00:00:00
in
00:00:00
1971 I clerked on the floor of the New
00:00:03
York Stock Exchange and on August 15th
00:00:07
Richard Nixon Sunday night got on the
00:00:10
television and told people that the
00:00:14
monetary system was going to change that
00:00:16
the money that they thought they could
00:00:19
get gold was thought of as money then
00:00:22
and paper money was like checks in a
00:00:25
checkbook didn't have any intrinsic
00:00:26
value no value that they would not get
00:00:30
because there was a fixed exchange rate
00:00:32
and he gave some sort of BS story about
00:00:35
why that was which it was really because
00:00:37
they didn't have enough gold to back up
00:00:40
their money claims and I walked on the
00:00:42
floor of the New York Stock Exchange I
00:00:44
thought this is a big crisis this is
00:00:47
going to be terrible and I thought the
00:00:50
stock market was going to go down a lot
00:00:52
and I went on the floor and it went up
00:00:56
the most in years and I didn't
00:00:59
understand that I didn't understand why
00:01:02
and so I started to do research and I
00:01:04
found that on March 15th
00:01:09
1933 President Roosevelt got on the
00:01:12
radio and made the exact same
00:01:15
announcement for the exact same reason
00:01:18
and I studied then why is it that they
00:01:22
went up a lot okay you devalue money
00:01:24
when you devalue money and you make
00:01:26
money very easy things go up
00:01:30
and so I learned not just the nature of
00:01:33
that mechanic but I learned that things
00:01:37
that surpris me in my life often were
00:01:40
things that never happened in my
00:01:42
lifetime but they happened in times in
00:01:44
history so I studied the Great
00:01:46
Depression I figured okay I should study
00:01:49
all big things that happened and I
00:01:51
studied that Great Depression and as a
00:01:54
result of doing that in 2008 I was able
00:01:58
to anticipate
00:02:00
the global financial crisis ahead of it
00:02:03
and the reason is is because when you
00:02:05
have a debt crisis and interest rates go
00:02:08
down and hit zero so they can't go down
00:02:11
anymore cutting interest rates anymore
00:02:14
is no longer going to work and what I
00:02:17
learned from studying this event in
00:02:22
1933 is that when that happens the
00:02:25
government prints money and buys the
00:02:28
bonds so what happened in 2008 was
00:02:32
exactly that and I wouldn't have
00:02:34
understood it if I didn't study what
00:02:37
happened back then so that changed my
00:02:40
whole approach to decision making which
00:02:42
is also why I did this study recently
00:02:46
principles for dealing with the changing
00:02:47
world order I needed to study things
00:02:50
that hadn't happened in my lifetime so
00:02:53
we'll get into it there are things that
00:02:55
happening to us in our lifetimes that
00:02:58
haven't happened before that you have to
00:03:00
go back to the 30s or other periods of
00:03:03
time to understand and related to that
00:03:05
is this money debt thing I think that
00:03:08
we're at an inflection point and I think
00:03:11
that people do not economists and people
00:03:15
and everybody policy makers don't
00:03:19
adequately understand the big debt cycle
00:03:22
they understand the shorter term debt
00:03:25
Cycles you know econom is weak inflation
00:03:27
goes down they make credit available
00:03:30
things go up stocks and everything goes
00:03:32
up until you get too much and you get
00:03:35
inflation then they tipen credit and so
00:03:37
on but the big debt cycle isn't
00:03:39
understood and yet we're there we're at
00:03:43
the brink of one of these there are
00:03:46
really three factors that drive the big
00:03:50
debt cycle most people think interest
00:03:52
rates go up because of inflation
00:03:54
tightness of use of monetary policy but
00:03:57
they don't realize that there are limits
00:03:59
to their and here's how it happens one
00:04:02
man's debts are another man's Financial
00:04:04
assets so when you're holding a lot of
00:04:07
bonds that's a large percentage of the
00:04:11
portfolio that's also a large debt and
00:04:15
think of the credit system like a
00:04:18
circulatory system that brings nutrients
00:04:22
to all of the parts of the body so you
00:04:24
get buying power and if that buying
00:04:27
power is used to to create
00:04:31
productivity then what it does is it
00:04:33
produces incomes that are large enough
00:04:37
to pay the debts back and give you
00:04:40
productivity and everybody's happy but
00:04:43
if the debts are too large and don't
00:04:46
produce the productivity you don't have
00:04:49
the income that's necessary to service
00:04:51
those debts and so in this circulatory
00:04:55
system if it's healthy you're seeing
00:04:58
incomes rise with the
00:05:00
debts and you're seeing the system work
00:05:03
well when debts rise relative to the
00:05:05
incomes that are needed to service the
00:05:07
debt it's like plaque in the system
00:05:11
building up in the circulatory system
00:05:14
because it means that first of all you
00:05:17
have a Debt Service problem that you
00:05:20
have to pay the debt service and that's
00:05:23
like plaque in that it leaves less room
00:05:27
for spending so for example the US
00:05:29
government
00:05:30
has an interest bill that's about a
00:05:32
trillion dollars a year and if they
00:05:34
didn't have a trillion they didn't have
00:05:37
that interest Bill they'd have a
00:05:39
trillion dollars more spending and that
00:05:41
process gets worse and worse over time
00:05:44
in addition one has to roll over the
00:05:48
debt that was last accumulating so we
00:05:51
have to roll over this year a little
00:05:54
over $9
00:05:56
trillion of debt that means it runs out
00:05:59
then you have to sell it again and when
00:06:01
they have a lot of that debt that's a
00:06:04
problem and when you're putting a lot
00:06:06
more debt on top of that pile of debt so
00:06:09
it's not just the existing debt that's a
00:06:11
problem but you have to add more debt
00:06:14
sales which equals essentially the
00:06:17
budget deficit which now is going to be
00:06:20
about 75% of GDP you've got to sell
00:06:25
those you have to sell those to people
00:06:28
or Institution or central banks or
00:06:31
Sovereign funds that hold these bonds
00:06:33
where they're already holding too many
00:06:35
bonds and now they have to roll them
00:06:38
over and you have to sell these new
00:06:40
bonds that are coming on and that can be
00:06:43
a problem and it can be worse than that
00:06:47
because if they don't have if they say
00:06:50
hey there are too many of these bonds
00:06:52
and I've got enough and I don't want to
00:06:53
buy it or Worse there could be some
00:06:57
reasons that they don't want to buy it
00:06:59
like for example sanctions okay we're
00:07:02
living in a world similar to the
00:07:05
1930s and if I was the Chinese I would
00:07:08
worry that what would happen to me might
00:07:11
happen what happened to the Japanese in
00:07:14
the
00:07:15
1930s which is that we froze their bonds
00:07:19
meaning they didn't get their money
00:07:21
nowadays with sanctions and too many
00:07:23
bonds and so on when I calculate who are
00:07:27
the buyers and how much do we have to
00:07:29
sell I find a big imbalance and I know
00:07:32
how that works you know what happens is
00:07:35
central banks buy these bonds they print
00:07:38
money and buy the bonds and then they
00:07:40
lose money on the bonds and you get a
00:07:42
negative net worth at the central bank
00:07:45
and you get this spiral when you reach
00:07:47
the part of the cycle that you have to
00:07:51
borrow money to pay debt service and
00:07:55
then the holders of those bonds say okay
00:07:58
it's a risky situ situation in the
00:08:00
private credit Market we call that the
00:08:03
debt spiral the debt death spiral
00:08:06
because when you have to roll over the
00:08:08
debts but it's risky the credit spreads
00:08:11
go up and when the credit spreads go up
00:08:14
then it bads to The Debt Service and it
00:08:17
becomes a spiral that's a problem so the
00:08:19
way I calculate it is that we're quite
00:08:22
near that point first start to do the
00:08:27
supply demand analysis simple when that
00:08:30
Dynamic I describe starts happening you
00:08:33
can see it because the amount that is
00:08:36
sold is not bought by the private sector
00:08:40
anymore or those other buyers and then
00:08:42
the central bank has to come in and then
00:08:46
print money and make up that difference
00:08:49
and then that devalues money so we saw
00:08:51
let's call it a palpitation I give this
00:08:55
example it's like a heart attack we saw
00:08:58
that when in 20 20 and
00:09:00
2021 when the government needed in 2020
00:09:04
to send out a lot of money it actually
00:09:07
sent out about twice the amount of money
00:09:10
that people in their incomes lost or
00:09:14
businesses lost they sent out twice as
00:09:16
much amount of money then and then in
00:09:20
2021 they did it again without the need
00:09:24
but there was a move from a right of
00:09:27
Center policy to a left of center Poli
00:09:29
policy in which Universal basic income
00:09:32
and the desire to do that put out that
00:09:35
money and so where did the government
00:09:38
get the money from they got it from the
00:09:41
central bank that produced the money and
00:09:44
sent it out and so everybody's getting
00:09:46
all this money and they're surprised
00:09:49
that prices went up so okay so you have
00:09:53
that wave of inflation that was like a
00:09:56
warning heart attack the all alternative
00:10:00
has been a problem it's like somebody
00:10:02
who's built up their cholesterol and
00:10:04
lived this way and they say I haven't
00:10:07
had a heart attack and they get that as
00:10:09
positive reinforcement that are the
00:10:12
symptoms and the indicators that you're
00:10:15
having a heart attack an economic heart
00:10:17
attack a debt crisis and so we should be
00:10:19
asking ourselves is that logical has it
00:10:23
happened before and then what do we do
00:10:25
about it rather than say we don't have
00:10:27
to worry about it
00:10:29
you will see a spike in interest rates a
00:10:33
tightening very much by the way these
00:10:35
always happened that happened in 20120
00:10:38
you'll be aike in interest rates it will
00:10:40
show up as interest rates rising and the
00:10:45
value of money going down particularly
00:10:47
in relation to gold or other currencies
00:10:51
perhaps although this is something that
00:10:53
will affect all currencies because
00:10:54
they'll all be in the same they'll all
00:10:56
depreciate again together and you'll see
00:10:59
the rates Rising even though the Federal
00:11:01
Reserve is easing then you will see the
00:11:04
Federal Reserve come in and buy and do
00:11:08
another
00:11:09
QE and then you're going to see the kind
00:11:13
of reaction that you saw back in 2020
00:11:17
and 21 where not only the inflation
00:11:20
component but gold and other asset
00:11:23
prices in the sense going up it'll look
00:11:25
like that what you will certainly see is
00:11:29
leave Federal Reserve coming in and
00:11:31
buying a lot like it did and it doesn't
00:11:34
have to say an announcement but it'll
00:11:36
come in like that like they did in 2008
00:11:39
or like they did in 2020 except in a
00:11:43
bigger way but what you might have in
00:11:46
preparation for that like in
00:11:49
1971 is certain actions taken to deal
00:11:53
with that issue such as extending the
00:11:56
maturity of the debt these are
00:11:58
possibilities but I think the government
00:12:00
would do it such as that country is
00:12:04
going to be sanctioned and therefore to
00:12:06
sanction them we are not going to pay
00:12:09
the debt that would be a very classic
00:12:12
and certainly fireworks should go off in
00:12:14
your mind about that that signal I'm not
00:12:17
saying it's going to happen but that is
00:12:18
one of those things and you could see
00:12:22
then the government saying that they're
00:12:25
going to restructure the debt they won't
00:12:28
say it's default they will say under
00:12:32
this policy we're going to be better off
00:12:35
if we don't VA default we won't change
00:12:39
what you're going to get paid but we're
00:12:41
going to spread it out over more years
00:12:45
that'll be a restructuring of the debt
00:12:47
combined with some monetization of the
00:12:51
debt in other words a central bank
00:12:54
policy where they're buying some of that
00:12:56
debt that'll look like that if if it
00:12:59
gets bad then you could have more
00:13:03
extreme things happen I don't think it's
00:13:06
a depreciation of the dollar in
00:13:09
relationship to all other
00:13:12
currencies I think all other currencies
00:13:15
will depreciate with the dollar in other
00:13:17
words it's up to each Central Bank and
00:13:20
pretty much in terms of other currencies
00:13:22
it's an ugly contest you know there's
00:13:25
the Euro and the European situation
00:13:28
which is terrible there's the Japanese
00:13:31
Yen they have a huge amount of debt
00:13:33
which they're monetizing and so on
00:13:35
there's China's REM andb and that's not
00:13:37
going to be a safe storeold of wealth
00:13:40
and none of those currencies are going
00:13:42
to sort of be what you'd call strong so
00:13:45
I think it would be very much like the
00:13:48
1970s which was very much like the 1930s
00:13:52
in which they all go down in relation to
00:13:56
gold or other hard assets like that and
00:13:59
you know what is the alternative money
00:14:01
will be the question what's the
00:14:03
alternative money that is stable in
00:14:06
Supply Bitcoin might be a bit part of
00:14:09
that could be a big part of that but
00:14:11
what is the alternative money because
00:14:13
debt is money and money is debt when I
00:14:16
say debt is money debt is money to come
00:14:19
you're holding this and people going to
00:14:21
give you money and money is stored in a
00:14:24
debt instrument when you're holding your
00:14:26
money you're putting it in a debt
00:14:28
instrument
00:14:29
so they're one and the same when you
00:14:31
have too much debt it goes down so I
00:14:34
would think it's more like gold Bitcoin
00:14:38
what is the alternative money money has
00:14:40
two purposes right a medium of exchange
00:14:44
and a storeold of wealth as far as a
00:14:46
medium of exchange it can keep working
00:14:48
as a medium of Exchange in Germany's Yar
00:14:51
Republic or Argentina recently you can
00:14:54
carry wheelbarrows of money and it's you
00:14:57
could still exchange it they had so much
00:14:59
that they couldn't count it so they
00:15:01
waited this is literally the case so the
00:15:04
money can be used for medium exchange
00:15:07
but as a stor hold of wealth it's not
00:15:10
going to be used and people will look
00:15:12
for other stor holds of wealth that are
00:15:15
movable and tradable so like in the 30s
00:15:20
and then the 40s what did countries do
00:15:22
with each other they're not going to
00:15:24
trust that the other country is not
00:15:26
going to print the money or do that so
00:15:28
they exchanged gold because gold has the
00:15:32
attributes it's limited in Supply it's
00:15:34
not easy to manufacture and throughout
00:15:37
history it's been held by central banks
00:15:39
it's used today gold is the third
00:15:42
largest reserve currency it's the dollar
00:15:46
then the Euro then gold and then the
00:15:48
Japanese Yen and so that's why I'm
00:15:49
saying I think that in that particular
00:15:52
Dynamic you say well what is it that's
00:15:54
the storeold of wealth and emphasized
00:15:57
gold but Bitcoin too has elements of
00:15:59
that it's not real estate cuz real
00:16:03
estate is nailed down you have a problem
00:16:06
with real estate real estate is nailed
00:16:09
down you can't move it around you can't
00:16:10
it doesn't work that way it's very
00:16:13
interest rate sensitive so when interest
00:16:14
rates go up it hurts it it's also very
00:16:17
easily taxed because it's not moved you
00:16:19
can easily tax it so it's not like it
00:16:22
could be exchanged so there's a very
00:16:25
limited number of alternative monies
00:16:28
what what you don't know about the
00:16:30
future is far greater than anything that
00:16:32
anyone knows about the future so we
00:16:35
always have to be humble what you need
00:16:38
is a proper diversification to create a
00:16:41
portfolio gold does well when those
00:16:45
other assets that you're typically
00:16:46
holding in your portfolio don't do well
00:16:49
in such a crisis okay so if you're
00:16:52
holding a let's say a lot of bonds or
00:16:54
those types of things the optimal amount
00:16:57
in a typical portfol IO is in the
00:17:00
vicinity of a little bit less than 15%
00:17:03
like if you didn't know a prudent amount
00:17:07
that kind of little bit of gold serves
00:17:10
as a protection and diversifies the
00:17:13
portfolio I think the most important
00:17:15
thing is that you don't have much of an
00:17:17
exposure keep in mind in investing what
00:17:20
happens is the biggest problem of most
00:17:23
investors is that they believe that
00:17:26
whatever has been the best investment
00:17:29
over the recent past is the best
00:17:32
investment not that it's become
00:17:34
expensive and become too expensive go
00:17:37
down and so there's a tendency of
00:17:40
portfolios and investors to invest When
00:17:44
Things become terrific so by way of
00:17:46
example let's say AI companies and you
00:17:50
know companies like that the thing I
00:17:52
want to convey to investors is what's
00:17:55
gone up a lot and really done well is a
00:17:57
good investment rather than it's become
00:18:01
expensive is something they have to
00:18:04
watch out for and that the best company
00:18:08
is no more the best
00:18:11
investment than the best horse in a
00:18:14
horse race is the best thing to bet on
00:18:18
because there are odds and hurdles that
00:18:20
are based into the price so if you're
00:18:24
going to bet on a horse and a horse race
00:18:26
you have an equal likelihood of betting
00:18:28
on the worst horse to win on because the
00:18:31
odds are shifted the discount and you
00:18:33
know that might be the 50 to one shot
00:18:36
and so the markets are like that it's
00:18:39
like a football game you have to beat
00:18:41
the spread so that dynamic means that
00:18:45
you should balance most the thing I will
00:18:48
really convey to your listeners is that
00:18:51
knowing how to balance your portfolio
00:18:53
well is a very important thing this is
00:18:56
the most important thing because what
00:18:58
you know is you know you can't be
00:19:00
certain about and you can reduce your
00:19:03
risks without reducing your expected
00:19:06
returns if you do that well I give many
00:19:10
examples the best mix is to properly mix
00:19:15
depressing moves with stimulative moves
00:19:19
what I call a beautiful deleveraging and
00:19:22
what I mean by that is that if you raise
00:19:25
taxes or lower spending that's depress
00:19:28
pressing on the economy however if you
00:19:32
do that with an easing of monetary
00:19:35
policy which is stimulative on the
00:19:38
economy those two things can balance and
00:19:42
either of them lowers the debt to income
00:19:45
ratio but they can balance each other
00:19:47
and that's a well-engineered move
