1 00:00:02,480 --> 00:00:15,840 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:18,120 --> 00:00:21,320 Speaker 2: Hello and welcome to another episode of the Authoughts podcast. 3 00:00:21,480 --> 00:00:22,919 Speaker 2: I'm Tracy Allaway. 4 00:00:22,600 --> 00:00:23,759 Speaker 3: And I'm Joe Wisenthal. 5 00:00:24,200 --> 00:00:24,920 Speaker 4: Joe, have you. 6 00:00:24,920 --> 00:00:29,120 Speaker 2: Ever seen those visuals of a trillion dollars where it's like, 7 00:00:29,240 --> 00:00:32,159 Speaker 2: here's one hundred, here's one hundred dollar bill, here's a 8 00:00:32,200 --> 00:00:35,320 Speaker 2: stack of ten thousand dollars, here's a million dollars, and 9 00:00:35,400 --> 00:00:38,839 Speaker 2: eventually you get to one trillion, and it's just all 10 00:00:38,920 --> 00:00:42,080 Speaker 2: these palettes of notes that are worth a billion each 11 00:00:42,240 --> 00:00:44,880 Speaker 2: and they're like covering the size of a football field 12 00:00:45,000 --> 00:00:46,839 Speaker 2: or something, and they're double stacked. 13 00:00:47,600 --> 00:00:50,400 Speaker 3: I love that. I never really know what they mean. 14 00:00:50,440 --> 00:00:52,159 Speaker 3: It's like, oh, this is as big as the Statue 15 00:00:52,200 --> 00:00:54,480 Speaker 3: of Liberty or something like that, and it's like, okay, 16 00:00:54,600 --> 00:00:56,600 Speaker 3: like I mean that is objectively big. 17 00:00:57,440 --> 00:00:57,720 Speaker 4: I get. 18 00:00:57,880 --> 00:01:00,960 Speaker 3: Is that a good way to visualize mine in terms 19 00:01:00,960 --> 00:01:03,800 Speaker 3: of what it means? I don't know, but yes, money, 20 00:01:03,960 --> 00:01:08,680 Speaker 3: especially your small denomination bills, can really pile up before 21 00:01:08,680 --> 00:01:09,800 Speaker 3: you get to real value. 22 00:01:09,880 --> 00:01:13,880 Speaker 2: Well, okay, speaking of big numbers, the US budget deficit 23 00:01:14,160 --> 00:01:17,320 Speaker 2: was about one point eight trillion in twenty twenty four, 24 00:01:17,520 --> 00:01:20,920 Speaker 2: so if we stick with the visual, almost almost two 25 00:01:21,000 --> 00:01:25,040 Speaker 2: football fields of double stacked palettes of one billion dollars each. 26 00:01:25,440 --> 00:01:28,160 Speaker 2: So okay, quite a lot. But I think this ill 27 00:01:28,560 --> 00:01:31,679 Speaker 2: we saws, I know, but we didn't see a trillion dollars. 28 00:01:31,720 --> 00:01:34,959 Speaker 2: We saw billions. And I think this kind of illustrates 29 00:01:35,000 --> 00:01:39,120 Speaker 2: one of the really difficult things about finance and debt, 30 00:01:39,240 --> 00:01:42,600 Speaker 2: which is all of us, as you mentioned earlier, kind 31 00:01:42,640 --> 00:01:46,080 Speaker 2: of struggle to grasp the scale of these numbers that 32 00:01:46,160 --> 00:01:49,880 Speaker 2: are involved here, and one point eight trillions seems so 33 00:01:50,160 --> 00:01:54,120 Speaker 2: abstract that we have to describe it using football field 34 00:01:54,160 --> 00:01:57,480 Speaker 2: analogies or whatever else. And if we can't really grasp 35 00:01:57,600 --> 00:02:00,480 Speaker 2: the scale of the debt because it's just this number 36 00:02:00,520 --> 00:02:04,240 Speaker 2: that no one really understands or even takes seriously, then 37 00:02:04,280 --> 00:02:08,000 Speaker 2: it feels like it's difficult to tackle to solve. 38 00:02:08,080 --> 00:02:08,240 Speaker 4: Right. 39 00:02:08,440 --> 00:02:11,480 Speaker 3: Well, I'll say two things on that. I mean, I 40 00:02:11,520 --> 00:02:14,840 Speaker 3: think a you have to question, like, at any given point, 41 00:02:15,000 --> 00:02:18,760 Speaker 3: what isn't a called economy solving for right? And so 42 00:02:18,880 --> 00:02:21,480 Speaker 3: people have anxiety about the size of the debt and 43 00:02:21,520 --> 00:02:24,000 Speaker 3: the deficit. And then it's like, but you know a time, 44 00:02:24,080 --> 00:02:24,880 Speaker 3: you know, there's also. 45 00:02:24,720 --> 00:02:28,280 Speaker 2: A high and they also have anxiety about social services, yeah. 46 00:02:28,080 --> 00:02:30,760 Speaker 3: And things like that, And then there is also the 47 00:02:30,880 --> 00:02:34,080 Speaker 3: question of you know, we think of a household or 48 00:02:34,240 --> 00:02:37,200 Speaker 3: any entity as like you have to have money to 49 00:02:37,200 --> 00:02:41,240 Speaker 3: pay your bills. Are there other dynamics besides numbers that 50 00:02:41,480 --> 00:02:44,400 Speaker 3: cause a financial crisis. So, for example, you could have 51 00:02:44,440 --> 00:02:48,000 Speaker 3: a country with very high debt to GDP and it's 52 00:02:48,440 --> 00:02:50,880 Speaker 3: fine because you know, it goes on for longer than 53 00:02:50,919 --> 00:02:53,440 Speaker 3: people expect. And you can have countries with low debts 54 00:02:53,480 --> 00:02:56,480 Speaker 3: and deficits, but because they have an internal political crisis 55 00:02:56,480 --> 00:02:59,799 Speaker 3: because people no longer have confidence in the government of 56 00:02:59,840 --> 00:03:02,359 Speaker 3: this to pay it back. You can have a crisis 57 00:03:02,400 --> 00:03:05,080 Speaker 3: even at low levels. And so even thinking about what 58 00:03:05,120 --> 00:03:08,680 Speaker 3: does it mean to solve a debt, talk about debt 59 00:03:08,720 --> 00:03:12,640 Speaker 3: at the national level is simultaneously a financial discussion and 60 00:03:12,680 --> 00:03:14,720 Speaker 3: one about political confidence. 61 00:03:14,280 --> 00:03:18,040 Speaker 2: A social conversation. All right, Well, on that note, I 62 00:03:18,080 --> 00:03:20,160 Speaker 2: am very happy to say that I think we have 63 00:03:20,240 --> 00:03:22,680 Speaker 2: the perfect guest to talk about all of these things, 64 00:03:22,919 --> 00:03:26,800 Speaker 2: someone who has consistently had some very big thoughts about 65 00:03:27,000 --> 00:03:29,520 Speaker 2: these very big numbers. We're going to be speaking with 66 00:03:29,680 --> 00:03:33,640 Speaker 2: Ray Dallio, the legendary founder of Bridgewater, the author of 67 00:03:33,720 --> 00:03:38,040 Speaker 2: numerous books, including a new one titled How Countries Go Broke, 68 00:03:38,200 --> 00:03:43,040 Speaker 2: principles for navigating the big debt cycle, and most importantly, 69 00:03:43,840 --> 00:03:46,720 Speaker 2: a key player in the invention of the chicken nugget. 70 00:03:47,040 --> 00:03:49,240 Speaker 2: I am very excited. Ray, Welcome to the show. 71 00:03:49,640 --> 00:03:52,280 Speaker 4: Wow, what an introduction. Thank you. 72 00:03:52,440 --> 00:03:55,840 Speaker 3: Tracy's good at introductions. If it had been me, I'd 73 00:03:55,880 --> 00:03:57,880 Speaker 3: just been like Ray Dalio, you all know his name, 74 00:03:57,960 --> 00:04:00,760 Speaker 3: let's break it in. But Tracy does it properly, especially 75 00:04:00,800 --> 00:04:02,800 Speaker 3: for a guest of your stature. 76 00:04:03,840 --> 00:04:06,360 Speaker 4: You do pretty good too, Joe, thank you for having me. 77 00:04:06,640 --> 00:04:09,760 Speaker 2: So I want to start with the really important stuff. 78 00:04:09,800 --> 00:04:12,240 Speaker 2: So first, let me just thank you on behalf of 79 00:04:12,280 --> 00:04:15,320 Speaker 2: millions of Americans for your contribution to the chicken nugget. 80 00:04:16,120 --> 00:04:19,440 Speaker 2: What did you do exactly when it comes to chicken nuggets? 81 00:04:19,480 --> 00:04:23,760 Speaker 4: What was your role? Well, when I was pretty young, 82 00:04:24,240 --> 00:04:31,480 Speaker 4: I started trading commodities because they had the lowest margin requirements. 83 00:04:32,279 --> 00:04:35,560 Speaker 4: So I figured if I was going to be right 84 00:04:35,640 --> 00:04:37,440 Speaker 4: and I wouldn't do it, if I wasn't going to 85 00:04:37,480 --> 00:04:39,800 Speaker 4: be right, that I would be able to get the 86 00:04:39,839 --> 00:04:43,160 Speaker 4: most amount of leverage out of these and so I 87 00:04:43,200 --> 00:04:47,400 Speaker 4: started trading commodities before most people started to trade commodities, 88 00:04:47,440 --> 00:04:52,920 Speaker 4: and then that led me in nineteen seventy three when 89 00:04:52,960 --> 00:05:00,560 Speaker 4: I graduated from business school to become a commodity investor 90 00:05:00,760 --> 00:05:05,039 Speaker 4: sort of. And what I did was I was in 91 00:05:05,160 --> 00:05:09,480 Speaker 4: charge of institutional futures at one of these brokerage houses, 92 00:05:09,680 --> 00:05:13,760 Speaker 4: and that brought me in contact with the mechanics of 93 00:05:13,880 --> 00:05:18,640 Speaker 4: how hedging and how chickens and grain and everything worked. 94 00:05:18,680 --> 00:05:22,400 Speaker 4: So fast forward, I got to meet the biggest chicken 95 00:05:22,440 --> 00:05:27,160 Speaker 4: producers in the world, and McDonald's hired me as a 96 00:05:27,200 --> 00:05:32,080 Speaker 4: consultant of sorts to advise them on how they were 97 00:05:32,200 --> 00:05:38,839 Speaker 4: going to safely price the chicken McNugget. You see. Their 98 00:05:38,839 --> 00:05:43,800 Speaker 4: worry was that if they this was very volatile times 99 00:05:43,839 --> 00:05:47,840 Speaker 4: then and their worry was if they bought the chicken 100 00:05:48,360 --> 00:05:52,160 Speaker 4: and they put it on the menu and the prices changed, 101 00:05:52,240 --> 00:05:54,760 Speaker 4: like went up a lot, they'd have to change the 102 00:05:54,800 --> 00:05:57,560 Speaker 4: menu price. So they needed to know that they could 103 00:05:57,560 --> 00:06:02,440 Speaker 4: have stable prices. And we walked and I knew that 104 00:06:03,240 --> 00:06:07,240 Speaker 4: the mechanics of chicken. He had you produce it. There 105 00:06:07,240 --> 00:06:10,480 Speaker 4: were little chicks and they didn't cost much. And what 106 00:06:10,680 --> 00:06:14,320 Speaker 4: cost most of the money to make a chicken was 107 00:06:14,720 --> 00:06:19,719 Speaker 4: the corn and soyed meal that they produce as feed 108 00:06:19,760 --> 00:06:22,200 Speaker 4: to feed them to get them to be big chickens 109 00:06:22,480 --> 00:06:26,039 Speaker 4: and so on. And so I went to one of 110 00:06:26,080 --> 00:06:32,240 Speaker 4: my chicken producing clients and McDonald's, and I showed how 111 00:06:32,279 --> 00:06:36,840 Speaker 4: this chicken producing client could hedge the price and give 112 00:06:36,920 --> 00:06:40,960 Speaker 4: them a stable price, and because of that, they were 113 00:06:41,040 --> 00:06:43,880 Speaker 4: able to put chicken McNuggets on the menu. 114 00:06:44,680 --> 00:06:46,800 Speaker 3: I love this story for multiple I love the idea 115 00:06:46,920 --> 00:06:51,760 Speaker 3: of creating a sort of synthetic financial chicken McNugget price 116 00:06:51,839 --> 00:06:55,000 Speaker 3: through the inputs. You know, I want to say, you know, 117 00:06:55,240 --> 00:06:57,760 Speaker 3: for a long time, I probably bought into this view 118 00:06:58,160 --> 00:07:02,000 Speaker 3: that the real creators in an economy are the farmers 119 00:07:02,080 --> 00:07:05,360 Speaker 3: and the growers and the entrepreneurs who you know, come 120 00:07:05,440 --> 00:07:08,440 Speaker 3: up with a distribution mechanism, and it always sort of 121 00:07:08,680 --> 00:07:12,080 Speaker 3: the people in finance are thinking, you know, is seen 122 00:07:12,120 --> 00:07:14,680 Speaker 3: as like, oh, they're just sort of speculating or betting 123 00:07:14,680 --> 00:07:17,320 Speaker 3: on that. And I've changed my mind over the years. 124 00:07:17,360 --> 00:07:19,880 Speaker 3: And you know, there are many good ideas in the 125 00:07:19,920 --> 00:07:23,680 Speaker 3: world that people have on paper and labs and so 126 00:07:23,760 --> 00:07:27,840 Speaker 3: forth that never exist because the financing mechanisms to bring 127 00:07:27,880 --> 00:07:31,040 Speaker 3: them to place don't exist. And so I would say 128 00:07:31,200 --> 00:07:33,640 Speaker 3: that if you like, especially in nineteen seventy five, when 129 00:07:33,640 --> 00:07:35,920 Speaker 3: I imagine we didn't in the mid nineteen seventies, when 130 00:07:35,960 --> 00:07:38,680 Speaker 3: we didn't have the same level of easy running computing 131 00:07:38,760 --> 00:07:42,120 Speaker 3: power in as liquid markets, et cetera. That someone who 132 00:07:42,120 --> 00:07:46,120 Speaker 3: figures out how to create a synthetic McNugget price is 133 00:07:46,160 --> 00:07:49,000 Speaker 3: as much the inventor of the McNugget as the person 134 00:07:49,040 --> 00:07:50,960 Speaker 3: who figured out how to, you know, ball and fry 135 00:07:51,000 --> 00:07:51,440 Speaker 3: the chicken. 136 00:07:52,360 --> 00:07:54,480 Speaker 4: Do you think I can claim being the inventor the 137 00:07:54,560 --> 00:07:55,400 Speaker 4: chicken nugget? 138 00:07:55,680 --> 00:07:56,080 Speaker 3: I don't know. 139 00:07:56,280 --> 00:07:58,280 Speaker 4: I think that I think that'd be overreach. 140 00:07:58,440 --> 00:08:00,680 Speaker 3: Okay, well, anyway, I love that. 141 00:08:01,120 --> 00:08:02,960 Speaker 2: I love that story, all right, So I want to 142 00:08:03,000 --> 00:08:07,200 Speaker 2: get to debt the actual important things. So the thrust 143 00:08:07,240 --> 00:08:09,400 Speaker 2: of the new book, it kind of reminds me of 144 00:08:09,440 --> 00:08:12,400 Speaker 2: one of my all time financial favorites, which is a 145 00:08:12,520 --> 00:08:15,760 Speaker 2: history of interest rates by Homer and Sydney. And you're 146 00:08:15,840 --> 00:08:18,920 Speaker 2: kind of taking a similar approach, although maybe you're not 147 00:08:19,080 --> 00:08:21,960 Speaker 2: going all the way back to ancient Babylon or something 148 00:08:22,040 --> 00:08:24,840 Speaker 2: like that. But why did you decide to focus on 149 00:08:24,880 --> 00:08:28,800 Speaker 2: debt cycles? What's the allure for you? And what do 150 00:08:28,840 --> 00:08:30,120 Speaker 2: you learn from history? 151 00:08:30,280 --> 00:08:34,960 Speaker 4: In nineteen seventy one, before after I graduated college and 152 00:08:35,080 --> 00:08:39,640 Speaker 4: before I went to business school, I clerked on the 153 00:08:39,679 --> 00:08:44,160 Speaker 4: floor of the New York Stock Exchange on and I 154 00:08:44,240 --> 00:08:46,560 Speaker 4: filed the markets. I filed the market since I was 155 00:08:46,600 --> 00:08:49,679 Speaker 4: a kid. I first got involved in markets when I 156 00:08:49,720 --> 00:08:52,440 Speaker 4: was twelve. I used to caddy and then it was 157 00:08:52,480 --> 00:08:54,680 Speaker 4: the time of the stock market, and the stock market 158 00:08:54,720 --> 00:08:56,800 Speaker 4: was very hot, and I took my cadding money and 159 00:08:56,880 --> 00:09:00,440 Speaker 4: I did that. But anyway, that led me to be 160 00:09:01,320 --> 00:09:04,600 Speaker 4: on the floor of the New York Stock Exchange and 161 00:09:04,640 --> 00:09:11,320 Speaker 4: follow markets. And on August fifteenth, nineteen seventy one, Richard 162 00:09:11,480 --> 00:09:17,800 Speaker 4: Nixon Sunday Night, got on the television and told people 163 00:09:18,640 --> 00:09:22,760 Speaker 4: that the monetary system was going to change, that the 164 00:09:22,920 --> 00:09:27,080 Speaker 4: money that they thought they could get gold was thought 165 00:09:27,120 --> 00:09:30,920 Speaker 4: of as money then, and paper money was like checks 166 00:09:30,960 --> 00:09:33,760 Speaker 4: in a checkbook, didn't have any intrinsic value, no value 167 00:09:34,280 --> 00:09:39,120 Speaker 4: that they would not get because there was a fixed 168 00:09:39,160 --> 00:09:42,800 Speaker 4: exchange ring. And he gave some sort of BS story 169 00:09:43,120 --> 00:09:46,000 Speaker 4: about why that was, which it was really because they 170 00:09:46,000 --> 00:09:50,160 Speaker 4: didn't have enough gold to back up their money claims. 171 00:09:50,679 --> 00:09:52,520 Speaker 4: And I walked on the floor of the New York 172 00:09:52,520 --> 00:09:56,640 Speaker 4: Stock Exchange. I thought, this is a big crisis. This 173 00:09:56,679 --> 00:09:59,720 Speaker 4: is going to be terrible, and I thought the stock 174 00:09:59,760 --> 00:10:01,920 Speaker 4: market I was going to go down a lot and 175 00:10:02,720 --> 00:10:06,240 Speaker 4: I went on the floor and it went up the 176 00:10:06,280 --> 00:10:10,760 Speaker 4: most in years. And I didn't understand that. I didn't 177 00:10:10,800 --> 00:10:15,520 Speaker 4: understand why, And so I started to do research, and 178 00:10:15,600 --> 00:10:21,760 Speaker 4: I found that on March fifteenth, nineteen thirty three, President 179 00:10:21,920 --> 00:10:26,120 Speaker 4: Roosevelt got on the radio and made the exact same 180 00:10:26,200 --> 00:10:31,600 Speaker 4: announcement for the exact same reason. And I studied, then, 181 00:10:32,000 --> 00:10:36,080 Speaker 4: why is it that they went up a lot? Okay, 182 00:10:36,160 --> 00:10:39,480 Speaker 4: you devalue money. When you devalue money and you make 183 00:10:39,559 --> 00:10:45,080 Speaker 4: money very easy, things go up. And so I learned 184 00:10:45,120 --> 00:10:50,080 Speaker 4: not just the nature of that mechanic, but I learned 185 00:10:50,120 --> 00:10:55,480 Speaker 4: that things that surprised me in my life often were 186 00:10:55,520 --> 00:10:59,800 Speaker 4: things that never happened in my lifetime, but they happened 187 00:10:59,800 --> 00:11:03,920 Speaker 4: in times in history. So I studied the Great Depression. 188 00:11:04,360 --> 00:11:07,760 Speaker 4: I figured, okay, I should study all big things that happened, 189 00:11:08,120 --> 00:11:12,760 Speaker 4: and I studied that Great Depression. And as a result 190 00:11:12,800 --> 00:11:16,520 Speaker 4: of doing that, in two thousand and eight, I was 191 00:11:16,600 --> 00:11:22,240 Speaker 4: able to anticipate the global financial crisis ahead of it. 192 00:11:22,280 --> 00:11:24,920 Speaker 4: And the reason is is because when you have a 193 00:11:24,960 --> 00:11:29,960 Speaker 4: debt crisis and interest rates go down and hit zero, 194 00:11:30,160 --> 00:11:34,720 Speaker 4: so they can't go down anymore. Cutting interest rates anymore 195 00:11:35,000 --> 00:11:39,120 Speaker 4: is no longer going to work. And what I learned 196 00:11:39,360 --> 00:11:45,520 Speaker 4: from studying this event in nineteen thirty three is that 197 00:11:45,600 --> 00:11:51,319 Speaker 4: when that happens, the government prints money and buys the bonds. 198 00:11:52,400 --> 00:11:56,439 Speaker 4: So what happened in two thousand and eight was exactly that, 199 00:11:57,920 --> 00:12:01,240 Speaker 4: and I wouldn't have understood it if I didn't study 200 00:12:01,280 --> 00:12:05,000 Speaker 4: what happened back then. So that changed my whole approach 201 00:12:05,280 --> 00:12:08,920 Speaker 4: to decision making, which is also why I did this 202 00:12:09,040 --> 00:12:12,080 Speaker 4: study recently, and that came out as the book that 203 00:12:12,120 --> 00:12:15,280 Speaker 4: you're referred to, you know, Principles for dealing with the 204 00:12:15,360 --> 00:12:20,280 Speaker 4: Changing World Order. I needed to study things that hadn't 205 00:12:20,320 --> 00:12:22,760 Speaker 4: happened in my lifetime. So we'll get into it. Yeah, 206 00:12:22,760 --> 00:12:25,160 Speaker 4: there are things that are happening to us in our 207 00:12:25,480 --> 00:12:29,160 Speaker 4: lifetimes that haven't happened before that you have to go 208 00:12:29,240 --> 00:12:33,000 Speaker 4: back to the thirties or other periods of time to understand. 209 00:12:33,080 --> 00:12:50,480 Speaker 4: And related to that is this money debt thing. 210 00:12:53,120 --> 00:12:56,160 Speaker 3: Let's talk about the present tense And obviously Tracy and 211 00:12:56,200 --> 00:12:59,800 Speaker 3: her fantastic intro talked about the size of the deficit 212 00:12:59,840 --> 00:13:01,960 Speaker 3: life year, and you know, you see so much about 213 00:13:02,120 --> 00:13:04,560 Speaker 3: the debt. You know, there's two things in the story. 214 00:13:04,559 --> 00:13:06,640 Speaker 3: You're told there's sort of two things that struck me 215 00:13:06,840 --> 00:13:09,600 Speaker 3: right now, Which is one is, obviously we don't have 216 00:13:09,640 --> 00:13:12,920 Speaker 3: a form of currency that's quote backed by anything. There's 217 00:13:12,960 --> 00:13:15,800 Speaker 3: nothing to quote run out of that we couldn't mate it. 218 00:13:15,679 --> 00:13:18,440 Speaker 3: It's the sort of fiat currency in the truest sense 219 00:13:18,440 --> 00:13:20,960 Speaker 3: of the word. There's also the other thing is you 220 00:13:20,960 --> 00:13:25,280 Speaker 3: know you mentioned stock surged because of these moves represented 221 00:13:25,320 --> 00:13:28,760 Speaker 3: this big fiscal loosening. We are in an era in 222 00:13:28,800 --> 00:13:31,840 Speaker 3: which inflation has been high for several years. Inflation is 223 00:13:31,880 --> 00:13:35,280 Speaker 3: still above target, and many people would say this still 224 00:13:35,360 --> 00:13:39,040 Speaker 3: most persistent issue right now is this issue of too 225 00:13:39,120 --> 00:13:43,160 Speaker 3: much money and that there's still things are too expensive, 226 00:13:43,200 --> 00:13:46,000 Speaker 3: et cetera, and so there's still this impulse to titan 227 00:13:46,280 --> 00:13:48,840 Speaker 3: So when you think about these lessons that you're talking about, 228 00:13:48,880 --> 00:13:52,560 Speaker 3: then when you look at our fiscal position in twenty 229 00:13:52,640 --> 00:13:54,920 Speaker 3: twenty five, what do you think about what? When you 230 00:13:54,960 --> 00:13:56,920 Speaker 3: look at our fiscal position, what do you see? 231 00:13:57,040 --> 00:13:59,360 Speaker 4: Again? I think you can tell from the way that 232 00:13:59,440 --> 00:14:03,360 Speaker 4: I talk. I think about the mechanics and how does 233 00:14:03,400 --> 00:14:07,840 Speaker 4: it work. And in answer to your prior question, the 234 00:14:07,920 --> 00:14:12,600 Speaker 4: reason I'm writing this book is because I think that 235 00:14:12,640 --> 00:14:16,720 Speaker 4: we're at an inflection point and I think that people 236 00:14:16,840 --> 00:14:24,040 Speaker 4: do not economists and people and everybody. Policy makers don't 237 00:14:24,080 --> 00:14:29,640 Speaker 4: adequately understand the big debt cycle. They understand the shorter 238 00:14:29,760 --> 00:14:34,800 Speaker 4: term debt cycles. You know things economies, we inflation goes down, 239 00:14:35,240 --> 00:14:39,040 Speaker 4: they make credit available, things go up, stocks and everything 240 00:14:39,320 --> 00:14:42,560 Speaker 4: goes up until you get too much and you get inflation. 241 00:14:42,680 --> 00:14:45,120 Speaker 4: Then they tighten credit and so on. But the big 242 00:14:45,200 --> 00:14:50,920 Speaker 4: debt cycle isn't understood. And yet we're there, We're at 243 00:14:51,400 --> 00:14:54,960 Speaker 4: the brink of one of these. And so what I 244 00:14:55,040 --> 00:15:00,680 Speaker 4: think about this is that there are really three factors 245 00:15:01,440 --> 00:15:06,040 Speaker 4: that drive the big debt cycle, and I want to 246 00:15:06,040 --> 00:15:09,240 Speaker 4: convey those. I'm a part of my life that I'm 247 00:15:09,240 --> 00:15:13,400 Speaker 4: trying to convey those. And so, okay, most people think 248 00:15:13,440 --> 00:15:16,520 Speaker 4: interest rates go up because of inflation tightness or ease 249 00:15:16,560 --> 00:15:20,440 Speaker 4: of monetary policy, but they don't realize that there are 250 00:15:20,480 --> 00:15:23,880 Speaker 4: limits to dick growth. And here's how it happens. One 251 00:15:23,960 --> 00:15:27,600 Speaker 4: man's debts or another man's financial assets. So when you're 252 00:15:27,680 --> 00:15:33,280 Speaker 4: holding a lot of bonds, that's a large percentage of 253 00:15:33,440 --> 00:15:39,320 Speaker 4: the portfolio, that's also a large debt. And think of 254 00:15:40,120 --> 00:15:45,520 Speaker 4: the credit system like a circulatory system that brings nutrients 255 00:15:45,600 --> 00:15:48,160 Speaker 4: to all of the parts of the body. So you 256 00:15:48,480 --> 00:15:53,240 Speaker 4: give mind power. And if that buying power is used 257 00:15:54,080 --> 00:15:59,400 Speaker 4: to create productivity, then what it does is it produces 258 00:15:59,760 --> 00:16:03,720 Speaker 4: incomes that are large enough to pay the debts back 259 00:16:04,240 --> 00:16:08,760 Speaker 4: and give you productivity and everybody's app But if the 260 00:16:08,840 --> 00:16:14,840 Speaker 4: debts are too large and don't produce the productivity, you 261 00:16:14,920 --> 00:16:19,320 Speaker 4: don't have the income that's necessary to service those debts. 262 00:16:19,920 --> 00:16:25,200 Speaker 4: And so in this circulatory system, if it's healthy, you're 263 00:16:25,240 --> 00:16:29,920 Speaker 4: seeing incomes rise with the debts, and you're seeing the 264 00:16:29,920 --> 00:16:33,960 Speaker 4: system work well. When debts rise relative to incomes that 265 00:16:34,040 --> 00:16:38,360 Speaker 4: are needed to service the debt, it's like plaque in 266 00:16:38,440 --> 00:16:43,520 Speaker 4: the system, building up in the circulatory system because it 267 00:16:43,680 --> 00:16:48,080 Speaker 4: means that first of all, you have a debt service 268 00:16:48,200 --> 00:16:52,720 Speaker 4: problem that you have to pay the debt service, and 269 00:16:52,760 --> 00:16:58,000 Speaker 4: that's like plaque in that it leaves less room for spending. So, 270 00:16:58,120 --> 00:17:02,720 Speaker 4: for example, the US government has an interest bill that's 271 00:17:03,520 --> 00:17:07,119 Speaker 4: about a trillion dollars a year, and if they didn't 272 00:17:07,160 --> 00:17:11,080 Speaker 4: have a trillion that didn't have that interest bill, they'd 273 00:17:11,080 --> 00:17:14,679 Speaker 4: have a trillion dollars more spending, and that process gets 274 00:17:15,040 --> 00:17:20,400 Speaker 4: worse and worse over time. In addition, one has to 275 00:17:20,520 --> 00:17:25,400 Speaker 4: roll over the debt that was last accumulating, so we 276 00:17:25,480 --> 00:17:29,680 Speaker 4: have to roll over this year about nine trillion, a 277 00:17:29,680 --> 00:17:35,280 Speaker 4: little over nine trillion dollars of debt. That means the 278 00:17:35,359 --> 00:17:39,399 Speaker 4: new you know, they get it runs out, then you 279 00:17:39,440 --> 00:17:41,879 Speaker 4: have to sell it again. And when they have a 280 00:17:41,960 --> 00:17:44,880 Speaker 4: lot of that debt, that's a problem. And when you're 281 00:17:45,080 --> 00:17:48,360 Speaker 4: doing putting a lot more debt on top of that 282 00:17:48,440 --> 00:17:52,440 Speaker 4: pile of debt, so it's not just the existing debt 283 00:17:52,640 --> 00:17:56,320 Speaker 4: that's a problem, but you have to add more debt sales, 284 00:17:56,800 --> 00:18:01,600 Speaker 4: which equals essentially the budget deficit, which now is going 285 00:18:01,640 --> 00:18:05,200 Speaker 4: to be about seven and a half percent of GDP. 286 00:18:05,920 --> 00:18:08,919 Speaker 4: You've got to sell those. You have to sell those 287 00:18:08,960 --> 00:18:13,800 Speaker 4: to people or institutions or central banks or sovereign funds 288 00:18:14,040 --> 00:18:17,280 Speaker 4: that hold these bonds while they're already holding too many 289 00:18:17,359 --> 00:18:21,160 Speaker 4: bonds and now they have to roll them over, and 290 00:18:21,240 --> 00:18:24,639 Speaker 4: you have to sell these new bonds that are coming on, 291 00:18:25,440 --> 00:18:28,879 Speaker 4: and that can be a problem, and it can be 292 00:18:28,960 --> 00:18:34,680 Speaker 4: worse than that, because if they don't have if they say, hey, 293 00:18:34,680 --> 00:18:36,760 Speaker 4: there are too many of these bonds and i've got 294 00:18:36,880 --> 00:18:41,040 Speaker 4: enough and I don't want to buy it, or worse, 295 00:18:41,880 --> 00:18:45,080 Speaker 4: there could be some reasons that they don't want to 296 00:18:45,080 --> 00:18:49,480 Speaker 4: buy it, like for example, sanctions. Okay, we're living in 297 00:18:49,520 --> 00:18:53,879 Speaker 4: a world similar to the nineteen thirties, and if I 298 00:18:54,040 --> 00:18:57,280 Speaker 4: was the Chinese, I would worry that what would happen 299 00:18:57,400 --> 00:19:01,399 Speaker 4: to me might happen what happened to the Japanese in 300 00:19:01,480 --> 00:19:05,960 Speaker 4: the nineteen thirties, which is that we froze their bonds, 301 00:19:05,960 --> 00:19:09,800 Speaker 4: a meaning they didn't get their money. And so nowadays, 302 00:19:09,880 --> 00:19:13,320 Speaker 4: with sanctions and too many bonds and so on, when 303 00:19:13,359 --> 00:19:17,439 Speaker 4: I calculate who are the buyers and how much do 304 00:19:17,480 --> 00:19:20,840 Speaker 4: we have to sell, I find a big imbalance, and 305 00:19:20,920 --> 00:19:23,840 Speaker 4: I know how that works. You know what happens is 306 00:19:23,920 --> 00:19:28,680 Speaker 4: central banks buy these bonds, They print money and buy 307 00:19:28,720 --> 00:19:31,680 Speaker 4: the bonds, and then they lose money on the bonds, 308 00:19:31,680 --> 00:19:34,680 Speaker 4: and you get a negative network at the central bank, 309 00:19:34,720 --> 00:19:38,040 Speaker 4: and you get this spiral when you reach the part 310 00:19:38,280 --> 00:19:42,840 Speaker 4: of the cycle that you have to borrow money to 311 00:19:42,960 --> 00:19:50,840 Speaker 4: pay debt service, and then the holders of those bonds say, okay, 312 00:19:50,880 --> 00:19:54,280 Speaker 4: it's a risky situation. In the private credit market, we 313 00:19:54,400 --> 00:19:59,080 Speaker 4: call that the debt spiral, the debt debt spiral, because 314 00:19:59,119 --> 00:20:01,879 Speaker 4: when you have to to roll over the debts but 315 00:20:01,920 --> 00:20:05,480 Speaker 4: it's risky, the credit spreads go up. And when the 316 00:20:05,520 --> 00:20:09,359 Speaker 4: credit spreads go up, then it adds to the debt 317 00:20:09,440 --> 00:20:12,239 Speaker 4: service and it becomes a spiral. That's a problem. So 318 00:20:12,520 --> 00:20:16,720 Speaker 4: the way I calculate it is that we're quite near 319 00:20:16,920 --> 00:20:17,679 Speaker 4: that point. 320 00:20:18,680 --> 00:20:21,880 Speaker 2: Can I just press you on the inflection idea, because 321 00:20:21,920 --> 00:20:24,320 Speaker 2: I think this is one of the things that people 322 00:20:24,560 --> 00:20:27,400 Speaker 2: really struggle with, because it is true the US has 323 00:20:27,440 --> 00:20:30,280 Speaker 2: a lot of debt, and it's true that it's issuing 324 00:20:30,320 --> 00:20:33,800 Speaker 2: more debt in order to pay down interest. But at 325 00:20:33,800 --> 00:20:38,200 Speaker 2: the same time, nothing really bad has happened quite yet, 326 00:20:38,960 --> 00:20:42,080 Speaker 2: and I think there's a sense of call it maybe 327 00:20:42,359 --> 00:20:48,000 Speaker 2: debt doom fatigue. We've had warnings over the deficit for decades. Now, 328 00:20:48,119 --> 00:20:51,400 Speaker 2: how do you actually go about figuring out when the 329 00:20:51,440 --> 00:20:55,440 Speaker 2: cycle will turn or what specific things do you look 330 00:20:55,480 --> 00:21:00,320 Speaker 2: for as the proximate catalyst for that inflection point? 331 00:21:01,320 --> 00:21:04,520 Speaker 4: Well, that's why I wrote my book How Countries Will 332 00:21:04,520 --> 00:21:06,840 Speaker 4: Go Broke that by the way, when I say it's 333 00:21:06,880 --> 00:21:09,320 Speaker 4: a book, it'll come out as a book, but I 334 00:21:09,480 --> 00:21:13,160 Speaker 4: made it free online for anybody who wants to read it, 335 00:21:13,960 --> 00:21:18,119 Speaker 4: and what I wanted to show was the actual mechanics 336 00:21:18,760 --> 00:21:23,160 Speaker 4: of how that happens. So I hope your listeners will 337 00:21:23,280 --> 00:21:25,679 Speaker 4: get it and you know it's free, it's there for 338 00:21:25,760 --> 00:21:29,520 Speaker 4: you to start to consider, and what it is is 339 00:21:30,119 --> 00:21:34,960 Speaker 4: look at that mechanics and the signs that you can 340 00:21:35,000 --> 00:21:39,359 Speaker 4: see that happening. In other words, first start to do 341 00:21:39,560 --> 00:21:44,520 Speaker 4: the supplied demand analysis. Simple when that dynamic I describe 342 00:21:44,560 --> 00:21:48,719 Speaker 4: starts happening, you can see it because the amount that 343 00:21:49,000 --> 00:21:54,160 Speaker 4: is sold is not bought by the private sector anymore 344 00:21:54,200 --> 00:21:57,440 Speaker 4: of those other buyers, and then the central bank has 345 00:21:57,480 --> 00:22:01,640 Speaker 4: to come in and then print money and make up 346 00:22:01,680 --> 00:22:04,919 Speaker 4: that difference, and then that the value is money. So 347 00:22:04,960 --> 00:22:10,080 Speaker 4: we saw let's call it a palpitation. I give this example. 348 00:22:10,119 --> 00:22:14,040 Speaker 4: It's like a heart attack. We saw that when in 349 00:22:14,040 --> 00:22:19,200 Speaker 4: twenty twenty, in twenty twenty one, when the government needed 350 00:22:19,320 --> 00:22:22,080 Speaker 4: in twenty twenty to send out a lot of money, 351 00:22:22,640 --> 00:22:27,280 Speaker 4: it actually sent out about twice the amount of money 352 00:22:27,920 --> 00:22:32,639 Speaker 4: that people in their incomes lost or businesses lost. They 353 00:22:32,680 --> 00:22:37,359 Speaker 4: sent out twice as much amount of money then and 354 00:22:37,400 --> 00:22:42,520 Speaker 4: then in twenty twenty one they did it again without 355 00:22:42,800 --> 00:22:45,960 Speaker 4: the need. But there was a move from a right 356 00:22:46,000 --> 00:22:49,640 Speaker 4: of center policy to a left of center policy in 357 00:22:49,680 --> 00:22:53,440 Speaker 4: which universal basic income and the desire to do that 358 00:22:53,760 --> 00:22:58,480 Speaker 4: put out that money. And so where did the government 359 00:22:58,560 --> 00:23:01,840 Speaker 4: get the money from. They got it from the central 360 00:23:01,880 --> 00:23:06,119 Speaker 4: bank that produced the money and sent it out, and 361 00:23:06,200 --> 00:23:11,119 Speaker 4: so everybody's getting all this money and they're surprised that 362 00:23:11,280 --> 00:23:16,120 Speaker 4: prices went up so okay, So you have that wave 363 00:23:16,160 --> 00:23:21,479 Speaker 4: of inflation that was like a warning heart attack. So 364 00:23:21,560 --> 00:23:24,560 Speaker 4: what I'm trying to do in that book is show 365 00:23:25,040 --> 00:23:29,640 Speaker 4: the dynamics and the mechanics that show how you can 366 00:23:29,760 --> 00:23:34,920 Speaker 4: calculate what the supplied demand is and what will happen 367 00:23:35,600 --> 00:23:39,080 Speaker 4: at what's likely to happen, and what has happened through time. 368 00:23:39,640 --> 00:23:43,320 Speaker 4: So I go back through time and I show these many, 369 00:23:43,480 --> 00:23:47,080 Speaker 4: many cases of it so that you can distinguish it, 370 00:23:47,640 --> 00:23:52,840 Speaker 4: because I'm with you the alternative, which has been a problem. 371 00:23:53,200 --> 00:23:57,040 Speaker 4: You know, it's like somebody who's built up their cholesterol 372 00:23:57,200 --> 00:23:59,760 Speaker 4: and lived this way and they say, I haven't had 373 00:23:59,800 --> 00:24:04,600 Speaker 4: a heart attack, and they get that as positive reinforcement, and. 374 00:24:04,600 --> 00:24:11,200 Speaker 2: I guess the nuggets, and there we are. 375 00:24:11,640 --> 00:24:15,000 Speaker 4: So the question I have for everybody, for those in 376 00:24:15,040 --> 00:24:20,720 Speaker 4: the administration and for others, is that dynamic which you 377 00:24:20,720 --> 00:24:23,359 Speaker 4: can see we're played out in there. You could see 378 00:24:23,400 --> 00:24:28,080 Speaker 4: the moment by moment, literally month by month changes that 379 00:24:28,160 --> 00:24:31,760 Speaker 4: are the symptoms and the indicators that you're having a 380 00:24:31,840 --> 00:24:35,360 Speaker 4: heart attack, an economic heart attack at that crisis. It's 381 00:24:35,400 --> 00:24:37,720 Speaker 4: shown in that book. And the only thing I want 382 00:24:37,760 --> 00:24:40,760 Speaker 4: to do is, first of all, say is that logical? 383 00:24:40,840 --> 00:24:44,239 Speaker 4: Do you see it? And so in our conversation, I 384 00:24:44,280 --> 00:24:47,720 Speaker 4: can't show you the charts and numbers and so on, 385 00:24:48,160 --> 00:24:50,520 Speaker 4: but I can tell you. And so we should be 386 00:24:50,600 --> 00:24:55,479 Speaker 4: asking ourselves is that logical? Has it happened before? And 387 00:24:55,480 --> 00:24:58,040 Speaker 4: then what do we do about it? Rather than say 388 00:24:58,359 --> 00:24:59,920 Speaker 4: we don't have to worry about it? 389 00:25:00,160 --> 00:25:03,120 Speaker 3: What does it look like? Specifically? Okay, you walk through 390 00:25:03,119 --> 00:25:06,240 Speaker 3: the math and you talk about you know, at some 391 00:25:06,280 --> 00:25:08,760 Speaker 3: point you could talk about supply and demand and is 392 00:25:08,800 --> 00:25:11,639 Speaker 3: the demand actually there? And there have been warnings, as 393 00:25:11,680 --> 00:25:14,440 Speaker 3: both you and Tracy acknowledged for years, and you know 394 00:25:14,720 --> 00:25:17,720 Speaker 3: you have these little tremors or maybe heart attacks and 395 00:25:17,840 --> 00:25:21,280 Speaker 3: so forth. Let's say it happens, and I don't know 396 00:25:21,280 --> 00:25:24,200 Speaker 3: what it is, but what is the equivalent in twenty 397 00:25:24,240 --> 00:25:27,080 Speaker 3: twenty five or twenty twenty six or twenty twenty seven 398 00:25:27,600 --> 00:25:31,280 Speaker 3: of Nixon suddenly taking us off the gold standard? 399 00:25:31,440 --> 00:25:31,679 Speaker 4: Is it? 400 00:25:32,119 --> 00:25:34,560 Speaker 3: And you sort of hinted at it, do you see 401 00:25:34,720 --> 00:25:38,480 Speaker 3: plausibly mixing up with geopolitics from the trade wars? An 402 00:25:38,520 --> 00:25:42,840 Speaker 3: equivalent of saying we don't acknowledge China's debt, that that's 403 00:25:42,880 --> 00:25:44,920 Speaker 3: not real debt. We're freezing it, we're paying it off. 404 00:25:44,960 --> 00:25:47,320 Speaker 3: They have no claims to it. Is that something that 405 00:25:47,400 --> 00:25:50,280 Speaker 3: you could see happen? What does that day look like? 406 00:25:50,400 --> 00:25:51,000 Speaker 3: In your view? 407 00:25:51,359 --> 00:25:56,160 Speaker 4: That day looks like what happened on August fifteenth, nineteen 408 00:25:56,560 --> 00:26:01,400 Speaker 4: seventy one, but just much bigger. You'll see you'll see 409 00:26:01,440 --> 00:26:07,680 Speaker 4: the supply demand problem. You will see a spike in 410 00:26:07,680 --> 00:26:11,200 Speaker 4: interest rates, a tightening very much by the way these 411 00:26:11,600 --> 00:26:14,960 Speaker 4: always happen, that happened in twenty twenty. There'll be a 412 00:26:14,960 --> 00:26:19,360 Speaker 4: spike in interest rates. It will show up as interest 413 00:26:19,440 --> 00:26:25,000 Speaker 4: rates rising and the value of money going down, particularly 414 00:26:25,080 --> 00:26:30,239 Speaker 4: in relation to gold or other currencies. Perhaps, although this 415 00:26:30,359 --> 00:26:33,480 Speaker 4: is something that will affect all currencies because they'll all 416 00:26:33,480 --> 00:26:36,040 Speaker 4: be in the same they'll all depreciate it get together, 417 00:26:37,119 --> 00:26:40,800 Speaker 4: and you'll see the rates rising, even though the Federal 418 00:26:40,840 --> 00:26:45,880 Speaker 4: reserve is easy. Then you will see the Federal Reserve 419 00:26:46,040 --> 00:26:52,840 Speaker 4: come in and buy and do another QE, and then 420 00:26:53,040 --> 00:26:56,880 Speaker 4: you're going to see the kind of reaction that you 421 00:26:56,960 --> 00:27:01,160 Speaker 4: saw back in twenty twenty and twenty one on where 422 00:27:01,280 --> 00:27:06,439 Speaker 4: not only the inflation component but gold and other asset 423 00:27:06,560 --> 00:27:09,360 Speaker 4: prices in the scent going up, it'll look like that. 424 00:27:09,560 --> 00:27:11,199 Speaker 3: But just to be clear, I want to press on 425 00:27:11,280 --> 00:27:16,800 Speaker 3: this point. When that what is the equivalent announcement of 426 00:27:17,000 --> 00:27:20,280 Speaker 3: a Nixon going off the gold standard in nineteen in 427 00:27:20,320 --> 00:27:24,600 Speaker 3: August nineteen seventy one, what is that thing today? Is it? 428 00:27:24,960 --> 00:27:25,360 Speaker 3: Do you? 429 00:27:25,920 --> 00:27:30,879 Speaker 4: They won't. They won't because because we have a Fiat monetary. 430 00:27:30,480 --> 00:27:32,320 Speaker 3: Yeah, so we can't do it can't be the same. 431 00:27:32,760 --> 00:27:36,280 Speaker 4: It doesn't require an announcement, But do. 432 00:27:36,200 --> 00:27:40,439 Speaker 3: You expect there to be a policy announcement of we 433 00:27:40,520 --> 00:27:43,600 Speaker 3: are no longer paying the debt, say owned by China. 434 00:27:44,080 --> 00:27:46,120 Speaker 4: I'll tell you what you will certainly see, and then 435 00:27:46,160 --> 00:27:48,800 Speaker 4: I'll tell you what you will possibly see. What you 436 00:27:48,880 --> 00:27:53,719 Speaker 4: will certainly see is the Federal Reserve coming in and 437 00:27:53,800 --> 00:27:56,679 Speaker 4: buying a lot like it did. And it doesn't have 438 00:27:56,760 --> 00:27:59,879 Speaker 4: to say an announcement, but it'll come in like that 439 00:28:00,480 --> 00:28:02,760 Speaker 4: like they did in two thousand and eight, or like 440 00:28:02,840 --> 00:28:06,720 Speaker 4: they did in twenty twenty, except in a bigger way. 441 00:28:06,840 --> 00:28:11,399 Speaker 4: But what you might have in preparation for that, like 442 00:28:11,440 --> 00:28:16,400 Speaker 4: in nineteen seventy one, is certain actions taken to deal 443 00:28:16,400 --> 00:28:20,639 Speaker 4: with that issue, such as extending the maturity of the debt. 444 00:28:20,800 --> 00:28:22,200 Speaker 4: These are possibilities. 445 00:28:22,320 --> 00:28:24,439 Speaker 3: Can you say you're not like a default on some 446 00:28:24,480 --> 00:28:25,120 Speaker 3: people's debt. 447 00:28:25,359 --> 00:28:28,000 Speaker 4: Yeah, but I think the government would do it such 448 00:28:28,040 --> 00:28:32,920 Speaker 4: as that country is going to be sanctioned, and therefore 449 00:28:33,040 --> 00:28:37,000 Speaker 4: to sanction them, we are not going to pay the debt. 450 00:28:37,480 --> 00:28:41,920 Speaker 4: That would be a very classic and certainly fireworks should 451 00:28:41,920 --> 00:28:45,240 Speaker 4: go off in your mind about that signal. I'm not 452 00:28:45,280 --> 00:28:47,320 Speaker 4: saying it's going to happen, but that is one of 453 00:28:47,360 --> 00:28:53,440 Speaker 4: those things. And you could see then the government saying 454 00:28:54,240 --> 00:28:58,760 Speaker 4: that they're going to restructure the debt. They won't say 455 00:28:58,960 --> 00:29:04,360 Speaker 4: it's a default. They will say under this policy, we're 456 00:29:04,400 --> 00:29:09,400 Speaker 4: going to be better off if we don't vault the fault. 457 00:29:09,480 --> 00:29:13,560 Speaker 4: We won't change what you're going to get paid, but 458 00:29:13,680 --> 00:29:18,600 Speaker 4: we're going to spread it out over more years. That'll 459 00:29:18,640 --> 00:29:24,920 Speaker 4: be a restructuring of the debt combined with some monetization 460 00:29:25,400 --> 00:29:28,440 Speaker 4: of the debt, in other words, a central bank policy 461 00:29:28,680 --> 00:29:32,360 Speaker 4: where they're buying some of that debt. That'll look like that. 462 00:29:33,160 --> 00:29:37,800 Speaker 4: If it gets bad, then you could have more extreme 463 00:29:37,880 --> 00:29:38,440 Speaker 4: things happened. 464 00:29:54,840 --> 00:29:58,360 Speaker 2: Since we're on the topic of major events in the 465 00:29:58,400 --> 00:30:02,360 Speaker 2: financial system, wonder if you've been following any of the 466 00:30:02,920 --> 00:30:06,120 Speaker 2: papers or thought pieces coming out of parts of the 467 00:30:06,160 --> 00:30:11,440 Speaker 2: Trump administration, and specifically this hypothetical situation of a Mara 468 00:30:11,440 --> 00:30:15,440 Speaker 2: a Lago accord where the US basically gets a weaker 469 00:30:15,520 --> 00:30:20,400 Speaker 2: dollar and also gets to maintain its special status in 470 00:30:20,440 --> 00:30:23,120 Speaker 2: the global financial system. What do you think about the 471 00:30:23,160 --> 00:30:28,040 Speaker 2: possibility of the US restructuring the entire system so as 472 00:30:28,080 --> 00:30:30,000 Speaker 2: to further benefit itself. 473 00:30:30,360 --> 00:30:34,560 Speaker 4: I think that that's a real possibility, and it's done 474 00:30:35,400 --> 00:30:39,000 Speaker 4: semi secretively. But I want to be clear what that's like. 475 00:30:40,520 --> 00:30:45,280 Speaker 4: I don't think it's a depreciation of the dollar in 476 00:30:45,360 --> 00:30:50,760 Speaker 4: relationship to all other currencies. I think all other currencies 477 00:30:51,400 --> 00:30:54,600 Speaker 4: will depreciate with the dollar. In other words, it's up 478 00:30:54,640 --> 00:30:57,920 Speaker 4: to each central bank, and pretty much in terms of 479 00:30:58,080 --> 00:31:01,560 Speaker 4: other currencies, it's an ugly content. You know, there's the 480 00:31:01,600 --> 00:31:07,440 Speaker 4: Euro and the European situation, which is terrible. There's the 481 00:31:07,560 --> 00:31:10,640 Speaker 4: Japanese yen. They have a huge amount of debt which 482 00:31:10,720 --> 00:31:15,360 Speaker 4: they're monetizing and so on. There's China's REMMB and that's 483 00:31:15,400 --> 00:31:18,280 Speaker 4: not going to be a safe soorehold of wealth. And 484 00:31:18,360 --> 00:31:21,880 Speaker 4: none of those currencies are going to sort of be 485 00:31:22,080 --> 00:31:24,560 Speaker 4: what you'd call strong. So I think it would be 486 00:31:24,760 --> 00:31:28,320 Speaker 4: very much like the nineteen seventies, which is very much 487 00:31:28,480 --> 00:31:32,560 Speaker 4: like the nineteen thirties in which they all go down 488 00:31:32,920 --> 00:31:38,000 Speaker 4: in relation to gold or other hard assets like that. 489 00:31:38,200 --> 00:31:41,760 Speaker 4: And you know, what is the alternative money? Will be 490 00:31:41,960 --> 00:31:46,000 Speaker 4: the question, what's the alternative money that is stable and 491 00:31:46,080 --> 00:31:49,760 Speaker 4: supply But bitcoin might be a bit part of that, 492 00:31:49,800 --> 00:31:51,920 Speaker 4: could be a big part of that. But what is 493 00:31:51,960 --> 00:31:55,920 Speaker 4: the alternative money? Because debt is money and money is debt. 494 00:31:56,200 --> 00:32:00,520 Speaker 4: When I say debt is money, debt is money. Cop 495 00:32:01,000 --> 00:32:03,160 Speaker 4: you're holding this and you're people are going to give 496 00:32:03,160 --> 00:32:07,960 Speaker 4: you money, and money is stored in a debt instrument. 497 00:32:08,000 --> 00:32:10,640 Speaker 4: When you're holding your money, you're putting it in a 498 00:32:10,680 --> 00:32:13,320 Speaker 4: debt instrument, So they're one and the same. When you 499 00:32:13,400 --> 00:32:16,760 Speaker 4: have too much debt, it goes down. So I would 500 00:32:16,960 --> 00:32:22,960 Speaker 4: think it's more like gold bitcoin. What is the alternative money? 501 00:32:23,440 --> 00:32:27,880 Speaker 4: Money has two purposes, right, a medium of exchange and 502 00:32:27,920 --> 00:32:31,360 Speaker 4: a storehold of wealth. As far as a medium of exchange, 503 00:32:31,480 --> 00:32:33,920 Speaker 4: it can keep working as a medium of exchange. In 504 00:32:34,000 --> 00:32:39,600 Speaker 4: Germany's Ymar Republic or Argentina recently, you can you know, 505 00:32:39,680 --> 00:32:44,080 Speaker 4: you can carry back barrels of wheelbarrows of money and 506 00:32:44,120 --> 00:32:46,920 Speaker 4: it's you can still exchange it. They had so much 507 00:32:47,000 --> 00:32:50,680 Speaker 4: that they couldn't count it, so they waited. This is 508 00:32:50,760 --> 00:32:54,120 Speaker 4: literally the case. So the money will can be used 509 00:32:54,640 --> 00:32:58,640 Speaker 4: for medium exchange, but as a storehold of wealth, it's 510 00:32:58,680 --> 00:33:01,120 Speaker 4: not going to be used, and people will look for 511 00:33:01,240 --> 00:33:06,200 Speaker 4: other storeholds of wealth that are movable and tradeable. So 512 00:33:06,560 --> 00:33:11,040 Speaker 4: like in the thirties and then the forties, what did 513 00:33:11,040 --> 00:33:14,880 Speaker 4: countries do with each other. They're not going to trust 514 00:33:15,200 --> 00:33:17,080 Speaker 4: that the other country is not going to print the 515 00:33:17,160 --> 00:33:21,920 Speaker 4: money or do that, So they exchanged gold. Because gold 516 00:33:22,000 --> 00:33:25,480 Speaker 4: has the attributes, it's limited in supply, it's not easy 517 00:33:25,480 --> 00:33:30,360 Speaker 4: to manufacture, and throughout history it's been held by central banks. 518 00:33:30,400 --> 00:33:36,320 Speaker 4: It's used today. Gold is the third largest reserve currency. 519 00:33:36,480 --> 00:33:39,440 Speaker 4: It's the dollar, then the euro, then gold, and then 520 00:33:39,480 --> 00:33:42,760 Speaker 4: the Japanese in and so that's why I'm saying I 521 00:33:42,800 --> 00:33:46,280 Speaker 4: think that in that particular dynamic, you say, well, what 522 00:33:46,440 --> 00:33:49,160 Speaker 4: is it that's the storehold of wealth, and you see 523 00:33:49,360 --> 00:33:54,120 Speaker 4: and I emphasize gold, but bitcoin two has elements of that. 524 00:33:54,520 --> 00:34:01,120 Speaker 4: It's not real estate because real estate is down. You 525 00:34:01,200 --> 00:34:04,680 Speaker 4: have a problem with real estate. Real estate is nailed down. 526 00:34:04,720 --> 00:34:06,880 Speaker 4: You can't move it around, you can't. It doesn't work 527 00:34:06,920 --> 00:34:10,440 Speaker 4: that way. It's very interest rate sensitive, so when interest 528 00:34:10,520 --> 00:34:13,200 Speaker 4: rates go up, it hurts it. It's also very easily 529 00:34:13,320 --> 00:34:17,040 Speaker 4: taxed because it's not moved, you can easily tax it, 530 00:34:17,360 --> 00:34:20,239 Speaker 4: so it's not like it could be exchanged. So there's 531 00:34:20,280 --> 00:34:24,400 Speaker 4: a very limited number of alternative moneies. 532 00:34:24,880 --> 00:34:26,680 Speaker 3: So you know when people say something like a mar 533 00:34:26,800 --> 00:34:29,800 Speaker 3: Lago chord and they harken back to the Plaza coord 534 00:34:30,440 --> 00:34:33,640 Speaker 3: that was clearly about we want a weaker dollar because 535 00:34:33,640 --> 00:34:36,480 Speaker 3: we want it weaker against other FIAT currencies for the 536 00:34:36,600 --> 00:34:41,040 Speaker 3: virtue of strengthening American manufacturing. What you're saying then is 537 00:34:41,080 --> 00:34:43,680 Speaker 3: that it couldn't work that way this time. We can't 538 00:34:43,680 --> 00:34:46,520 Speaker 3: think it's such a tight analog because it's not going 539 00:34:46,560 --> 00:34:49,800 Speaker 3: to weaken just against other currencies, it'll weaken against heart assets. 540 00:34:50,160 --> 00:34:53,000 Speaker 3: Just real quickly, if we were if we had you 541 00:34:53,080 --> 00:34:54,920 Speaker 3: on the if we had had you on the podcast 542 00:34:54,920 --> 00:34:56,960 Speaker 3: in twenty fifteen, we were talking about something else. Are 543 00:34:56,960 --> 00:35:00,760 Speaker 3: you more exposed in some way more bullish on gold 544 00:35:00,760 --> 00:35:04,080 Speaker 3: today in twenty twenty five due to this, then you 545 00:35:04,160 --> 00:35:06,040 Speaker 3: were say, if we had been talking to you ten 546 00:35:06,120 --> 00:35:06,800 Speaker 3: years ago. 547 00:35:07,719 --> 00:35:12,319 Speaker 4: Oh yes, I think the gold and I'm not trying 548 00:35:12,320 --> 00:35:14,040 Speaker 4: to harp on gold, and I don't want to be 549 00:35:14,360 --> 00:35:15,920 Speaker 4: run out and go buy it. 550 00:35:16,960 --> 00:35:18,600 Speaker 3: They will, but you can going okay, so. 551 00:35:18,560 --> 00:35:22,880 Speaker 4: Let me let me restrain them. Okay, I want to 552 00:35:22,920 --> 00:35:26,880 Speaker 4: restrain them. I want to say, what you don't know 553 00:35:27,000 --> 00:35:30,640 Speaker 4: about the future is far greater than anything that anyone 554 00:35:30,719 --> 00:35:35,120 Speaker 4: knows about the future. So we always have to be humble. Well, 555 00:35:35,160 --> 00:35:40,359 Speaker 4: what you need is a proper diversification to create a portfolio. 556 00:35:41,239 --> 00:35:44,480 Speaker 4: And what that means is if you look at gold, 557 00:35:45,520 --> 00:35:49,440 Speaker 4: gold does well when those other assets that you're typically 558 00:35:49,480 --> 00:35:54,440 Speaker 4: holding in your portfolio don't do well in such a crisis. Okay, 559 00:35:54,560 --> 00:35:56,359 Speaker 4: So if you're holding a lot, let's say, a lot 560 00:35:56,360 --> 00:36:00,360 Speaker 4: of odds or those types of things, the optimal mount 561 00:36:00,480 --> 00:36:06,000 Speaker 4: in a typical portfolio is in the vicinity of a 562 00:36:06,000 --> 00:36:08,520 Speaker 4: little bit bet less than fifteen percent, like if you 563 00:36:08,560 --> 00:36:13,520 Speaker 4: didn't know you would hold but let's say it's ten percent, Okay. 564 00:36:14,560 --> 00:36:18,680 Speaker 4: A prudent amount of that kind of little bit of 565 00:36:18,760 --> 00:36:24,080 Speaker 4: gold serves as a protection and diversifies the portfolio. And 566 00:36:24,120 --> 00:36:26,960 Speaker 4: what I think the most important thing is that you 567 00:36:27,040 --> 00:36:29,920 Speaker 4: don't have much of an exposure. I'm not on this 568 00:36:30,239 --> 00:36:35,760 Speaker 4: show to tut gold, and I want to restrain people, 569 00:36:35,880 --> 00:36:40,400 Speaker 4: but it's also keep in mind and investing what happens 570 00:36:40,480 --> 00:36:44,399 Speaker 4: is the biggest problem with most investors is that they 571 00:36:44,560 --> 00:36:49,400 Speaker 4: believe that whatever has been the best investment over the 572 00:36:49,440 --> 00:36:55,560 Speaker 4: recent past is the best investment, not that it's become 573 00:36:55,680 --> 00:37:00,440 Speaker 4: expensive and become too expensive and go down. And so 574 00:37:00,680 --> 00:37:07,319 Speaker 4: there's a tendency of portfolios to investors to hunt to 575 00:37:07,520 --> 00:37:12,880 Speaker 4: invest when things become terrific. So, by way of example, 576 00:37:13,480 --> 00:37:19,399 Speaker 4: let's say AI companies and you know companies like that. Well, 577 00:37:19,440 --> 00:37:23,359 Speaker 4: the thing I want to convey to investors is that 578 00:37:23,680 --> 00:37:27,640 Speaker 4: the idea that what's been going on is a good 579 00:37:27,960 --> 00:37:30,239 Speaker 4: what's gone up a lot and really done well is 580 00:37:30,280 --> 00:37:36,000 Speaker 4: a good investment, rather than it's become expensive is something 581 00:37:36,040 --> 00:37:40,040 Speaker 4: they have to watch out for, and that the best 582 00:37:40,880 --> 00:37:50,239 Speaker 4: company is no more the best investment. Right then, the 583 00:37:50,280 --> 00:37:55,120 Speaker 4: best horse in a horse race is the best thing 584 00:37:55,200 --> 00:37:59,560 Speaker 4: to bet on because there are odds and hurdles that 585 00:37:59,600 --> 00:38:03,239 Speaker 4: are bay into the price. So if you're going to 586 00:38:03,320 --> 00:38:05,440 Speaker 4: bet on a horse and a horse race, you have 587 00:38:05,520 --> 00:38:09,080 Speaker 4: an equal likelihood of betting on the worst horse to 588 00:38:09,200 --> 00:38:13,200 Speaker 4: do the best to win on because the odds are 589 00:38:13,280 --> 00:38:16,560 Speaker 4: shifted the discounting. You know that might be the fifty 590 00:38:16,600 --> 00:38:21,160 Speaker 4: to one shot, and so the markets are like that. 591 00:38:21,600 --> 00:38:24,920 Speaker 4: It's like a football game, you have to beat the spread. 592 00:38:25,360 --> 00:38:31,319 Speaker 4: So that dynamic means that you should balance most. The 593 00:38:31,400 --> 00:38:36,960 Speaker 4: thing I will really convey to your listeners is that 594 00:38:37,160 --> 00:38:41,359 Speaker 4: knowing how to balance your portfolio well is a very 595 00:38:41,480 --> 00:38:45,200 Speaker 4: important thing. This is the most important thing because what 596 00:38:45,280 --> 00:38:48,480 Speaker 4: you know is you know you can't be certain about 597 00:38:48,840 --> 00:38:53,880 Speaker 4: and you can reduce your risks without reducing your expected 598 00:38:53,960 --> 00:38:58,520 Speaker 4: returns if you do that well. And that gold is 599 00:38:58,800 --> 00:39:02,799 Speaker 4: a part of a portfolio. So if I'm giving some 600 00:39:03,040 --> 00:39:08,000 Speaker 4: thoughts about a portfolio, I would say diversify well. Gold 601 00:39:08,080 --> 00:39:12,280 Speaker 4: is an effective diversifier. And at a time when there's 602 00:39:12,920 --> 00:39:17,080 Speaker 4: an X, you know, let's say too much debt. You 603 00:39:17,120 --> 00:39:21,799 Speaker 4: can also rephrase that and say too many bonds and 604 00:39:21,840 --> 00:39:26,160 Speaker 4: they're going to be a lot more coming. Might be considerations, 605 00:39:26,440 --> 00:39:30,759 Speaker 4: but I don't want to start giving portfolio advice. What 606 00:39:30,840 --> 00:39:34,600 Speaker 4: I want to do is let people know, and let 607 00:39:34,760 --> 00:39:39,320 Speaker 4: really the policy makers know that there's a solution here. 608 00:39:39,480 --> 00:39:42,320 Speaker 4: I mean, there's a right thing to do. We're talking 609 00:39:42,320 --> 00:39:45,839 Speaker 4: about all the difficult things, and I want to emphasize 610 00:39:46,360 --> 00:39:49,480 Speaker 4: that this can be doable. Okay, you can lower that 611 00:39:49,680 --> 00:39:54,680 Speaker 4: deficit to go to three percent of GDP frump tax 612 00:39:54,760 --> 00:39:58,360 Speaker 4: cuts come in, the projected deficit will be about seven 613 00:39:58,400 --> 00:40:01,560 Speaker 4: and a half percent of GDP, and you have to 614 00:40:01,760 --> 00:40:05,920 Speaker 4: cut that to about three percent of GDP because that'll 615 00:40:05,960 --> 00:40:09,880 Speaker 4: mean that that's won't rise relative to incomes and it 616 00:40:09,920 --> 00:40:14,120 Speaker 4: will greatly improve the supply demand. So what I want 617 00:40:14,160 --> 00:40:19,600 Speaker 4: to do is contribute by showing what can be done. 618 00:40:20,040 --> 00:40:25,400 Speaker 4: And in fact, that was done from nineteen ninety two 619 00:40:25,440 --> 00:40:29,160 Speaker 4: to nineteen ninety eight. There was a five percent in 620 00:40:29,280 --> 00:40:33,080 Speaker 4: GDP cut in the budget deficit. So that's what I'm 621 00:40:33,120 --> 00:40:36,359 Speaker 4: talking about. Going from a four percent you know, let's 622 00:40:36,360 --> 00:40:39,920 Speaker 4: say seven seven and a half down to three is 623 00:40:39,960 --> 00:40:43,319 Speaker 4: a four or five percent cut of this percentage of 624 00:40:43,360 --> 00:40:48,160 Speaker 4: GDP that happened from nineteen ninety two to nineteen ninety 625 00:40:48,200 --> 00:40:52,239 Speaker 4: eight and can be done, And so I want to 626 00:40:52,320 --> 00:40:56,040 Speaker 4: talk about those things that can make a big difference. 627 00:40:56,800 --> 00:40:59,920 Speaker 2: So on this note, how do you actually go about 628 00:41:00,080 --> 00:41:04,320 Speaker 2: building consensus for all these moves, because it does feel 629 00:41:04,360 --> 00:41:06,560 Speaker 2: like part of the problem here is there is a 630 00:41:06,600 --> 00:41:10,720 Speaker 2: lot of disagreement about what debt should be used for. 631 00:41:11,080 --> 00:41:13,479 Speaker 2: You know, should it fund more defense, should it fund 632 00:41:13,520 --> 00:41:16,600 Speaker 2: tax cuts, Should it be used for more social programs 633 00:41:16,680 --> 00:41:19,920 Speaker 2: or infrastructure or something like that, and then there's an 634 00:41:19,920 --> 00:41:24,720 Speaker 2: added layer of disagreement about how debt dynamics actually work 635 00:41:25,239 --> 00:41:28,600 Speaker 2: and when they matter. And I appreciate that part of 636 00:41:28,640 --> 00:41:32,839 Speaker 2: your book is this effort to show how debt actually operates, 637 00:41:33,440 --> 00:41:38,080 Speaker 2: but there's still so much disagreement. How do you actually 638 00:41:38,120 --> 00:41:41,560 Speaker 2: go about, you know, getting people to agree on what 639 00:41:41,640 --> 00:41:44,399 Speaker 2: debt is, how it works, and then do something about it. 640 00:41:44,840 --> 00:41:50,120 Speaker 4: How I'm trying to do that is, first of all, 641 00:41:51,040 --> 00:41:55,960 Speaker 4: show people the three percent solution and make them aware, 642 00:41:56,200 --> 00:42:02,200 Speaker 4: make those in Congress and President awar that they need 643 00:42:02,280 --> 00:42:04,839 Speaker 4: to get the down to that three percent, and that 644 00:42:06,520 --> 00:42:13,319 Speaker 4: arguing about how they do it leading to them not 645 00:42:13,560 --> 00:42:20,439 Speaker 4: doing it. Is very much like taking somebody who has 646 00:42:20,480 --> 00:42:25,320 Speaker 4: a serious heart problem and so on, and you could say, Okay, 647 00:42:25,360 --> 00:42:30,319 Speaker 4: you can exercise, you can eat this different way, you 648 00:42:30,360 --> 00:42:33,120 Speaker 4: can do this, and so on, and this is the way, 649 00:42:33,120 --> 00:42:36,799 Speaker 4: and you can do it. And in fact, if you 650 00:42:36,960 --> 00:42:41,120 Speaker 4: do it, if you get the deficit down, you will 651 00:42:41,160 --> 00:42:47,440 Speaker 4: get also lower interest rates, and because your interest expenses 652 00:42:47,680 --> 00:42:53,239 Speaker 4: are so high, those lower interest rates will also contribute 653 00:42:53,680 --> 00:42:59,120 Speaker 4: to your better health. And in fact, those lower interest 654 00:42:59,200 --> 00:43:03,160 Speaker 4: rates will help to cause asset prices to go up 655 00:43:03,200 --> 00:43:06,640 Speaker 4: and the economy to be better, which will also give 656 00:43:06,680 --> 00:43:11,719 Speaker 4: you tax revenue. So that you can do this, but 657 00:43:11,880 --> 00:43:17,440 Speaker 4: you're arguing about which way to do it will probably 658 00:43:17,560 --> 00:43:20,720 Speaker 4: prevent you from doing it. So you should start off 659 00:43:21,040 --> 00:43:25,600 Speaker 4: and take the three percent pledge first happen in your mind? 660 00:43:25,920 --> 00:43:31,080 Speaker 4: What is the goal? Three percent of GDP the budget deficit? Okay, 661 00:43:31,440 --> 00:43:34,919 Speaker 4: we all agree? Can we all agree that we need 662 00:43:34,960 --> 00:43:39,239 Speaker 4: to do that? Okay? Or if we can't agree, look 663 00:43:39,239 --> 00:43:42,279 Speaker 4: at the numbers, look at the story. And I'm telling you, 664 00:43:42,600 --> 00:43:46,920 Speaker 4: but please, you know, agree that at least if you 665 00:43:47,000 --> 00:43:49,799 Speaker 4: can say I agree on the number, will take the 666 00:43:49,800 --> 00:43:55,520 Speaker 4: three percent of GDP pledge. And then what you have 667 00:43:55,840 --> 00:43:59,279 Speaker 4: is don't let the particular arguments. I don't care if 668 00:43:59,280 --> 00:44:05,160 Speaker 4: you do it portionately across things. If you took every 669 00:44:06,880 --> 00:44:12,560 Speaker 4: item that you can change that contributes to that increase 670 00:44:12,600 --> 00:44:16,280 Speaker 4: in taxes, cut spending. If you just did everything proportionately 671 00:44:16,960 --> 00:44:19,520 Speaker 4: and you use that as your backup if we can't 672 00:44:19,560 --> 00:44:24,960 Speaker 4: reach agreement, we will do it all proportionally across the everything. Great. 673 00:44:25,400 --> 00:44:27,600 Speaker 4: That's I mean, there are better ways to do it, 674 00:44:27,640 --> 00:44:30,360 Speaker 4: but at least you did it. But if you don't 675 00:44:30,360 --> 00:44:33,279 Speaker 4: do it, so you're going to be in trouble. So 676 00:44:34,200 --> 00:44:39,600 Speaker 4: that's the reality because it will be public conflict and 677 00:44:40,000 --> 00:44:44,040 Speaker 4: it probably won't happen. So that's that's a choice. And 678 00:44:44,080 --> 00:44:49,680 Speaker 4: if you don't do it, then take the responsibility. Say 679 00:44:49,800 --> 00:44:54,560 Speaker 4: to yourself, if you don't do it, and there's the 680 00:44:54,640 --> 00:44:59,160 Speaker 4: crisis that I'm saying is will come, and I can't 681 00:44:59,160 --> 00:45:01,840 Speaker 4: tell you exactly when it'll come. It's like the heart attack. 682 00:45:01,960 --> 00:45:04,880 Speaker 4: Can't you exactly? I get it, you're getting closer. My 683 00:45:05,000 --> 00:45:09,120 Speaker 4: guess would be three years, give or take a year, 684 00:45:09,400 --> 00:45:12,880 Speaker 4: something like that. Okay, if you don't do that, and 685 00:45:12,920 --> 00:45:16,120 Speaker 4: then you own it, Okay, that you have to take 686 00:45:16,200 --> 00:45:20,200 Speaker 4: responsibility for the consequences. And if you say, okay, I 687 00:45:20,239 --> 00:45:24,799 Speaker 4: got three percent solution, I'll find it, and yes, own 688 00:45:24,840 --> 00:45:28,600 Speaker 4: it because you will own it. I mean when the 689 00:45:29,000 --> 00:45:33,440 Speaker 4: economy and this heart attack of sorts comes along, then 690 00:45:33,480 --> 00:45:36,000 Speaker 4: you're going to find yourself that the voters are not 691 00:45:36,040 --> 00:45:38,680 Speaker 4: going to be very happy. So you own it. 692 00:45:38,800 --> 00:45:42,799 Speaker 3: Treasury Secretary Scott Vessant is verbally on board with what 693 00:45:42,840 --> 00:45:45,560 Speaker 3: you call the three percent pledge. He also talked about 694 00:45:45,560 --> 00:45:48,160 Speaker 3: three percent GDP growth. I think a three percent increase 695 00:45:48,560 --> 00:45:53,520 Speaker 3: or maybe more oil. Extending the tax cuts permanently, is 696 00:45:53,520 --> 00:45:58,200 Speaker 3: that consistent at all with a three percent pledge, or 697 00:45:58,440 --> 00:46:02,040 Speaker 3: do the extending the tax cuts permanently increase the chance 698 00:46:02,120 --> 00:46:03,400 Speaker 3: of this economic heart attach. 699 00:46:04,800 --> 00:46:09,440 Speaker 4: It depends on the whole dynamic of whatever is done. 700 00:46:09,600 --> 00:46:13,120 Speaker 4: And I mean this in the following way. You can 701 00:46:13,200 --> 00:46:18,560 Speaker 4: get tax revenue. That's what matters. It's not necessarily that 702 00:46:18,719 --> 00:46:24,480 Speaker 4: tax rates. Raising tax rates is going to get you 703 00:46:24,840 --> 00:46:31,000 Speaker 4: the same tax revenues because if the economy is healthy, 704 00:46:31,560 --> 00:46:35,120 Speaker 4: and then it depends, there's an all mechanical thing how 705 00:46:35,239 --> 00:46:39,200 Speaker 4: interest rates operate and so on, the whole mechanics, you 706 00:46:39,280 --> 00:46:42,560 Speaker 4: can bring in more tax revenue. A good model to 707 00:46:42,680 --> 00:46:46,880 Speaker 4: look at was nineteen ninety two to nineteen ninety eight, 708 00:46:47,200 --> 00:46:50,319 Speaker 4: in which there's a mix of things that happened. You 709 00:46:50,360 --> 00:46:54,720 Speaker 4: can see the ripe mix. The ripe mix is going 710 00:46:54,800 --> 00:46:59,040 Speaker 4: to include those things that will naturally, in a healthy 711 00:46:59,040 --> 00:47:04,080 Speaker 4: way lower interest rates and help the economy and so on. 712 00:47:04,280 --> 00:47:07,120 Speaker 4: It's not a perfect solution, but it's go to that 713 00:47:07,200 --> 00:47:10,040 Speaker 4: nineteen ninety two to ninety eight period as an example. 714 00:47:10,239 --> 00:47:14,760 Speaker 4: In my book gives I give many examples. The best 715 00:47:14,880 --> 00:47:23,760 Speaker 4: mix is to properly mix depressing moves with stimulative moves. 716 00:47:24,120 --> 00:47:27,439 Speaker 4: What I call a beautiful deleveraging. And what I mean 717 00:47:27,560 --> 00:47:32,239 Speaker 4: by that is that if you raise taxes or lower spending, 718 00:47:33,000 --> 00:47:39,080 Speaker 4: that's depressing on the economy. However, if you do that 719 00:47:39,239 --> 00:47:45,080 Speaker 4: with an easing of monetary policy, which is stimulative on 720 00:47:45,160 --> 00:47:50,000 Speaker 4: the economy, those two things can balance, and they either 721 00:47:50,080 --> 00:47:54,680 Speaker 4: of them lowers the debt to income ratio, but they 722 00:47:54,680 --> 00:47:58,640 Speaker 4: can balance each other, and that's a well engineered move. 723 00:47:59,080 --> 00:48:01,760 Speaker 2: So I want to go go back to the question 724 00:48:01,920 --> 00:48:04,560 Speaker 2: that Joe was asking a little bit earlier, and perhaps 725 00:48:04,680 --> 00:48:07,480 Speaker 2: ask it in a slightly different way. But when it 726 00:48:07,520 --> 00:48:12,239 Speaker 2: comes to taking action on this specific risk, you said 727 00:48:12,280 --> 00:48:14,399 Speaker 2: earlier that you have made a lot of money by 728 00:48:14,440 --> 00:48:18,120 Speaker 2: being able to understand debt cycles specifically in two thousand 729 00:48:18,160 --> 00:48:21,800 Speaker 2: and eight, can you give us some examples of trades 730 00:48:21,840 --> 00:48:25,880 Speaker 2: that you have undertaken in your, you know, very long 731 00:48:26,280 --> 00:48:31,600 Speaker 2: financial career that have been successful and get really specific 732 00:48:31,719 --> 00:48:33,360 Speaker 2: into it, because I think this is one of the 733 00:48:33,920 --> 00:48:37,600 Speaker 2: things that people struggle with. We can talk about diversification 734 00:48:37,960 --> 00:48:41,040 Speaker 2: and managing your risk, but it's very hard to come 735 00:48:41,120 --> 00:48:42,920 Speaker 2: up with the specifics of the trade. 736 00:48:43,040 --> 00:48:47,279 Speaker 4: Before twenty eleven, what I saw was it was a 737 00:48:47,360 --> 00:48:52,640 Speaker 4: leveraging up. So a big sign is debt is increasing 738 00:48:52,719 --> 00:49:00,399 Speaker 4: much faster than incomes and that's not sustainable and what 739 00:49:00,560 --> 00:49:06,640 Speaker 4: limits it? And back then I calculated that who was 740 00:49:06,680 --> 00:49:10,840 Speaker 4: buying the debt that was increasing in a fast trade, 741 00:49:11,440 --> 00:49:14,200 Speaker 4: and that was the number of entities, but most importantly 742 00:49:14,440 --> 00:49:20,160 Speaker 4: European banks that were leveraging up to buy the debt. 743 00:49:21,480 --> 00:49:25,279 Speaker 4: And as they leveraged up, I saw that they were 744 00:49:25,320 --> 00:49:31,000 Speaker 4: going their capital requirements and their capital limitations would mean 745 00:49:31,320 --> 00:49:34,560 Speaker 4: that they could not buy. Once they were leveraged up, 746 00:49:34,800 --> 00:49:38,640 Speaker 4: they could not continue to buy at that same pace, 747 00:49:39,520 --> 00:49:44,799 Speaker 4: and therefore their purchases were going to go down. Their 748 00:49:44,840 --> 00:49:48,279 Speaker 4: holdings would be the same, but their purchases were going 749 00:49:48,320 --> 00:49:51,959 Speaker 4: to go down. At the same time. As I saw 750 00:49:52,040 --> 00:49:58,200 Speaker 4: that budget deficits would be large and therefore bond sales 751 00:49:58,239 --> 00:50:05,279 Speaker 4: would be large, I saw the mismatch. So okay, it's 752 00:50:05,320 --> 00:50:11,000 Speaker 4: a mismatch. So now what is the mechanics of that 753 00:50:11,080 --> 00:50:15,359 Speaker 4: mismatch That means, you know, get out of credit risk, 754 00:50:16,160 --> 00:50:21,239 Speaker 4: get out of credit risk, equity risk, and so on. 755 00:50:21,520 --> 00:50:22,279 Speaker 4: And that's an. 756 00:50:22,239 --> 00:50:27,160 Speaker 3: Example, Ray Dahalio, such a pleasure to uh have your time. 757 00:50:27,280 --> 00:50:30,200 Speaker 3: Maybe you're not the creator of the chicken nugget. Maybe 758 00:50:30,239 --> 00:50:33,759 Speaker 3: the father or the uncle of the chicken nugget, but 759 00:50:33,880 --> 00:50:38,360 Speaker 3: also Bridgewater and numerous books. Thank you so much for 760 00:50:38,400 --> 00:50:39,200 Speaker 3: coming on the outline. 761 00:50:39,320 --> 00:50:42,000 Speaker 2: Thank you for having Thank you Ray. That was an 762 00:50:42,080 --> 00:50:42,920 Speaker 2: absolute pleasure. 763 00:50:43,080 --> 00:50:46,480 Speaker 4: You guys know what you're doing. You It was a 764 00:50:46,520 --> 00:50:47,239 Speaker 4: pleasure for me. 765 00:50:47,719 --> 00:51:05,879 Speaker 2: Producers. Keep that in, Yeah, keep that in, Joe. That 766 00:51:06,040 --> 00:51:08,160 Speaker 2: was that was so much fun. I'm glad we finally 767 00:51:08,160 --> 00:51:09,600 Speaker 2: got to interview Ray Dalio. 768 00:51:10,360 --> 00:51:12,600 Speaker 3: I swear I could have we could have done an hour. 769 00:51:12,680 --> 00:51:14,680 Speaker 2: On the Oh, we could have done like five hours. 770 00:51:14,680 --> 00:51:16,960 Speaker 3: No, I mean we could have done anug Yeah. Usually 771 00:51:17,080 --> 00:51:19,880 Speaker 3: because I just think about that. You know, it's not 772 00:51:20,120 --> 00:51:23,000 Speaker 3: a time when everyone had like tons of access to 773 00:51:23,040 --> 00:51:26,200 Speaker 3: computing power, and so even the idea of how you 774 00:51:26,719 --> 00:51:28,799 Speaker 3: I mean, it's so silly, right. We just talked about 775 00:51:28,920 --> 00:51:31,400 Speaker 3: the US might have this economic heart attack in the 776 00:51:31,400 --> 00:51:35,040 Speaker 3: next three years by golden by bitcoin. But I still 777 00:51:35,160 --> 00:51:37,600 Speaker 3: am thinking about the chicken nugget and how it would 778 00:51:37,600 --> 00:51:40,440 Speaker 3: not have been trivial to come up with a synthetic 779 00:51:40,800 --> 00:51:44,200 Speaker 3: chicken nugget future in nineteen seventy five. And I do 780 00:51:44,280 --> 00:51:48,040 Speaker 3: think that we should remember that financial engineering is a 781 00:51:48,040 --> 00:51:51,560 Speaker 3: form of engineering to bring physical things into the real world. 782 00:51:51,800 --> 00:51:55,560 Speaker 2: Absolutely, and also insurance is a big thing here as well. 783 00:51:55,600 --> 00:51:57,440 Speaker 2: And I would argue more. 784 00:51:57,320 --> 00:51:59,600 Speaker 3: Thought for me on the chicken nugget real quick, no, keep. 785 00:51:59,480 --> 00:52:03,400 Speaker 2: Going, And I would argue that insurers are becoming a 786 00:52:03,480 --> 00:52:08,919 Speaker 2: more important, I guess, a shaper of worldwide norms, right, 787 00:52:09,000 --> 00:52:11,320 Speaker 2: like they are the ones that are making decisions about 788 00:52:11,320 --> 00:52:14,720 Speaker 2: what is acceptable. But anyway, these are all big picture 789 00:52:14,800 --> 00:52:17,440 Speaker 2: thoughts on other things we should talk about det yes. 790 00:52:17,520 --> 00:52:19,880 Speaker 3: And you know, look, I think, I mean, there's a 791 00:52:19,920 --> 00:52:23,520 Speaker 3: few quick thoughts that I have, you know, getting a 792 00:52:23,520 --> 00:52:26,520 Speaker 3: bunch of people to say, we believe that a healthy 793 00:52:26,880 --> 00:52:31,480 Speaker 3: level of deficit to GDP is three percent, that you 794 00:52:31,480 --> 00:52:34,400 Speaker 3: know loan doesn't sound hard, you know, but then it's like, 795 00:52:34,760 --> 00:52:39,920 Speaker 3: you know, but we're very reluctant to cut anything of substance, 796 00:52:40,080 --> 00:52:42,800 Speaker 3: and we're also want to make the tax cuts permanently. 797 00:52:43,280 --> 00:52:46,480 Speaker 3: Seems kind of hard to square, but you know, we'll see. 798 00:52:46,520 --> 00:52:49,800 Speaker 3: And then just this idea, like it seems very clear 799 00:52:50,400 --> 00:52:53,839 Speaker 3: that Ray is you know, he didn't give us an 800 00:52:53,880 --> 00:52:57,720 Speaker 3: exact number, but the gold and also he mentioned bitcoin 801 00:52:57,800 --> 00:52:58,560 Speaker 3: multiple times. 802 00:52:59,440 --> 00:53:02,080 Speaker 2: The other thing I'd say on his point about this 803 00:53:02,200 --> 00:53:06,319 Speaker 2: question of who will buy all the US debt, there 804 00:53:06,360 --> 00:53:09,840 Speaker 2: are plenty of people who have pointed out this problem before, 805 00:53:09,960 --> 00:53:13,719 Speaker 2: and I'm thinking back specifically to JP Morgan, and they 806 00:53:13,719 --> 00:53:17,360 Speaker 2: did a research note back in twenty twenty two basically 807 00:53:17,400 --> 00:53:19,640 Speaker 2: all about this, and they pointed out that in twenty 808 00:53:19,680 --> 00:53:23,200 Speaker 2: twenty two something really unusual happened, which is we had 809 00:53:23,360 --> 00:53:27,480 Speaker 2: all three major buyers for US debt, so commercial banks, 810 00:53:27,600 --> 00:53:32,800 Speaker 2: foreign governments and obviously the Federal Reserve itself all step 811 00:53:32,880 --> 00:53:36,799 Speaker 2: back from that market at the same time. So it 812 00:53:36,920 --> 00:53:39,719 Speaker 2: seems like an issue. On the other hand, you know, 813 00:53:40,239 --> 00:53:44,719 Speaker 2: the US can in theory force banks to buy more 814 00:53:44,960 --> 00:53:48,279 Speaker 2: US debt. They can change the regulations and do it 815 00:53:48,320 --> 00:53:51,040 Speaker 2: that way, that sort of financial repression way. 816 00:53:51,400 --> 00:53:54,960 Speaker 3: So I don't know, re mentioned restructuring. So it's like 817 00:53:55,000 --> 00:53:57,480 Speaker 3: you have a five year note and then it's like, oh, 818 00:53:57,560 --> 00:53:59,160 Speaker 3: suddenly it's a ten year note. But we're not going 819 00:53:59,200 --> 00:54:01,080 Speaker 3: to call it a dew fall. But of course, you know, 820 00:54:01,239 --> 00:54:04,000 Speaker 3: these sort of these artifaults, we might not call them 821 00:54:04,040 --> 00:54:05,680 Speaker 3: as such. But if you expect to be paid back 822 00:54:05,719 --> 00:54:08,600 Speaker 3: over five years and it's ten years, if you're functionally defaulting, 823 00:54:09,040 --> 00:54:10,520 Speaker 3: you know, I will say, look, if you have a 824 00:54:10,600 --> 00:54:13,680 Speaker 3: huge tax cut, that's a bunch of rich people who 825 00:54:13,719 --> 00:54:16,400 Speaker 3: have more cash in the bank, and one place that 826 00:54:16,480 --> 00:54:19,440 Speaker 3: cash in the bank goes to is investments in One 827 00:54:19,480 --> 00:54:22,200 Speaker 3: form of investment is bond, so you increase the amount 828 00:54:22,239 --> 00:54:24,800 Speaker 3: of money that's in the household sector, et cetera. I 829 00:54:24,800 --> 00:54:29,560 Speaker 3: don't like I like these types of conversations. And you know, 830 00:54:29,640 --> 00:54:33,480 Speaker 3: he said one to three years if there's no meaningful 831 00:54:33,520 --> 00:54:36,280 Speaker 3: reduction in the deficit for this timing of the heart attack. 832 00:54:36,680 --> 00:54:41,000 Speaker 3: So maybe we'll have ray on again in twenty thirty 833 00:54:41,000 --> 00:54:43,560 Speaker 3: one and say what happened? 834 00:54:43,840 --> 00:54:45,680 Speaker 2: We'll do it all right? Shall we leave it there? 835 00:54:45,760 --> 00:54:46,399 Speaker 3: Let's leave it there. 836 00:54:46,480 --> 00:54:49,160 Speaker 2: This has been another episode of the All Thoughts podcast. 837 00:54:49,239 --> 00:54:52,240 Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway. 838 00:54:52,280 --> 00:54:55,160 Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart. 839 00:54:55,320 --> 00:54:58,080 Speaker 3: Follow our guest Ray Dalio. He's at Ray Dalio. And 840 00:54:58,120 --> 00:55:00,200 Speaker 3: of course check out his new book, which you can 841 00:55:00,280 --> 00:55:02,239 Speaker 3: find for free if you want to buy it, How 842 00:55:02,320 --> 00:55:06,560 Speaker 3: Countries Go Broke. Follow our producers Carmen Rodriguez at Carmen 843 00:55:06,640 --> 00:55:09,920 Speaker 3: armand dash Ol Bennett at Dashbot and Kilbrooks at Kalebrooks. 844 00:55:10,080 --> 00:55:12,319 Speaker 3: From our Odd Lots content, go to bloomberg dot com 845 00:55:12,360 --> 00:55:14,560 Speaker 3: slash odd Lot, where we have a daily newsletter that 846 00:55:14,600 --> 00:55:17,680 Speaker 3: you can sign up to, and check out our discord 847 00:55:17,920 --> 00:55:20,520 Speaker 3: where you could chat about all of these topics, including macro, 848 00:55:20,640 --> 00:55:25,360 Speaker 3: including gold, including bitcoin, discord, dot gg, slash, od loots. 849 00:55:25,480 --> 00:55:27,759 Speaker 2: And if you enjoy all lots. If you like it 850 00:55:27,800 --> 00:55:31,000 Speaker 2: when we get really philosophical on debt, then please leave 851 00:55:31,080 --> 00:55:35,200 Speaker 2: us a positive review on your favorite podcast platform. And remember, 852 00:55:35,280 --> 00:55:37,960 Speaker 2: if you are a Bloomberg subscriber, you can listen to 853 00:55:38,160 --> 00:55:41,399 Speaker 2: all of our episodes absolutely ad free. All you need 854 00:55:41,440 --> 00:55:44,200 Speaker 2: to do is find the Bloomberg channel on Apple Podcasts 855 00:55:44,200 --> 00:56:00,719 Speaker 2: and follow the instructions there. Thanks for listening. 856 00:56:06,480 --> 00:56:07,440 Speaker 4: In eight