all, they're way off on their interest expense.

470
00:27:45,920 --> 00:27:48,480
Speaker 2: I think the interest expense is going to be it's

471
00:27:48,520 --> 00:27:51,359
Speaker 2: going to be over over well over a trillion dollars

472
00:27:51,359 --> 00:27:55,000
Speaker 2: this year. Okay, So why because the interest rates are up?

473
00:27:55,000 --> 00:27:58,000
Speaker 2: They're higher? The Congressional Budget Office was not, you know,

474
00:27:58,040 --> 00:28:00,879
Speaker 2: they weren't planning for the interest to be this high

475
00:28:00,880 --> 00:28:04,879
Speaker 2: and for this long and whatever. But maybe they were

476
00:28:04,880 --> 00:28:07,960
Speaker 2: going off the FED dot plots, which don't really tell

477
00:28:07,960 --> 00:28:11,919
Speaker 2: you much. But the bottom line is the interest expense

478
00:28:12,000 --> 00:28:14,640
Speaker 2: is going to be higher. Okay, So that's number one. Well,

479
00:28:14,840 --> 00:28:18,760
Speaker 2: now just think through it. So as you as you

480
00:28:18,960 --> 00:28:21,280
Speaker 2: now have to issue more debt that's at a higher

481
00:28:21,280 --> 00:28:25,280
Speaker 2: interust rate and you have to pay off, that deficit

482
00:28:25,359 --> 00:28:27,239
Speaker 2: just grows and grows and grows every year. And this

483
00:28:27,320 --> 00:28:30,439
Speaker 2: is called what we call a debt spiral. Right, So

484
00:28:30,920 --> 00:28:32,840
Speaker 2: there's no way to get out of it. What are

485
00:28:32,840 --> 00:28:37,359
Speaker 2: your choices? Well, you can either have austerity, which is

486
00:28:37,400 --> 00:28:40,400
Speaker 2: cut expenses at the government level. Right, what does that mean? Well,

487
00:28:40,440 --> 00:28:44,560
Speaker 2: they're going to what cut social Security, cut Medicare and medicaid,

488
00:28:44,880 --> 00:28:48,320
Speaker 2: They're going to cut defense spending. No, they're not going

489
00:28:48,360 --> 00:28:49,600
Speaker 2: to do that. I mean, first of all, it's a

490
00:28:49,640 --> 00:28:52,080
Speaker 2: political suicide. Nobody would ever get re elected if they

491
00:28:52,080 --> 00:28:54,560
Speaker 2: did that. They would kill that party, right, So that's

492
00:28:54,640 --> 00:28:57,960
Speaker 2: number one. So and number two, I mean you'd have

493
00:28:58,000 --> 00:29:01,160
Speaker 2: a revolt. Look at what's going on in in France

494
00:29:01,240 --> 00:29:03,800
Speaker 2: right now they're trying to and that has a lot

495
00:29:03,840 --> 00:29:07,200
Speaker 2: more to do with just the two year extension on

496
00:29:08,040 --> 00:29:11,760
Speaker 2: retirement that this is people have been upset there for

497
00:29:11,840 --> 00:29:15,760
Speaker 2: a long time about other encroachments on their liberties. But okay,

498
00:29:15,800 --> 00:29:19,640
Speaker 2: so going forward, what's your other option? Well, you could

499
00:29:19,720 --> 00:29:23,800
Speaker 2: raise taxes, right, so everybody says tax the rich, raise taxes, Well,

500
00:29:23,880 --> 00:29:26,640
Speaker 2: you should, they should close loopholes. I definitely agree with

501
00:29:26,680 --> 00:29:28,280
Speaker 2: that one hundred percent. But that's not going to make

502
00:29:28,360 --> 00:29:31,200
Speaker 2: up the problem. That's not going to solve this trillion

503
00:29:31,320 --> 00:29:36,360
Speaker 2: dollar issue every year. Right. So, but you could raise taxes.

504
00:29:36,400 --> 00:29:38,640
Speaker 2: The problem with that, though, Joe, is when you do that.

505
00:29:39,280 --> 00:29:44,080
Speaker 2: Eventually it catches up pretty quickly and productivity falls again

506
00:29:44,360 --> 00:29:46,200
Speaker 2: and you're just back at the same spot. So it

507
00:29:46,240 --> 00:29:49,280
Speaker 2: doesn't really work, right, that's the second thing. What's the

508
00:29:49,280 --> 00:29:51,360
Speaker 2: third thing you could do? Well, you could You could

509
00:29:51,440 --> 00:29:54,120
Speaker 2: just issue more bonds and that's the easiest thing to do.

510
00:29:54,440 --> 00:29:57,040
Speaker 2: Raise the debt ceiling, issue more debt, pay off the

511
00:29:57,120 --> 00:29:59,760
Speaker 2: old debt, just keep the game going, Just keep the

512
00:29:59,800 --> 00:30:03,280
Speaker 2: game going, right, Okay, But you're in a debt spiral,

513
00:30:03,880 --> 00:30:06,800
Speaker 2: so you've got to manage this in some way so

514
00:30:06,840 --> 00:30:11,280
Speaker 2: it doesn't get out of control. Right, So why do

515
00:30:11,400 --> 00:30:13,640
Speaker 2: I say get out of control? Well, if you go

516
00:30:13,840 --> 00:30:17,360
Speaker 2: to the Treasury page, right, the US Treasury put out

517
00:30:17,400 --> 00:30:20,640
Speaker 2: a report on their twenty twenty one finances. They just

518
00:30:20,680 --> 00:30:25,360
Speaker 2: put this out recently and it's and it was it

519
00:30:25,400 --> 00:30:29,640
Speaker 2: was the whatever the title was about the twenty twenty

520
00:30:29,640 --> 00:30:32,360
Speaker 2: one review of twenty twenty one finances, blah blah blah.

521
00:30:33,000 --> 00:30:37,400
Speaker 2: The subtitle of the report of this report that the

522
00:30:37,560 --> 00:30:44,080
Speaker 2: Treasury put out was an unsustainable path And they put

523
00:30:44,160 --> 00:30:46,400
Speaker 2: I'm going to give you this this chart so you

524
00:30:46,440 --> 00:30:49,680
Speaker 2: can put it up for people, Okay, But they actually

525
00:30:49,840 --> 00:30:53,239
Speaker 2: published this chart and when you look at it, it

526
00:30:53,280 --> 00:30:56,640
Speaker 2: goes literally from twenty twenty, you could see the debt

527
00:30:56,640 --> 00:30:59,840
Speaker 2: to GDP just skyrocket, and they know it is never

528
00:31:00,000 --> 00:31:03,400
Speaker 2: coming back, right, And this is the Treasury. We put

529
00:31:03,480 --> 00:31:05,760
Speaker 2: this out for the world to see. It must be

530
00:31:05,880 --> 00:31:08,560
Speaker 2: so bad for us to even admit to it. I

531
00:31:08,600 --> 00:31:11,040
Speaker 2: mean it is scary, Okay. So I don't know if

532
00:31:11,040 --> 00:31:13,520
Speaker 2: they were trying, because the Treasury doesn't have any They

533
00:31:13,560 --> 00:31:16,200
Speaker 2: have no say on what the what the congression or

534
00:31:16,240 --> 00:31:21,080
Speaker 2: the congressional budget is. They just inform Congress what the

535
00:31:21,120 --> 00:31:24,160
Speaker 2: debt situation is, and they are allowed to issue debt

536
00:31:24,440 --> 00:31:27,200
Speaker 2: and their commission to issue debt in order to pay

537
00:31:27,240 --> 00:31:31,320
Speaker 2: for everything that our legislation approves. Right. So that's just

538
00:31:31,360 --> 00:31:35,680
Speaker 2: the way it works. So what what's the what's this?

539
00:31:35,880 --> 00:31:43,000
Speaker 2: What's the solution? Well, the solution is perpetual and very

540
00:31:43,360 --> 00:31:48,800
Speaker 2: strong inflation. Now we have the CPI and you know

541
00:31:48,880 --> 00:31:51,560
Speaker 2: another thing I just wrote about, and it's problematic in

542
00:31:51,600 --> 00:31:56,880
Speaker 2: so many ways. But the issue is the CPI is

543
00:31:56,960 --> 00:32:00,200
Speaker 2: meant to admit to us what the inflation rate is,

544
00:32:00,600 --> 00:32:03,280
Speaker 2: right and to have a gauge of it. But it's

545
00:32:03,400 --> 00:32:08,000
Speaker 2: it's tremendously manipulated, right, And if there are a bunch

546
00:32:08,000 --> 00:32:10,560
Speaker 2: of different sites that track what inflation would be if

547
00:32:10,600 --> 00:32:13,120
Speaker 2: they used the measures they used to use, and it

548
00:32:13,160 --> 00:32:17,080
Speaker 2: was consistent. But you know, inflation's not running four, five,

549
00:32:17,120 --> 00:32:21,440
Speaker 2: six seven percent. It's running nine, twelve, fifteen, eighteen twenty percent,

550
00:32:21,560 --> 00:32:25,400
Speaker 2: you know. And so but what does this do if

551
00:32:25,400 --> 00:32:29,560
Speaker 2: they let inflation run hot for a long time and

552
00:32:29,760 --> 00:32:33,280
Speaker 2: really hot for a little while, right, Well, they can

553
00:32:33,320 --> 00:32:35,920
Speaker 2: inflate away that past debt. How do they do that? Well,

554
00:32:36,000 --> 00:32:40,080
Speaker 2: nominal GDP is higher, the tax base is higher, They

555
00:32:40,240 --> 00:32:44,480
Speaker 2: tax those that those inflated dollars, and then they pay

556
00:32:44,520 --> 00:32:49,640
Speaker 2: off cheaper debt that's coming due with those cheaper dollars. Right,

557
00:32:49,680 --> 00:32:52,000
Speaker 2: So they pay off this debt that they issued years,

558
00:32:52,160 --> 00:32:55,080
Speaker 2: ten years, fifteen, twenty years ago with dollars that are

559
00:32:55,080 --> 00:32:57,400
Speaker 2: worth a fraction of what they were when they borrowed

560
00:32:57,400 --> 00:32:59,960
Speaker 2: them way back then, right, And that's what they're doing

561
00:33:00,040 --> 00:33:02,440
Speaker 2: doing And so, but they're trying to hide the inflation

562
00:33:02,600 --> 00:33:05,280
Speaker 2: every every way they can and not show exactly what

563
00:33:05,400 --> 00:33:07,920
Speaker 2: it is, claim that they have it under control, make

564
00:33:07,960 --> 00:33:10,360
Speaker 2: sure it doesn't get out of control, because hyperinflation would

565
00:33:10,440 --> 00:33:15,080
Speaker 2: be and that would be catastrophic. So keep it under control.

566
00:33:15,680 --> 00:33:17,959
Speaker 2: Admit to a certain point of what it is, but

567
00:33:18,000 --> 00:33:20,600
Speaker 2: then let it run a little bit hotter in order

568
00:33:20,840 --> 00:33:24,040
Speaker 2: to get those those those cheap dollars to pay off

569
00:33:24,080 --> 00:33:27,000
Speaker 2: that past debt. That's the game plan, and they've been

570
00:33:27,000 --> 00:33:29,720
Speaker 2: doing it for a while and they have no choice

571
00:33:29,760 --> 00:33:33,280
Speaker 2: but to keep doing that for the foreseeable future. So

572
00:33:33,600 --> 00:33:36,800
Speaker 2: to recap kind of the situation that we're in, it's

573
00:33:36,800 --> 00:33:38,880
Speaker 2: a snake eating itself by the tail.

574
00:33:39,240 --> 00:33:41,920
Speaker 1: Where you have where you have, you know, we have

575
00:33:42,160 --> 00:33:44,760
Speaker 1: certain spending that's locked in for political reasons, and then

576
00:33:44,800 --> 00:33:48,480
Speaker 1: other spending that maybe happens because for whatever reason, maybe

577
00:33:48,480 --> 00:33:52,680
Speaker 1: they think it increases GDP, whether it's infrastructure spending or

578
00:33:52,720 --> 00:33:55,880
Speaker 1: something like that, or welfare or healthcare or education spending

579
00:33:55,960 --> 00:33:57,440
Speaker 1: or whatever it is. They think we're going to get

580
00:33:57,440 --> 00:33:59,840
Speaker 1: a return on this, So they take out debt in

581
00:34:00,080 --> 00:34:02,320
Speaker 1: order to spend that money so that it bids up

582
00:34:02,320 --> 00:34:04,920
Speaker 1: prices so they can get more taxes to pay off

583
00:34:04,920 --> 00:34:08,719
Speaker 1: that debt. But ultimately it's playing you know, it's like

584
00:34:08,760 --> 00:34:11,120
Speaker 1: playing you know, catch with something that's running away faster

585
00:34:11,200 --> 00:34:13,560
Speaker 1: than you. So their debt is piling up at a

586
00:34:13,560 --> 00:34:16,800
Speaker 1: faster rate now because of interest rates. So they're trying

587
00:34:16,840 --> 00:34:19,840
Speaker 1: to use inflation to get out of this. But the

588
00:34:19,880 --> 00:34:22,440
Speaker 1: problem is they have so much leverage that if they

589
00:34:22,560 --> 00:34:25,359
Speaker 1: really used inflation to actually get out of this, you

590
00:34:25,400 --> 00:34:28,760
Speaker 1: have hyperinflation. So in order to prevent the hyper inflation,

591
00:34:28,840 --> 00:34:31,080
Speaker 1: they've got to do things like the FED raising rates

592
00:34:31,120 --> 00:34:33,160
Speaker 1: and you know, try and stop these things, and then

593
00:34:33,200 --> 00:34:36,240
Speaker 1: you get these like cracks of like, oh, deflationary death spiral.

594
00:34:36,280 --> 00:34:40,000
Speaker 1: Then it's like you either tip over into great depression

595
00:34:40,040 --> 00:34:43,520
Speaker 1: deflation or you have the hyper inflation. And it seems

596
00:34:43,560 --> 00:34:45,560
Speaker 1: like the end of the road here is that we

597
00:34:46,120 --> 00:34:48,879
Speaker 1: maybe not retire debt officially, but it like it all

598
00:34:48,960 --> 00:34:51,640
Speaker 1: lands on the balance sheet of the FED, and we become,

599
00:34:51,880 --> 00:34:54,399
Speaker 1: you know, similar to Japan, where we own most of

600
00:34:54,480 --> 00:34:58,760
Speaker 1: our own debt and all spending is financed through just printing.

601
00:34:58,840 --> 00:35:01,520
Speaker 1: Then it's not real debt, just printing, which is then

602
00:35:01,960 --> 00:35:05,680
Speaker 1: extremely inflationary because the money supply just continues to expand.

603
00:35:05,600 --> 00:35:08,040
Speaker 2: Right Well, and okay, so I think you laid out

604
00:35:08,200 --> 00:35:11,319
Speaker 2: great and that that's a that's a there's some great

605
00:35:11,320 --> 00:35:16,560
Speaker 2: points in there. We though, in the United States we

606
00:35:16,800 --> 00:35:21,000
Speaker 2: have the luxury of being the reserve, of having the

607
00:35:21,040 --> 00:35:24,480
Speaker 2: reserve asset of the world. Right, so the global reserve

608
00:35:24,520 --> 00:35:27,480
Speaker 2: asset is the US Treasury, which means which makes the

609
00:35:27,520 --> 00:35:31,479
Speaker 2: global reserve currency the US dollar, right, so we have

610
00:35:31,600 --> 00:35:36,439
Speaker 2: that benefit. What is going to happen, Well, if you've

611
00:35:36,440 --> 00:35:42,200
Speaker 2: ever read Brent Johnson from Santiago Capital his dollar milkshake theory, well,

612
00:35:42,520 --> 00:35:49,120
Speaker 2: as we as as the US dollar chokes off avenues

613
00:35:49,160 --> 00:35:54,359
Speaker 2: for other debt, it cripples smaller economies and they don't

614
00:35:54,360 --> 00:35:56,799
Speaker 2: have any choice but to fold into the US dollar

615
00:35:56,840 --> 00:35:59,839
Speaker 2: and take the US dollar as the reserve currency because

616
00:35:59,880 --> 00:36:02,640
Speaker 2: they can't issue their own debt. So what I think

617
00:36:02,719 --> 00:36:04,840
Speaker 2: is going to happen? And I don't have a timeframe

618
00:36:04,880 --> 00:36:06,920
Speaker 2: on this, This is long term. I have no idea.

619
00:36:07,000 --> 00:36:09,560
Speaker 2: I do know. I do believe that the that we're

620
00:36:09,600 --> 00:36:13,000
Speaker 2: not in imminent failure, but I do believe we are

621
00:36:13,640 --> 00:36:17,560
Speaker 2: on a path that is that that cannot be fixed.

622
00:36:17,640 --> 00:36:21,480
Speaker 2: It's this is just math. They cannot fix it. Okay,

623
00:36:21,560 --> 00:36:25,640
Speaker 2: So the US can't retire. They can't just retire debt

624
00:36:25,680 --> 00:36:27,879
Speaker 2: or not or just refuse to pay debt. That would

625
00:36:27,880 --> 00:36:31,920
Speaker 2: be catastrophic because that would who would buy our debt.

626
00:36:32,200 --> 00:36:35,080
Speaker 2: They're already issuing so much debt they're beginning to crowd

627
00:36:35,120 --> 00:36:39,800
Speaker 2: out balance sheets of companies and corporations and pension funds.

628
00:36:39,800 --> 00:36:42,919
Speaker 2: So endowment's like, there's only so much debt that these

629
00:36:43,239 --> 00:36:46,719
Speaker 2: that these institutions can buy, so like you said, they

630
00:36:46,760 --> 00:36:49,480
Speaker 2: have to monetize their own debt. But I think what

631
00:36:49,600 --> 00:36:53,800
Speaker 2: happens is this goes on for a while and it

632
00:36:54,000 --> 00:36:58,560
Speaker 2: just continues on like this, and inflation continues to run hot,

633
00:36:58,680 --> 00:37:01,719
Speaker 2: and and they they try to do whatever they can

634
00:37:01,840 --> 00:37:04,960
Speaker 2: to uh to instill confidence in the US dollar in

635
00:37:04,960 --> 00:37:07,880
Speaker 2: the US treasury. But at some point it does break.

636
00:37:08,080 --> 00:37:10,200
Speaker 2: I don't know when that happens, but at some point

637
00:37:10,280 --> 00:37:13,800
Speaker 2: it does that there's something happens where it breaks. Well,

638
00:37:13,960 --> 00:37:16,719
Speaker 2: I mean I could see Europe falling apart because of

639
00:37:16,760 --> 00:37:19,839
Speaker 2: their structural problems. I mean, you've got Germany that that

640
00:37:20,000 --> 00:37:23,640
Speaker 2: is owed over trillion dollars from from other central banks

641
00:37:23,640 --> 00:37:26,360
Speaker 2: in that in that region just because the ECB is

642
00:37:26,440 --> 00:37:30,720
Speaker 2: running this this uh it's an overnight exchange called Target two,

643
00:37:30,760 --> 00:37:35,239
Speaker 2: and it's how they settle across border currency transactions. And

644
00:37:36,280 --> 00:37:38,440
Speaker 2: Germany at some point is just gonna They're gonna say

645
00:37:38,480 --> 00:37:40,520
Speaker 2: enough is enough. You're e've been using our balance sheet

646
00:37:40,560 --> 00:37:43,520
Speaker 2: forever and we you know, there when they get to

647
00:37:43,520 --> 00:37:46,360
Speaker 2: be a net importer that's a that's a major problem.

648
00:37:46,360 --> 00:37:48,400
Speaker 2: And they they tipped over that scale for a minute

649
00:37:48,440 --> 00:37:52,160
Speaker 2: this uh, this past fall. You know, a lot of

650
00:37:52,200 --> 00:37:55,279
Speaker 2: that has to do with energy, but you know, they're

651
00:37:56,040 --> 00:38:00,719
Speaker 2: the problems of the of this central bank controlled fiat

652
00:38:00,960 --> 00:38:05,600
Speaker 2: system there. You know, some of the the chickens are

653
00:38:05,600 --> 00:38:08,440
Speaker 2: coming home to roost, you know. And it's not funny,

654
00:38:08,600 --> 00:38:10,960
Speaker 2: it's actually it's gonna it's gonna hurt a lot of people.

655
00:38:11,920 --> 00:38:13,680
Speaker 2: It's gonna hurt a lot of people who are who

656
00:38:13,719 --> 00:38:17,480
Speaker 2: are who are just trusting of the government, who are

657
00:38:17,800 --> 00:38:20,319
Speaker 2: trusting of these officials that they think that they've got

658
00:38:20,320 --> 00:38:23,040
Speaker 2: their their best interests at heart, but they don't. You know,

659
00:38:23,080 --> 00:38:26,399
Speaker 2: they've got they've got politicians in their pockets in there.

660
00:38:27,080 --> 00:38:29,840
Speaker 2: They're in the pockets of politicians. The politicians are in

661
00:38:29,840 --> 00:38:33,160
Speaker 2: the pockets of large corporations and large banks. You know,

662
00:38:33,280 --> 00:38:36,840
Speaker 2: it's just reality. I mean, this is not conspiracy theory.

663
00:38:36,840 --> 00:38:39,320
Speaker 2: It's just the way it works. And so we don't

664
00:38:39,440 --> 00:38:44,040
Speaker 2: live in a pure, free, open, uh you know market.

665
00:38:45,040 --> 00:38:48,960
Speaker 2: You know, capitalism is not free here. It's controlled quite

666
00:38:48,960 --> 00:38:52,160
Speaker 2: a bit. And that's a problem. So and you and

667
00:38:52,200 --> 00:38:56,160
Speaker 2: I were chatting a little bit about it before the

668
00:38:56,239 --> 00:38:59,840
Speaker 2: before the show started. But what are your your listeners

669
00:38:59,840 --> 00:39:01,719
Speaker 2: want to hear, Well, they want to hear what the

670
00:39:01,719 --> 00:39:07,600
Speaker 2: solution is. What can I do? Well, first of all,

671
00:39:07,640 --> 00:39:11,080
Speaker 2: just be careful. I think with the FED raising rates

672
00:39:11,120 --> 00:39:15,520
Speaker 2: so rapidly and the effects that aren't seen yet from that,

673
00:39:15,640 --> 00:39:18,000
Speaker 2: I mean, these take months and months to come do

674
00:39:18,239 --> 00:39:20,440
Speaker 2: sometimes and so we're not seeing the full effects on

675
00:39:20,480 --> 00:39:22,880
Speaker 2: the economy yet and when we do, I believe that

676
00:39:22,920 --> 00:39:25,880
Speaker 2: we slip into a hard recession. Here. Then what does

677
00:39:25,960 --> 00:39:29,040
Speaker 2: that mean, Well, that means a contraction. Well, first of all,

678
00:39:29,040 --> 00:39:32,799
Speaker 2: we're having a natural contraction of credit right now. You

679
00:39:32,840 --> 00:39:35,560
Speaker 2: can see it because you can see in the in

680
00:39:35,600 --> 00:39:43,520
Speaker 2: the overnight window, in the Fed overnight window, they banks

681
00:39:43,560 --> 00:39:47,360
Speaker 2: are going to take money and borrow money from the

682
00:39:47,360 --> 00:39:50,080
Speaker 2: FED because they're not loaning to each other anymore. It's

683
00:39:50,120 --> 00:39:52,960
Speaker 2: called the there's two windows. There's an overnight window on

684
00:39:53,000 --> 00:39:55,040
Speaker 2: a discount window, and that discount windows when they go

685
00:39:55,120 --> 00:39:58,160
Speaker 2: to the FED. And it's embarrassing because they can't. It

686
00:39:58,200 --> 00:40:02,520
Speaker 2: means they don't have enough capital. But there's a there's

687
00:40:02,560 --> 00:40:05,759
Speaker 2: a they have it set up so there's no way

688
00:40:05,800 --> 00:40:09,520
Speaker 2: to tell who's doing it. Now you know, it's completely anonymous.

689
00:40:09,880 --> 00:40:11,600
Speaker 2: So if Bank of America is and they're doing it,

690
00:40:11,640 --> 00:40:15,239
Speaker 2: you don't know, not likely because Bank of America is

691
00:40:15,400 --> 00:40:18,000
Speaker 2: pretty well capitalized and they're taking in deposits as these

692
00:40:18,000 --> 00:40:22,120
Speaker 2: smaller banks are struggling. But what does that mean. It

693
00:40:22,200 --> 00:40:26,440
Speaker 2: just means that there's liquidy is drying up, right, So

694
00:40:26,560 --> 00:40:30,360
Speaker 2: what happens rates go they rates continue to go higher.

695
00:40:30,800 --> 00:40:34,160
Speaker 2: It makes it more expensive for companies to borrow, which

696
00:40:34,239 --> 00:40:38,160
Speaker 2: means that their earnings, that their their net earnings go down,

697
00:40:38,480 --> 00:40:41,360
Speaker 2: which means that they're the you know, the multiples of

698
00:40:41,440 --> 00:40:47,240
Speaker 2: their stock goes down, which in turn means the stock

699
00:40:47,280 --> 00:40:51,680
Speaker 2: market goes down. So it's just like a cascading effect

700
00:40:51,840 --> 00:40:54,759
Speaker 2: all all the way across that. When you have a

701
00:40:54,880 --> 00:40:58,799
Speaker 2: downturn like this, you can expect it to have tax

702
00:40:58,840 --> 00:41:02,360
Speaker 2: revenues in the United States fall at eight to ten percent,

703
00:41:02,600 --> 00:41:06,319
Speaker 2: you know, eight to twelve percent, and that's because of

704
00:41:06,920 --> 00:41:10,280
Speaker 2: you know, corporate tax, you know income to personal income tax,

705
00:41:11,239 --> 00:41:14,600
Speaker 2: the corporate income tax, You've got your capital gains taxes

706
00:41:14,600 --> 00:41:16,520
Speaker 2: are going lower. And then you've got people who are

707
00:41:16,600 --> 00:41:20,239
Speaker 2: laid off because the economy is contracting and companies have

708
00:41:20,280 --> 00:41:23,080
Speaker 2: to lay people off in order to you know, safeguard

709
00:41:23,120 --> 00:41:27,600
Speaker 2: their own their own business, and it just it cascades

710
00:41:27,600 --> 00:41:31,560
Speaker 2: into a recession. Okay, So that just means what I'm

711
00:41:31,600 --> 00:41:35,920
Speaker 2: saying is I would just be careful investing in the market.

712
00:41:36,040 --> 00:41:39,040
Speaker 2: Pick your spots carefully, you know. Personally, I've got a

713
00:41:39,040 --> 00:41:42,279
Speaker 2: lot of cash. Why it's not because, look, I don't

714
00:41:42,320 --> 00:41:46,160
Speaker 2: think that the US dollars is going to be devalued

715
00:41:46,200 --> 00:41:48,919
Speaker 2: in the next six months. Uh, this is a long

716
00:41:49,040 --> 00:41:52,520
Speaker 2: term thing, and I do think there's just a lot

717
00:41:52,560 --> 00:41:55,080
Speaker 2: of risk right now. So but the things I do

718
00:41:55,120 --> 00:41:59,200
Speaker 2: own and that I've been buying opportunistically in here gold, silver,

719
00:41:59,480 --> 00:42:04,120
Speaker 2: gold mine's silver miners, and and bitcoin. And you know,

720
00:42:04,239 --> 00:42:07,600
Speaker 2: there's a there's a commonality between gold investors and bitcoin

721
00:42:07,640 --> 00:42:11,160
Speaker 2: investors where they understand that the Fiat system is broken.

722
00:42:11,160 --> 00:42:14,920
Speaker 2: They've got to protect against this inflation, right, and so

723
00:42:15,080 --> 00:42:17,640
Speaker 2: they're not working against each other. They're on the same team.

724
00:42:17,680 --> 00:42:20,840
Speaker 2: They understand that this is like this system is broken,

725
00:42:21,080 --> 00:42:24,840
Speaker 2: you know, And I want people understand, look if the

726
00:42:25,200 --> 00:42:28,640
Speaker 2: problem and I and look, I'm a gold proponent. You know,

727
00:42:28,880 --> 00:42:31,600
Speaker 2: if you have if you have gold in a vault somewhere,

728
00:42:32,120 --> 00:42:34,120
Speaker 2: that's good as long as you can get to it,

729
00:42:34,239 --> 00:42:40,160
Speaker 2: you know. But We've seen gold confiscated before, it's been

730
00:42:40,200 --> 00:42:43,640
Speaker 2: made illegal to own it. You know, there are ways that, Yeah,

731
00:42:43,680 --> 00:42:46,799
Speaker 2: they could say it's illegal to own bitcoin also, But

732
00:42:47,400 --> 00:42:50,040
Speaker 2: if you're a rogue and you if you want to say, well,

733
00:42:50,200 --> 00:42:53,560
Speaker 2: you're not going to take my bitcoin, you leave the country.

734
00:42:53,600 --> 00:42:56,000
Speaker 2: You know, it's not as if you have it with you.

735
00:42:56,840 --> 00:43:01,640
Speaker 2: It's it's decentralized across tens of thousands of computers across

736
00:43:01,680 --> 00:43:06,120
Speaker 2: the world, you know, millions, So it's a different it's

737
00:43:06,120 --> 00:43:10,360
Speaker 2: a different safety net. I could be completely wrong. Bitcoin

738
00:43:10,360 --> 00:43:13,239
Speaker 2: could go to zero, but you know, if you have

739
00:43:13,360 --> 00:43:16,080
Speaker 2: one percent of your net worth in it, two percent,

740
00:43:16,160 --> 00:43:18,840
Speaker 2: three percent, let's just say it's less than three percent,

741
00:43:19,560 --> 00:43:22,560
Speaker 2: if your net worth in it, then if it goes

742
00:43:22,600 --> 00:43:26,680
Speaker 2: to zero, I'm wrong, Well, so what you still have

743
00:43:26,760 --> 00:43:29,560
Speaker 2: ninety seven percent of your portfolio. But if I'm right

744
00:43:30,040 --> 00:43:35,040
Speaker 2: and we do have that sudden hyper inflation event where

745
00:43:35,239 --> 00:43:39,280
Speaker 2: the all banks have runs on them, the system locks

746
00:43:39,360 --> 00:43:42,799
Speaker 2: up completely and everybody pours as much money as they

747
00:43:42,800 --> 00:43:45,879
Speaker 2: can into this protocol because they know at least they

748
00:43:45,880 --> 00:43:49,320
Speaker 2: can get to this, and bitcoin becomes worth a hundred

749
00:43:49,320 --> 00:43:53,600
Speaker 2: times what it is today. I don't know when that happens.

750
00:43:54,080 --> 00:43:55,920
Speaker 2: You know, I don't know if it's an if it's

751
00:43:55,920 --> 00:43:58,560
Speaker 2: an orderly process that we have a parallel system that

752
00:43:58,600 --> 00:44:02,080
Speaker 2: we migrate to in forty fifty years, or if we

753
00:44:02,160 --> 00:44:08,040
Speaker 2: have an absolutely catastrophic credit event that you see hyper

754
00:44:08,040 --> 00:44:11,560
Speaker 2: inflation every single fiat currency and people pour into these

755
00:44:11,600 --> 00:44:15,759
Speaker 2: digital protocols, especially into bitcoin, and you save yourself. The

756
00:44:15,800 --> 00:44:18,880
Speaker 2: problem with gold is that look if I you know,

757
00:44:19,000 --> 00:44:22,320
Speaker 2: if you Joe, you want to go to Costa Rica,

758
00:44:22,480 --> 00:44:24,759
Speaker 2: take all your money and go, You're going to have

759
00:44:24,800 --> 00:44:28,480
Speaker 2: a problem moving that gold. Yeah, you know, and you know,

760
00:44:31,120 --> 00:44:34,880
Speaker 2: so that's that's that's how you protect yourself, though, you know,

761
00:44:34,960 --> 00:44:37,839
Speaker 2: that's how you protect yourself. That's what I'm doing. It

762
00:44:37,840 --> 00:44:39,719
Speaker 2: may not be perfect, but it works for me. I

763
00:44:39,760 --> 00:44:43,200
Speaker 2: have a lower risk tolerance than most people. I am

764
00:44:43,200 --> 00:44:46,280
Speaker 2: older than most people. So I'm not all in on anything.

765
00:44:46,360 --> 00:44:48,040
Speaker 2: I'm not all in on gold, I'm not all in

766
00:44:48,080 --> 00:44:50,920
Speaker 2: on bitcoin. I'm not all in on treasuries. You know,

767
00:44:51,000 --> 00:44:53,719
Speaker 2: I'm spread and I do own some short term treasuries.

768
00:44:54,239 --> 00:44:57,879
Speaker 2: You know, I think they've gotten a little bit. They're there.

769
00:44:58,280 --> 00:45:00,080
Speaker 2: Look if you can get four, if you get fo

770
00:45:00,120 --> 00:45:07,120
Speaker 2: or five percent annualized on your capital, there's the likelihood

771
00:45:07,160 --> 00:45:10,960
Speaker 2: that the Fed defaults like a real default, not a

772
00:45:11,160 --> 00:45:15,080
Speaker 2: technical default, because of the because of the you know,

773
00:45:15,160 --> 00:45:17,719
Speaker 2: the debt ceiling, which they will raise. They've done it

774
00:45:17,760 --> 00:45:22,120
Speaker 2: twenty two times since nineteen twenty nineteen ninety seven. If

775
00:45:22,160 --> 00:45:23,960
Speaker 2: they have a if they have if they have a

776
00:45:24,000 --> 00:45:27,160
Speaker 2: technical default, you'll still get paid your interest in penalties

777
00:45:27,320 --> 00:45:29,759
Speaker 2: or or may make up the interest that for the

778
00:45:29,800 --> 00:45:32,520
Speaker 2: weeks that you weren't paid. You know, they don't have

779
00:45:32,560 --> 00:45:36,319
Speaker 2: a choice if they don't pay debt down. Oh man,

780
00:45:36,600 --> 00:45:40,480
Speaker 2: you've got a much bigger problem than the bond that

781
00:45:40,520 --> 00:45:44,800
Speaker 2: you own that they didn't pay. So, you know, while

782
00:45:44,800 --> 00:45:46,839
Speaker 2: I do believe there's a very high likelihood that we

783
00:45:47,320 --> 00:45:50,759
Speaker 2: that we trip that that debt ceiling, it's just a

784
00:45:50,800 --> 00:45:54,680
Speaker 2: technical default, CDs is to get paid out, and you

785
00:45:54,719 --> 00:45:58,879
Speaker 2: know they'll move the ceiling. They'll just make the Democrats

786
00:45:59,040 --> 00:46:03,440
Speaker 2: look bad. You know, both parties are trying to make

787
00:46:03,480 --> 00:46:06,799
Speaker 2: each other look bad. I don't even have a political affiliation.

788
00:46:06,880 --> 00:46:10,839
Speaker 2: I think all all parties kind of suck, so none

789
00:46:10,880 --> 00:46:14,680
Speaker 2: of them are really looking out for us. But yeah,

790
00:46:14,800 --> 00:46:17,719
Speaker 2: that's how that's what I'm doing. It's not perfect, there

791
00:46:17,760 --> 00:46:20,040
Speaker 2: is no perfect way to do it, but I would

792
00:46:20,200 --> 00:46:23,680
Speaker 2: just be careful about where you're banking, how much you

793
00:46:23,719 --> 00:46:27,279
Speaker 2: have exposed to cash in the banks, how much is it,

794
00:46:27,440 --> 00:46:31,520
Speaker 2: how much of it is FDI C or sipc ensured,

795
00:46:31,600 --> 00:46:34,080
Speaker 2: and be sure you know those limits at your place

796
00:46:34,719 --> 00:46:37,560
Speaker 2: of business, where you're where you're holding your cash and capital.

797
00:46:38,160 --> 00:46:41,480
Speaker 1: So so, in summary, we are in an environment not

798
00:46:41,640 --> 00:46:44,600
Speaker 1: where we should be looking at and saying, hey, where

799
00:46:44,600 --> 00:46:48,400
Speaker 1: are all the areas that are going to grow spectacularly

800
00:46:48,560 --> 00:46:50,480
Speaker 1: and where I can make a ton of money. This

801
00:46:50,560 --> 00:46:53,400
Speaker 1: is an environment where we should be asking, hey, where's

802
00:46:53,440 --> 00:46:55,719
Speaker 1: my risk and define risk by you know, what's the

803
00:46:55,760 --> 00:46:58,000
Speaker 1: worst case scenario, what's the worst case that could happen,

804
00:46:58,120 --> 00:47:01,480
Speaker 1: not what's the likelihood of it happen. So given the

805
00:47:01,520 --> 00:47:05,279
Speaker 1: worst key scenario, where are my safety boats? Where my lifeboats,

806
00:47:05,320 --> 00:47:09,800
Speaker 1: my parachutes that allow me to preserve my wealth. Because

807
00:47:10,160 --> 00:47:12,200
Speaker 1: whether it takes you know, like you said, a couple

808
00:47:12,239 --> 00:47:14,280
Speaker 1: of months, a couple of years, a couple of decades,

809
00:47:14,600 --> 00:47:19,000
Speaker 1: it is just math. And we're in a snake eating

810
00:47:19,040 --> 00:47:22,040
Speaker 1: itself by the tail situation and it's a matter of time.

811
00:47:22,160 --> 00:47:25,200
Speaker 1: So prepare for that instead of putting your head in

812
00:47:25,200 --> 00:47:25,560
Speaker 1: the sand.

813
00:47:26,040 --> 00:47:28,400
Speaker 2: Yeah, that's a very good way to put it. Yeah,

814
00:47:28,520 --> 00:47:30,239
Speaker 2: that's a very good way to put it. And you know,

815
00:47:30,840 --> 00:47:34,719
Speaker 2: these are long term investments and they're just there to

816
00:47:35,120 --> 00:47:40,959
Speaker 2: preserve the value you've created, your hard work, that you've monetized,

817
00:47:41,520 --> 00:47:44,440
Speaker 2: and keep it from being inflated away, because that's just evil.

818
00:47:44,719 --> 00:47:47,600
Speaker 2: You work so hard, you put your money in the bank,

819
00:47:47,960 --> 00:47:50,440
Speaker 2: you wake up ten years from now it's worth you know,

820
00:47:50,640 --> 00:47:53,080
Speaker 2: fifty or sixty percent of what it was. It's just criminal.

821
00:47:53,640 --> 00:47:57,240
Speaker 1: Yeah. Yeah, Well, I could keep talking to you for hours.

822
00:47:58,160 --> 00:48:01,799
Speaker 1: Thank you so much for joining me. Lots of you know,

823
00:48:01,920 --> 00:48:05,320
Speaker 1: tons of great great knowledge in there and information about

824
00:48:05,320 --> 00:48:07,840
Speaker 1: how the system works. And I would love to have

825
00:48:07,880 --> 00:48:10,399
Speaker 1: you back on sometime. But I really appreciate the time

826
00:48:10,440 --> 00:48:12,719
Speaker 1: you spent with me today, and I know everybody will

827
00:48:13,120 --> 00:48:13,920
Speaker 1: get a lot out of this.

828
00:48:14,560 --> 00:48:16,799
Speaker 2: Yeah, awesome. I'm glad to have talked to you, Joe,

829
00:48:16,800 --> 00:48:18,680
Speaker 2: and I look forward to the next time. All Right,

830
00:48:18,719 --> 00:48:20,359
Speaker 2: we'll talk to you later, all right. Thanks man,