Speaker 1: Hello, and welcome to another episode of The Mark Moss Show,
Speaker 1: where of course we're always talking about the decentralized revolution,
Speaker 1: which is of course as the world's breaking apart.
Speaker 2: You know, going forward that centralized world.
Speaker 1: That we've been swinging to, that pendulum swinging to, and
Speaker 1: we're now moving back to a decentralized, multipolar world.
Speaker 2: And you know, I like to talk about it from three.
Speaker 1: Different revolutionary cycles, a two hundred and fifty two hundred
Speaker 1: and fifty year political revolution cycle, an eighty year financial
Speaker 1: revolution cycle, and of course a fifty year technological revolution cycle.
Speaker 1: Now the interesting thing is people are always amazed when
Speaker 1: I show them the charts that all three of those
Speaker 1: are converging right now. But of course today we're going
Speaker 1: to talk about just one. I want to talk about
Speaker 1: the financial revolution cycle, eighty year financial revolution cycle. And
Speaker 1: we're here witnessing something that we haven't seen for about
Speaker 1: eighty years since the last time this was reset, and
Speaker 1: so I want to break it down to you. I
Speaker 1: want to under I want you to understand exactly what's
Speaker 1: going on in the financial systems with inflation, federal debt,
Speaker 1: and what the FED policy has been so far as
Speaker 1: far as you know, on their warpath raising rates then
Speaker 1: the fastest pace in history.
Speaker 2: And then of.
Speaker 1: Course we'll talk about the proverbial wall that they're hitting.
Speaker 1: Now I've talked about this many many times, that they're
Speaker 1: stuck between this you know, rock and a hard place,
Speaker 1: so to speak. Unfortunately, there's probably well it's not really
Speaker 1: a way out, but there's a most likely, most probable
Speaker 1: situation that they'll probably try to pull. We know this,
Speaker 1: we've seen in the past, and we know that all
Speaker 1: nations at the end of the at the end of
Speaker 1: the rope, end up doing this. So let's talk about
Speaker 1: that a little bit. So of course, we know that
Speaker 1: inflation has been sky high. Of course the Federal Reserve
Speaker 1: that all central banks, they want inflation so they can
Speaker 1: inflate away the debts, so they make the debt much
Speaker 1: cheaper for them.
Speaker 2: It's like if you, let's say, ten years.
Speaker 1: Ago, you were the average salary you're making, you know,
Speaker 1: fifteen bucks an hour, and you take a six hundred
Speaker 1: dollars loan, and now here you are ten years later,
Speaker 1: and your rate of pay has gone up to twenty
Speaker 1: five dollars an hour, but the payment is still the same.
Speaker 1: So of course you want to inflate it away. Well,
Speaker 1: the central banks do, specifically the United States, when they
Speaker 1: have thirty two trillion of it. However, for you and I,
Speaker 1: it's not so good because as they create more money,
Speaker 1: the value of that money, the purchasing power of that
Speaker 1: money goes down. And so yes, prices go up, but
Speaker 1: it's the value going down. And so you know, I
Speaker 1: like to say that the two greatest tricks that the
Speaker 1: Fed ever played on us was one telling us trickiness
Speaker 1: that the money supply should always increase. A lot of
Speaker 1: people think that's the way it should be. It has
Speaker 1: to be that way. And the second trick is that
Speaker 1: asset price is always going up is a good thing. Well,
Speaker 1: it's a good thing for them, but is it really
Speaker 1: a good thing for you? So what I typically ask
Speaker 1: people if they'd say, well, money supply has to increase,
Speaker 1: doesn't it. So when you increase the money supply, prices
Speaker 1: go up or thereby your purchasing power the value of
Speaker 1: have gone down. And I just asked them a simple question,
Speaker 1: would you rather your money buy you more goods and
Speaker 1: services in the future or less? Of course, the answers
Speaker 1: there's always more. Of course, we wanted to buy us more.
Speaker 1: We want our quality of life to be getting better
Speaker 1: and better and better and better. We want to be
Speaker 1: working less and enjoying more. The problem is that our
Speaker 1: money continues to buy us less, so the opposite is true.
Speaker 1: We have to work more and more and more just
Speaker 1: to try to maintain our quality of living or else
Speaker 1: even potentially lose our quality of living at the same time.
Speaker 1: So that kind of frames it up. But the problem
Speaker 1: is is that the FED only wants two percent inflation,
Speaker 1: but they overshot their target. We got up to nine
Speaker 1: point one percent, and the Fed looked pretty bad. They
Speaker 1: had to do something about it if they wanted to
Speaker 1: get back down to two percent, and so they've been
Speaker 1: on the war path, raising rates at the fastest rate
Speaker 1: in history, trying to get that back under wraps. The
Speaker 1: problem is that there's really a couple different ways, two
Speaker 1: main ways that you can get price inflation consumer price
Speaker 1: inflation in an economy, and it usually comes from one
Speaker 1: or the other, usually a combination of either one money
Speaker 1: supply growth, and two significant changes in productivity and or
Speaker 1: resource abundant. So basically supply and demand, that's what it
Speaker 1: always comes down to. When there's more demand. So a
Speaker 1: lot more money in the system creates more demand chasing
Speaker 1: the same you know, set of supplies or less supplies,
Speaker 1: then the price goes up. Now, the problem is that
Speaker 1: the Fed wants inflation to come down, but they really
Speaker 1: can't do much about the supply side of the situation,
Speaker 1: so instead they work on the demand side. If they
Speaker 1: can try to make you and I more poor, we
Speaker 1: can you know, the bring our stock assets down, all
Speaker 1: our assets down, you know. Unfortunately, they want to increase unemployment.
Speaker 1: Two million people would.
Speaker 2: Lose their jobs.
Speaker 1: If they could do that. Gas is expensive, stakes expensive,
Speaker 1: then maybe we don't spend as much. If we don't
Speaker 1: spend as much, then potentially it comes back down. The
Speaker 1: problem is, though, they're working on the wrong side of
Speaker 1: the equation because it's been mostly a supply of course,
Speaker 1: we've had supply chains breaking down since the pandemic, the
Speaker 1: war with Russia and Ukraine messing things up. But at
Speaker 1: the same time they have brought down some of that
Speaker 1: consumer demand a little bit a little bit. But the
Speaker 1: problems they're working on the wrong side, as I said,
Speaker 1: because it's not the consumer that's the one spending, it's
Speaker 1: the fiscal spending.
Speaker 2: That's the problem.
Speaker 1: The US federal government was spending roughly four trillion dollars
Speaker 1: per year into the economy before the pandemic. Going into
Speaker 1: the pandemic, they increase the spending by about fifty percent,
Speaker 1: up to six trillion dollars per year, and they're still spending.
Speaker 1: So while the Fed is doing its best to bring
Speaker 1: down your spending, you're an eye spending. They haven't done
Speaker 1: a whole lot for the fiscal policy.
Speaker 2: But before we get.
Speaker 1: Into all that, I want to kind of give you
Speaker 1: a little bit of an illustration.
Speaker 2: Let's take a look at some ways that we can
Speaker 2: look at this. So I always like to.
Speaker 1: Say this little controversial kind of piece just to get
Speaker 1: people's attention, and that is that none of us want money.
Speaker 1: And of course you say, what do you mean, of
Speaker 1: course we want money, Well, we don't really want money.
Speaker 1: We want the goods and services that money buys us.
Speaker 1: And so we have to think about money. Obviously it's
Speaker 1: just a medium exchange, and so it's really the other
Speaker 1: things that we want. And the problem is if we
Speaker 1: always price those things in dollars, the price of your
Speaker 1: house and dollars, the price of oil and dollars, then
Speaker 1: we have a very distorted number. And so we want
Speaker 1: to look at gold and oil dollars and oil dollars
Speaker 1: in gold and look at all of those and how
Speaker 1: they work together and move between themselves. And so if
Speaker 1: we take the dollars out of the equation and then
Speaker 1: we compare a price of oil in gold, or we
Speaker 1: look at them both in gold and dollars, we can
Speaker 1: see that since about nineteen thirteen, when you look at
Speaker 1: a gold for a barrel of oil, zero point two
Speaker 1: ounces of gold for a barrel of oil to up
Speaker 1: to zero point one four ounces of gold for a
Speaker 1: barrel of oil. And so they fluctuated from nineteen thirteen
Speaker 1: until now in that period very tight. I mean, they
Speaker 1: jacked up right around you know, nineteen fourteen fifteen, but
Speaker 1: since then they've stayed somewhat pretty relatively stable. But if
Speaker 1: you look at that same chart in oil, the average
Speaker 1: oil price per year, where of course they've measured in USD.
Speaker 1: Of course, as they've been continue to increase the USD,
Speaker 1: the price has shot up, and if you could see
Speaker 1: the chart, it looks like a hockey stick. Of course,
Speaker 1: starting right there in nineteen seventy three, and it has
Speaker 1: just been going up ever since.
Speaker 2: As a matter of.
Speaker 1: Fact, you know, the reason why this is such a
Speaker 1: big deal is because gold has a very low inflation rate.
Speaker 1: All the gold in existence is still here and it
Speaker 1: goes up by about one point five percent per year.
Speaker 1: But on dollars, on the other hand, have been going
Speaker 1: up for much much faster. And so with that context
Speaker 1: you can understand how the financial system works, and of
Speaker 1: course you now understand why central banks want the inflation
Speaker 1: to rayge on so they can make that debt cheaper
Speaker 1: and cheaper and cheaper. The problem, of course, is that
Speaker 1: central banks, like I said, can only offset a bit
Speaker 1: of the causes of inflation. And the problem that we
Speaker 1: have here is that because it's really the fiscal deficits
Speaker 1: that are causing this, they're spending that money right into
Speaker 1: the economy, and as the Fed has raised rates, they've
Speaker 1: made us all poor and poor and poorer. But the
Speaker 1: other problem is that that means you and I don't
Speaker 1: pay as much taxes. There's not as many capital gains taxes,
Speaker 1: and just unemployment has gone up, there's not as much
Speaker 1: taxes overall, and that's just made the situation even worse.
Speaker 1: Because the federal government didn't have enough money at as
Speaker 1: it is now, taxes went down, and now by the
Speaker 1: raids going up so fast, the amount of interest they
Speaker 1: have to pay on the debt is now only making
Speaker 1: the deficit that much worse. Hey, if you're just tuning in,
Speaker 1: you're listening to the Mark Maus Show. We're talking about
Speaker 1: the situation. The FEDS found themselves in the proverbial rock
Speaker 1: and a hard place, sort.
Speaker 2: Of damned if they do, damned if they don't. I'm
Speaker 2: going to set this up a little bit more.
Speaker 1: You can understand exactly what's going on, you'll know how
Speaker 1: to position yourself, and you'll find out. Unfortunately, it looks
Speaker 1: like the most likely outcome. It's not that good, but
Speaker 1: we can be prepared for it. We're gonna get you
Speaker 1: ready for that. I got to take a very quick
Speaker 1: break though.
Speaker 2: I'm going to take a minute. I'll be right back.
Speaker 1: Don't go away, all right, Welcome back. If you're just
Speaker 1: tuning in, you're listening to the Mark Maus Show. Of course,
Speaker 1: we're always talking about the decentralized revolution, talking about the
Speaker 1: way this world is changing, and today we're looking at
Speaker 1: one of the three revolutionary cycles, the eighty year Financial
Speaker 1: revolution cycle, and we're talking about how the FED is
Speaker 1: sort of damned if they do, damned if they don't.
Speaker 1: They're trying to bring inflation back down with the kind
Speaker 1: of the only tool they have. The problem is that
Speaker 1: it's not really fixing it because it's not the right
Speaker 1: tool for the right job. You hear a lot about
Speaker 1: how inflation was in the seventies, and you'll hear reference
Speaker 1: to Paul Volker, who raised raids so fast he crushed
Speaker 1: inflation right, And you might hear that Jerme Powell. The
Speaker 1: current of the FED Reserve doesn't want to be compared
Speaker 1: to Arthur Burns. And so Arthur Burns was raising the
Speaker 1: rates and just when he thought he got out of control,
Speaker 1: he lowered the back down. Of course, then inflation raged on.
Speaker 1: He looked bad. But Vulcar he came in and he
Speaker 1: did it right. But the problem is is that it's
Speaker 1: an eighty year financial revolution cycle, and so you have
Speaker 1: to look back a little bit further, and it seems
Speaker 1: like the most comparable part of history is really in
Speaker 1: the nineteen forties. Now I'm getting a lot of this research.
Speaker 1: Lynn Alden has been amazing. She's got a couple charts
Speaker 1: that really show how this works out.
Speaker 2: That's really helpful. But she talks about how.
Speaker 1: The nineteen forties and the nineteen twenties are very similar
Speaker 1: because most of the money supply growth was again from
Speaker 1: the fiscal deficits, right from the government'spin in it, and
Speaker 1: mostly both nineteen forty and twenty twenty related to the
Speaker 1: war and of course twenty twenty pandemic stimulus. Now, in
Speaker 1: the nineteen seventies, most of the money growth was from
Speaker 1: the bank lending, and that was mostly related to demographics.
Speaker 1: And so because the seventies inflation was related to bank lending, well,
Speaker 1: then he raised the rates. People don't borrow, no big deal.
Speaker 1: So that's what happened in the seventies. However, the nineteen
Speaker 1: forties it was different. It was government spending, which was
Speaker 1: the case on that. Now, if Jerome Powell wants to
Speaker 1: treat it like the twenty twenties, then we're probably gonna
Speaker 1: see him fail.
Speaker 2: He's sharply.
Speaker 1: You know, he's been raising rates to try to stop
Speaker 1: that bank lending. But the bank lending isn't the problem.
Speaker 1: Raising or lowering interest rates, changing the price of money
Speaker 1: can only affect money creation and price inflation. But only
Speaker 1: in indirect ways. Now, some people assume that high interest
Speaker 1: rates are necessary, you know, secure price inflation, but that's
Speaker 1: not historically the case. In some context, it's neither necessary
Speaker 1: nor even sufficient, because again, they're just one tool. It's
Speaker 1: sort of like when you hear like the Fed's going
Speaker 1: to have a soft landing, you would imagine like they're
Speaker 1: like a like a like a jet, you know, with
Speaker 1: all the gauges and switches and knobs in there, and
Speaker 1: they can finally too, you know, how this thing is flying.
Speaker 2: But the reality is it's like a hot air balloon.
Speaker 2: They have one lever.
Speaker 1: They can pull the lever and let the hot air out,
Speaker 1: inflation up, and they can close it inflation down. That's
Speaker 1: really all they have. Inflation up, inflation down. And so
Speaker 1: they are trying to fight this with the wrong tools,
Speaker 1: which of course is never going to work. The nineteen
Speaker 1: forties inflation, both in the US and even some more,
Speaker 1: you know, all across the world really globally, was again
Speaker 1: it was all about to monetize fiscal spending on the war.
Speaker 1: And when the war stopped, the fiscal deficit spending stopped,
Speaker 1: the rapid money creation stopped, and then of course, yes
Speaker 1: inflation stopped. As the war ended, the global supply chain
Speaker 1: started to improve, and then productivity return.
Speaker 2: So you had two things.
Speaker 1: One, you had all that money that stopped being spent
Speaker 1: into the economy, and at the same time you improved productivity,
Speaker 1: you lowered demand and increased supply. Guess what happens you
Speaker 1: bring down prices. Imagine that. But if we look at
Speaker 1: other examples, we can see where things have really gotten
Speaker 1: away from this, like Turkey. For example, Turkey has eighty
Speaker 1: percent year over year inflation, well at least at the peak,
Speaker 1: and their interest rates were between eight percent and eighteen percent,
Speaker 1: so obviously way below the eighty percent, and then of
Speaker 1: course consumer level interest rates were you know, they're higher
Speaker 1: than that, but it's a massive amount of inflation relative
Speaker 1: to the interest rates, and so when that happens, it
Speaker 1: creates a very strong market incentive for people to borrow
Speaker 1: against that currency. So, for example, just to kind of
Speaker 1: lay this out, the Turkish lera, that's what we're talking about.
Speaker 1: It's gone down eighty percent, It's gone down about ninety
Speaker 1: five percent to the US dollar like over the last
Speaker 1: five years. So if you were in Turkey and using
Speaker 1: Turkish lira and you knew that it was going to
Speaker 1: go down to time machine and go back in time
Speaker 1: five years.
Speaker 2: What should you have done.
Speaker 1: You should have gotten out of Turkish lera. You should
Speaker 1: have exchanged as much as you could of it four dollars.
Speaker 2: That would have been good. What would have been better?
Speaker 1: What would have been better would be to borrow as
Speaker 1: much as you could in Turkish lira and then use
Speaker 1: it to buy US dollars, gold stocks, real estate, bitcoin, art,
Speaker 1: anything wine, anything that'd be expected to have a better
Speaker 1: return than the lira, which is almost anything. And by
Speaker 1: borrowing lira they could create more lira because remember we're
Speaker 1: in a debt based system, so you borrow it into existence.
Speaker 1: And even if they don't, you know, or they can't
Speaker 1: borrow it, they could simply refuse to hold it, which
Speaker 1: also contributes to the collapse of the currency.
Speaker 2: So this is a big problem.
Speaker 1: It's what known as like a speculative attack, where you
Speaker 1: can borrow the currency, you can sell against it. Basically
Speaker 1: nobody wants to hold it, so in these types of situations, historically,
Speaker 1: raising interest rates above the inflation rate is a key
Speaker 1: method to try to slow down the bank lending right,
Speaker 1: and then they would hope to slow down the broad
Speaker 1: money supply, and it works. It works good when that's
Speaker 1: the problem bank lendings. The problem, however, the problem is
Speaker 1: when that's not the problem, it's not going to work. Now,
Speaker 1: if inflation is caused by the runaway fiscal debts, which
Speaker 1: is what we're talking about here, then of course high
Speaker 1: interest rates they're not going to matter because the central bank,
Speaker 1: the government's going to spend the money regardless, they don't
Speaker 1: really care what it is they're borrowing the money anyway,
Speaker 1: forces the commercial banks and the central banks to finance
Speaker 1: the government's runaway fiscal deficits. Now, first when they raise rates,
Speaker 1: you might see a little bit of an effect, which
Speaker 1: we did slowed the economy down a little bit, but
Speaker 1: over time, raising interest rates and then keeping them high
Speaker 1: in an environment where there's runaway government deficits and high
Speaker 1: government debts, where they're causing inflation, then it runs the
Speaker 1: risk of making the inflation even worse. High interest rates
Speaker 1: on large amounts of government debt, especially when they get
Speaker 1: over ninety percent jet to GDP, which now we're up
Speaker 1: to about one to twenty five, it's always going to
Speaker 1: result in even bigger runaway debts because now they're dealing
Speaker 1: with a ballooning interest payments on the debt, and of
Speaker 1: course this ironically pushes even more money into the economy. Surprise, surprise.
Speaker 1: So if the FED, like if we went back to
Speaker 1: nineteen forty, if the FED would have raised rates really
Speaker 1: sharply in the nineteen forties war, it wouldn't have reduced inflation.
Speaker 1: It could have easily made it much worse, because of
Speaker 1: course the FED and the banking system we're stuck monetizing
Speaker 1: the fiscal deficits anyway.
Speaker 2: But I get it.
Speaker 1: It's kind of hard to understand, isn't it. But let's
Speaker 1: just say, damned if they do, damned if they don't.
Speaker 2: If they continue to leave.
Speaker 1: Rates low, then people continue to borrow money and will
Speaker 1: continue to push inflation. If they raise rates high, people
Speaker 1: won't borrow the money, but the government will, especially considering
Speaker 1: their tax receipts will drop and the interest on their
Speaker 1: debt will be going up at the same time. So
Speaker 1: what can the FED do? Unfortunately, there's nothing they can
Speaker 1: do to fix it at this point. Put there is
Speaker 1: something they can do to continue the game. And this
Speaker 1: is like I said earlier at the intro, this is
Speaker 1: what every nation has tried to do from the beginning
Speaker 1: of time. It's the final stages. I'm going to talk
Speaker 1: about that in just a minute, but I gotta take
Speaker 1: a quick break. If you're just tuning in, you're listening
Speaker 1: to the Mark mass Show. Of course, we're always talking
Speaker 1: about the decentralized revolution.
Speaker 2: We are talking about.
Speaker 1: Here the financial revolution cycle, the eighty year of financial
Speaker 1: revolution cycle, and how the FED is in the proverbial
Speaker 1: rock in a hard place with nowhere to go. I'm
Speaker 1: going to come back and we're going to talk about
Speaker 1: the endgame and this third scary solution.
Speaker 2: But I'm gonna take a quick break. Don't go away.
Speaker 2: I'll be right back. Hey, welcome back.
Speaker 1: If you're just tune in, you're listening to the Mark
Speaker 1: Moss Show. Of course, we're always talking about the decentralized revolution,
Speaker 1: and I always talk about three revolutionary cycles. Today we're
Speaker 1: talking about one of those, which is the financial revolution cycle,
Speaker 1: and how that is happening right now. Of course, we're
Speaker 1: talking about how the FEDS back is against the wall,
Speaker 1: and we're talking about specifically how they've been raising rates
Speaker 1: to try to bring inflation down. And I was saying
Speaker 1: how most people think about the seventies inflation and the
Speaker 1: Paul Volker and the Arthur Burns and how that's wrong,
Speaker 1: and really you need to look at the forties for
Speaker 1: better inflation to understand it.
Speaker 2: Because what the Fed is doing, they're.
Speaker 1: Trying to attack the wrong thing. They're trying to make
Speaker 1: you and I retail spending go down. But the problem
Speaker 1: is it's the governments that are spending the spending the money.
Speaker 1: And the problem is is that the more they raise rates,
Speaker 1: the worse it gets for the government, and the more
Speaker 1: money they spend. It's deficit spending. That's what we're talking about.
Speaker 1: And like you and I, when we go broke, we
Speaker 1: stop spending money. The government doesn't. The government doesn't. The
Speaker 1: government just runs bigger deficits. That's what they do. And
Speaker 1: so when inflation is caused by runaway fiscal deficits government deficits,
Speaker 1: then high interest rates won't stop it.
Speaker 2: They won't do much to do it.
Speaker 1: And basically what it does is because like I said,
Speaker 1: it forces the governments to just finance it. It forces
Speaker 1: the governments to borrow even more money. But the problem
Speaker 1: is is, like I said, is that as the FED
Speaker 1: is rates and then the government's borrowing more money, the
Speaker 1: cost of that borrowing goes up. But it also does
Speaker 1: something else that's really bad. What it also does is,
Speaker 1: as they're trying to bring you and I are spending down,
Speaker 1: consumer spending down, they're making us broke. So our houses
Speaker 1: aren't worth as much, our stocks aren't worth as much.
Speaker 1: We're not buying and selling as much stuff, but we're
Speaker 1: not making as much money. And what that does is
Speaker 1: then we don't pay as much taxes, So it's a
Speaker 1: double whamming for the government. One they don't get near
Speaker 1: as much revenue, so that makes a bigger deficit. And two,
Speaker 1: the interest on the debt went up, so.
Speaker 2: That makes a bigger deficits.
Speaker 1: So now the deficit is going up two times. It's
Speaker 1: like a really, really, really bad situation for the government,
Speaker 1: which is why all of this just makes the problem
Speaker 1: even worse. We can see that over time, raising interest
Speaker 1: rates and keeping them high in an environment like we're
Speaker 1: in now with runaway government deficits and high government debts
Speaker 1: are causing inflations and they just make it worse.
Speaker 2: All right.
Speaker 1: Now, to understand this a little bit, we want to
Speaker 1: take a look at some other examples when this has
Speaker 1: happened and what's going on, And we can look back
Speaker 1: into some other examples, like for example, in Turkey. So
Speaker 1: in Turkey we can see that they've been running massive
Speaker 1: inflation over there. As a matter of fact, we've been
Speaker 1: seeing eighty percent inflation for the last couple of years.
Speaker 2: But what Turkey did is.
Speaker 1: As inflation started going up, they cut rates. But as
Speaker 1: they cut rates, inflation went even higher. But eventually it
Speaker 1: started coming back down. They cut interest rates to under
Speaker 1: fifteen percent, and inflation exploded to over eighty percent. But
Speaker 1: for a period of time, the money supply and the
Speaker 1: consumer price index ended up taking off like a rocket
Speaker 1: ship for Turkey. But the problem with Turkey situation is
Speaker 1: that cutting interest rates did reduce the portion of inflation
Speaker 1: caused by fiscal deficits, but it made the speculative attacks
Speaker 1: on the currency and inflation caused by bank lending. So
Speaker 1: this is the problem. If the FED raises rates, then
Speaker 1: what happens is then people don't want to hold the currency,
Speaker 1: or more specifically, they'll borrow against it and cause that
Speaker 1: speculative At tech, nobody wants to hold the lira, especially
Speaker 1: foreign Lira is the Turkish currency and especially foreign entities.
Speaker 1: So what they want to do is they want to
Speaker 1: borrow in Lira. So for example, when inflation was at
Speaker 1: nine percent and I could get a house loan at
Speaker 1: three percent, then I definitely wanted to do that, and
Speaker 1: as a matter of fact, I.
Speaker 2: Got a couple of them.
Speaker 1: Because what happens is, remember at the beginning of this episode,
Speaker 1: we started talking about how they inflate debts away because
Speaker 1: you get paid, you know, five years, ten years down
Speaker 1: the road of that new inflated amount, but your debt
Speaker 1: was locked in at that old rate. So if I
Speaker 1: can get a thirty year fixed loan at thirty percent
Speaker 1: and inflation is above that five percent, seven percent, nine percent,
Speaker 1: then I want to borrow as much money as I
Speaker 1: can and let the inflation pay it off. So in
Speaker 1: Turkey that's exactly what happens. But the problem is that
Speaker 1: becomes a speculative attack. So now as many people as
Speaker 1: they can, they're borrowing more money. But as they borrow
Speaker 1: more money, that just makes the problem even worse, and
Speaker 1: then they don't want to hold the currency.
Speaker 2: So it's called a speculative attack.
Speaker 1: Now Argentina saw similar problem that inflation rate of over
Speaker 1: one hundred percent. I mean, imagine that one hundred percent.
Speaker 1: That means your money basically becomes worthless every year. But
Speaker 1: unlike Turkey, they started aggressively raising interest rates to keep
Speaker 1: up with it. But yet inflation remains completely uncontained. They
Speaker 1: haven't been able to do anything about it. It's almost
Speaker 1: as if interest rate policy isn't the only variable to consider,
Speaker 1: which of course it's not. That's the whole point that
Speaker 1: I'm talking about.
Speaker 2: Now.
Speaker 1: What we have we're looking back at the nineteen forty
Speaker 1: is what really caused it was war, Right, They had
Speaker 1: to spend money to go to World War two, and
Speaker 1: we had, of course the pandemic war, the war on
Speaker 1: the pandemic, the war on COVID.
Speaker 2: Right.
Speaker 1: So if inflation is caused by a war, or by
Speaker 1: a demic, graphics bulge, or a high rate of bank lending,
Speaker 1: then it's pretty fixable, right just after the war brings
Speaker 1: spending back down. If it's the high rate of bank lending,
Speaker 1: then get the banks to lend less money.
Speaker 2: Right. However, like I.
Speaker 1: Said, if you can fix it once the war ends,
Speaker 1: if the government turns back to their budget, then things
Speaker 1: sort of go away. In the nineteen tens and the
Speaker 1: nineteen forties, the US had high deficit driven inflation, but
Speaker 1: had a clear way to bring it down after the war.
Speaker 1: Why could they do that? Well, the reason why is
Speaker 1: because back then they didn't have the entitlement spending. And
Speaker 1: this is where the proverbial rock and the hard place
Speaker 1: comes into play. This is why this time is different.
Speaker 1: Back in the nineteen forties, they didn't have the entitlement spending,
Speaker 1: which is the Medicare, the Medicaid, the Social security, the
Speaker 1: interest on the debt, the military spending, all those things.
Speaker 1: They weren't locked in, and they had a very low
Speaker 1: amount of workers that were dependent on the system. Today
Speaker 1: it's the opposite. Today we have the federal governments have
Speaker 1: bulged and we have more people working for the federal
Speaker 1: government than ever before, so dependent on the government. We
Speaker 1: also have the entitlement spending which is higher than it's
Speaker 1: ever been at any point, and the government does not
Speaker 1: make enough revenue to even pay the mandatory spending.
Speaker 2: The entitlement spending didn't pay that.
Speaker 1: Now, in the seventies, the US had a low sovereign
Speaker 1: to debt level of about thirty percent debt to GDP.
Speaker 1: That was in the seventies when you hear about Arthur
Speaker 1: Burns and vulgar. So it had an easy path to
Speaker 1: raising the rates because the government didn't have that much debt,
Speaker 1: So go ahead and raise the rates. It didn't really
Speaker 1: matter because the government's the amount of debt that the
Speaker 1: government has just a little bit. So yeah, it makes
Speaker 1: that debt more expensive, but it's not that.
Speaker 2: Big of a deal.
Speaker 1: Okay, But today we have a debt to GDP of
Speaker 1: one hundred and twenty five percent, So from thirty to
Speaker 1: one hundred and twenty percent, it's a pretty big deal.
Speaker 1: So the hardest inflation combination for any central bank to
Speaker 1: deal with is three things. One a high sovereign debt
Speaker 1: to GDP ratio in the seventies was thirty percent, today
Speaker 1: it's one hundred and twenty five. Two large and structural
Speaker 1: fiscal deficits tied to age demographics and imbalanced entitlement programs.
Speaker 1: And high military spending. That's a problem. We have high
Speaker 1: military spending. Check we just went from the war on
Speaker 1: the pandemic to now we're war in Ukraine and potentially
Speaker 1: war with China. Two in balance and titament's programs. Yes,
Speaker 1: I told you, we can't even afford those. They are
Speaker 1: at highest point ever age demographics, so the baby boom
Speaker 1: generation is the largest segment of the population.
Speaker 2: And then three, a.
Speaker 1: Significant supply constraints such as tight oil markets or labor
Speaker 1: shortages due to high public debt levels. So significant supply
Speaker 1: constraints on such tight oil markets and labor storage. So
Speaker 1: the Biden administration has done everything they can to shut
Speaker 1: down oil in the United States. So we have supply
Speaker 1: constraints on oil, and because of the high interest rates
Speaker 1: it imposed is capital constraints and makes it very hard
Speaker 1: for the oil companies to get more oil out. Sounds
Speaker 1: like we're in a pretty bad situation, and so they're
Speaker 1: trying to bring out the nineteen seventies playbook, but it's.
Speaker 2: Just not working. Now.
Speaker 1: They can reduce money creation from bank lending in the
Speaker 1: intermediate term, but ironically it only makes inflation worse. So
Speaker 1: that's exactly what's playing out at this point. Fun fun,
Speaker 1: fun fun. Now let's talk about the nineteen forties playbook, right,
Speaker 1: that's about nineteen forties playbook and how they can if
Speaker 1: they keep interest rates low even though we have high inflation,
Speaker 1: how it could actually reduce the fiscal driven inflation a bit.
Speaker 1: But the problem is, as I said, if they do that,
Speaker 1: then it encourages speculative attacks on the currency. If they
Speaker 1: bring rates down and inflation is running high, everybody's gonna
Speaker 1: want to borrow the money and attack the currency. I'm
Speaker 1: going to tell you what is the only outcome from this.
Speaker 1: When we come back, I'm gonna take a quick break,
Speaker 1: don't I'll be right back, all.
Speaker 2: Right, Welcome back.
Speaker 1: If you're just tune in, you're listening to the Mark
Speaker 1: Moss Show. We're talking about the FED, the FED, the
Speaker 1: central bank policy and how you know, the we'll just
Speaker 1: take it higher for longer, we'll just keep it higher,
Speaker 1: what the Fed's doing to fight inflation, and how it's
Speaker 1: completely wrong, and how they're really stuck. They're really between
Speaker 1: the proverbial rock and a hard place. Unfortunately, there's maybe
Speaker 1: only one way out of this, and it's not good.
Speaker 2: As a matter of fact, it's not good at all.
Speaker 1: So they've been raising rates to try to bring inflation down.
Speaker 1: But the problem is I've been explaining. If you've missed it,
Speaker 1: to go back and listen to the podcast to search
Speaker 1: the Mark More Show and your favorite podcast player. Catch
Speaker 1: me on YouTube at market disruptors. But as they've been
Speaker 1: raising rates, they haven't really slowed inflation down because it's
Speaker 1: not the consumers spending that's the problem. It's the government
Speaker 1: spinning that's the problem. And the governments are going to
Speaker 1: spend no matter what they do with the rates. But
Speaker 1: what it does do is it makes the government spend
Speaker 1: even more for two reasons. One, as they raise the rates, consumers,
Speaker 1: you and I were more broke, which is what they're
Speaker 1: trying to do. And so the government doesn't have as
Speaker 1: much that they don't have as much income, we don't
Speaker 1: pay as much taxes, So the government's income goes down,
Speaker 1: which means they need to spend more deficits, spending more debt.
Speaker 1: And because the interest rates went up, the cost of
Speaker 1: that debt, the payments on the debt go up. As
Speaker 1: a matter of fact, the United States government debt, the
Speaker 1: interest on the debt has now eclipsed the amount of
Speaker 1: money that the US spends on its military. Now the
Speaker 1: US spends more money on its military than the next
Speaker 1: ten countries combined, more than China, more than Russia, more
Speaker 1: than France, England, Britain, whatever, all of them combined. And
Speaker 1: the interest not paying down the debt. Just the interest
Speaker 1: on the debt has now eclipsed that. So it's really
Speaker 1: causing a problem now. As I said in the nineteen
Speaker 1: forties playbook, if they were to keep interest rates low
Speaker 1: even though inflation was high, then it could reduce the
Speaker 1: fiscal the governments inside of the inflation a little bit.
Speaker 1: But it encourages a speculative attack on the currency, where
Speaker 1: we go borrow as much in that currency as we
Speaker 1: can to go buy any assets that we can. Like
Speaker 1: how I went and bought a couple of properties when
Speaker 1: I could get thirty year fixed at three percent when
Speaker 1: inflation was over that all right, I explained how that
Speaker 1: works before.
Speaker 2: I'm not going to go through that again. So what
Speaker 2: do they do.
Speaker 1: It's a pretty dangerous situation. If we don't raise rates
Speaker 1: and inflation runs hot, we get the speculative attack. If
Speaker 1: we do continue to raise rates, then we just make
Speaker 1: inflation worse.
Speaker 2: So what do we do? Well, this is where things
Speaker 2: get a little scary.
Speaker 1: So if we let's just run this back one more time.
Speaker 1: So let's see if we continue to raise rates, we
Speaker 1: make retail broke. But that doesn't really solve the problem,
Speaker 1: and it actually makes the government deficits worse because the
Speaker 1: deficit spending. But if we do lower rates, it will
Speaker 1: reduce the government deficit spending, which is the main problem.
Speaker 1: But then we open ourselves up to a speculative attacks.
Speaker 1: So there's a third potential choice. And this is where
Speaker 1: it starts getting scary.
Speaker 2: And this is what.
Speaker 1: Basically every single empire and country in the world eventually
Speaker 1: leads to. This is the final stage when this happens.
Speaker 1: It's kind of over. A lot of the world has this,
Speaker 1: and a lot of the United States has it, but
Speaker 1: we don't have it on a big scale, and that
Speaker 1: is something called capital controls. Capital controls are basically controlling
Speaker 1: the capital, controlling the money, controlling the flow of money
Speaker 1: in and out of the country, and also the price
Speaker 1: of good So for example, in California, in Los Angeles,
Speaker 1: for example, they have rent control. Right, that's a price control,
Speaker 1: it's a capital control. So well, rents are going up
Speaker 1: too much, so we'll just say that homeowners can't raise
Speaker 1: the price of those rents anymore. Right, But capital controls
Speaker 1: are much worse because it controls the flow of capital
Speaker 1: in and out. I literally just today at the time
Speaker 1: of this recording, got home from being over in Spain
Speaker 1: where I was at a conference. I was speaking in
Speaker 1: a conference over there, and most of the people there
Speaker 1: were international, which I guess is why I was in Spain.
Speaker 1: Probably at least two thirds of the group were international,
Speaker 1: and they're all business, business people, entrepreneurs, et cetera. And
Speaker 1: many of them I talked to from sort of like
Speaker 1: the Nordic countries, so Denmark, Finland, Sweden, et cetera. And
Speaker 1: I was really surprised, like in the Netherlands, for example,
Speaker 1: I didn't understand the extent of the capital controls that
Speaker 1: they have. And so these are business owners and they're
Speaker 1: doing business selling you know whatever, they're selling supplements or
Speaker 1: fitness equipment or whatever, all across Europe, but the government
Speaker 1: doesn't want money to go in and out of the country,
Speaker 1: and so it makes it very difficult for them to
Speaker 1: do business. Some of the team that ran the event
Speaker 1: are from Argentina. Argentina has some of the highest inflation
Speaker 1: in the world, and they also have capital controls. So
Speaker 1: for example, you have this the Argentine I think it's
Speaker 1: the Argentine peso that's losing one hundred percent of its value,
Speaker 1: and so you don't want to hold that right, so
Speaker 1: you want to exchange it for something else, Well, what
Speaker 1: would you exchange it for. Well, people would like to
Speaker 1: exchange it for a dollar. So the official exchange rate,
Speaker 1: I don't have it pulled up in front of me,
Speaker 1: so don't quote me exactly. But the government tells you
Speaker 1: that the official exchange rate, because they're trying to make
Speaker 1: it look like it's not so bad, is like two
Speaker 1: hundred and fifty to one, two hundred fifty Argentine pesos
Speaker 1: to one dollar. But they only allow you to exchange
Speaker 1: and they just told me this this last weekend, so
Speaker 1: I don't have a written down, so again sorry for
Speaker 1: my not being completely factual. But something like the government
Speaker 1: only allows you to exchange, you know, one hundred dollars
Speaker 1: of that or something like that. So then there's a
Speaker 1: black market for that, and the black market is like
Speaker 1: five hundred to one approximately, because people don't want to
Speaker 1: hold the Argentine payso they want a dollar. So even
Speaker 1: though the official rate says that, since they can't really
Speaker 1: do much of it, they'll just pay the black rate
Speaker 1: five hundred, five hundred fifty to one.
Speaker 2: But here's the thing.
Speaker 1: The government won't let you spend more than I mean,
Speaker 1: I should have written these numbers down. I think it
Speaker 1: was like three hundred dollars on their credit card. So
Speaker 1: these people they're in Spain, they're traveling from Argentinita, but
Speaker 1: they can't spend money on the credit card. Well they can,
Speaker 1: but only up to like a couple hundred dollars. Once
Speaker 1: they go over that, then it's way worse than even
Speaker 1: the black market rate. Then it's like exchange like a
Speaker 1: seven hundred and one ratio. Why do they do that
Speaker 1: because they know that the people are going to be
Speaker 1: dumping the Argentine pace so as fast as they possibly can,
Speaker 1: causing a speculative attack. That's exactly what they don't want,
Speaker 1: and so that's the only way to stop it. Nobody's
Speaker 1: going to want to hold a currency when inflation is
Speaker 1: running that high, and that's exactly where the United States
Speaker 1: finds itself in. So damned if you do, damned if
Speaker 1: you don't. Inflation is raging high. The more we raise rates,
Speaker 1: the worse it actually gets. But if we lower rates,
Speaker 1: we have a speculative attack. So what do we do. Well,
Speaker 1: we do what every other country in the world has
Speaker 1: done is doing right now, and that is imposing capital controls,
Speaker 1: and like I said, that is very, very very scary,
Speaker 1: especially you know, being in the United States, the land
Speaker 1: of the Free. We don't want our money being locked down.
Speaker 1: But of course this is what they have to do.
Speaker 1: It's the only way they can do it. It's the
Speaker 1: only way they can do it if they want to
Speaker 1: try to protect their currency. Some countries, you know, Argentina, Nigeria,
Speaker 1: they've completely cut off access points to cryptocurrency because again,
Speaker 1: people will trade their currency that's losing value for anything.
Speaker 1: It's what Libwoo Vunmesis calls the crackup boom, and he says,
Speaker 1: and then suddenly the people realize that inflation is both
Speaker 1: permanent and intentional, and then they lose all confidence and
Speaker 1: they want to exchange that currency for anything they can
Speaker 1: as fast as they can. In the currency ultimate plummets
Speaker 1: unless the government doesn't allow you to do it. It's
Speaker 1: the only way to stop it. And this is not
Speaker 1: a conspiracy. So what's been done in the nineteen forties.
Speaker 1: The IMF International Monetary Fund put out of paper in
Speaker 1: twenty fifteen titled quote the Liquidation of Government Debt and
Speaker 1: an outline something that we call financial repression, and it
Speaker 1: says that in this paper. Quoting it, it says here quote,
Speaker 1: we suggest that once again, financial repression may be part
Speaker 1: of the toolkit deployed to cope with the most recent
Speaker 1: surge in public debt and advanced economies. So what they're
Speaker 1: saying it says here quote financial repression is most successful
Speaker 1: in liquidating debt when accompanied by inflation. For the advanced economies,
Speaker 1: real interest rates were negative half the time. So what
Speaker 1: they're saying in this paper is the goal to get
Speaker 1: rid of the debt is to lock you in into
Speaker 1: the bond market that pays a very low yield when
Speaker 1: you have high inflation, so they inflate their debt away,
Speaker 1: trapping you in the system so there's no escape out
Speaker 1: for you, and stealing your wealth to.
Speaker 2: Bring theirs back down. It's a very very scary thing.
Speaker 1: Now we've seen this in some shape or form already,
Speaker 1: but it's only getting worse, and unfortunately it appears that
Speaker 1: it's the government's only way out. Damned if you do,
Speaker 1: damned if you don't. And you and I are cott
Speaker 1: in the middle. Now, what do you do?
Speaker 2: Will you get out?
Speaker 1: While you still can buy gold, buy bitcoin, buy some houses,
Speaker 1: by buy something, because otherwise you're going to be stuck
Speaker 1: in this financial repression nightmare. If you're just tune in,
Speaker 1: you're listening to the Mark Moss Show. Of course, we're
Speaker 1: always talking about the decentralized revolution of three revolutionary cycles
Speaker 1: are converging in today. We just broke down the eighty
Speaker 1: year financial revolution cycle and exactly what's happening. Hopefully, this
Speaker 1: isn't meant to scare you. It's to tell you what's
Speaker 1: coming so you can prepare. I'd love to hear what
Speaker 1: you have to say. Leave me a comment, hit me
Speaker 1: up on social media. I want to hear that you're
Speaker 1: listening to the show. I want to hear you get
Speaker 1: some value and please, if I can't ask a favor,
Speaker 1: would you please rate and review this show and a
Speaker 1: podcast player.
Speaker 2: That's what I got. Thanks so much for listening. Until
Speaker 2: next time,