1 00:00:00,000 --> 00:00:05,320 Speaker 1: Okay, welcome back to another episode of Financial Heresy. This 2 00:00:05,400 --> 00:00:09,200 Speaker 1: is the podcast where we talk about how money works 3 00:00:09,560 --> 00:00:13,240 Speaker 1: so that you can make more, keep more, and give more. 4 00:00:13,960 --> 00:00:17,120 Speaker 1: On this week's episode, I do not have a guest 5 00:00:17,239 --> 00:00:20,440 Speaker 1: like I have for the last few weeks. We are 6 00:00:20,480 --> 00:00:25,400 Speaker 1: going to be talking about UH, the biggest black Swan 7 00:00:25,960 --> 00:00:31,560 Speaker 1: since nineteen twenty nine. Um, many of you are probably 8 00:00:31,640 --> 00:00:36,120 Speaker 1: familiar with NA seem To lebh now seem to Leb 9 00:00:36,400 --> 00:00:39,360 Speaker 1: is an author in terms of okay, in terms of 10 00:00:39,440 --> 00:00:42,760 Speaker 1: his books, in terms of him being an author one 11 00:00:42,800 --> 00:00:47,920 Speaker 1: of my all time favorites. Um. Now, there are some 12 00:00:48,040 --> 00:00:52,120 Speaker 1: things that it seems like he has changed in terms 13 00:00:52,159 --> 00:00:58,440 Speaker 1: of his outlook on life and things that contradict his 14 00:00:59,120 --> 00:01:05,039 Speaker 1: books in terms of how he responded to UH, covide 15 00:01:05,200 --> 00:01:08,840 Speaker 1: and UM. So there's there's been a little bit of 16 00:01:08,920 --> 00:01:13,440 Speaker 1: a h divide in the people who used to really 17 00:01:13,560 --> 00:01:17,640 Speaker 1: enjoy following what he said and writes and publishes versus 18 00:01:17,680 --> 00:01:21,040 Speaker 1: the people who do now. UM, I am not interested 19 00:01:21,200 --> 00:01:26,360 Speaker 1: at all in discussing anything recent UH in terms or 20 00:01:26,480 --> 00:01:29,759 Speaker 1: or COVID or anything like that. So UM, I don't 21 00:01:30,400 --> 00:01:33,839 Speaker 1: for this conversation. It really doesn't matter what your views 22 00:01:33,880 --> 00:01:35,920 Speaker 1: are on that if you are even familiar at all. 23 00:01:36,400 --> 00:01:38,360 Speaker 1: I just had to get that out there because even 24 00:01:38,480 --> 00:01:41,560 Speaker 1: mentioning his name now stirs up a little bit of controversy. 25 00:01:42,080 --> 00:01:46,240 Speaker 1: So um, many people are aware of who he is 26 00:01:46,400 --> 00:01:49,000 Speaker 1: and the books that he read wrote UH still no 27 00:01:49,040 --> 00:01:51,160 Speaker 1: matter what, no matter what he says today, they are 28 00:01:51,280 --> 00:01:56,360 Speaker 1: absolutely fantastic. Some of the best books written in terms 29 00:01:56,360 --> 00:02:04,440 Speaker 1: of risk management, UM going through life, the uh aphrhisms 30 00:02:04,600 --> 00:02:09,960 Speaker 1: and heuristics we can use to uh to to successfully 31 00:02:10,120 --> 00:02:15,440 Speaker 1: navigate through a world of luck and hidden risks. UM. 32 00:02:15,520 --> 00:02:18,440 Speaker 1: So the three books that he wrote that I like 33 00:02:18,560 --> 00:02:23,040 Speaker 1: the best are UM, The Black Swan, Anti Fragile, and 34 00:02:23,120 --> 00:02:27,400 Speaker 1: Skin in the Game in that order, because they build 35 00:02:27,520 --> 00:02:30,520 Speaker 1: on each other. Now. He also wrote a couple other books, 36 00:02:31,200 --> 00:02:35,280 Speaker 1: The Better Procrustes and UM, what was the first one, 37 00:02:35,639 --> 00:02:39,440 Speaker 1: Fooled by Randomness? Fooled by Randomness to me seemed like 38 00:02:39,880 --> 00:02:45,359 Speaker 1: uh a very immature version of his ideas that we're 39 00:02:45,360 --> 00:02:48,680 Speaker 1: not fleshed out very well that he does indeed flesh 40 00:02:48,680 --> 00:02:51,120 Speaker 1: out very well in the next three books. So you're 41 00:02:51,160 --> 00:02:53,920 Speaker 1: not missing anything if you don't read Fooled by Randomness. 42 00:02:54,000 --> 00:02:57,440 Speaker 1: In fact, UM, you're just getting his thoughts better distilled 43 00:02:57,600 --> 00:03:02,480 Speaker 1: and are better articulated by reading the other three. The 44 00:03:02,520 --> 00:03:05,480 Speaker 1: reason why I'm giving you the intro on Seine teleb 45 00:03:05,639 --> 00:03:08,920 Speaker 1: is because he is kind of known as the black 46 00:03:09,000 --> 00:03:14,959 Speaker 1: Swan guy UM in terms of UH. He very um 47 00:03:15,240 --> 00:03:20,840 Speaker 1: UH you know, accidentally predicted the uh the election of 48 00:03:20,880 --> 00:03:25,959 Speaker 1: Obama and uh and Donald Trump UM through his lens 49 00:03:26,080 --> 00:03:31,040 Speaker 1: of black swans and anti fragility and risk UM. He 50 00:03:31,320 --> 00:03:36,520 Speaker 1: again accidentally kind of predicted the housing market blow up. UM. 51 00:03:36,680 --> 00:03:38,840 Speaker 1: And he was also a trader. That's how he got 52 00:03:38,920 --> 00:03:41,800 Speaker 1: his start in his career. He was a trader UM 53 00:03:41,840 --> 00:03:45,600 Speaker 1: built off of this kind of philosophy of UM, taking 54 00:03:45,800 --> 00:03:50,200 Speaker 1: small risks with limited downside uh that have exposure to 55 00:03:50,520 --> 00:03:54,480 Speaker 1: potentially massive upside little losses over time, and then every 56 00:03:54,520 --> 00:03:56,880 Speaker 1: once in a while you get a big gain um 57 00:03:57,240 --> 00:04:00,280 Speaker 1: and UH. And so that was that's kind of his background. OUND. 58 00:04:01,040 --> 00:04:03,960 Speaker 1: There is another another guy that you may not have 59 00:04:04,080 --> 00:04:07,960 Speaker 1: heard of before. His name is Mark Spitznagel Um. He's 60 00:04:08,000 --> 00:04:11,960 Speaker 1: written two books, uh, both fantastic books. The Tao of 61 00:04:12,040 --> 00:04:15,520 Speaker 1: Capital is his first one and his most recent one. 62 00:04:15,920 --> 00:04:19,520 Speaker 1: It got delayed due to COVID being published. I think 63 00:04:19,520 --> 00:04:22,640 Speaker 1: it came out in one at the end. UM it's 64 00:04:22,680 --> 00:04:29,480 Speaker 1: called safe Haven, UM Investing for an Uncertain World or 65 00:04:29,520 --> 00:04:33,680 Speaker 1: something like that, safe Haven by Mark Smith Spitznagel. Both 66 00:04:33,760 --> 00:04:36,520 Speaker 1: of them are fantastic books in terms of the again 67 00:04:36,680 --> 00:04:41,599 Speaker 1: looking through a lens UH UM there really it's Austrian 68 00:04:41,640 --> 00:04:46,960 Speaker 1: economics applied to investing. UM and UH really just a 69 00:04:46,960 --> 00:04:49,760 Speaker 1: lot of great insights and strategies in terms of how 70 00:04:49,800 --> 00:04:54,640 Speaker 1: to approach investing to minimize downside UH risks and maximize 71 00:04:54,800 --> 00:05:02,320 Speaker 1: upside potential. So they run or Mark Spitznagel runs Universal Investments. 72 00:05:02,480 --> 00:05:05,760 Speaker 1: This is a hedge fund UM and then it seemed 73 00:05:05,800 --> 00:05:09,880 Speaker 1: to leb is an advisor to the hedge fund. UM 74 00:05:09,960 --> 00:05:14,240 Speaker 1: and UH. I don't know exactly how much money each 75 00:05:14,240 --> 00:05:17,160 Speaker 1: one of them has in the fund, but Mark runs 76 00:05:17,160 --> 00:05:21,680 Speaker 1: the fund. They are good friends UM and UM. So 77 00:05:21,760 --> 00:05:23,680 Speaker 1: what in the world am I bringing these two guys 78 00:05:23,760 --> 00:05:28,320 Speaker 1: up for. Well, they have recently UM in the news 79 00:05:28,560 --> 00:05:31,360 Speaker 1: been talking about how the market is headed for a 80 00:05:31,400 --> 00:05:35,000 Speaker 1: black Swan event. UH and we the results are gonna 81 00:05:35,040 --> 00:05:39,480 Speaker 1: be worse than the Great Depression basically, UM and so 82 00:05:40,000 --> 00:05:42,760 Speaker 1: taking a look at a couple of things that they've 83 00:05:42,800 --> 00:05:46,440 Speaker 1: that they've said, I'm right now reading from UH Markets 84 00:05:46,440 --> 00:05:53,239 Speaker 1: Insider in Bloomberg. Um, so number one, brace for a recession, UM, 85 00:05:53,279 --> 00:05:58,680 Speaker 1: a stock market crash akin to nineteen twenty nine. Let's 86 00:05:58,720 --> 00:06:03,120 Speaker 1: see here, Uh, the rising debt levels are posing a 87 00:06:03,240 --> 00:06:06,839 Speaker 1: time bomb. Get ready for a tinder box time bomb 88 00:06:06,880 --> 00:06:11,920 Speaker 1: that will be worse than the nine stock market crash. 89 00:06:12,000 --> 00:06:15,120 Speaker 1: Let's see what else do they say here? Okay, it 90 00:06:15,200 --> 00:06:19,719 Speaker 1: is objectively the greatest tinder box time bomb in financial history, 91 00:06:20,160 --> 00:06:23,760 Speaker 1: greater than the late nineteen twenties and likely with similar 92 00:06:24,200 --> 00:06:31,360 Speaker 1: market consequences. Um, what else? So? And this view, this 93 00:06:31,480 --> 00:06:35,919 Speaker 1: view is not isolated to just these two guys. Um, 94 00:06:36,000 --> 00:06:41,600 Speaker 1: we've got the two articles point out. UM, what's his name, Rubini? 95 00:06:42,160 --> 00:06:44,120 Speaker 1: Let me pull him up and see what he said, 96 00:06:45,240 --> 00:06:51,440 Speaker 1: Noriel Rubini. Um. He is an economist who um has 97 00:06:51,640 --> 00:06:55,960 Speaker 1: made some some predictions in the past that have turned 98 00:06:55,960 --> 00:06:59,839 Speaker 1: out to be true. Um. He recently warned that the 99 00:07:00,080 --> 00:07:03,200 Speaker 1: high debt levels and the rising interest rates would cause 100 00:07:03,680 --> 00:07:07,800 Speaker 1: a severe recession and a debt crisis. Another guy, Michael Burry. So, 101 00:07:07,839 --> 00:07:10,080 Speaker 1: if you ever saw the movie The Big Short, Michael 102 00:07:10,080 --> 00:07:14,320 Speaker 1: Burry was the one the doctor played by UM Christian Bale. 103 00:07:14,640 --> 00:07:16,680 Speaker 1: Michael Burry, you know he's he's a real guy that 104 00:07:16,760 --> 00:07:19,840 Speaker 1: was you know, a true story. Um. He he tweets 105 00:07:20,040 --> 00:07:22,200 Speaker 1: from time to time and he always delete deletes his 106 00:07:22,200 --> 00:07:25,400 Speaker 1: tweets as well. UM. But he tweets, you know, about 107 00:07:25,440 --> 00:07:29,920 Speaker 1: his opinions and his positions. Um. And he is currently 108 00:07:30,040 --> 00:07:33,040 Speaker 1: saying that the stock market is headed for the mother 109 00:07:33,200 --> 00:07:37,440 Speaker 1: of all crashes. Um. One of the things that spitz 110 00:07:37,520 --> 00:07:42,080 Speaker 1: Nagel said here is that, um, the correction, like the recession, 111 00:07:42,160 --> 00:07:45,640 Speaker 1: the correction when markets go down. That once it was 112 00:07:45,680 --> 00:07:48,360 Speaker 1: a natural and healthy thing. Like you know, when the 113 00:07:48,400 --> 00:07:51,040 Speaker 1: markets go down, it's too It's like burning off the 114 00:07:51,080 --> 00:07:53,400 Speaker 1: dead wood in a forest. It's like the things that 115 00:07:53,440 --> 00:07:57,320 Speaker 1: are supposed to fail fail. Um. The things that are 116 00:07:57,400 --> 00:08:00,840 Speaker 1: overvalued get sold off. Money is lost, should be lost 117 00:08:00,880 --> 00:08:04,640 Speaker 1: where there's wasting of resources, and that capital is reallocated 118 00:08:04,720 --> 00:08:08,920 Speaker 1: into the areas that are uh more resourceful and will 119 00:08:08,920 --> 00:08:13,200 Speaker 1: provide a better return. So these corrections, these are the 120 00:08:13,200 --> 00:08:15,360 Speaker 1: they're called a correction because they're there to correct the 121 00:08:15,360 --> 00:08:18,440 Speaker 1: malinvestment that has taken place. Um. So it's a natural 122 00:08:18,440 --> 00:08:21,640 Speaker 1: and a healthy thing. So he's saying, now that's become 123 00:08:21,720 --> 00:08:28,160 Speaker 1: a contagious inferno capable of destroying the system entirely. The 124 00:08:28,200 --> 00:08:32,000 Speaker 1: world is just two levered today, the debt construct just 125 00:08:32,280 --> 00:08:35,560 Speaker 1: too big. Um. And again, like I said earlier, this 126 00:08:35,679 --> 00:08:38,280 Speaker 1: is not just these two guys. Let's take a look 127 00:08:38,720 --> 00:08:42,920 Speaker 1: at something that Ray Dalio has been talking about recently. 128 00:08:43,000 --> 00:08:47,800 Speaker 1: So if you're not familiar, Ray Dalio is uh. He's billionaire. 129 00:08:47,840 --> 00:08:52,280 Speaker 1: He is the founder of Bridgewater, the largest hedge fund 130 00:08:52,440 --> 00:08:55,160 Speaker 1: in the world. Um. And he said that the US 131 00:08:55,360 --> 00:08:59,960 Speaker 1: has been treading dangerous territory after hitting the national debts 132 00:09:00,000 --> 00:09:03,800 Speaker 1: ceiling of thirty one and a half trillion UM. He 133 00:09:03,920 --> 00:09:07,440 Speaker 1: said that, uh, that that this would be Let's see, 134 00:09:07,520 --> 00:09:11,040 Speaker 1: was this yelling saying it um that default would be 135 00:09:11,080 --> 00:09:15,240 Speaker 1: a self imposed calamity. Um. Yeah, okay, so that was 136 00:09:15,360 --> 00:09:19,720 Speaker 1: yelling that said that default would be a self imposed calamity. UM. 137 00:09:19,800 --> 00:09:22,600 Speaker 1: So he read Dalu was basically saying the debt ceiling 138 00:09:22,760 --> 00:09:25,320 Speaker 1: is a farce. There's no real debt limit, which is 139 00:09:25,360 --> 00:09:30,520 Speaker 1: true because it's self imposed. Um. He said, it's like 140 00:09:30,559 --> 00:09:35,319 Speaker 1: a bunch of alcoholics who write laws to enforce drinking limits, 141 00:09:37,200 --> 00:09:41,720 Speaker 1: which is absolutely true. Because when you look at government spending, 142 00:09:41,760 --> 00:09:44,720 Speaker 1: it benefits the party and the people who voted for it, 143 00:09:44,800 --> 00:09:46,839 Speaker 1: and what they spend that money on. It's a it's 144 00:09:46,840 --> 00:09:50,400 Speaker 1: a power play, and so any limitation on that is 145 00:09:50,440 --> 00:09:53,679 Speaker 1: gonna you know, it's you know, why would somebody empower 146 00:09:53,840 --> 00:09:57,880 Speaker 1: self impose limitations on themselves to getting more of what 147 00:09:57,960 --> 00:10:00,960 Speaker 1: they want, which is power. UM, And that we know 148 00:10:01,040 --> 00:10:04,040 Speaker 1: that they actually never do they always they always raised 149 00:10:04,120 --> 00:10:07,400 Speaker 1: that limit. Now UM, he was saying that this is 150 00:10:07,480 --> 00:10:09,920 Speaker 1: you know, kind of like this is like a bad 151 00:10:09,960 --> 00:10:13,840 Speaker 1: thing in terms of UM. You know, the predicament that 152 00:10:13,880 --> 00:10:16,760 Speaker 1: our nation has gotten into with so much debt because 153 00:10:16,800 --> 00:10:20,160 Speaker 1: of this UM. So all of these things put together, 154 00:10:20,240 --> 00:10:23,400 Speaker 1: some of the smartest people who run hedge funds and 155 00:10:23,480 --> 00:10:27,600 Speaker 1: best traders and investors and economists, they're all kind of 156 00:10:27,640 --> 00:10:31,920 Speaker 1: looking at the same thing right now. Number one, we 157 00:10:32,000 --> 00:10:38,160 Speaker 1: have an unprecedented amount of debt. No person has a 158 00:10:38,200 --> 00:10:43,480 Speaker 1: brain that can comprehend really anything over you know, a thousand. 159 00:10:43,920 --> 00:10:48,080 Speaker 1: Like the way that our brains are designed UM is 160 00:10:48,200 --> 00:10:51,480 Speaker 1: designed for day to day life. And so yes, we 161 00:10:51,520 --> 00:10:53,560 Speaker 1: can grasp the concept of a thousand, a million, a billion, 162 00:10:53,600 --> 00:10:56,480 Speaker 1: a trillion, like you know, as as just numbers, but 163 00:10:57,600 --> 00:11:02,680 Speaker 1: wrapping our minds around the at quantity UM. Our brains 164 00:11:02,679 --> 00:11:06,680 Speaker 1: are more designed to interact with low numbers of things 165 00:11:06,760 --> 00:11:09,960 Speaker 1: like you know, a hundred twenty kind of as you know, 166 00:11:10,200 --> 00:11:12,679 Speaker 1: as a group, like we we know what that feels like, 167 00:11:12,840 --> 00:11:15,000 Speaker 1: and we can wrap our minds around that. When you 168 00:11:15,040 --> 00:11:17,440 Speaker 1: start getting into the thousands, the tens of thousands, even 169 00:11:17,520 --> 00:11:20,800 Speaker 1: the hundreds of thousands, it just becomes a number that 170 00:11:21,360 --> 00:11:24,840 Speaker 1: it's difficult to for a human brain to wrap your 171 00:11:24,880 --> 00:11:29,160 Speaker 1: mind around. So a million, and then a billion, and 172 00:11:29,160 --> 00:11:32,680 Speaker 1: then a trillion, it's like we we have no concept 173 00:11:33,559 --> 00:11:36,480 Speaker 1: of how to uh, you know, no part of our 174 00:11:36,480 --> 00:11:39,559 Speaker 1: brain that can conceptualize how big of a number that is. Um. 175 00:11:39,600 --> 00:11:41,920 Speaker 1: And our debt is thirty one trillion, and so in 176 00:11:42,040 --> 00:11:44,200 Speaker 1: order to really try and break this down, we have 177 00:11:44,280 --> 00:11:47,199 Speaker 1: to kind of, uh look at it through smaller chunks 178 00:11:47,360 --> 00:11:51,319 Speaker 1: and um and uh break it down into ways that 179 00:11:51,360 --> 00:11:54,079 Speaker 1: are a little bit easier to understand. So we know 180 00:11:54,200 --> 00:11:57,360 Speaker 1: that the United States government has you know, thirty one 181 00:11:57,640 --> 00:12:04,000 Speaker 1: trillion dollars in debt. Now that's just the amount borrowed UM. 182 00:12:04,120 --> 00:12:09,960 Speaker 1: So that's this is important to recognize. That's just borrowed UM. 183 00:12:10,040 --> 00:12:12,680 Speaker 1: This is not the amount that they actually owe back 184 00:12:12,960 --> 00:12:17,760 Speaker 1: because the debt amount, by law, is going to just 185 00:12:17,960 --> 00:12:21,120 Speaker 1: be the number that was borrowed. So that thirty one 186 00:12:21,160 --> 00:12:24,000 Speaker 1: and a half trillion is what was borrowed. The amount 187 00:12:24,080 --> 00:12:28,400 Speaker 1: that they owe back is what they borrowed plus interest um. 188 00:12:28,480 --> 00:12:31,520 Speaker 1: And so right now that's at thirty one trillion, one 189 00:12:31,520 --> 00:12:35,480 Speaker 1: and a half trillion dollars. So let's say, just hypothetically speaking, 190 00:12:35,520 --> 00:12:38,880 Speaker 1: this isn't impossible, it would never happen. But let's say 191 00:12:38,880 --> 00:12:40,559 Speaker 1: that the government was like, all right, we're gonna we're 192 00:12:40,559 --> 00:12:44,200 Speaker 1: gonna pay the debt down to zero um. What we 193 00:12:44,200 --> 00:12:45,880 Speaker 1: would need to do, just if you just look at 194 00:12:45,880 --> 00:12:49,600 Speaker 1: the numbers, you need to run a trillion dollar surplus 195 00:12:50,800 --> 00:12:58,480 Speaker 1: every single year for thirty years straight. So to put 196 00:12:58,520 --> 00:13:02,800 Speaker 1: that into perspective, let's look at some history. The last 197 00:13:02,840 --> 00:13:06,480 Speaker 1: time the government ran a surplus was in ninety eight, 198 00:13:06,800 --> 00:13:11,880 Speaker 1: ninety nine, two thousand and two thousand one. Uh. The peak, 199 00:13:12,000 --> 00:13:16,840 Speaker 1: the biggest surplus was in the year two thousand and 200 00:13:17,120 --> 00:13:22,240 Speaker 1: The number there was two hundred thirty six billion dollars. 201 00:13:24,200 --> 00:13:27,760 Speaker 1: That was the total surplus. That was the biggest surplus 202 00:13:27,760 --> 00:13:31,720 Speaker 1: that our nation has ever run. Okay, and that only 203 00:13:31,800 --> 00:13:35,120 Speaker 1: lasted a couple of years, right, ninety eight, two thousand one. 204 00:13:36,480 --> 00:13:38,720 Speaker 1: Prior to that, so we haven't run we have not 205 00:13:38,800 --> 00:13:41,160 Speaker 1: run a surplus. It's two thousand one. If you want 206 00:13:41,160 --> 00:13:46,280 Speaker 1: to go back, Um, we can go back every single year. Um, okay, 207 00:13:46,400 --> 00:13:51,800 Speaker 1: nineteen sixty nine there was a uh three billion dollars 208 00:13:51,800 --> 00:13:56,040 Speaker 1: surplus and then deficits, deficits, deficits, And I think we 209 00:13:56,120 --> 00:13:57,800 Speaker 1: have to go back then all the way to nineteen 210 00:13:58,320 --> 00:14:01,280 Speaker 1: until we get to the last surplus, which was eleven 211 00:14:01,360 --> 00:14:05,720 Speaker 1: point seven billion. Other than that, the United States has 212 00:14:06,000 --> 00:14:11,480 Speaker 1: run deficits. Now, just in case you're not uh, just 213 00:14:11,800 --> 00:14:14,600 Speaker 1: these words are kind of you know, they're kind of 214 00:14:14,640 --> 00:14:18,080 Speaker 1: glazing over your mind. A deficit is the amount that 215 00:14:18,120 --> 00:14:22,320 Speaker 1: you spend in excess of your income. So you personally, 216 00:14:22,480 --> 00:14:25,160 Speaker 1: if you make ten thousand bucks a month and you 217 00:14:25,200 --> 00:14:28,320 Speaker 1: spend eleven thousand dollars because you ran a credit card, 218 00:14:28,840 --> 00:14:32,560 Speaker 1: you had a deficit of a thousand dollars. Now you 219 00:14:32,600 --> 00:14:34,920 Speaker 1: don't have to use a credit card. Let's say you 220 00:14:35,000 --> 00:14:37,120 Speaker 1: had some savings. Well, the only way you would have 221 00:14:37,120 --> 00:14:39,720 Speaker 1: had those savings is by running a surplus in a 222 00:14:39,760 --> 00:14:42,560 Speaker 1: prior month. So last month you made ten but you 223 00:14:42,640 --> 00:14:45,320 Speaker 1: only spent nine. You had a one thousand dollars surplus. 224 00:14:45,880 --> 00:14:48,480 Speaker 1: This month, you've got a thousand dollars in savings. You 225 00:14:48,560 --> 00:14:51,400 Speaker 1: make ten thousand dollars and you spend eleven thousand dollars, 226 00:14:52,560 --> 00:14:55,360 Speaker 1: you add a deficit, so your past surplus in your 227 00:14:55,880 --> 00:14:59,200 Speaker 1: current deficit net out and now you have you know, 228 00:14:59,320 --> 00:15:01,920 Speaker 1: you've got no evenings left. So in the future, then 229 00:15:01,960 --> 00:15:04,080 Speaker 1: if you continue to spend deficits, you'll just continue to 230 00:15:04,160 --> 00:15:07,840 Speaker 1: run up that credit card. Um. So that's what the 231 00:15:07,920 --> 00:15:11,200 Speaker 1: United States has been doing for basically its entire history, 232 00:15:11,680 --> 00:15:17,960 Speaker 1: is running deficits. That means borrowing and spending. Borrowing and spending. 233 00:15:18,840 --> 00:15:23,400 Speaker 1: Now you personally, if you borrow uh in order to spend, 234 00:15:24,120 --> 00:15:26,280 Speaker 1: you get your credit card up to ten thousand dollars, 235 00:15:27,400 --> 00:15:32,280 Speaker 1: thousand dollars, fifty thousand dollars, a hundred thousand dollars, there 236 00:15:32,480 --> 00:15:36,880 Speaker 1: is going to be a cut off because the credit 237 00:15:36,920 --> 00:15:39,640 Speaker 1: card company, they're gonna be collecting payments from you, and 238 00:15:39,720 --> 00:15:43,920 Speaker 1: at a certain point the minimum payment that they require 239 00:15:43,960 --> 00:15:46,080 Speaker 1: to get from you, we'll get to a point where 240 00:15:46,080 --> 00:15:48,240 Speaker 1: it's so large you might not be able to pay it. 241 00:15:48,800 --> 00:15:51,120 Speaker 1: So at some point you're gonna hit your credit limit 242 00:15:51,240 --> 00:15:52,840 Speaker 1: and they're going to cut you off. They won't loan 243 00:15:52,880 --> 00:15:57,920 Speaker 1: to you anymore. The United States government does not have this, uh, 244 00:15:58,080 --> 00:16:01,520 Speaker 1: this problem imposed on them from the side. Why is 245 00:16:01,560 --> 00:16:05,200 Speaker 1: that well, because at the end of the day, we 246 00:16:05,280 --> 00:16:09,120 Speaker 1: know that the United States government commands the United States 247 00:16:09,320 --> 00:16:13,000 Speaker 1: military and can collect taxes because at the end of 248 00:16:13,000 --> 00:16:16,200 Speaker 1: the day, that is the power that is the value 249 00:16:16,200 --> 00:16:19,800 Speaker 1: behind the dollar. It is the ability to go collect taxes, 250 00:16:19,840 --> 00:16:24,040 Speaker 1: which is done with the threat of violence, because if 251 00:16:24,040 --> 00:16:26,160 Speaker 1: you don't pay your taxes, you go to jail, and 252 00:16:26,200 --> 00:16:27,520 Speaker 1: if you don't want to go to jail, they put 253 00:16:27,560 --> 00:16:28,840 Speaker 1: you in jail at the end of the point of 254 00:16:28,880 --> 00:16:32,440 Speaker 1: a gun and so, uh, the monopoly on the use 255 00:16:32,760 --> 00:16:36,440 Speaker 1: and which includes the threat of violence, is what gives 256 00:16:36,440 --> 00:16:39,360 Speaker 1: the United States government the ability to borrow as much 257 00:16:39,360 --> 00:16:41,600 Speaker 1: as they want because if push comes to shove, then 258 00:16:41,680 --> 00:16:45,760 Speaker 1: they want to they can collect enough to pay um. 259 00:16:46,040 --> 00:16:48,840 Speaker 1: They also have the ability to print money. That's going 260 00:16:48,880 --> 00:16:51,960 Speaker 1: to be you know, a discussion for another time, but 261 00:16:52,080 --> 00:16:55,240 Speaker 1: they can print money essentially to pay back money that 262 00:16:55,280 --> 00:16:57,280 Speaker 1: they've borrowed. So they don't even have to go door 263 00:16:57,320 --> 00:16:59,400 Speaker 1: to door and you know, throwing people in jail for 264 00:16:59,520 --> 00:17:02,520 Speaker 1: not paying extra taxes. They can just decide to force 265 00:17:02,560 --> 00:17:04,360 Speaker 1: the Federal Reserve to print the money that they need. 266 00:17:04,840 --> 00:17:06,240 Speaker 1: So at the end of the day, that's why there's 267 00:17:06,240 --> 00:17:09,399 Speaker 1: no limit imposed on the government um from the outside 268 00:17:09,480 --> 00:17:12,360 Speaker 1: in terms of like a borrowing cap, because they can 269 00:17:12,520 --> 00:17:16,600 Speaker 1: always afford a higher number of dollars to borrow, and 270 00:17:16,640 --> 00:17:19,880 Speaker 1: so for it's in its entire history, it's just been 271 00:17:19,920 --> 00:17:23,720 Speaker 1: loading up on more and more and more debt um 272 00:17:23,760 --> 00:17:27,960 Speaker 1: now because the system is built like this, because because 273 00:17:28,000 --> 00:17:30,880 Speaker 1: the government does this, and they basically through borrowing more 274 00:17:30,960 --> 00:17:33,280 Speaker 1: to pay off the old debt. It's like if you 275 00:17:33,520 --> 00:17:37,000 Speaker 1: instead of paying off your credit card directly, you just 276 00:17:37,040 --> 00:17:39,760 Speaker 1: did a balance transfer to a new credit card and 277 00:17:39,960 --> 00:17:44,520 Speaker 1: you've got their you know, introductory twelve months of interest 278 00:17:44,560 --> 00:17:47,240 Speaker 1: free payments, you do you keep on doing that every time, 279 00:17:47,720 --> 00:17:49,000 Speaker 1: just to pay off the old debt, and then you 280 00:17:49,080 --> 00:17:51,080 Speaker 1: keep on loading up new credit cards with new debt. 281 00:17:51,320 --> 00:17:53,960 Speaker 1: That's what the government is doing here. They're borrowing new 282 00:17:54,000 --> 00:17:56,400 Speaker 1: debt in order to pay off the old debt um 283 00:17:56,440 --> 00:17:59,359 Speaker 1: and then they're borrowing extra debt to cover their deficit. 284 00:17:59,800 --> 00:18:02,920 Speaker 1: So um, we've gotten to the point now where they've 285 00:18:02,960 --> 00:18:07,439 Speaker 1: run so they've had such a long history of steep 286 00:18:07,480 --> 00:18:11,800 Speaker 1: deficits that our current debt is at thirty one trillion dollars. 287 00:18:11,840 --> 00:18:15,040 Speaker 1: So if we wanted to get that back and you know, 288 00:18:15,400 --> 00:18:17,679 Speaker 1: basically pay that back you'd have to run a trillion 289 00:18:17,720 --> 00:18:22,880 Speaker 1: dollar surplus for thirty years straight um. If we look 290 00:18:22,920 --> 00:18:28,760 Speaker 1: at the current deficit numbers. You know, in deficit of 291 00:18:28,800 --> 00:18:33,520 Speaker 1: one point three trillion was three trillion UM. You know 292 00:18:33,600 --> 00:18:35,719 Speaker 1: two thousand nine was one and a half trillions. So 293 00:18:35,760 --> 00:18:37,960 Speaker 1: these are the deficits. So not only would we have 294 00:18:38,040 --> 00:18:41,280 Speaker 1: to get back up to a balanced budget, but we'd 295 00:18:41,280 --> 00:18:44,399 Speaker 1: also have to increase that and get up to a surplus. 296 00:18:45,640 --> 00:18:50,160 Speaker 1: So if imagine what that would take, Like the government 297 00:18:50,280 --> 00:18:55,840 Speaker 1: right now this last year spent one point for trillion 298 00:18:55,880 --> 00:19:02,199 Speaker 1: dollars in excess of what they receive in taxes, so 299 00:19:02,280 --> 00:19:05,879 Speaker 1: they borrowed the difference there. Well, so how much did 300 00:19:05,920 --> 00:19:10,600 Speaker 1: they receive in taxes? WELLO, it was four hundred five 301 00:19:11,280 --> 00:19:17,840 Speaker 1: billion dollars in taxes, and so they received money in 302 00:19:17,920 --> 00:19:21,000 Speaker 1: taxes and then spend way more than that. And so 303 00:19:21,320 --> 00:19:27,040 Speaker 1: you would need the federal government to receive a trillion 304 00:19:27,080 --> 00:19:33,400 Speaker 1: dollars more in taxes than they are spending. They don't 305 00:19:33,400 --> 00:19:36,359 Speaker 1: even make enough in taxes right now to have a 306 00:19:36,359 --> 00:19:39,600 Speaker 1: balanced budget given what they're spending, they would have to 307 00:19:39,640 --> 00:19:45,160 Speaker 1: spend a negative amount. The economy does not have enough 308 00:19:45,280 --> 00:19:49,840 Speaker 1: money to produce those sort of surpluses to get the 309 00:19:49,880 --> 00:19:52,320 Speaker 1: government to be able to pay back the debt over 310 00:19:52,359 --> 00:19:55,879 Speaker 1: a thirty year time horizon. It just doesn't exist. Those 311 00:19:55,960 --> 00:19:59,600 Speaker 1: that amount of dollars is not in circulation. If you 312 00:19:59,600 --> 00:20:02,840 Speaker 1: want to if you take a look at the money supply, 313 00:20:02,880 --> 00:20:07,880 Speaker 1: there multiple ways to measure the money supply. UM, we 314 00:20:07,960 --> 00:20:12,200 Speaker 1: have M two is the main the way, the main 315 00:20:12,280 --> 00:20:15,000 Speaker 1: measure of the money supply. Uh, and that says that 316 00:20:15,040 --> 00:20:17,760 Speaker 1: the total number of dollars in circulation is twenty one 317 00:20:17,800 --> 00:20:22,760 Speaker 1: trillion dollars. So if you took every dollar in circulation 318 00:20:23,080 --> 00:20:27,320 Speaker 1: and the government just confiscated it through a one time 319 00:20:27,359 --> 00:20:30,000 Speaker 1: tax called to get out of get out of debt 320 00:20:30,040 --> 00:20:34,520 Speaker 1: tax and took every dollar, the government would still owe 321 00:20:34,960 --> 00:20:40,040 Speaker 1: ten trillion dollars. That's how bad of a situation this is. Okay, 322 00:20:40,080 --> 00:20:45,920 Speaker 1: So government entirely overleveraged here. This means that the money 323 00:20:45,920 --> 00:20:49,159 Speaker 1: supply has gone up over time. When the money supply 324 00:20:49,240 --> 00:20:52,280 Speaker 1: goes up at a faster pace than the goods and 325 00:20:52,320 --> 00:20:55,320 Speaker 1: services go up, that means prices go up. So let's 326 00:20:55,320 --> 00:20:58,040 Speaker 1: say goods and services don't change. If you double the money, 327 00:20:58,119 --> 00:21:00,600 Speaker 1: then you double the prices because now akes twice as 328 00:21:00,680 --> 00:21:02,399 Speaker 1: much money to get the same amount of stuff as 329 00:21:02,400 --> 00:21:04,240 Speaker 1: it did before. The new money works its way through 330 00:21:04,240 --> 00:21:06,840 Speaker 1: the economy bids up the prices of the goods and services. 331 00:21:06,880 --> 00:21:09,320 Speaker 1: So over time, for decades and decades and decades, they've 332 00:21:09,359 --> 00:21:11,480 Speaker 1: been printing money, they've been expanding money supply at a 333 00:21:11,480 --> 00:21:13,600 Speaker 1: little bit of a faster pace than that the supply 334 00:21:13,640 --> 00:21:16,199 Speaker 1: of goods and services have expanded. So on average, you know, 335 00:21:16,320 --> 00:21:18,240 Speaker 1: for you know, decades, we had let's say, you know, 336 00:21:18,280 --> 00:21:21,960 Speaker 1: two percent inflation because the money supply was expanding it 337 00:21:22,119 --> 00:21:25,760 Speaker 1: roughly that amount in excess of how fast our GDP 338 00:21:25,920 --> 00:21:28,600 Speaker 1: was growing the goods and services, so prices were going 339 00:21:28,680 --> 00:21:33,439 Speaker 1: up over time. Um. When you have a system built 340 00:21:33,600 --> 00:21:39,720 Speaker 1: on inflation, which is itself built on debt um, the 341 00:21:39,800 --> 00:21:45,479 Speaker 1: incentives are to borrow because if I can borrow dollars today, 342 00:21:45,640 --> 00:21:47,960 Speaker 1: I know that the value of those dollars is going down. 343 00:21:48,600 --> 00:21:50,800 Speaker 1: Another way of saying that, if you look at it 344 00:21:50,840 --> 00:21:54,160 Speaker 1: from the other side, is that those dollars become more 345 00:21:54,200 --> 00:21:57,840 Speaker 1: abundant relative to the goods and services. If dollars become 346 00:21:57,880 --> 00:22:00,520 Speaker 1: more abundant relative to the stuff, that means those dollars 347 00:22:00,520 --> 00:22:03,760 Speaker 1: are easier to get. So if I borrow a hundred 348 00:22:03,800 --> 00:22:07,600 Speaker 1: dollars today, Um, I might have to work for you know, 349 00:22:07,760 --> 00:22:10,879 Speaker 1: ten hours at ten dollars an hour in order to 350 00:22:10,960 --> 00:22:14,400 Speaker 1: get that, So I borrow a hundred dollars. That's that's 351 00:22:14,440 --> 00:22:18,160 Speaker 1: worth ten hours of labor. But fast forward a couple 352 00:22:18,160 --> 00:22:21,199 Speaker 1: of years and uh, the minimum wage goes up and 353 00:22:21,240 --> 00:22:24,720 Speaker 1: inflation goes up, and now companies are hiring at much 354 00:22:24,800 --> 00:22:28,959 Speaker 1: higher rates in order to attract workers. Well, that same 355 00:22:29,119 --> 00:22:33,359 Speaker 1: job might now be paying twenty dollars an hour. And 356 00:22:33,400 --> 00:22:37,320 Speaker 1: this is this is like not you know, a crazy example. Um, 357 00:22:37,359 --> 00:22:39,320 Speaker 1: I'm when I was when I was a kid, when 358 00:22:39,359 --> 00:22:41,439 Speaker 1: I was my first first jobs, I was looking for 359 00:22:41,480 --> 00:22:43,840 Speaker 1: looking at jobs, and I remember looking at In and 360 00:22:43,880 --> 00:22:46,800 Speaker 1: Out and thinking, well, I don't really want to flip burgers, 361 00:22:46,840 --> 00:22:49,879 Speaker 1: but um, you know, nine dollars an hour would be 362 00:22:50,040 --> 00:22:53,080 Speaker 1: unbelievable to make because my first job I was making 363 00:22:53,119 --> 00:22:55,760 Speaker 1: seven dollars and cents an hour. So I thought, in 364 00:22:55,800 --> 00:22:57,360 Speaker 1: my mind, if I could make nine dollars an hour, 365 00:22:57,440 --> 00:23:00,199 Speaker 1: I would just be rich. And so that I is. 366 00:23:00,280 --> 00:23:02,000 Speaker 1: You know, I always thought, you know, it would be 367 00:23:02,640 --> 00:23:04,840 Speaker 1: like the best job in the world to work at 368 00:23:04,840 --> 00:23:06,720 Speaker 1: In and Out because you got paid so much more 369 00:23:07,240 --> 00:23:10,840 Speaker 1: while literally just the other day, I drove by in 370 00:23:10,920 --> 00:23:12,560 Speaker 1: and out. I was going through the drive through and 371 00:23:12,640 --> 00:23:16,080 Speaker 1: I looked at the the sign on the window, and 372 00:23:16,080 --> 00:23:21,560 Speaker 1: they're hiring at eighteen fifty an hour. That's double what 373 00:23:21,680 --> 00:23:27,440 Speaker 1: it was when I started off at my first job. Um, 374 00:23:27,480 --> 00:23:30,200 Speaker 1: not only that, but that eighteen fifty an hour, it's 375 00:23:30,200 --> 00:23:35,200 Speaker 1: only you know, something like a dollar under um the uh, 376 00:23:35,240 --> 00:23:38,399 Speaker 1: my first actual career job. So I got hired my 377 00:23:38,560 --> 00:23:42,440 Speaker 1: first job after college, I was making forty dollars a year, 378 00:23:42,800 --> 00:23:46,520 Speaker 1: and that was by far way more money than I 379 00:23:46,520 --> 00:23:48,600 Speaker 1: had ever made. And that was like the entry level 380 00:23:48,680 --> 00:23:52,480 Speaker 1: career salary. Now you can get that for flipping burgers 381 00:23:52,800 --> 00:23:55,960 Speaker 1: in and out. So this is what people say when 382 00:23:56,000 --> 00:23:58,280 Speaker 1: inflation e roads the value of the dollar and why 383 00:23:58,400 --> 00:24:01,480 Speaker 1: debt is incentivized because it becomes easier and easier to 384 00:24:01,480 --> 00:24:04,199 Speaker 1: get your hands on those dollars. It would have taken 385 00:24:04,280 --> 00:24:07,280 Speaker 1: me when I was a kid, let's say, ten hours 386 00:24:07,280 --> 00:24:10,760 Speaker 1: worth of work worth of labor, uh my product. I 387 00:24:10,760 --> 00:24:12,480 Speaker 1: would have had to sell ten hours of my time 388 00:24:12,760 --> 00:24:15,040 Speaker 1: to be able to pay back that hundred dollars. But 389 00:24:15,280 --> 00:24:18,080 Speaker 1: now I only have to give up five hours of 390 00:24:18,119 --> 00:24:20,679 Speaker 1: my time at that same exact job. That's I have 391 00:24:20,720 --> 00:24:22,560 Speaker 1: to sell the same exact thing, but only five of 392 00:24:22,560 --> 00:24:24,840 Speaker 1: them to get the same number of dollars to pay 393 00:24:24,840 --> 00:24:27,920 Speaker 1: back that hundred dollars. So as the money supply increases, 394 00:24:27,960 --> 00:24:30,320 Speaker 1: it becomes more abundant. That means it gets easier and 395 00:24:30,359 --> 00:24:33,040 Speaker 1: easier to get your hands on those dollars. You have 396 00:24:33,160 --> 00:24:38,080 Speaker 1: to command fewer resources in order to get those same 397 00:24:38,160 --> 00:24:41,040 Speaker 1: number of dollars. And so that's what it means by 398 00:24:41,800 --> 00:24:44,439 Speaker 1: inflation erowing away the value of the debt. Because I 399 00:24:44,480 --> 00:24:46,560 Speaker 1: borrow the hundred dollars now, I get the full purchasing 400 00:24:46,600 --> 00:24:49,040 Speaker 1: power right now. Later when I have to pay it back, 401 00:24:49,400 --> 00:24:51,320 Speaker 1: it's easier to pay it back. It's easier to get 402 00:24:51,320 --> 00:24:53,720 Speaker 1: my hands on those dollars to pay it back than 403 00:24:53,760 --> 00:24:57,080 Speaker 1: it would be today to get those dollars through through 404 00:24:57,080 --> 00:25:01,680 Speaker 1: the means of service or labor. So um, when we 405 00:25:02,000 --> 00:25:04,800 Speaker 1: when we see a system that's built on inflation, built 406 00:25:04,800 --> 00:25:10,560 Speaker 1: on debt, it incentivizes debt. So why is that a problem. Well, 407 00:25:10,680 --> 00:25:14,200 Speaker 1: you get to corporate America and you get to the 408 00:25:14,240 --> 00:25:20,280 Speaker 1: most over leveraged economy in history. Right now corporations have 409 00:25:20,920 --> 00:25:26,480 Speaker 1: the largest debt load that they've ever had before. Why 410 00:25:26,520 --> 00:25:30,920 Speaker 1: else is that a problem? Look, at households. Households are 411 00:25:31,000 --> 00:25:36,320 Speaker 1: more overleveraged today than they've ever been before. So the government, 412 00:25:37,080 --> 00:25:42,359 Speaker 1: corporations and households are more over leveraged today than they've 413 00:25:42,359 --> 00:25:46,600 Speaker 1: ever have been, got more debt today than they've ever had. Okay, 414 00:25:46,640 --> 00:25:50,680 Speaker 1: So even then, just knowing that it's the most doesn't 415 00:25:50,720 --> 00:25:55,520 Speaker 1: necessarily mean it's a problem because personally, let's say you've 416 00:25:55,640 --> 00:25:58,720 Speaker 1: never had debt, then you open up a credit card 417 00:25:58,720 --> 00:26:00,919 Speaker 1: and put a hundred dollars on it. Technically that's the 418 00:26:01,000 --> 00:26:04,159 Speaker 1: most over leverage. That's the most leverage you've ever been, right, 419 00:26:04,200 --> 00:26:06,480 Speaker 1: that's the most day you've ever had. That doesn't necessarily 420 00:26:06,480 --> 00:26:08,280 Speaker 1: mean that's a problem. I mean, a hundred dollars on 421 00:26:08,320 --> 00:26:10,520 Speaker 1: a credit card is pretty easy to pay off. So 422 00:26:11,560 --> 00:26:15,680 Speaker 1: just knowing that it's the most doesn't necessarily mean it's problem. Okay, 423 00:26:16,359 --> 00:26:18,479 Speaker 1: So why is it a problem and why does this 424 00:26:18,840 --> 00:26:20,680 Speaker 1: go back to the beginning of what we started talking 425 00:26:20,680 --> 00:26:23,639 Speaker 1: about the biggest black swan in history. Well, we have 426 00:26:23,720 --> 00:26:27,240 Speaker 1: to look at the interest rates. What have interest rates 427 00:26:27,520 --> 00:26:32,760 Speaker 1: been doing for the last let's say twenty years. Well, 428 00:26:32,760 --> 00:26:35,040 Speaker 1: the benchmark interest rate is usually going to be looked 429 00:26:35,080 --> 00:26:37,520 Speaker 1: at at the it's going to be the ten year 430 00:26:37,800 --> 00:26:41,280 Speaker 1: US Treasury. Uh. Interest rates of various forms of debt 431 00:26:41,280 --> 00:26:45,080 Speaker 1: are going to fluctuate somewhere around that. So obviously forms 432 00:26:45,080 --> 00:26:46,600 Speaker 1: it at like credit card debt, those are gonna have 433 00:26:46,680 --> 00:26:48,879 Speaker 1: much higher interest rates. Other forms of debt will be 434 00:26:48,920 --> 00:26:52,040 Speaker 1: lower interest rate than the ten year But ultimately that's 435 00:26:52,080 --> 00:26:53,920 Speaker 1: going to be kind of the benchmark that things either 436 00:26:53,960 --> 00:26:56,840 Speaker 1: are higher than or lower than and fluctuate with. So 437 00:26:57,000 --> 00:26:59,320 Speaker 1: the U S ten uere treasury right. Uh. Well, for 438 00:27:00,200 --> 00:27:03,119 Speaker 1: if we look at the years from let's say two 439 00:27:03,160 --> 00:27:12,440 Speaker 1: thousand eleven through um, they fluctuated from all the way 440 00:27:12,480 --> 00:27:16,199 Speaker 1: down at zero basically up to a maximum of like 441 00:27:16,320 --> 00:27:20,359 Speaker 1: three percent, but for most of that time, uh there 442 00:27:20,440 --> 00:27:23,840 Speaker 1: they fluctuated in between like two and two and a 443 00:27:23,880 --> 00:27:30,840 Speaker 1: half percent. Well, what is one uh feature nice about debt? 444 00:27:31,480 --> 00:27:35,560 Speaker 1: Debt can be refinanced, meaning you can borrow new debt 445 00:27:35,600 --> 00:27:38,240 Speaker 1: in order to pay off the old debt. Many times 446 00:27:38,760 --> 00:27:40,919 Speaker 1: I gave the example earlier of you rolling over an 447 00:27:40,920 --> 00:27:42,679 Speaker 1: old credit card to a new credit card doing a 448 00:27:42,680 --> 00:27:45,600 Speaker 1: balance transfer. Uh. This can be done with houses. You 449 00:27:45,640 --> 00:27:48,800 Speaker 1: can refinance your house, borrow a new mortgage from a 450 00:27:48,800 --> 00:27:51,879 Speaker 1: new lender to pay off your old lender. Uh. You 451 00:27:51,920 --> 00:27:54,959 Speaker 1: can actually do that with car loans as well. Corporations 452 00:27:55,080 --> 00:27:59,000 Speaker 1: refinance their debt all the time. Governments even do it sometimes. Um. 453 00:27:59,040 --> 00:28:01,679 Speaker 1: What this means is that when interest rates go down, 454 00:28:02,520 --> 00:28:07,520 Speaker 1: people will refinance because if you if it costs you, 455 00:28:07,600 --> 00:28:09,920 Speaker 1: let's say a thousand dollars a month to make your 456 00:28:09,920 --> 00:28:12,880 Speaker 1: debt payments, but you can refinance, and now your debt 457 00:28:12,880 --> 00:28:15,520 Speaker 1: payments are only going to cost you five a month. 458 00:28:15,960 --> 00:28:18,439 Speaker 1: That's going to free up a ton of income for you. 459 00:28:18,680 --> 00:28:20,919 Speaker 1: So you're likely going to do that. Why is this 460 00:28:20,960 --> 00:28:25,879 Speaker 1: an issue? Well, because interest rates hit zero in all 461 00:28:25,960 --> 00:28:31,600 Speaker 1: the refinancing happened, and so all of that debt, the 462 00:28:31,680 --> 00:28:34,879 Speaker 1: trillions of dollars that the government was borrowing to spend 463 00:28:34,920 --> 00:28:42,440 Speaker 1: money during the Corporate America, all the debt they had households, 464 00:28:42,800 --> 00:28:46,000 Speaker 1: all of the refinancing for houses, all the new car purchases. 465 00:28:46,840 --> 00:28:49,800 Speaker 1: Number one where the most over leverage economy we've ever had. 466 00:28:50,000 --> 00:28:53,520 Speaker 1: But number two, all that debt is at the lowest 467 00:28:54,040 --> 00:29:00,640 Speaker 1: rates in history, very very close to zero percent. Why 468 00:29:00,720 --> 00:29:04,000 Speaker 1: is this a big deal? Interest rates are no longer 469 00:29:04,120 --> 00:29:07,440 Speaker 1: down at those levels. So we were able to load 470 00:29:07,560 --> 00:29:10,280 Speaker 1: up with all this debt because debt was so cheap. 471 00:29:10,840 --> 00:29:14,120 Speaker 1: You could say, okay, I my my debt payment was 472 00:29:14,160 --> 00:29:16,240 Speaker 1: a thousand dollars before refinance to get it down to 473 00:29:16,280 --> 00:29:18,320 Speaker 1: a five hundred. Now I can afford to get even 474 00:29:18,360 --> 00:29:21,000 Speaker 1: more debt, to buy even more stuff to get back 475 00:29:21,080 --> 00:29:23,240 Speaker 1: up to that thousand dollars, which I can afford. Maybe 476 00:29:23,320 --> 00:29:26,280 Speaker 1: my income goes up so I can affords worth of debt. 477 00:29:26,520 --> 00:29:30,160 Speaker 1: And so now maybe you've tripled your debt and you've 478 00:29:30,280 --> 00:29:35,760 Speaker 1: only marginally increased your debt service cost. So the low 479 00:29:35,880 --> 00:29:40,520 Speaker 1: rates allowed the leverage to get even bigger in the system. 480 00:29:40,560 --> 00:29:43,920 Speaker 1: The problem is now rates are going back up because 481 00:29:43,920 --> 00:29:46,840 Speaker 1: if they didn't, the inflation would have turned into hyper inflation, 482 00:29:46,840 --> 00:29:48,600 Speaker 1: and the dollar would have lost all value and out 483 00:29:48,640 --> 00:29:51,120 Speaker 1: of collapsed and we you know, the globe would have 484 00:29:51,120 --> 00:29:54,920 Speaker 1: collapsed into a hyper inflationary collapse. And so obviously the 485 00:29:54,960 --> 00:29:59,120 Speaker 1: FED wants to preserve the dollars purchasing power as as 486 00:29:59,160 --> 00:30:01,400 Speaker 1: they can, because as if they don't and the dollar 487 00:30:01,560 --> 00:30:04,320 Speaker 1: is pursing power, they're all out of a job number one. 488 00:30:04,560 --> 00:30:07,200 Speaker 1: The United States government has no more power left. So 489 00:30:07,400 --> 00:30:12,040 Speaker 1: that's kind of like biggest risk to them is hyper inflation, 490 00:30:12,960 --> 00:30:16,160 Speaker 1: even deflationary deflationary deskspiral would not be as bad for 491 00:30:16,200 --> 00:30:19,560 Speaker 1: them as a complete zeroing out of the value of 492 00:30:19,600 --> 00:30:21,600 Speaker 1: the dollar. I know a lot of people don't think 493 00:30:21,640 --> 00:30:26,240 Speaker 1: so uh they like inflation. Um. They just they wouldn't 494 00:30:26,240 --> 00:30:29,400 Speaker 1: be able to survive a hyper inflation. That would be 495 00:30:29,440 --> 00:30:32,800 Speaker 1: the end of everything for the dollar. UM and so 496 00:30:33,280 --> 00:30:35,800 Speaker 1: H if they kept rates low, well, then that would 497 00:30:35,800 --> 00:30:39,240 Speaker 1: have continued to increase spending so drastically that we could 498 00:30:39,240 --> 00:30:42,520 Speaker 1: have very easily tipped over into hyper inflation. So they 499 00:30:42,560 --> 00:30:45,520 Speaker 1: had to start raising rates to pull money out of circulation. 500 00:30:45,880 --> 00:30:47,959 Speaker 1: So you ask, how does raising rates pull money out 501 00:30:48,000 --> 00:30:52,000 Speaker 1: of circulation? Well, because just like lowering rates increases the 502 00:30:52,040 --> 00:30:54,960 Speaker 1: money supply, raising rates decreases it because now you have 503 00:30:55,000 --> 00:30:58,239 Speaker 1: to devote more of your income to UH servicing that 504 00:30:58,320 --> 00:31:01,360 Speaker 1: debt as that debt gets more expend SI or if 505 00:31:01,400 --> 00:31:03,360 Speaker 1: some of the debt matures, now you have to roll 506 00:31:03,440 --> 00:31:05,560 Speaker 1: it over to new debt, but that new debt has 507 00:31:05,560 --> 00:31:07,960 Speaker 1: a higher interest rate. Now more of your income gets 508 00:31:07,960 --> 00:31:10,360 Speaker 1: devoted to just paying the higher interest rate. So then 509 00:31:10,440 --> 00:31:12,680 Speaker 1: you either have to just have higher debt service costs 510 00:31:12,960 --> 00:31:14,840 Speaker 1: or you have to try and de leverage and pay 511 00:31:14,880 --> 00:31:16,960 Speaker 1: down some of the debt. So you reduce your debt 512 00:31:16,960 --> 00:31:20,320 Speaker 1: service costs. Either way, more income is devoted to the debt, 513 00:31:20,680 --> 00:31:23,840 Speaker 1: and so higher interest rates put a burden on the 514 00:31:23,920 --> 00:31:27,520 Speaker 1: on economic actors who have UH debt because it makes 515 00:31:27,520 --> 00:31:30,320 Speaker 1: their expenses go up. So it sucks money out of circulation, 516 00:31:30,360 --> 00:31:32,880 Speaker 1: which ends up pushing prices down because people have less 517 00:31:32,880 --> 00:31:36,920 Speaker 1: spending power, less income, and so that the price price 518 00:31:37,040 --> 00:31:41,640 Speaker 1: level falls as a result. So as we have higher 519 00:31:41,640 --> 00:31:44,680 Speaker 1: and higher interest rates, we get into more and more 520 00:31:44,680 --> 00:31:49,080 Speaker 1: of a dangerous UH tipping. You get closer to tipping 521 00:31:49,120 --> 00:31:53,080 Speaker 1: over into a deflationary debt spiral because if all of 522 00:31:53,120 --> 00:31:55,920 Speaker 1: this income is getting sucked out to service the debt, well, 523 00:31:56,040 --> 00:31:59,320 Speaker 1: now all that income is not being used as somebody 524 00:31:59,320 --> 00:32:03,200 Speaker 1: else's income. So maybe it's you know, you're laying people off, 525 00:32:03,640 --> 00:32:06,800 Speaker 1: which companies are doing right now. So now your expense 526 00:32:06,840 --> 00:32:10,400 Speaker 1: instead of UH employing somebody that's just going to pay 527 00:32:10,400 --> 00:32:13,160 Speaker 1: off debt. Um. Now that person who just lost a 528 00:32:13,240 --> 00:32:15,480 Speaker 1: job doesn't have any income to continue to spend on 529 00:32:15,520 --> 00:32:17,560 Speaker 1: all the things they were spending it on. Well, now 530 00:32:17,960 --> 00:32:20,440 Speaker 1: let's say they were spending that that stuff, they were 531 00:32:20,440 --> 00:32:22,240 Speaker 1: going to spend it on a new MacBook. Well, now 532 00:32:22,280 --> 00:32:25,320 Speaker 1: Apple doesn't get that in that revenue from that mac 533 00:32:25,360 --> 00:32:27,440 Speaker 1: book that they would have sold. And so since Apple 534 00:32:27,520 --> 00:32:30,920 Speaker 1: is losing revenue from a loss of sales, now they 535 00:32:30,960 --> 00:32:33,440 Speaker 1: have to fire people, and since they have to fight 536 00:32:33,520 --> 00:32:35,600 Speaker 1: like it's a whole. This is why it's called a spiral, 537 00:32:35,680 --> 00:32:39,360 Speaker 1: because everything it's like a domino line where each one 538 00:32:39,480 --> 00:32:41,880 Speaker 1: thing hits the next one and the next one falls, 539 00:32:41,920 --> 00:32:45,360 Speaker 1: and that falls into the next one, and it feeds 540 00:32:45,760 --> 00:32:49,920 Speaker 1: feeds back in on itself as prices fall, incomes fall, 541 00:32:49,960 --> 00:32:54,000 Speaker 1: as interest rates kind of are the the catalyst to 542 00:32:54,440 --> 00:32:58,200 Speaker 1: sending everything in this downward spiral. So going back to 543 00:32:58,200 --> 00:33:01,320 Speaker 1: where we started, when you have people like Michael Burry 544 00:33:01,480 --> 00:33:05,760 Speaker 1: now seemed to lab Mark Spitz, Nigel Noriel Rubini, Ray 545 00:33:05,840 --> 00:33:09,560 Speaker 1: Dalio all saying we've got a black Swan event ahead 546 00:33:09,560 --> 00:33:13,360 Speaker 1: of us, m a tinder box time bomb worse than 547 00:33:13,360 --> 00:33:17,280 Speaker 1: the crash. This is what they're looking at. They're looking 548 00:33:17,320 --> 00:33:22,560 Speaker 1: at the massive record historically uh never been seen before 549 00:33:22,840 --> 00:33:27,600 Speaker 1: levels of debt wherever you look, households, corporations, governments, and 550 00:33:27,640 --> 00:33:32,640 Speaker 1: then pair that with rising interest rates. It is a 551 00:33:32,680 --> 00:33:36,880 Speaker 1: disaster waiting to happen. Now. The question that everybody has 552 00:33:36,960 --> 00:33:44,280 Speaker 1: then is how much pain will the Fed allow or 553 00:33:44,360 --> 00:33:48,320 Speaker 1: force the the economy to feel before stepping in and 554 00:33:48,360 --> 00:33:53,080 Speaker 1: trying to stop the bleeding. And that is a big question. 555 00:33:53,160 --> 00:33:58,600 Speaker 1: I am currently recording this on Tuesday evening, UM, January 556 00:33:58,680 --> 00:34:02,760 Speaker 1: thirty one, and so February one, it's is Wednesday. The 557 00:34:02,800 --> 00:34:05,360 Speaker 1: Federal Reserve is going to be having their press conference. 558 00:34:05,400 --> 00:34:07,400 Speaker 1: They're going to be releasing their statement from their FMC 559 00:34:07,560 --> 00:34:09,960 Speaker 1: meeting that's happening right now where they are, you know, 560 00:34:10,160 --> 00:34:12,680 Speaker 1: deciding on whether they're going to raise interest rates, how 561 00:34:12,760 --> 00:34:15,319 Speaker 1: much you're going to raise interest rates by, and what 562 00:34:15,400 --> 00:34:19,040 Speaker 1: the future path of monetary policy is going to be UM, 563 00:34:19,280 --> 00:34:21,880 Speaker 1: and so I don't know at this point yet what 564 00:34:21,880 --> 00:34:23,839 Speaker 1: they're gonna say. By the time you listen to this, 565 00:34:23,920 --> 00:34:27,520 Speaker 1: they'll probably already have stated that. But most likely they're 566 00:34:27,520 --> 00:34:29,520 Speaker 1: going to raise rates again, and then they're gonna give 567 00:34:29,600 --> 00:34:32,600 Speaker 1: some sort of a forward guidance and basically say, hey, look, 568 00:34:33,080 --> 00:34:35,439 Speaker 1: we're probably going to continue to raise rates. We're probably 569 00:34:35,480 --> 00:34:37,360 Speaker 1: gonna continue to let us as bleed off our balance 570 00:34:37,440 --> 00:34:40,719 Speaker 1: sheet UM in the fight against inflation. We haven't seen 571 00:34:40,760 --> 00:34:43,759 Speaker 1: inflation become meaningfully down yet, and so we'll continue to 572 00:34:43,760 --> 00:34:45,960 Speaker 1: do these things until inflation hits where we want it 573 00:34:46,000 --> 00:34:48,880 Speaker 1: to be, and then we'll reassess I'm I would be 574 00:34:48,960 --> 00:34:51,919 Speaker 1: I would put so much money down on That will 575 00:34:51,960 --> 00:34:55,680 Speaker 1: be the gist of what they're going to say, and so. Uh. 576 00:34:55,719 --> 00:34:58,799 Speaker 1: The problem with this is that by the time the 577 00:34:58,840 --> 00:35:03,600 Speaker 1: movements appear in their data, it's too late because they're 578 00:35:03,600 --> 00:35:06,200 Speaker 1: not looking at the stock market. They're not looking at 579 00:35:06,239 --> 00:35:10,360 Speaker 1: your four one K. They're not looking at your budget 580 00:35:10,360 --> 00:35:13,160 Speaker 1: getting squeezed. They're not looking at the cost of eggs, 581 00:35:13,200 --> 00:35:16,240 Speaker 1: you know, ten xing. They're not looking at the fact 582 00:35:16,280 --> 00:35:20,279 Speaker 1: that your credit card is maxing out and that you're 583 00:35:20,800 --> 00:35:23,360 Speaker 1: falling behind and you're barely able to make minimum payments. 584 00:35:23,360 --> 00:35:25,279 Speaker 1: They're not looking at any of that. They're looking at 585 00:35:25,400 --> 00:35:30,560 Speaker 1: lagging indicators that take months or quarters to finally show 586 00:35:30,640 --> 00:35:33,600 Speaker 1: up in their data. And then they're running it through 587 00:35:33,920 --> 00:35:38,080 Speaker 1: equations and models that have been proven to be false 588 00:35:38,160 --> 00:35:41,799 Speaker 1: because they are based on an incorrect assumption about the 589 00:35:41,840 --> 00:35:44,120 Speaker 1: way the economy works that goes all the way back 590 00:35:44,160 --> 00:35:52,960 Speaker 1: to Keynesian economics. So it is not a reliable thing. Uh. 591 00:35:53,600 --> 00:35:56,560 Speaker 1: The Federal Reserve, in my opinion, is not going to 592 00:35:57,239 --> 00:35:59,719 Speaker 1: be reliable enough to count on to come in and 593 00:36:00,040 --> 00:36:03,080 Speaker 1: save the day. That if everything gets too painful. They're 594 00:36:03,120 --> 00:36:05,560 Speaker 1: just gonna lower rates again because then they have the 595 00:36:05,640 --> 00:36:09,080 Speaker 1: same exact problem that they had before, which is contributing 596 00:36:09,080 --> 00:36:12,960 Speaker 1: to inflation. Now, I ultimately think they will do that, 597 00:36:13,440 --> 00:36:16,880 Speaker 1: but by the time they respond, there's gonna already be 598 00:36:17,000 --> 00:36:20,280 Speaker 1: a ton of economic pain. Number one and number two, 599 00:36:20,560 --> 00:36:22,560 Speaker 1: they're not going to respond the way they did in 600 00:36:22,600 --> 00:36:27,280 Speaker 1: twenty They see their mistakes of printing that much money basically, 601 00:36:27,680 --> 00:36:29,720 Speaker 1: so they're not going to come in with a heavy hand, 602 00:36:30,120 --> 00:36:33,720 Speaker 1: which means it's not gonna be enough to really move 603 00:36:33,800 --> 00:36:36,680 Speaker 1: the needle. So there might be a temporary reprieve just 604 00:36:36,760 --> 00:36:39,960 Speaker 1: from markets just saying, oh good, the Fed has pivoted, 605 00:36:40,120 --> 00:36:41,400 Speaker 1: and so there might be a little bit of a 606 00:36:41,520 --> 00:36:44,880 Speaker 1: relief rally. But when the market realizes, oh, that didn't 607 00:36:44,880 --> 00:36:47,960 Speaker 1: move the needle, and there's no substitut change here, and 608 00:36:47,960 --> 00:36:52,239 Speaker 1: there's nothing u substantial that's going to change the economic conditions, 609 00:36:52,600 --> 00:36:55,880 Speaker 1: the bottom is gonna the bottom is gonna fall out. Now. 610 00:36:56,680 --> 00:36:58,799 Speaker 1: I need to be very clear here with the last 611 00:36:58,880 --> 00:37:02,000 Speaker 1: few minutes of the episode that I don't necessarily think 612 00:37:02,080 --> 00:37:07,000 Speaker 1: this means, uh, the stock market is going to collapse. Um, certainly. 613 00:37:07,560 --> 00:37:11,560 Speaker 1: Mark Spitznagel does so uh he said that the Universa 614 00:37:11,640 --> 00:37:15,040 Speaker 1: there his hedge fund is currently short the SMP five hundred. 615 00:37:15,320 --> 00:37:18,440 Speaker 1: The fund would gain four hundred two percent if the 616 00:37:18,480 --> 00:37:21,799 Speaker 1: index drops just ten percent in one month. Um it 617 00:37:21,800 --> 00:37:24,680 Speaker 1: would gain ten thousand percent if the stock market drops 618 00:37:25,719 --> 00:37:28,800 Speaker 1: in one month. And so this is that black swan investing. 619 00:37:28,880 --> 00:37:32,439 Speaker 1: This is primarily for retail individuals going to be done 620 00:37:32,440 --> 00:37:37,759 Speaker 1: through options investing. Options investing is um uh something that 621 00:37:38,040 --> 00:37:40,120 Speaker 1: if you do it right, allows you to have these 622 00:37:40,120 --> 00:37:44,480 Speaker 1: payoffs where an unexpected move happening would grant you massive 623 00:37:44,560 --> 00:37:48,719 Speaker 1: returns and uh if if it doesn't pay pan out, 624 00:37:48,960 --> 00:37:51,720 Speaker 1: then you lose a little bit um. Kind of similar 625 00:37:51,760 --> 00:37:53,879 Speaker 1: to like the payoff structure of a lottery ticket where 626 00:37:54,120 --> 00:37:56,400 Speaker 1: you lose a dollar or you lose two dollars, but 627 00:37:56,440 --> 00:37:58,760 Speaker 1: you stand to win, you know, a couple of billion 628 00:37:58,760 --> 00:38:01,759 Speaker 1: dollars or whatever the payout is. Options, if you use 629 00:38:01,800 --> 00:38:04,880 Speaker 1: them right, are similar where you can structure them to 630 00:38:05,000 --> 00:38:08,880 Speaker 1: have hey, I know this probably won't pay out, um 631 00:38:08,960 --> 00:38:11,839 Speaker 1: and if it if it doesn't, then I lose you know, uh, 632 00:38:12,200 --> 00:38:14,319 Speaker 1: you know, a tenth of a percent of my portfolio. 633 00:38:14,560 --> 00:38:17,200 Speaker 1: But if it does pay out, then I win you know, 634 00:38:18,080 --> 00:38:19,759 Speaker 1: you know ten percent I had ten percent to my 635 00:38:19,880 --> 00:38:23,440 Speaker 1: portfolio or even more UM. And so there are there 636 00:38:23,440 --> 00:38:25,799 Speaker 1: are ways that everybody can bet on things like this. 637 00:38:25,880 --> 00:38:28,520 Speaker 1: And so if you want to learn how to trade options, 638 00:38:28,560 --> 00:38:30,759 Speaker 1: I actually have a course on this. I can link 639 00:38:30,800 --> 00:38:35,960 Speaker 1: it in the description below. UM. But ultimately anybody can 640 00:38:36,000 --> 00:38:38,680 Speaker 1: invest like this and those are the payouts that they 641 00:38:38,719 --> 00:38:40,800 Speaker 1: are looking for, and they're kind of hedge fund is 642 00:38:40,840 --> 00:38:44,680 Speaker 1: designed for UM and UH. And so he is looking 643 00:38:44,800 --> 00:38:47,239 Speaker 1: at a big drop in the stock market. I don't 644 00:38:47,239 --> 00:38:50,680 Speaker 1: necessarily think that that's a necessity for that to happen, 645 00:38:51,239 --> 00:38:54,640 Speaker 1: but I do think that it's very likely the average 646 00:38:54,640 --> 00:39:02,000 Speaker 1: American experiences enormous economic pain UM before or things get better. UM. 647 00:39:02,080 --> 00:39:05,719 Speaker 1: So my advice and recommendation to my friends and my 648 00:39:05,800 --> 00:39:08,920 Speaker 1: family and the people that I know and love is 649 00:39:09,680 --> 00:39:13,880 Speaker 1: get ready is buckle up, build up that savings, d 650 00:39:14,080 --> 00:39:18,399 Speaker 1: leverage as fast as you can UM. Because we're headed 651 00:39:18,440 --> 00:39:20,239 Speaker 1: into some choppy waters. You want to be able to 652 00:39:20,280 --> 00:39:23,000 Speaker 1: survive it because as long as you can keep afloat 653 00:39:23,160 --> 00:39:25,440 Speaker 1: that on the other side of it, then you'll be 654 00:39:25,480 --> 00:39:28,120 Speaker 1: the one that's able to you know, buy assets at 655 00:39:28,200 --> 00:39:31,080 Speaker 1: really cheap prices. You'll be the one that's able to 656 00:39:31,120 --> 00:39:33,279 Speaker 1: help people out instead of being the one relying on 657 00:39:33,320 --> 00:39:35,959 Speaker 1: other people to help you out. So seeing these things 658 00:39:35,960 --> 00:39:38,960 Speaker 1: coming allows you to be prepared and save and uh 659 00:39:39,239 --> 00:39:42,880 Speaker 1: invest appropriately um and maybe even profit off of it 660 00:39:42,960 --> 00:39:47,600 Speaker 1: if you if you bet accordingly. So we'll see what happens. 661 00:39:47,600 --> 00:39:50,160 Speaker 1: You'll be the first to know. But right now there 662 00:39:50,160 --> 00:39:53,520 Speaker 1: are some big names expecting some sort of big black 663 00:39:53,600 --> 00:39:57,120 Speaker 1: Swan event and the thinking is sound because when you 664 00:39:57,120 --> 00:39:59,239 Speaker 1: have the most overleveraged economy and history and then you 665 00:39:59,280 --> 00:40:03,279 Speaker 1: start jacking up those interest rates, well something's got to give. 666 00:40:04,160 --> 00:40:06,480 Speaker 1: Thank you so much for listening, and we will see 667 00:40:06,520 --> 00:40:07,399 Speaker 1: you guys next week.