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Language: en
inflation is a very simple concept it's
just the money supply expanding and so
the more money there is right that's
what you're inflating that's where the
word literally comes from over time the
government has been very successful in
changing the definition of inflation to
fool the public as to its source because
if the public understood what inflation
was they would know that it's not caused
by grocery stores you know when Kamala
Harris says it's greedy grocery stores
that are causing inflation if you
understand that inflation is an increase
in the money supply well you know it
can't possibly be the grocery stores
because they don't have a printing press
they can expand the money supply but if
you think that inflation is rising
prices well yeah the grocery store keeps
raising my prices so they're causing
inflation they're raising prices because
the government created inflation that
the the prices are going up in response
to the inflation that's been created
uh so but by by changing the definition
of
inflation the the government not only
confuses the public as to who's creating
it but now they're able to blame it on
other factors like greedy corporations
or Putin uh you know that was you know
Biden kept talking about Putin and Putin
was causing the the inflation there's
only one source of inflation in America
and that's the Federal Reserve but the
reason the Federal Reserve is creating
all that inflation is because the
government is running massive deficits
and so the Federal Reserve is financing
those deficits by buying those bonds
with the inflation it creates the money
that it prints and so the the best way
to look at inflation is a tax right
inflation is what we pay for the
government that we don't pay for with
the income tax or the Social Security
tax or a sales tax basically the
deficits the federal budget
deficits we end up funding them by
inflation and those deficits are about
to Skyrocket they've been skyrocketing
and so the inflation tax is going to be
much bigger in
2025 than it was this year regardless of
what the FED is trying to tell
us how do we look at the FED signaling
that they're going to bring rates down
which we know they do because inflation
has come under control that's the public
messaging how do we reconcile that that
they're messaging that with you saying
no no no this is them giving up this is
capitulation uh and what you're looking
at is not what they're saying how do we
reconcile those two
views well the FED is now focused on
employment the economy which has clearly
uh come under a lot of pressure recently
is very close to officially I think
falling into
recession I think we've been in
recession pretty much the whole time I
just don't even believe the numbers the
way the government uh manufactures them
so I don't think we've ever had a strong
economy I just think that that's just
been a a statistical you know anomaly
and even if you look through the
statistics you can actually see a lot of
the inherent weakness that is being
masked by a lot of these superficial
numbers but when the FED stopped hiking
rates it was because Banks started to
fail if you remember what happened with
signature Valley Bank or uh Signature
Bank Silicon Valley Bank a few Banks
started to fail as a result of rising
interest rates and then the FED really
backed off and of course they had to
have a big bailout program to prevent a
lot more Banks uh from suffering a
similar fate but that's really when the
rate hikes stopped and so the FED kind
of kept rates where they were but kept
implying that look we're going to cut
eventually we just need enough proof
that inflation is going back down to 2%
% and they said we're not going to wait
for 2% we just have to believe that it's
going there now of course the reason
they're not going to wait for 2% is
because it's never going to get to 2%
and they probably know that but at this
point the jobs numbers are getting so
bad right the the non-farm payroll
report that we had the most recent one
was horrible and now the government
fested up and came back and said you
know 88,000 jobs that we claimed were
created oh we made a mistake they're
they're not actually there and I think
they made a bigger mistake I think
there's actually a lot more jobs that
they're pretending were created that
aren't really there and in fact the only
reason that we have more jobs now than
when Biden was uh elected is because so
many people have two or three jobs
that's where all the jobs are coming
from it's Moonlighting and the people
that now have two or three jobs they
don't want all these jobs they they
they'd like to be able to support their
family on one job but unfortunately the
gone up so much the grocery bill the
utility bill the insurance everything is
now so expensive because of all this
inflation that people have to work
multiple jobs and now Joe Biden wants to
claim credit for creating those jobs but
the public blames him for the fact that
people are forced to to work those jobs
uh but I think it's the weakness in the
economy that is prompting the FED to cut
rates which they're going to do here in
September they've now prepar the markets
for these cuts and they're not going to
just do one and done this is going to be
the beginning of as many rate Cuts as
they can get away with and I think
ultimately they're going to return to QE
they've already uh reduced the size of
their quanitative tightening program and
I think that was the first step to
reversing it and going back to QE which
is inflation creation QE is just you
know another word for inflation just
that you know it's it's it sounds better
it's like it's a euphan but that's
really what it is but the FED has to
pretend that it's it's finished the job
on inflation it can't you know be honest
and say look we still have high
inflation and it's going to go up but
you know we don't care so they have to
pretend that the 3% inflation that we
have now is going to go down to 2% but
you know we've been at 3% now for over a
year right we went down from nine to
about three
but there's no indication that we're
going from 3 to two in fact if you look
at the the market indicators on Friday
when pal you know delivered his
statements his Humphrey Hawk his uh
Jackson H
speech on that day gold was at a new
record high the gold price was above
2500 I mean as we're speaking here I
think it's around
2520 and the US dollar Index on Friday
sank to a thir 1mth low so when you see
a weak dollar and when you see surging
gold prices that's an indication that
monetary policy is too easy and that
inflation is going up not down in fact
the only reason that inflation came from
9% year-over-year to 3% was because we
got a 24% rise in the value of the
dollar that happened and after that big
rise in the value of the dollar then
prices started to come down because the
dollar was so much more valuable
relative to other currencies that
brought down commodity prices and that
brought down the CPI but now the dollar
has already fallen 10% from its peak and
it looks like it's going to fall a lot
more this weak dollar is going to be a
huge uh Tailwind for inflation and
record high gold prices are telling you
that that's exactly what's going to
happen yeah this is the part that I want
people to understand uh is that if you
you are trying to track inflation
yourself if you're trying to understand
how prices are going up there is a lot
of manipulation that's happening behind
the scenes to control the Public's
perception of the CPI number including
uh that a rise or lower in the value of
the dollar is going to have an impact on
CPI um how they calculate CPI excuse me
which has changed over time that's also
going to impact things uh and what I
want people to understand and please
correct me if you think that I'm
delusional about this is that the
government is doing um slight of hand
they're manipulating the numbers they're
doing slight of hand so that they can um
basically I'll be aggressive here and
use the word steal money from the people
not have to get people to vote so that
they can keep doing just absolutely
outrageous amounts of spending because
they can get your dollars from you
without having to ask for them by simply
driving uh pricing power down or
purchasing power excuse me
um through inflation by printing the
money now yeah well you know the way
politicians get elected is they promised
the voters something for nothing that's
that's what people vote for it's like
what are you going to give me if I vote
for you what's in it for me what do I
get right it's not like people are
saying you know leave me alone I Just
Want to Be Free People want free stuff
it's if if if you're in office what am i
g to what are you going to give me that
I don't now have right because that's
what people are voting for they're
voting for stuff free stuff and so
that's you know inherently the problem
with democracy and that's a whole
different podcast I mean that's you know
we we should be a republic and and not
you a democracy this is the inherit flaw
in that type of system and we're just
demonstrating it all over again not like
we we need to there's history is
littered with examples of failed
democracies for the same reason that
that we're failing now but the
politicians want to get elected and so
they want to give voters something for
nothing well how do they do that well
they create inflation right they they
they they give voters stuff that they
don't make them pay for through taxes
see if the government said okay we're
going to give you uh Health Care
education and and here's the bill right
we're going to raise your taxes so that
you can get this benefit the people
would like well I forget I don't want
that you know I don't want my taxes to
go up but when they say look we're going
to give you this stuff and your taxes
aren't going to go up right you're
getting it for free then that sounds
great or we'll just tax the rich to pay
for it well the problem is they can't
get enough money from the rich to pay
for all these promises so where do they
get the money well they just create it
so that's inflation and so instead of
taking your money they just take your
purchasing power and so now everything
you want to buy is more expensive and
the difference between what prices would
have been without all those government
programs and how much higher they are as
a result of those programs that's your
tax right and but the the people don't
know that they're paying a tax they just
think they're paying prices and and they
blame the business and the government
it's it's great for the government
because now the government can say you
see capitalism is bad see these greedy
businessmen are gouging You by jacking
up your prices when when they're not
they're simply passing on the higher
costs that that they themselves have to
pay to stay in business and those costs
are going up because of the inflation
that the government is creating but you
know the government obviously too since
they create
inflation they they want to lie about
how bad it is they don't want to
acknowledge it so the way it's measured
doesn't come close to capturing the true
increase in the cost of living they've
changed the
methodology for the CPI over the years
to make the number smaller or little
they did the same thing with
unemployment unemployment is only low
because we changed how we measure it
there are lots of people today who are
unemployed who we don't count but if you
go back in the past those people that we
don't count today used to be
counted a a and so the main reason that
unemployment is low now is because so
many people that we used to count as
unemployed in the past we don't count
them anymore in fact we have a lot of
those people now that you know if we if
we still counted unemployment the way we
counted it before
1994 we'd have unemployment above 10%
right now so there's no way anybody
would be able to claim we've got low
unemployment if it was 10% so you you
you take three qus of the unemployed and
you don't count them anymore and oh it's
only 4% and now Biden gets to brag about
how low the unemployment is meanwhile
we've got a lot of people who are
unemployed who are not in the statistics
and the same thing with inflation
inflation is a lot higher than the CPI
uh reveals and so even even if we can
get inflation down to 2% it wouldn't be
2% it'd be four or five% and right now
they're saying it's 3% because it's
probably 6% so it's not even close to
the 2% Target that the FED claims it
has yeah which is Uber devastating to
people's wealth creation uh in ways that
they don't fully understand and this is
why the slide of Hand Works is because
people don't understand um how it's
actually playing out let me ask you why
can't we just raise rates and solve the
problem of
inflation well first of all in order to
really solve the inflation problem it's
going to take a much bigger increase in
rates than what the FED has
delivered and but the problem is we have
so much
debt that that's
impossible go back to Al um to Paul
vulker in the 1980 I mean we have a
bigger inflation problem now than we had
in the 70s and to bring that inflation
to an end required 20% interest rates
whoa
now what would happen if interest rates
went to 20% now I mean we got up to 5%
right imagine if they got up to 20% well
we've got a $35 trillion national debt
that's financed with treasury bills even
if we had to finance that at 10% that's
$ three5 trillion dollar a year in
interest on the debt the US government
only collects about $4 trillion doll a
year in taxes in total so we have so
much debt imagine what would happen to
all these corporate bonds if their debt
uh you know matured and they had to
refinance it at 20% or you know anywhere
close to that or home mortgages they got
up you know 10% or 12% or 14 something
like that I mean we now have so much
debt that if you tried to raise interest
rates high enough to get rid of
inflation everything would collapse
which is why they're not going to do it
we are stuck with inflation because the
alternative is a political non-starter
because if the FED actually got rid of
inflation you would have a a financial
crisis that would make a n 2008 look
like a Sunday school picnic and you
would yeah really really fast I just
want to say something and then you can
pick that back up because we use words
like inflation and I think the that
people get lost the what you're saying
is we our debt is so high the only
option the government has is to take
your money via inflation but but once
people understand that yes you still if
you have $100 in your bank account it's
still $100 I understand that but it buys
$90 worth of goods then $80 worth of
goods 70 so on and so forth and so when
you say that the only option the
government has I want to make sure
people hear the only option the
government has is to take your money uh
because once you're like whoa whoa whoa
wait a second that's not what I want
then people start thinking in the right
way all right cool now that the audience
has that in their that point but the
point is that they they can't raise
interest rates high enough to fight
inflation without creating a financial
crisis and so that's why they didn't do
it that's why they stopped at you know
five and a quarter because the only way
that interest rates slow down inflation
is by slowing down debt they have to get
people to borrow less and save more but
even though the FED raised interest
rates nobody borrowed less you know the
the deficit spending at the federal
level went up household debt went up
credit card debt hit all-time record
highs so the FED never actually got to
restrictive monetary policy they never
got to a situation where interest rates
were so high that governments and
individuals stopped borrowing and
started saving but also if interest
rates got to that level um nobody could
afford it we'd have a complete economic
implosion and the government would have
to default on its promises including its
treasury bonds but it would have to tell
people on Social Security that they're
not going to get the money that they
were promised and and so none of this is
politically viable so what the
politicians are choosing is just to have
endless inflation and and that takes
them off the hook because they don't
have to cut Social Security they just
give you the Social Security benefits
and you just can't buy very much because
everything costs money right they don't
default on the bonds they pay everybody
with money they print so instead of H
honestly um telling people we don't have
the money to pay you and so we're going
to have to pay you less than we promised
they pay everybody off but the net
effect is you get less because the money
buys less so you lose through
inflation instead of through a an honest
default but that is always the path that
the politicians want to go down because
they never have to accept responsibility
for creating inflation they're always
going to blame it on somebody else and
that's why I know that price controls
are coming I mean I talked about this
long before Kamala Harris proposed it
that we were going to get price controls
because ultimately that's all the
government's got is to blame the
businesses and to pass laws to stop
people from Raising prices but that
never stops the inflation it just causes
the inflation to go underground into the
black market
because legally you can't buy anything
because the prices are too low and so
there's a shortage of everything that
you need and in order to buy the things
that you need you have to go and buy it
from a criminal because they're the only
ones who will sell it to you but now you
got to pay through the nose because you
know the guy who's selling you illegal
food risks going to
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plus yeah uh this all gets crazy really
fast let me ask you a super pointed
question do people want to be lied
to well you know maybe it's like like
the Matrix I mean people can't handle
the truth or that's that was uh uh the
Jack
nich A Few Good Men they can't handle it
but look nobody wants to tell the truth
to the voters because you know again you
know shoot the messenger it the truth is
not pretty the truth is the government
has over promised the government has
made too many promises that the
taxpayers can't keep and and so we need
to come clean and be honest and we have
to tell our creditors we borrowed too
much money we can't pay you back we got
to tell people on government pensions on
Social Security on Medicare we don't
have the money we can't give you what we
promis but no politician wants to fess
up because the minute you do that you
you know you're not getting the vote
and so everybody wants to pretend that
nothing's going to get cut and so
everything gets cut through inflation uh
but you know they have to try to say
where they're going to fix it but you
know even Donald Trump Donald Trump
doesn't want to cut Social Security in
fact he wants to increase social
security benefits because he wants to
eliminate the tax on social security
which is like effectively raising Social
Security benefits so you there there he
hasn't identified anything that he's
going to cut or eliminate talks about
waste and ab abuse but but everybody
talks about that uh but nobody wants to
cut anything Donald Trump talks about
increasing the defense budget well
where's that money going to come from
right so both candidates want more
government and so they're going to end
up with more inflation regardless of
what they're promising and of course you
know Donald Trump is partially
responsible for the inflation under
Biden because a lot of the money that is
being used to bid up prices now was
printed when Trump was President because
Trump ran enormous deficits Biden is
just running even bigger deficits than
Trump trump set the record for the most
amount of deficit spending by a
president in a single term and Biden is
going to break that record when it by
the time his term is over and before
that Barack Obama he set the record for
the most debt under any president but
that's because he had eight years but
now presidents are doing in four years
what it took Obama eight years to do but
this thing is just spiraling that's why
we've got all this inflation it's not a
coincidence it's cause and effect and
when the bot Administration tries to say
well you can't blame us for inflation
because they've got inflation in Europe
well because they made the same mistakes
in Europe they they did the same thing
they printed a bunch of Euros they had
their own QE program they called it
their asset purchase program they kept
interest rates at zero in fact they even
had interest rates negative so all these
central banks uh were operating from the
same flawed Playbook they all created
massive inflation in the aftermath of
the 2008 financial crisis and then up
the Annie with covid and now the whole
world is is is reaping the Whirlwind as
all those inflation chickens come home
to roost does inflation matter if every
government in the world is doing it of
of course it matters I mean it on a
relative basis that's what's keeping you
know the dollar from collapsing against
the Euro or against the Yen or against
the pound because all central banks are
inflating but that doesn't mean we're
off the hook that means we're all
suffering together right everybody is
experiencing Rising prices even if the
exchange rates don't fluctuate very much
because they're all sinking at the same
rate but it means everybody is getting
poor you need more dollars you need more
Euros you need need more pounds to buy
you know a basket of
goods all right so R Paul when we did
the debate between you and him uh said
that inflation was preferable to default
because it happens more slowly and that
was what I had in the back of my mind
when I said do people want to be lied to
it seems like um there might be some
truth to Yes dear government please lie
to me take my money slowly don't tell me
you're doing it so that this plays out
over a long enough time frame that sort
of everybody gets used to all the money
that they've lost um do you agree that
that's a better strategy or do you think
that in reality default is a better
strategy well the the best strategy is
is is not to get into that predicament
in the first place and and that's you
know one of the reasons to be on a gold
standard so governments can't run up
that kind of debt but
if the idea is well we'll just inflate
the debt away
slowly the the problem is that you know
it speeds up it's like you know well
we'll just get a little bit pregnant you
know it's it it doesn't work that way
it's you know it starts off slow until
it's fast right once you start going
down that road it's ultimately gonna
going to be a disaster but I always
think at any point being honest
and having a legitimate restructuring of
debt is better than constantly creating
inflation to try to repudiate it you
know you know in secret right just to
try let let's you know because every
time the government creates inflation
they wipe out a good chunk of the debt
we have 35 trillion in debt if they
create 10% inflation that eliminates
three and a half trillion of the debt
but the problem is by the time they do
that the actual size of the national
debt has gone up by more than the three
and a half trillion because of how much
debt we're adding to it every year and
eventually the higher inflation causes
an increase in interest rates and that
is the problem because all that debt has
to be refinanced constantly because much
most of the debt is short term it's not
like the government borrowed money for
30 years or 50 years
it they borrowed money for 30 days 90
days a year and so they have to
constantly refinance it and as rates go
up because inflation pushes rates up
even though you're wiping out some of
your debt through inflation you're
accumulating so much more because the
government is borrowing the money to pay
the interest on the debt but I just
think that a an honest default is
preferable and at least with a default
who loses money in a default well if the
government defaults on the bonds the
losers are the people who own the
bonds and a lot of US government bonds
are owned by you know very wealthy
individuals who are clipping coupons and
have money invested in in treasuries the
average America doesn't own any
treasuries um but wealthier people do uh
and so they're going to lose they're not
going to get back um 100 cents on the
dollar but if we just decide to create
inflation so that the people who own
treasury bonds don't lose anything well
then everybody suffers yes the people
who own treasury bonds they still lose
something because inflation is you know
reducing the value of of the principal
that they get eventually and it's
reducing the value of their coupon but
now you hit everybody now you hit the
poor you hit the middle class you hit
people don't that don't own any
treasuries that never loaned any money
to the government um and what's about
that I mean the people who should take
the losses are the people who made the
loans to a government that was too broke
to pay them back right that that's the
people and you know as far as um
government commitments yes if the
government has to cut Social Security
benefits okay yes people that were going
to get those benefits are going to lose
those benefits or have less benefits but
you know uh that's necessarily better
because there a lot of wealthy people
that get Social Security I mean I'm I I
I qualify for Social Security I mean I'm
61 I'm not taking it yet but I think I'd
be able to start getting it a couple of
years but I you know it's better for me
to lose a lot of my Social Security then
some young kid uh who's struggling to
get by has to pay higher inflation so I
could I could get my Social Security
benefits so the government should have a
way of reducing Social Security benefits
so that the people who you know who are
who are going to get the benefits uh
they get the loss as opposed to just
spreading the loss on
everybody well there is a way to to
reduce entitlements without needing to
vote for it and that's CPI manipulation
which is almost certainly happening um
so okay you're you're making a what I'll
call values based argument there may be
a moral argument in there as well but
for me to know if this is just values
just the way you see the world or if you
have a uh objective moral standard what
what is your Northstar when you lay out
your
argument well I think I think that is
the moral way to go you know if if but
anchored by what human flourishing uh
least number of people get wrecked like
what what is the metric by which you say
that's a moral argument to do de default
well it's it's the honest way to do it
right I you know the government can't uh
meet be honest at all times no matter
what that means we're going to be honest
well it's honest and you know the the
the the the people that took the risk uh
bear the consequences of that risk you
know people who loan money are the ones
that don't get fully repaid right the
people that lent out the money but
they're going to lose I mean if there's
inflation they still lose right it's not
like they're they're getting out
scott-free
but inflation just spreads the losses
among a bro broader population but in
many cases it hits hardest the people
that could least afford it so why do we
want to create inflation if it's going
to create a real hardship for a lot of
poor middle class people just so we can
avoid wealthy people uh taking a bigger
hit you know I mean you know I'm just
trying to map totally understand I'm
trying to map how you think through um
this argument so uh because uh when I
look at it the way I would think through
this is for me the moral way to look at
life is what leads to the largest amount
of human flourishing for the largest
amount of people uh I can Define human
flourishing but for now let's just all
assume that it it's roughly
well-being uh and if you look at this
from a well-being perspective I have a
hypothesis that if you were to default
that you would have an uprising that
there would be literal Bloodshed that
there would be a real problem it would
be way more violent way more abrupt
whereas doing it the way that they're
doing it now which which I hate and I
think the government has a moral
obligation not to do this but when you
compare the two things I have a feeling
that slow and steady theft from
everybody actually ends up with a um
people don't Revolt as much they like
being lied to it just works and so it's
why I think the government does it this
way and I still think it's
horrendous well I until it gets out of
hand because it only works for so long
well then let me ask a question really
fast so that you can be very pointed
with this uh do you believe that the um
is there a conceivable way for
productivity to rise so much that we can
eventually pay for the debt before
inflation eats Us Alive or is this a
runaway feedback loop and there is no
conceivable way for anything to happen
other than collapse at the end of this
well it's more likely the the the ladder
I mean it's more likely that it's going
to run out of control just because of
the you know the nature of what we're
dealing with just the the the size of
the debt the exponential growth and and
what happens to to interest on on the
debt see the problem with this you know
well let's just have a little inflation
every year is that it allows the
government to continue to compound the
problem because it's able to you know
hide the the consequences and so it
keeps getting bigger and bigger and so
ultimately you have to default to avoid
hyperinflation and if you don't default
then you get hyperinflation you destroy
the currency and if you think uh people
are going to revolt from default it's
going to be worse when the money is
completely worthless right so that's an
even more dangerous way to go and that's
an evitably where you end up if you
continuously inflate inflate instead of
dealing with the undering problem
because if you actually default that
basically you know brings it to an end
okay we can't do this anymore it's like
you're in this giant hole and if you can
keep on inflating you can keep on
digging the hole deeper if you have to
default that's the end of the hole
digging right okay the game is over
right everybody it everybody knows now
what's been going on you've had to be
honest you've had to confess the
problems and now we can we can move on
but that never happens uh when you paper
it all over by creating inflation now is
it possible that there's some kind of
get out of jail free card that's waiting
in the wings that is going to grow
productivity so dramatically in such a
short period of time that we can
actually grow our way out of the debt
and I would assign
a nonzero probability to that so it's
possible and the only thing that is on
the horizon that potentially could do it
would maybe be artificial intelligence
if it could
be uh you know implemented if it if it
has the the
ability and we can effectively do it
somehow fast enough that we can now
automate
so much of the production process and
the AI could come up with because it's
more intelligent than we are could come
up with even better more efficient ways
of doing things and we could maybe
create enough you know robots that were
intelligent that could do a lot of work
um that maybe we could produce so much
stuff that the economy can grow so fast
that we can actually reduce the debt
relative to the economy and we can
service it and repay it I mean I suppose
that that's
possible but I I don't think that's the
most likely scenario I mean I I do think
that that that there's a lot of
potential there uh in in in enhanced
productivity coming from artificial
intelligence and and Robotics and more
automation I think this is all good
stuff that is going to
increase uh the standard of living of
humanity over time but I don't know that
it can lead to the results that we would
need fast enough to deal with this C you
know to to to to mean that we we don't
have a crisis that we don't have to you
know deal with it because the numbers
are just just too staggeringly big at
this
point um I think to to to grow your way
out of it even with Incredible
growth yeah so the AI Revolution I think
is a very um interesting thing that
people are holding on to it's probably
part of why some very smart people are
not sounding the alarm Bell as hard as I
think they should um but walk me
through why what will happen if the
government starts raising rates again
will inflation come down because I've
heard you put forth that even if you
raise rates inflation will go up which
is you're the only person I've heard say
that
well if you just raise rates the way
they did yes because those higher rates
uh are part of the cost structure of
businesses I'm a business and I have all
sorts of costs I have raw materials I
have rent I have labor costs and I have
interest maybe I borrowed some money to
you know build out the business to buy
some Capital
Equipment and so I have debt
and the interest on that debt is one of
my costs and if my interest goes up well
you know my costs have gone up so that's
something I'm going to pass on to the
consumer with higher prices and that's
especially True For Real Estate if I own
some rental property most people who own
rental property have a mortgage on the
rental
property and as their mortgage rate go
up because if you own a bunch of rental
property you probably didn't have a
30-year fixed rate mortgage you probably
had you know a mortgage with a five or
seven-year term and they reset and you
have to re you know get at higher rate
so if I'm a landlord and my interest
expense has gone up well how do I
recover that I I raise my rent and I get
it from my tenant so higher interest
rates are just another cost just like
raw materials and and and and L and
wages that get built into pricing
structure so higher rates you know bleed
you know end up being higher inflation
and that's going to happen I mean rates
are higher now than they were when they
were zero and so that's going to affect
prices but also the US government has
this massive amount of debt that has to
be financed at higher interest rates and
the higher interest rates are the bigger
the de deficits are because all the
money that goes to pay the interest is
borrowed and so as interest rates go up
the deficits go up and that means
there's more uh debt and now you're
going to have to print more money to
monetize it and so there's going to be
more inflation and also those Rising
deficits are going to put downward
pressure on the dollar which we're now
finally seeing for a while higher rates
were supporting the dollar uh but now
that's not the case anymore and the
dollar is starting to fall and it's
going to fall a lot more because of the
enormity of the deficits and as the the
low yielding debt matures Even If the
Fed is cutting a bit you're still
getting debt that was borrowed at 25
basis points maturing and now has to be
rolled over at three or 400 basis points
so the debt is exploding because of
higher interest rates which is you know
putting more downward pressure on the
dollar which puts upward pressure on on
consumer prices uh but if they raised
interest rates high enough to really
cause a decline in aggregate demand
because people stopped borrowing money
and if we had an increase in our savings
rate if people actually were like hey
interest is so high I'm GNA earn some
interest I'm gonna put my money in the
bank I'm not going to go spend it I'm
gonna earn some of this High interest
then that would help fight inflation but
we never even got close to that point
because the savings rate is near an
all-time record low and debt is at an
all-time record high so what does that
tell you that interest rates are too low
and so when pal comes and said we've had
this Tight money for a long time money
never got tight it was less loose but it
was never tight that's why the debt kept
growing and that's why the inflation
problem is going to get a whole lot
worse all right is there enough money
enough runway for inflation that they
can just keep grinding inflation
grinding inflation grinding inflation
until they have paid off the
debt me you you don't pay it off I mean
you wipe it out right you make it so
eliminate the debt so it's not a burden
anymore right it doesn't go
away um but I don't see how they do
that um without
impoverishing uh the whole
country uh in in the process because
they they'd have to create so much
inflation in order to do that because
the debt is now so big and it's rising
so rapidly right it's Rising by maybe $3
trillion dollar a year so even if you
had 10%
inflation the debt would just stay the
same in theory but it wouldn't stay the
same because the the budget deficits are
going to go up but you just have to
create so much inflation that I mean the
public is not going to be able to
survive uh the amount of inflation that
that they would have to create to wipe
that debt out in in any kind of
meaningful
way um is there any reason why I
understand that this would draw a lot of
ey people would get weird but I've seen
people get over amazingly bizarre stuff
is there a fundamental mechanism that
would stop the fed from saying we're
going to give the US government uh loans
at one rate and we're going to give
everybody else loans at a different
rate well if they're buying treasuries
see the the the only way the FED can
monetize debt it has to go into the
market and buy treasuries so I don't see
how it could it could buy them from the
government because it doesn't actually
buy them directly from the government
because it's not allowed to do that in
its Charter right they they can't they
because they didn't want the Federal
Reserve to be able to directly monetize
debt so they they they were afraid of
that in fact when the Federal Reserve
Act was initially passed it wasn't even
legal for the Federal Reserve to hold us
treasuries even if they bought them in
the secondary Market they couldn't do it
they were prohibited from holding them
because they didn't want the FED to be
able to help the government go into debt
they changed that in the you know soon
after the Federal Reserve Act was
created to help the government Finance
the first world war they gave the
Federal Reserve the ability to hold
treasuries and so then the Federal
Reserve goes into the market and it it
works through primary dealers right it
goes through Goldman Sachs or JP Morgan
and Morgan Stanley to buy its treasuries
it doesn't go treasury direct right it
has to go through these middlemen so I
don't see how it's possible because they
they they can't
differentiate uh whose bond is whose
right they they're just buying in the
market um okay so this is probably just
my naive and I don't understand
something but it seems pretty trivial
for the government to go hey everybody
uh guess what we're going to default
just kid
uh the fed's going to buy it from you
but the fed's going to buy it from you
at a discounted rate so if you're
holding bonds treasury right now instead
of giving you the five and a quarter
percent that we promis we're going to
give you one and a quarter but we are
going to buy it uh and if I'm listening
to this podcast and I'm a government
agent I'm like that is a great idea uh
that seems inevitable because that
is missing the point here even though
the Federal Reserve the US government
pays interest to the Federal Reserve it
gets the money back right because the
the Federal Reserve has to pay its
profits back to the US government in the
tax 100% the FED is allowed to earn a
certain return on its capital and then
everything it earns in excess of that is
given to the US government now the
problem is now yes they're earning
interest but they're all the FED is also
losing a fortune on its Bond portfolio
right now so the FED is not making money
anymore to pay the US Treasury like like
they used to uh but they they do get the
interest back just like when the Federal
Reserve pays interest to the so-called
Social Security trust funds it it just
takes the interest right back it just
Yanks it right out of the trust funds
and spends it so it's it's it's a much
bigger burden in the short run when the
public owns the treasuries because now
that's a net drain on the current
expenses of of the government because
they actually have to pay the interest
to a third party right that they don't
get it back but the real problem though
is going to be the dollar status as a
reserve currency because as the rest of
the world wakes up to the reality of
endless inflation and endless money
Printing and knowing that the government
uh is not going to honestly deal with
the debt we're never going to cut back
government spending we're just going to
keep creating inflation then there is no
uh justification for the dollar to be
the reserve currency and it won't it
will lose that status and that is going
to accelerate uh the the spiraling of
inflation out of control because one of
the reasons that we've been able to
print so much money create
inflation and haven't had an even bigger
impact on our prices is because a lot of
that money has been exported you know we
have a trillion dollar a year trade
deficit so these are Goods that we
didn't have have to produce that come
into the country every year and we send
our money out we we we we take dollars
that we print and we send them to China
we send them to Japan we send them all
around the world and they send us back
real stuff so that keeps the supply of
goods up and the price of goods down
because we get the goods and the rest of
the world gets the inflation they get
our money but now what do they do with
that money they loan it back to us they
buy bonds they buy treasury bonds they
Buy corporate bonds or they buy real
estate they buy stocks right they buy
these Financial assets um uh but that's
helped keep asset prices High that's
helped keep interest rates low but when
they don't want these dollars anymore
because they're not the reserve currency
then all those dollars are going to come
back and they're going to be bidding up
consumer good prices people are going to
try to buy what they can they can take
home but more importantly too all the
good stop coming in so if we can no
longer import a trillion dollars worth
of stuff every year what's going to
happen to prices prices are going to
Skyrocket because we're not going to
have stuff and so there's G to be a lot
less stuff yet everybody's going to be
trying to buy stuff that's not there so
the prices of the stuff is going to go
way
up yeah uh maybe temporarily because
then we'd bring manufacturing back but I
don't want to derail on that well take a
that's going to take Tom that's going to
take a long long time you just can't
bring manufacturing back snapping a
finger it's going to take years maybe
decades uh because you have to rebuild
the factories rebuild the supply chains
uh train the workers where's the money
going to come from to do this and if we
already have a huge government with lots
of Regulation and lots of taxes it's
going to be very difficult I mean that's
where the AI could really come in and be
helpful if we had to you know start over
again and rebuild our industrial base uh
but again this is going to be a very
difficult process that is going to take
time and in the meantime a lot of people
are going to lose a lot of money and
that's going to put a lot of pressure on
a lot of pres uh politicians to do
things that are going to be very harmful
and very destructive to that
recovery yeah I just think that the um
the way that this will probably play out
is something like this uh we keep
inflating we're just going to gobble up
as much money as we can by lying to you
you're going to feel that something is
wrong but you won't know exactly what it
is despite all these podcast where I'm
trying to walk people through exactly
what is happening uh but people aren't
going to on mass they are not going to
understand what's happening they are
going to get hypert tribal because they
feel like something is wrong uh
apparently the DNC is going to play the
role of blaming business people uh and
then there the economy is going to turn
to trash for reasons we are going to get
into great detail on in a minute
uh and people are going to revolt there
is going to be um if if like this all
goes well there will simply be massive
tribal divisions between the left and
the right and we'll seesaw the
government back and forth until people
do uh slowly get away from the dollar um
but I think this will all be a feeling
and it won't be a thing that The Logical
brain will engage in to your point about
an honest default that's never going to
happen that's logic everyone's going to
steer by emotion uh and it's going to
Manifest this political violence that
that's how I think this will actually
play out because people can feel
something is wrong but it is way too
hard to wrap their head around things
like how the government manipulates CPI
to get more money from you uh yeah okay
I want to go back to this go ahead I
said the public already knows that that
that things are wrong right that that's
they just know something feels wrong but
they don't know what it is yeah the
politicians and a lot of the people in
the financial media who still don't get
it you know they they they look at these
you know phony statistics at and accept
them on face value and and then they
look at the public and the public is so
pessimistic you know Biden's approval
rating is so low uh people are
pessimistic and they don't understand
why they say you know don't they
understand how great everything is why
you know why why aren't they giving
credit to the bid Administration for
this great economy and that's because
the economy is not great they're blaming
B for the lousy economy because the
economy actually is lousy the statistics
don't tell the truth uh if you just
accept them on face value which is why
you shouldn't do that you always have to
look beneath the surface to find out
what's actually happening and if you
take the time to do that and you don't
just accept what amounts to propaganda
but you actually look at it then you
understand why the public is so upset
right because we have high unemployment
we have high inflation and we don't even
have any e economic growth we we
actually have a Contracting economy if
you actually counted uh GDP and we're
going to get more GDP data later this
week but if you honestly reported uh the
economy it would be contracting it is
not growing that is the
problem yeah nonetheless people think
emotionally they do not think logically
and because of that it becomes a
question of who's going to better steer
their emotions so uh people are upset
with Biden but they have pulled a a flip
on the American people that is unreal to
behold moving everybody over to kamla
Harris and everybody's like yeah word
like I can feel the enthusiasm now
coming out of that camp it people are
excited they're revitalized they believe
it and I'm looking at the the words that
she's saying and the economic policies
that she is um proposing that they are
terrifying and people are here for it
they are super excited by it and so my
thing is okay hold on as somebody who
actually wants to see people go
somewhere that is that leads to human
flourishing I'm just like wait there is
a lot of excitement for policies that
will not lead to in my estimation human
flourishing and it was very easy for the
government to the DNC very specifically
to um pull a fast one like to just be uh
hey here's a new shiny object so what do
you make of that to me it is that that
is the most human story
ever I I I I think all this has been
manufactured by the media I can't
believe that Harris is really as popular
as everybody claims I mean she was the
most unpopular vice president in history
uh before she got the
nomination and so I don't see how she
can go from being you know so unpopular
to being popular that the reason that
Biden was unpopular was because the
economy was lousy well I mean she's a
big part of that the economy is just as
lousy as it was and so how they could
just