Kind: captions
Language: en
If you think your money is safe in the
bank, you are dangerously wrong. [music]
The Fed just did something insane given
the state of the market. On December
10th of 2025, the Fed cut by 25 basis
points, bringing the Fed's fund rate
down to 3.5 from 3.75%.
This wasn't a unanimous decision,
though. Several Fed officials dissented,
which is rare and it tells you that this
is a deeply divided committee making a
move under pressure, not because they've
reached consensus. And the decision that
they came to is going to have a dramatic
impact on your ability to save. And the
cut wasn't a symbolic move to pacify
Trump or the markets. This was a third
rate cut this year and it came with
forward guidance that explicitly points
towards more rate cuts to come. [music]
The dot plot, which is a chart that
shows where each Fed policy maker thinks
interest rates are headed to over time,
shows that the median dot has quietly
flipped from hold to ease and the
markets have already priced in a
continuation of the easing path. This is
the same Federal Reserve that spent the
last two years telling you inflation was
the biggest threat to economic
stability. It's the same Fed that told
you rates [music] would stay higher for
longer. The same Fed whose explicit
mandate is price stability and maximum
employment. So why are they cutting now
when that will only fuel the everything
bubble we're already in the middle of?
and what can you do to protect yourself?
Despite the lunacy of this rate cut, it
was entirely predictable for reasons
we're going to discuss. And the
underlying reasons for the move make the
path forward increasingly clear. The
stark reality is that this cut has
nothing to do with inflation. Obviously,
it will inflate asset prices like crazy,
and the Fed knows that. this cut is
about the survival of the US economy as
a whole. Or should I say that it will
help it die more slowly so we have time
to pray for a miracle. But if you're
watching Buffett right now, he's fleeing
to Japan because American policy is
making him nervous. Now, unfortunately,
due to decades of deficit spending and
terrible economic policy, the Fed is
trapped in something called fiscal
dominance. We're going to go into that
in detail in a minute, but for now, just
know that it's the world's greatest
example of being damned if you do and
damned if you don't. Fiscal dominance is
what happens when the government has
accumulated so much debt that monetary
policy via the Fed stops being about
managing the economy and starts being
about keeping the system from collapsing
due to the interest payments. If you
don't understand the timing of the move
yet, brace yourself because beginning in
2026, the United States is staring down
a massive wall of government debt that
has to be refinanced. It's trillions of
dollars issued back when interest rates
were near zero and now it has to be
rolled over at dramatically higher
rates. The refinancing is not optional.
Even at historically low interest rates,
and these still are very low, our
interest payments on the national debt
is already the second largest single
item on the budget. It's bigger than
national defense [music] and Medicaid. I
almost don't want to say that out loud
too often because people are going to
become numb to that fact. And that fact
should hit like a sledgehammer. Deficits
have consequences and debt does not
magically disappear. it just stacks and
eventually has to be paid off or rolled
over. That's what we're going through
right now. And we certainly can't afford
to pay it off. So that only leaves
rolling it over and praying for a growth
miracle. And if rates stay high, the
government will have to refinance at
dramatically higher rates, which will
break the economy. If interest costs
explode, deficits spiral. And if
deficits spiral, the only way out is
money printing. So, while the Fed will
never come out and actually say what
they're doing, they're not going to say,
"We're going back to printing." That's
functionally what this move signals.
Even though the Fed is technically
shrinking its balance sheet to cool the
economy, more liquidity is being
injected into the financial systems
through other channels faster than
quantitative tightening is removing it
because of low interest rates. So, on
paper, while quantitative tightening
still exists, in practice, liquidity
conditions are already easing. Here's
how quantitative tightening is supposed
to work. The Fed owns trillions of
dollars in treasuries and mortgage back
securities from years of quantitative
easing. As those bonds mature, though,
the Fed should allow them to roll off
its balance sheet instead of reinvesting
the proceeds. that gradually removes a
large price insensitive buyer from the
market and over time reduces liquidity
in the financial system. Tighter
liquidity conditions tend to push
borrowing costs higher, pressure asset
valuations and slow demand and over time
that cooling of financial conditions is
intended to help bring [music] inflation
down. That's the theory anyway. But
that's not what's happening in reality.
Instead, at the exact moment in history
when under normal conditions, rates
would be going higher. They're coming
down. So, this cut is not a healthy
system making a rational decision to
cool down. This is an overheated engine
being revved even harder. The RPMs are
being driven deep into the red, and the
engine is starting to smoke. [music] By
cutting the rates, the Fed might be able
to avoid even more CPI inflation, but
they're going to spike asset prices,
[music] which is just another kind of
inflation. And that inflation kills the
only refuge from the exponential 3 to
25%
CPI inflation we've experienced over the
last 5 years alone. Asset prices going
up would be awesome except for the fact
that they [music] have now completely
detached from business fundamentals by a
lot. Making it clear bubbles are forming
everywhere and expanding rapidly. And to
make matters worse, 90% of Americans
live paycheck to paycheck and or are
trying to get ahead simply by saving
money. So, when you have CPI inflation
of 3% and asset inflation of even more,
you've got a dual problem and [music]
nowhere to escape to. First, inflation
punishes savers by quietly stealing your
purchasing power over time. So, cash is
a long-term disaster. And second, in an
inflationary environment, owning
productive assets is not optional. It's
an [music] absolute requirement. And the
higher prices put intuitive assets like
homes completely out of reach. And for
the people who already are invested, the
inflation of asset prices feels like
you're getting rich. And so they're very
excited. But odds are prices are going
to correct. And those corrections tend
to be violent and destroy massive
amounts of wealth because so many people
are doing it on debt. So driving
inflation beyond what business
fundamentals warrant is extremely risky.
It's better than CPI inflation in the
short term, but long-term it can be just
as bad, if not worse, depending on the
size and speed of the correction. So,
while the much reported CPI inflation
rate might be down on paper, lowering
rates and returning to quantitative
easing, aka QE, will just send asset
[music] prices racing even higher.
Housing, equities, gold, Bitcoin, etc.
Everything [music] that protects people
from currency to basement. And the
inevitable correction could create years
[music] of stagnation, aka a recession.
or if it's violent enough, a fullblown
depression. As a fun reminder, this is
not a self-correcting problem. Without a
balanced budget or a debt reset, which
is horrifying, inflationary pressure
never goes away. It just compounds. But
the political madness of lowering rates
because we refuse to balance the budget
is still what's actually happening and
what's likely to continue happening
until disaster strikes with sufficient
force to make everyone accept austerity.
And odds are voting isn't going to save
us. [music] The rate cuts and reckless
spending does not appear to be a
partisan issue. Both sides are hyper
guilty and will keep spending until they
simply can't do it anymore because the
interest payments on the debt balloon to
the point that it gobbles up all taxable
revenue. None of this is a conspiracy.
This is just debt math colliding with
the lunatic behavior of people, all of
us, who continue to vote for more free
stuff, which is what caused the problem
in the first place. and politicians who
promise whatever they need to promise to
get elected and reelected. [music]
And it all happens just slowly enough
that not enough people take the [music]
time to figure out what's really going
on. And the problem is structural and
it's caused by math and human behavior.
The cut was unavoidable given the
realities of politics and the raw math
of the debt obligations we've already
racked up. Because when you're servicing
tens of trillions of dollars, small
changes turn into hundreds of billions
of dollars in additional expense,
interest cost compounds. Every
percentage point matters. [music] Every
basis point matters. Make no mistake,
the only smart move right now is to
balance the federal budget. But no one
is going to do that because if they did,
they won't get reelected. And as much as
I hate the cut, it was the only
politically survivable move. By cutting,
the current crop of politicians can kick
the can down the road [music] by
choosing to fuel the everything bubble
rather than immediately crush the
economy under impossible interest
payments. Or honestly, defaulting on
some portion of their debt obligations,
which would be horrible, but better.
They chose [music] one more beer to cure
the hangover rather than actually
getting sober. Unless we balance the
budget or AI ushers in an era of ah
historic growth, our economy is in
paliotative care waiting [music] to die.
We can make it more comfortable. We can
delay things for a bit, but the debt is
going to overrun everything. The rate
cut just allows us to refinance the huge
2026 debts without immediate cardiac
arrest. But a rate cut is stimulatory
and causes inflation because money
becomes so cheap to borrow. And when
money is cheap to borrow, people borrow
and they use it to build and gamble. The
building part is great. It means more
jobs and the potential for growth. But
if we don't grow productivity faster
than we grow the money supply, it also
means more money chasing the same amount
of stuff. And [music] that makes
everything more expensive. That, my
friends, is called inflation. By
cutting, the Fed has clearly signaled
that for political reasons, we are
letting politicians sit at the crabs
table and make more and more insane bets
trying to win it all back with growth.
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If you're wondering why the [music]
market has been so volatile lately,
wonder no more. Smart money knows that
when money is cheap, you push further
and further out on the risk curve and
you do it with more and more debt. That
is how you build an everything bubble.
And as history tells us, eventually the
bubbles will burst. And when they do,
the economy chokes and slows way down.
[music] Think of the 2000.com crash and
the 2008 great recession. Think of it
like this. We're living in a movie. And
in the movie, we're racing towards a
fiscal cliff where America bankrupts
itself through debt and money printing,
where bubbles are forming everywhere,
and where the government is
simultaneously trying to save us with
one hand by growing our way out of the
problem, and then with the other hand,
refusing to balance the budget, causing
us to move faster and faster towards
that fiscal cliff. And the question
becomes, will they save us before they
kill us? The whipsawing in the markets
is a result because smart money knows
exactly how this all plays out. You've
got people betting on the market going
up and people betting on the market
crashing and many of them are doing it
with debt because money is so cheap. And
that is one of the many things driving
asset prices to the moon. Now, here's
the bad news. under fiscal dominance for
all of the political theater around the
Fed's independence. The truth is that
not only is the Fed not independent, the
Fed [music] isn't steering the economy
anymore. It's merely reacting to it.
It's not that Powell is beholden [music]
to Trump or Congress, it's that he's
beholden to math. If Powell keeps rates
high long enough to actually kill
inflation, the interest payments on the
debt will explode so fast that the
Treasury will be forced to issue even
more debt just to pay the interest. That
means more borrowing, more monetization,
more inflation, and more [music]
instability. If he cuts rates, [snorts]
sure, he fuels speculation, bubbles, and
asset inflation, but at least the
government can keep refinancing for a
little while longer. And that's why the
choice to lower rates should have been
obvious to all of us. [music] And why
the Fed will lower them even more.
Credit to Pal for holding out as long as
he did, to be honest. But the 2026 debt
just finally forced his hand. That's why
he's going back on everything that he
said previously. [music]
Powell isn't caving. It's that politics
always wins once the debt gets big
enough because elections [music]
do not care about long-term stability.
They care about this year. They care
about the midterms. [music]
And that's the trap. That's what will
eventually grind everything to a halt or
force us to default on our debt,
unleashing potentially decades of at
[music] best managed decline and at
worst revolution, war, or outright
economic collapse. It happens all the
time all around the world. I know us
growing up here in America, it seems
impossible, but it is absolutely not.
Now, none of that should be taken as
YouTube hyperbole, nor should it cause
you to freak out. The world is always
changing. things go up and down. Like I
said, this is universal. This is
happening all the time. It will always
be this way. Stay emotionally sober and
keep your wits about you. As distressing
as moments like this can be, there's
always a way to weather [music] the
storm and even come out ahead. But the
whole point of assessing data is that
data should drive your decision-making.
So, let's get into those decisions. Now
that you know what's going on, what
should you do about it? Here is how to
position yourself in a [music] debt
dominated inflationary system fueled by
fiscal dominance. There's five easy
pieces. [music]
One, stop saving money. I know that
sounds insane, but in a system dominated
by debt and money printing, [music] cash
is not neutral. Cash is exposure to
inflation. Now, that does not mean that
cash is bad. It means you can't just
blindly save to get ahead. You need cash
on hand for living expenses. And then
you need to put the rest to work to
protect you from inflation. Two, own
assets and accept [music]
much of your money is going to be tied
up to protect you from inflation. If the
government is going to use inflation to
devalue the dollar so it can pay back
its interest, which I assure you it's
going to, then assets are the defense,
[music] which is why they're rising so
fast. That doesn't mean excessive
speculation. I am not telling you to go
gamble on the wildest ever. It
doesn't mean chasing memes and it
definitely does not mean trying to time
the market. If that's what you want to
do, you are in the wrong channel. It
means owning productive [music] or
scarce assets and dollar cost averaging
into them over time. I get how boring
that is, but it's actually effective.
Dollar cost averaging does three
critical things. It removes timing risk.
Unless you're coming back from the
future, you are unlikely to get the
specifics right. So, bet on segments of
the market or the entire market as a
whole. Don't try to pick horses. It
creates a money habit. And three, it
keeps you investing through volatility.
You'll catch the falling knife, but you
won't miss the upswings. You should
always assume prices will swing
violently, so have cash on hand for
living expenses. Drawd downs will
happen. Those are just paper losses,
though, unless you were using margin and
got liquidated. So, don't panic. and
your money may be locked up for years.
So, plan accordingly. Three, diversify
across economic forces, not just
individual investments. Now, this is
where people think that they're
diversified only to find out in very
painful fashion that they are not.
Owning 10 stocks or three ETFs is not
real diversification. [music] What you
want for true diversification is
uncorrelated assets. Now to get there
you need exposure to different economic
forces not just different ticker
symbols. That means spreading exposure
across productive businesses and
equities spread around global markets
real assets and commodities spread
across different types that will thrive
in different economic environments. Hard
money like gold and Bitcoin and your own
skills and earning power. Now this one
is increasingly precarious in an
AIfueled world. I get that. But always
remember, you need a plan for today and
not just the future. And right now, your
skills still matter a lot. Don't make
[music] the mistake of assuming that AI
is going to play out exactly as everyone
says and stop developing your own
talents. I assure you, the future is
going to surprise us in some way. Not
developing your skills today would be as
foolish as exiting the stock market
because you think everything is
currently overpriced. Each of the above
asset classes responds differently to
inflation, recession, liquidity
expansion, and liquidity contraction.
You're not trying to be perfectly
hedged. You're simply trying to be more
robustly diversified than the average
bear. Four, hold enough liquidity to
remain chill in a downturn and be ready
to purchase assets when they go on sale.
[music]
This is a non-negotiable. Cash is for
safety first and foremost. So, make sure
you always have enough on hand that you
can eat and pay your [music] bills. All
right. You also want liquidity for
optionality. Liquid cash is always king
in the short term, unless the currency
is actually hyperinflating.
Because of that, you should keep enough
cash to live 6 to 12 months without
needing to change your lifestyle. Now,
ironically, the people who survive
inflationary resets best are not the
most aggressive. They're the ones who
aren't forced to sell at the worst
possible time. Five, avoid leverage.
Nothing forces a sale at the wrong time
like leverage. Optimize for survival
first. Cheap money makes leverage so
seductive. You can make a huge return on
the spread between what you pay to
borrow and what you can make in the
markets. but a couple of mistakes and or
[music] bad timing later and temporary
volatility becomes permanent ruin. In a
system under fiscal dominance, policy
shifts can be abrupt and catch you
totally offguard. Liquidity can vanish
overnight. Margin calls happen
instantaneously and it's suddenly game
over and you're wildly underwater with
no path back to the surface. Unless you
are a truly expert level investor with
deep experience managing leverage
through cycles, leverage is not the tool
you're looking for. It's just pure
liability and loss sleep because it's so
stressful. History is brutally
consistent. Wealth transfers during
resets go from the overlevered to the
liquid and from the emotional to the
disciplined. So remember, you don't need
to predict what happens next accurately.
You just need to stop playing a game
that no longer works. We are in fiscal
dominance. Saving your money is not
going to get you there. The [music] Fed
has no politically viable choice but to
print money and that is going to drive
inflation. And that is going to have
largely known consequences. But no one
will get the timing or specifics right.
So don't even [music]
try. All right. If you want to see me
explore ideas like this in real time, be
sure to join me live Mondays,
Wednesdays, and Fridays at 7 a.m.
Pacific on [music] YouTube, X, Twitch,
or Kick. You can jump into the debate or
just hang out with the community. I hope
to see you there. Till next time, my
friends, be legendary. Take care. Peace.
If you like this conversation, check out
this episode to learn more. In just 900
days, you'll be living through the end
of capitalism itself. your job, how you
earn income, the very way the world
determines your economic value. It's all
going to be different.