WEBVTT - Ray Dalio on the Coming Crisis in US Debt 0:00:02.480 --> 0:00:15.840 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.120 --> 0:00:21.320 Hello and welcome to another episode of the Authoughts podcast. 0:00:21.480 --> 0:00:22.919 I'm Tracy Allaway. 0:00:22.600 --> 0:00:23.759 And I'm Joe Wisenthal. 0:00:24.200 --> 0:00:24.920 Joe, have you. 0:00:24.920 --> 0:00:29.120 Ever seen those visuals of a trillion dollars where it's like, 0:00:29.240 --> 0:00:32.159 here's one hundred, here's one hundred dollar bill, here's a 0:00:32.200 --> 0:00:35.320 stack of ten thousand dollars, here's a million dollars, and 0:00:35.400 --> 0:00:38.839 eventually you get to one trillion, and it's just all 0:00:38.920 --> 0:00:42.080 these palettes of notes that are worth a billion each 0:00:42.240 --> 0:00:44.880 and they're like covering the size of a football field 0:00:45.000 --> 0:00:46.839 or something, and they're double stacked. 0:00:47.600 --> 0:00:50.400 I love that. I never really know what they mean. 0:00:50.440 --> 0:00:52.159 It's like, oh, this is as big as the Statue 0:00:52.200 --> 0:00:54.480 of Liberty or something like that, and it's like, okay, 0:00:54.600 --> 0:00:56.600 like I mean that is objectively big. 0:00:57.440 --> 0:00:57.720 I get. 0:00:57.880 --> 0:01:00.960 Is that a good way to visualize mine in terms 0:01:00.960 --> 0:01:03.800 of what it means? I don't know, but yes, money, 0:01:03.960 --> 0:01:08.680 especially your small denomination bills, can really pile up before 0:01:08.680 --> 0:01:09.800 you get to real value. 0:01:09.880 --> 0:01:13.880 Well, okay, speaking of big numbers, the US budget deficit 0:01:14.160 --> 0:01:17.320 was about one point eight trillion in twenty twenty four, 0:01:17.520 --> 0:01:20.920 so if we stick with the visual, almost almost two 0:01:21.000 --> 0:01:25.040 football fields of double stacked palettes of one billion dollars each. 0:01:25.440 --> 0:01:28.160 So okay, quite a lot. But I think this ill 0:01:28.560 --> 0:01:31.679 we saws, I know, but we didn't see a trillion dollars. 0:01:31.720 --> 0:01:34.959 We saw billions. And I think this kind of illustrates 0:01:35.000 --> 0:01:39.120 one of the really difficult things about finance and debt, 0:01:39.240 --> 0:01:42.600 which is all of us, as you mentioned earlier, kind 0:01:42.640 --> 0:01:46.080 of struggle to grasp the scale of these numbers that 0:01:46.160 --> 0:01:49.880 are involved here, and one point eight trillions seems so 0:01:50.160 --> 0:01:54.120 abstract that we have to describe it using football field 0:01:54.160 --> 0:01:57.480 analogies or whatever else. And if we can't really grasp 0:01:57.600 --> 0:02:00.480 the scale of the debt because it's just this number 0:02:00.520 --> 0:02:04.240 that no one really understands or even takes seriously, then 0:02:04.280 --> 0:02:08.000 it feels like it's difficult to tackle to solve. 0:02:08.080 --> 0:02:08.240 Right. 0:02:08.440 --> 0:02:11.480 Well, I'll say two things on that. I mean, I 0:02:11.520 --> 0:02:14.840 think a you have to question, like, at any given point, 0:02:15.000 --> 0:02:18.760 what isn't a called economy solving for right? And so 0:02:18.880 --> 0:02:21.480 people have anxiety about the size of the debt and 0:02:21.520 --> 0:02:24.000 the deficit. And then it's like, but you know a time, 0:02:24.080 --> 0:02:24.880 you know, there's also. 0:02:24.720 --> 0:02:28.280 A high and they also have anxiety about social services, yeah. 0:02:28.080 --> 0:02:30.760 And things like that, And then there is also the 0:02:30.880 --> 0:02:34.080 question of you know, we think of a household or 0:02:34.240 --> 0:02:37.200 any entity as like you have to have money to 0:02:37.200 --> 0:02:41.240 pay your bills. Are there other dynamics besides numbers that 0:02:41.480 --> 0:02:44.400 cause a financial crisis. So, for example, you could have 0:02:44.440 --> 0:02:48.000 a country with very high debt to GDP and it's 0:02:48.440 --> 0:02:50.880 fine because you know, it goes on for longer than 0:02:50.919 --> 0:02:53.440 people expect. And you can have countries with low debts 0:02:53.480 --> 0:02:56.480 and deficits, but because they have an internal political crisis 0:02:56.480 --> 0:02:59.799 because people no longer have confidence in the government of 0:02:59.840 --> 0:03:02.359 this to pay it back. You can have a crisis 0:03:02.400 --> 0:03:05.080 even at low levels. And so even thinking about what 0:03:05.120 --> 0:03:08.680 does it mean to solve a debt, talk about debt 0:03:08.720 --> 0:03:12.640 at the national level is simultaneously a financial discussion and 0:03:12.680 --> 0:03:14.720 one about political confidence. 0:03:14.280 --> 0:03:18.040 A social conversation. All right, Well, on that note, I 0:03:18.080 --> 0:03:20.160 am very happy to say that I think we have 0:03:20.240 --> 0:03:22.680 the perfect guest to talk about all of these things, 0:03:22.919 --> 0:03:26.800 someone who has consistently had some very big thoughts about 0:03:27.000 --> 0:03:29.520 these very big numbers. We're going to be speaking with 0:03:29.680 --> 0:03:33.640 Ray Dallio, the legendary founder of Bridgewater, the author of 0:03:33.720 --> 0:03:38.040 numerous books, including a new one titled How Countries Go Broke, 0:03:38.200 --> 0:03:43.040 principles for navigating the big debt cycle, and most importantly, 0:03:43.840 --> 0:03:46.720 a key player in the invention of the chicken nugget. 0:03:47.040 --> 0:03:49.240 I am very excited. Ray, Welcome to the show. 0:03:49.640 --> 0:03:52.280 Wow, what an introduction. Thank you. 0:03:52.440 --> 0:03:55.840 Tracy's good at introductions. If it had been me, I'd 0:03:55.880 --> 0:03:57.880 just been like Ray Dalio, you all know his name, 0:03:57.960 --> 0:04:00.760 let's break it in. But Tracy does it properly, especially 0:04:00.800 --> 0:04:02.800 for a guest of your stature. 0:04:03.840 --> 0:04:06.360 You do pretty good too, Joe, thank you for having me. 0:04:06.640 --> 0:04:09.760 So I want to start with the really important stuff. 0:04:09.800 --> 0:04:12.240 So first, let me just thank you on behalf of 0:04:12.280 --> 0:04:15.320 millions of Americans for your contribution to the chicken nugget. 0:04:16.120 --> 0:04:19.440 What did you do exactly when it comes to chicken nuggets? 0:04:19.480 --> 0:04:23.760 What was your role? Well, when I was pretty young, 0:04:24.240 --> 0:04:31.480 I started trading commodities because they had the lowest margin requirements. 0:04:32.279 --> 0:04:35.560 So I figured if I was going to be right 0:04:35.640 --> 0:04:37.440 and I wouldn't do it, if I wasn't going to 0:04:37.480 --> 0:04:39.800 be right, that I would be able to get the 0:04:39.839 --> 0:04:43.160 most amount of leverage out of these and so I 0:04:43.200 --> 0:04:47.400 started trading commodities before most people started to trade commodities, 0:04:47.440 --> 0:04:52.920 and then that led me in nineteen seventy three when 0:04:52.960 --> 0:05:00.560 I graduated from business school to become a commodity investor 0:05:00.760 --> 0:05:05.039 sort of. And what I did was I was in 0:05:05.160 --> 0:05:09.480 charge of institutional futures at one of these brokerage houses, 0:05:09.680 --> 0:05:13.760 and that brought me in contact with the mechanics of 0:05:13.880 --> 0:05:18.640 how hedging and how chickens and grain and everything worked. 0:05:18.680 --> 0:05:22.400 So fast forward, I got to meet the biggest chicken 0:05:22.440 --> 0:05:27.160 producers in the world, and McDonald's hired me as a 0:05:27.200 --> 0:05:32.080 consultant of sorts to advise them on how they were 0:05:32.200 --> 0:05:38.839 going to safely price the chicken McNugget. You see. Their 0:05:38.839 --> 0:05:43.800 worry was that if they this was very volatile times 0:05:43.839 --> 0:05:47.840 then and their worry was if they bought the chicken 0:05:48.360 --> 0:05:52.160 and they put it on the menu and the prices changed, 0:05:52.240 --> 0:05:54.760 like went up a lot, they'd have to change the 0:05:54.800 --> 0:05:57.560 menu price. So they needed to know that they could 0:05:57.560 --> 0:06:02.440 have stable prices. And we walked and I knew that 0:06:03.240 --> 0:06:07.240 the mechanics of chicken. He had you produce it. There 0:06:07.240 --> 0:06:10.480 were little chicks and they didn't cost much. And what 0:06:10.680 --> 0:06:14.320 cost most of the money to make a chicken was 0:06:14.720 --> 0:06:19.719 the corn and soyed meal that they produce as feed 0:06:19.760 --> 0:06:22.200 to feed them to get them to be big chickens 0:06:22.480 --> 0:06:26.039 and so on. And so I went to one of 0:06:26.080 --> 0:06:32.240 my chicken producing clients and McDonald's, and I showed how 0:06:32.279 --> 0:06:36.840 this chicken producing client could hedge the price and give 0:06:36.920 --> 0:06:40.960 them a stable price, and because of that, they were 0:06:41.040 --> 0:06:43.880 able to put chicken McNuggets on the menu. 0:06:44.680 --> 0:06:46.800 I love this story for multiple I love the idea 0:06:46.920 --> 0:06:51.760 of creating a sort of synthetic financial chicken McNugget price 0:06:51.839 --> 0:06:55.000 through the inputs. You know, I want to say, you know, 0:06:55.240 --> 0:06:57.760 for a long time, I probably bought into this view 0:06:58.160 --> 0:07:02.000 that the real creators in an economy are the farmers 0:07:02.080 --> 0:07:05.360 and the growers and the entrepreneurs who you know, come 0:07:05.440 --> 0:07:08.440 up with a distribution mechanism, and it always sort of 0:07:08.680 --> 0:07:12.080 the people in finance are thinking, you know, is seen 0:07:12.120 --> 0:07:14.680 as like, oh, they're just sort of speculating or betting 0:07:14.680 --> 0:07:17.320 on that. And I've changed my mind over the years. 0:07:17.360 --> 0:07:19.880 And you know, there are many good ideas in the 0:07:19.920 --> 0:07:23.680 world that people have on paper and labs and so 0:07:23.760 --> 0:07:27.840 forth that never exist because the financing mechanisms to bring 0:07:27.880 --> 0:07:31.040 them to place don't exist. And so I would say 0:07:31.200 --> 0:07:33.640 that if you like, especially in nineteen seventy five, when 0:07:33.640 --> 0:07:35.920 I imagine we didn't in the mid nineteen seventies, when 0:07:35.960 --> 0:07:38.680 we didn't have the same level of easy running computing 0:07:38.760 --> 0:07:42.120 power in as liquid markets, et cetera. That someone who 0:07:42.120 --> 0:07:46.120 figures out how to create a synthetic McNugget price is 0:07:46.160 --> 0:07:49.000 as much the inventor of the McNugget as the person 0:07:49.040 --> 0:07:50.960 who figured out how to, you know, ball and fry 0:07:51.000 --> 0:07:51.440 the chicken. 0:07:52.360 --> 0:07:54.480 Do you think I can claim being the inventor the 0:07:54.560 --> 0:07:55.400 chicken nugget? 0:07:55.680 --> 0:07:56.080 I don't know. 0:07:56.280 --> 0:07:58.280 I think that I think that'd be overreach. 0:07:58.440 --> 0:08:00.680 Okay, well, anyway, I love that. 0:08:01.120 --> 0:08:02.960 I love that story, all right, So I want to 0:08:03.000 --> 0:08:07.200 get to debt the actual important things. So the thrust 0:08:07.240 --> 0:08:09.400 of the new book, it kind of reminds me of 0:08:09.440 --> 0:08:12.400 one of my all time financial favorites, which is a 0:08:12.520 --> 0:08:15.760 history of interest rates by Homer and Sydney. And you're 0:08:15.840 --> 0:08:18.920 kind of taking a similar approach, although maybe you're not 0:08:19.080 --> 0:08:21.960 going all the way back to ancient Babylon or something 0:08:22.040 --> 0:08:24.840 like that. But why did you decide to focus on 0:08:24.880 --> 0:08:28.800 debt cycles? What's the allure for you? And what do 0:08:28.840 --> 0:08:30.120 you learn from history? 0:08:30.280 --> 0:08:34.960 In nineteen seventy one, before after I graduated college and 0:08:35.080 --> 0:08:39.640 before I went to business school, I clerked on the 0:08:39.679 --> 0:08:44.160 floor of the New York Stock Exchange on and I 0:08:44.240 --> 0:08:46.560 filed the markets. I filed the market since I was 0:08:46.600 --> 0:08:49.679 a kid. I first got involved in markets when I 0:08:49.720 --> 0:08:52.440 was twelve. I used to caddy and then it was 0:08:52.480 --> 0:08:54.680 the time of the stock market, and the stock market 0:08:54.720 --> 0:08:56.800 was very hot, and I took my cadding money and 0:08:56.880 --> 0:09:00.440 I did that. But anyway, that led me to be 0:09:01.320 --> 0:09:04.600 on the floor of the New York Stock Exchange and 0:09:04.640 --> 0:09:11.320 follow markets. And on August fifteenth, nineteen seventy one, Richard 0:09:11.480 --> 0:09:17.800 Nixon Sunday Night, got on the television and told people 0:09:18.640 --> 0:09:22.760 that the monetary system was going to change, that the 0:09:22.920 --> 0:09:27.080 money that they thought they could get gold was thought 0:09:27.120 --> 0:09:30.920 of as money then, and paper money was like checks 0:09:30.960 --> 0:09:33.760 in a checkbook, didn't have any intrinsic value, no value 0:09:34.280 --> 0:09:39.120 that they would not get because there was a fixed 0:09:39.160 --> 0:09:42.800 exchange ring. And he gave some sort of BS story 0:09:43.120 --> 0:09:46.000 about why that was, which it was really because they 0:09:46.000 --> 0:09:50.160 didn't have enough gold to back up their money claims. 0:09:50.679 --> 0:09:52.520 And I walked on the floor of the New York 0:09:52.520 --> 0:09:56.640 Stock Exchange. I thought, this is a big crisis. This 0:09:56.679 --> 0:09:59.720 is going to be terrible, and I thought the stock 0:09:59.760 --> 0:10:01.920 market I was going to go down a lot and 0:10:02.720 --> 0:10:06.240 I went on the floor and it went up the 0:10:06.280 --> 0:10:10.760 most in years. And I didn't understand that. I didn't 0:10:10.800 --> 0:10:15.520 understand why, And so I started to do research, and 0:10:15.600 --> 0:10:21.760 I found that on March fifteenth, nineteen thirty three, President 0:10:21.920 --> 0:10:26.120 Roosevelt got on the radio and made the exact same 0:10:26.200 --> 0:10:31.600 announcement for the exact same reason. And I studied, then, 0:10:32.000 --> 0:10:36.080 why is it that they went up a lot? Okay, 0:10:36.160 --> 0:10:39.480 you devalue money. When you devalue money and you make 0:10:39.559 --> 0:10:45.080 money very easy, things go up. And so I learned 0:10:45.120 --> 0:10:50.080 not just the nature of that mechanic, but I learned 0:10:50.120 --> 0:10:55.480 that things that surprised me in my life often were 0:10:55.520 --> 0:10:59.800 things that never happened in my lifetime, but they happened 0:10:59.800 --> 0:11:03.920 in times in history. So I studied the Great Depression. 0:11:04.360 --> 0:11:07.760 I figured, okay, I should study all big things that happened, 0:11:08.120 --> 0:11:12.760 and I studied that Great Depression. And as a result 0:11:12.800 --> 0:11:16.520 of doing that, in two thousand and eight, I was 0:11:16.600 --> 0:11:22.240 able to anticipate the global financial crisis ahead of it. 0:11:22.280 --> 0:11:24.920 And the reason is is because when you have a 0:11:24.960 --> 0:11:29.960 debt crisis and interest rates go down and hit zero, 0:11:30.160 --> 0:11:34.720 so they can't go down anymore. Cutting interest rates anymore 0:11:35.000 --> 0:11:39.120 is no longer going to work. And what I learned 0:11:39.360 --> 0:11:45.520 from studying this event in nineteen thirty three is that 0:11:45.600 --> 0:11:51.319 when that happens, the government prints money and buys the bonds. 0:11:52.400 --> 0:11:56.439 So what happened in two thousand and eight was exactly that, 0:11:57.920 --> 0:12:01.240 and I wouldn't have understood it if I didn't study 0:12:01.280 --> 0:12:05.000 what happened back then. So that changed my whole approach 0:12:05.280 --> 0:12:08.920 to decision making, which is also why I did this 0:12:09.040 --> 0:12:12.080 study recently, and that came out as the book that 0:12:12.120 --> 0:12:15.280 you're referred to, you know, Principles for dealing with the 0:12:15.360 --> 0:12:20.280 Changing World Order. I needed to study things that hadn't 0:12:20.320 --> 0:12:22.760 happened in my lifetime. So we'll get into it. Yeah, 0:12:22.760 --> 0:12:25.160 there are things that are happening to us in our 0:12:25.480 --> 0:12:29.160 lifetimes that haven't happened before that you have to go 0:12:29.240 --> 0:12:33.000 back to the thirties or other periods of time to understand. 0:12:33.080 --> 0:12:50.480 And related to that is this money debt thing. 0:12:53.120 --> 0:12:56.160 Let's talk about the present tense And obviously Tracy and 0:12:56.200 --> 0:12:59.800 her fantastic intro talked about the size of the deficit 0:12:59.840 --> 0:13:01.960 life year, and you know, you see so much about 0:13:02.120 --> 0:13:04.560 the debt. You know, there's two things in the story. 0:13:04.559 --> 0:13:06.640 You're told there's sort of two things that struck me 0:13:06.840 --> 0:13:09.600 right now, Which is one is, obviously we don't have 0:13:09.640 --> 0:13:12.920 a form of currency that's quote backed by anything. There's 0:13:12.960 --> 0:13:15.800 nothing to quote run out of that we couldn't mate it. 0:13:15.679 --> 0:13:18.440 It's the sort of fiat currency in the truest sense 0:13:18.440 --> 0:13:20.960 of the word. There's also the other thing is you 0:13:20.960 --> 0:13:25.280 know you mentioned stock surged because of these moves represented 0:13:25.320 --> 0:13:28.760 this big fiscal loosening. We are in an era in 0:13:28.800 --> 0:13:31.840 which inflation has been high for several years. Inflation is 0:13:31.880 --> 0:13:35.280 still above target, and many people would say this still 0:13:35.360 --> 0:13:39.040 most persistent issue right now is this issue of too 0:13:39.120 --> 0:13:43.160 much money and that there's still things are too expensive, 0:13:43.200 --> 0:13:46.000 et cetera, and so there's still this impulse to titan 0:13:46.280 --> 0:13:48.840 So when you think about these lessons that you're talking about, 0:13:48.880 --> 0:13:52.560 then when you look at our fiscal position in twenty 0:13:52.640 --> 0:13:54.920 twenty five, what do you think about what? When you 0:13:54.960 --> 0:13:56.920 look at our fiscal position, what do you see? 0:13:57.040 --> 0:13:59.360 Again? I think you can tell from the way that 0:13:59.440 --> 0:14:03.360 I talk. I think about the mechanics and how does 0:14:03.400 --> 0:14:07.840 it work. And in answer to your prior question, the 0:14:07.920 --> 0:14:12.600 reason I'm writing this book is because I think that 0:14:12.640 --> 0:14:16.720 we're at an inflection point and I think that people 0:14:16.840 --> 0:14:24.040 do not economists and people and everybody. Policy makers don't 0:14:24.080 --> 0:14:29.640 adequately understand the big debt cycle. They understand the shorter 0:14:29.760 --> 0:14:34.800 term debt cycles. You know things economies, we inflation goes down, 0:14:35.240 --> 0:14:39.040 they make credit available, things go up, stocks and everything 0:14:39.320 --> 0:14:42.560 goes up until you get too much and you get inflation. 0:14:42.680 --> 0:14:45.120 Then they tighten credit and so on. But the big 0:14:45.200 --> 0:14:50.920 debt cycle isn't understood. And yet we're there, We're at 0:14:51.400 --> 0:14:54.960 the brink of one of these. And so what I 0:14:55.040 --> 0:15:00.680 think about this is that there are really three factors 0:15:01.440 --> 0:15:06.040 that drive the big debt cycle, and I want to 0:15:06.040 --> 0:15:09.240 convey those. I'm a part of my life that I'm 0:15:09.240 --> 0:15:13.400 trying to convey those. And so, okay, most people think 0:15:13.440 --> 0:15:16.520 interest rates go up because of inflation tightness or ease 0:15:16.560 --> 0:15:20.440 of monetary policy, but they don't realize that there are 0:15:20.480 --> 0:15:23.880 limits to dick growth. And here's how it happens. One 0:15:23.960 --> 0:15:27.600 man's debts or another man's financial assets. So when you're 0:15:27.680 --> 0:15:33.280 holding a lot of bonds, that's a large percentage of 0:15:33.440 --> 0:15:39.320 the portfolio, that's also a large debt. And think of 0:15:40.120 --> 0:15:45.520 the credit system like a circulatory system that brings nutrients 0:15:45.600 --> 0:15:48.160 to all of the parts of the body. So you 0:15:48.480 --> 0:15:53.240 give mind power. And if that buying power is used 0:15:54.080 --> 0:15:59.400 to create productivity, then what it does is it produces 0:15:59.760 --> 0:16:03.720 incomes that are large enough to pay the debts back 0:16:04.240 --> 0:16:08.760 and give you productivity and everybody's app But if the 0:16:08.840 --> 0:16:14.840 debts are too large and don't produce the productivity, you 0:16:14.920 --> 0:16:19.320 don't have the income that's necessary to service those debts. 0:16:19.920 --> 0:16:25.200 And so in this circulatory system, if it's healthy, you're 0:16:25.240 --> 0:16:29.920 seeing incomes rise with the debts, and you're seeing the 0:16:29.920 --> 0:16:33.960 system work well. When debts rise relative to incomes that 0:16:34.040 --> 0:16:38.360 are needed to service the debt, it's like plaque in 0:16:38.440 --> 0:16:43.520 the system, building up in the circulatory system because it 0:16:43.680 --> 0:16:48.080 means that first of all, you have a debt service 0:16:48.200 --> 0:16:52.720 problem that you have to pay the debt service, and 0:16:52.760 --> 0:16:58.000 that's like plaque in that it leaves less room for spending. So, 0:16:58.120 --> 0:17:02.720 for example, the US government has an interest bill that's 0:17:03.520 --> 0:17:07.119 about a trillion dollars a year, and if they didn't 0:17:07.160 --> 0:17:11.080 have a trillion that didn't have that interest bill, they'd 0:17:11.080 --> 0:17:14.679 have a trillion dollars more spending, and that process gets 0:17:15.040 --> 0:17:20.400 worse and worse over time. In addition, one has to 0:17:20.520 --> 0:17:25.400 roll over the debt that was last accumulating, so we 0:17:25.480 --> 0:17:29.680 have to roll over this year about nine trillion, a 0:17:29.680 --> 0:17:35.280 little over nine trillion dollars of debt. That means the 0:17:35.359 --> 0:17:39.399 new you know, they get it runs out, then you 0:17:39.440 --> 0:17:41.879 have to sell it again. And when they have a 0:17:41.960 --> 0:17:44.880 lot of that debt, that's a problem. And when you're 0:17:45.080 --> 0:17:48.360 doing putting a lot more debt on top of that 0:17:48.440 --> 0:17:52.440 pile of debt, so it's not just the existing debt 0:17:52.640 --> 0:17:56.320 that's a problem, but you have to add more debt sales, 0:17:56.800 --> 0:18:01.600 which equals essentially the budget deficit, which now is going 0:18:01.640 --> 0:18:05.200 to be about seven and a half percent of GDP. 0:18:05.920 --> 0:18:08.919 You've got to sell those. You have to sell those 0:18:08.960 --> 0:18:13.800 to people or institutions or central banks or sovereign funds 0:18:14.040 --> 0:18:17.280 that hold these bonds while they're already holding too many 0:18:17.359 --> 0:18:21.160 bonds and now they have to roll them over, and 0:18:21.240 --> 0:18:24.639 you have to sell these new bonds that are coming on, 0:18:25.440 --> 0:18:28.879 and that can be a problem, and it can be 0:18:28.960 --> 0:18:34.680 worse than that, because if they don't have if they say, hey, 0:18:34.680 --> 0:18:36.760 there are too many of these bonds and i've got 0:18:36.880 --> 0:18:41.040 enough and I don't want to buy it, or worse, 0:18:41.880 --> 0:18:45.080 there could be some reasons that they don't want to 0:18:45.080 --> 0:18:49.480 buy it, like for example, sanctions. Okay, we're living in 0:18:49.520 --> 0:18:53.879 a world similar to the nineteen thirties, and if I 0:18:54.040 --> 0:18:57.280 was the Chinese, I would worry that what would happen 0:18:57.400 --> 0:19:01.399 to me might happen what happened to the Japanese in 0:19:01.480 --> 0:19:05.960 the nineteen thirties, which is that we froze their bonds, 0:19:05.960 --> 0:19:09.800 a meaning they didn't get their money. And so nowadays, 0:19:09.880 --> 0:19:13.320 with sanctions and too many bonds and so on, when 0:19:13.359 --> 0:19:17.439 I calculate who are the buyers and how much do 0:19:17.480 --> 0:19:20.840 we have to sell, I find a big imbalance, and 0:19:20.920 --> 0:19:23.840 I know how that works. You know what happens is 0:19:23.920 --> 0:19:28.680 central banks buy these bonds, They print money and buy 0:19:28.720 --> 0:19:31.680 the bonds, and then they lose money on the bonds, 0:19:31.680 --> 0:19:34.680 and you get a negative network at the central bank, 0:19:34.720 --> 0:19:38.040 and you get this spiral when you reach the part 0:19:38.280 --> 0:19:42.840 of the cycle that you have to borrow money to 0:19:42.960 --> 0:19:50.840 pay debt service, and then the holders of those bonds say, okay, 0:19:50.880 --> 0:19:54.280 it's a risky situation. In the private credit market, we 0:19:54.400 --> 0:19:59.080 call that the debt spiral, the debt debt spiral, because 0:19:59.119 --> 0:20:01.879 when you have to to roll over the debts but 0:20:01.920 --> 0:20:05.480 it's risky, the credit spreads go up. And when the 0:20:05.520 --> 0:20:09.359 credit spreads go up, then it adds to the debt 0:20:09.440 --> 0:20:12.239 service and it becomes a spiral. That's a problem. So 0:20:12.520 --> 0:20:16.720 the way I calculate it is that we're quite near 0:20:16.920 --> 0:20:17.679 that point. 0:20:18.680 --> 0:20:21.880 Can I just press you on the inflection idea, because 0:20:21.920 --> 0:20:24.320 I think this is one of the things that people 0:20:24.560 --> 0:20:27.400 really struggle with, because it is true the US has 0:20:27.440 --> 0:20:30.280 a lot of debt, and it's true that it's issuing 0:20:30.320 --> 0:20:33.800 more debt in order to pay down interest. But at 0:20:33.800 --> 0:20:38.200 the same time, nothing really bad has happened quite yet, 0:20:38.960 --> 0:20:42.080 and I think there's a sense of call it maybe 0:20:42.359 --> 0:20:48.000 debt doom fatigue. We've had warnings over the deficit for decades. Now, 0:20:48.119 --> 0:20:51.400 how do you actually go about figuring out when the 0:20:51.440 --> 0:20:55.440 cycle will turn or what specific things do you look 0:20:55.480 --> 0:21:00.320 for as the proximate catalyst for that inflection point? 0:21:01.320 --> 0:21:04.520 Well, that's why I wrote my book How Countries Will 0:21:04.520 --> 0:21:06.840 Go Broke that by the way, when I say it's 0:21:06.880 --> 0:21:09.320 a book, it'll come out as a book, but I 0:21:09.480 --> 0:21:13.160 made it free online for anybody who wants to read it, 0:21:13.960 --> 0:21:18.119 and what I wanted to show was the actual mechanics 0:21:18.760 --> 0:21:23.160 of how that happens. So I hope your listeners will 0:21:23.280 --> 0:21:25.679 get it and you know it's free, it's there for 0:21:25.760 --> 0:21:29.520 you to start to consider, and what it is is 0:21:30.119 --> 0:21:34.960 look at that mechanics and the signs that you can 0:21:35.000 --> 0:21:39.359 see that happening. In other words, first start to do 0:21:39.560 --> 0:21:44.520 the supplied demand analysis. Simple when that dynamic I describe 0:21:44.560 --> 0:21:48.719 starts happening, you can see it because the amount that 0:21:49.000 --> 0:21:54.160 is sold is not bought by the private sector anymore 0:21:54.200 --> 0:21:57.440 of those other buyers, and then the central bank has 0:21:57.480 --> 0:22:01.640 to come in and then print money and make up 0:22:01.680 --> 0:22:04.919 that difference, and then that the value is money. So 0:22:04.960 --> 0:22:10.080 we saw let's call it a palpitation. I give this example. 0:22:10.119 --> 0:22:14.040 It's like a heart attack. We saw that when in 0:22:14.040 --> 0:22:19.200 twenty twenty, in twenty twenty one, when the government needed 0:22:19.320 --> 0:22:22.080 in twenty twenty to send out a lot of money, 0:22:22.640 --> 0:22:27.280 it actually sent out about twice the amount of money 0:22:27.920 --> 0:22:32.639 that people in their incomes lost or businesses lost. They 0:22:32.680 --> 0:22:37.359 sent out twice as much amount of money then and 0:22:37.400 --> 0:22:42.520 then in twenty twenty one they did it again without 0:22:42.800 --> 0:22:45.960 the need. But there was a move from a right 0:22:46.000 --> 0:22:49.640 of center policy to a left of center policy in 0:22:49.680 --> 0:22:53.440 which universal basic income and the desire to do that 0:22:53.760 --> 0:22:58.480 put out that money. And so where did the government 0:22:58.560 --> 0:23:01.840 get the money from. They got it from the central 0:23:01.880 --> 0:23:06.119 bank that produced the money and sent it out, and 0:23:06.200 --> 0:23:11.119 so everybody's getting all this money and they're surprised that 0:23:11.280 --> 0:23:16.120 prices went up so okay, So you have that wave 0:23:16.160 --> 0:23:21.479 of inflation that was like a warning heart attack. So 0:23:21.560 --> 0:23:24.560 what I'm trying to do in that book is show 0:23:25.040 --> 0:23:29.640 the dynamics and the mechanics that show how you can 0:23:29.760 --> 0:23:34.920 calculate what the supplied demand is and what will happen 0:23:35.600 --> 0:23:39.080 at what's likely to happen, and what has happened through time. 0:23:39.640 --> 0:23:43.320 So I go back through time and I show these many, 0:23:43.480 --> 0:23:47.080 many cases of it so that you can distinguish it, 0:23:47.640 --> 0:23:52.840 because I'm with you the alternative, which has been a problem. 0:23:53.200 --> 0:23:57.040 You know, it's like somebody who's built up their cholesterol 0:23:57.200 --> 0:23:59.760 and lived this way and they say, I haven't had 0:23:59.800 --> 0:24:04.600 a heart attack, and they get that as positive reinforcement, and. 0:24:04.600 --> 0:24:11.200 I guess the nuggets, and there we are. 0:24:11.640 --> 0:24:15.000 So the question I have for everybody, for those in 0:24:15.040 --> 0:24:20.720 the administration and for others, is that dynamic which you 0:24:20.720 --> 0:24:23.359 can see we're played out in there. You could see 0:24:23.400 --> 0:24:28.080 the moment by moment, literally month by month changes that 0:24:28.160 --> 0:24:31.760 are the symptoms and the indicators that you're having a 0:24:31.840 --> 0:24:35.360 heart attack, an economic heart attack at that crisis. It's 0:24:35.400 --> 0:24:37.720 shown in that book. And the only thing I want 0:24:37.760 --> 0:24:40.760 to do is, first of all, say is that logical? 0:24:40.840 --> 0:24:44.239 Do you see it? And so in our conversation, I 0:24:44.280 --> 0:24:47.720 can't show you the charts and numbers and so on, 0:24:48.160 --> 0:24:50.520 but I can tell you. And so we should be 0:24:50.600 --> 0:24:55.479 asking ourselves is that logical? Has it happened before? And 0:24:55.480 --> 0:24:58.040 then what do we do about it? Rather than say 0:24:58.359 --> 0:24:59.920 we don't have to worry about it? 0:25:00.160 --> 0:25:03.120 What does it look like? Specifically? Okay, you walk through 0:25:03.119 --> 0:25:06.240 the math and you talk about you know, at some 0:25:06.280 --> 0:25:08.760 point you could talk about supply and demand and is 0:25:08.800 --> 0:25:11.639 the demand actually there? And there have been warnings, as 0:25:11.680 --> 0:25:14.440 both you and Tracy acknowledged for years, and you know 0:25:14.720 --> 0:25:17.720 you have these little tremors or maybe heart attacks and 0:25:17.840 --> 0:25:21.280 so forth. Let's say it happens, and I don't know 0:25:21.280 --> 0:25:24.200 what it is, but what is the equivalent in twenty 0:25:24.240 --> 0:25:27.080 twenty five or twenty twenty six or twenty twenty seven 0:25:27.600 --> 0:25:31.280 of Nixon suddenly taking us off the gold standard? 0:25:31.440 --> 0:25:31.679 Is it? 0:25:32.119 --> 0:25:34.560 And you sort of hinted at it, do you see 0:25:34.720 --> 0:25:38.480