Kind: captions
Language: en
we have this constant looping um cycle
of debt where we have these boom and bus
periods because we are masking that a
blowup happened in 2008 which was this
devastating moment where we realized
okay the whole system is very fragile
because people are disguising the fact
that real wages are not going up by
taking on more and more debt both at the
individual level and at the governmental
level uh we also weakened because of the
demographic boom we have um we go into
this globalization moment where we are
driving the cost of goods down by doing
labor Arbitrage and uh very well
predicted that what's going to end up
happening is you will begin creating a
Schism where the rich are getting richer
and the poor getting poorer because the
the quote unquote poor or middle what
used to be the middle class they are the
workers they're building your cars your
widgets your whatever but if you use the
labor Arbitrage and you send that to a
foreign country where labor is cheaper
yay the people that own assets are very
excited because the companies that are
overseas that the asset is they own a
piece of that company just to be very
clear and so the people that own the
Assets in these companies that are using
labor Arbitrage to drive the cost of
their goods down to drive their revenues
up they're loving life but all the
people that used to go to the factory
they're either stagnant down or headed
towards you know the deaths of Despair
route where people are just doing drugs
if anybody wants to understand the
opioid epidemic in the US that's going
to be a big part of it yep I this is why
why this is necessary before we can talk
about the everything code so okay so
that we're in that world where everybody
is disguising the problem through debt
but eventually you're going to hit a
come to Jesus moment where you just
can't keep going up we had a massive
bubble in the housing market that pops
Bo like a series of things series of
dominoes fall now the reason that I say
this is where you and I begin to diverge
in terms of where we're predicting what
goes on in the future is a stat that
you'll know better than I but the number
of banks that it took to um wipe out I
forget how many billions of dollars in
value was like 500 or something during
the 2008 collapse what we've just gone
through with the collapse of four Banks
we had even more value wiped out so we
have this consolidation consolidation
consolidation of all these what used to
be you know back in the 1920s when 1929
happened it was like 5,000 Banks or more
had to collapse before we wiped out as
much uh value as we've wiped out
recently in the banking crisis with
again four Banks wiping out not quite as
much value as were wiped out in the
Great Depression but it's distressingly
close so 5,000 Banks now it it only
takes four Banks to Wipe Out the same
amount of value and so it's like I just
feel as the the system is getting more
fragile it's not like we're just going
horizontal we're getting more Fragile
with every passing day every time this
boom and bus cycle happens and again
we're papering over this simply by
making money out of nowhere and I really
want people to understand that we are
making money out of nowhere
so we'll come on to the outcomes in a
bit what we are doing since
2008 is mutualize ing the bankruptcy of
the system via the debasement of
currency which is the when you say
neutralizing you make mean making it
everybody's problem yes you can either
raise taxes which they're trying to do
too but they're
also printing currency via the mechanism
called quantitative easing which is
actually debasing the currency which
means that every time they do it asset
prices optically
rise they don't actually rise
because if you if you look at the
central bank balance sheet and divide
all assets by it so you're changing the
denominator it's normally US dollars but
when you use the balance sheet you say
okay this is the purchasing PA of
dollars now how many dollars are in the
economy or excess printed and what you
find is something like the S&P 500 has
gone nowhere real estate gold gone
nowhere and there's only two assets that
are actually outperformed which were
crypto and
Technology okay which is why we all feel
like even though stocks are going up and
our 401K is going up nobody's getting
any
richer okay there's a we all know this
intuitively that we're not actually
getting richer because the stocks I sell
doesn't buy me more of a house so what
the what was the point of buying the
stocks if I the value of my assets
aren't going up but that is a
mutualization which is bad because it
mutualize it amongst people who don't
have
assets so you'll never be ble to buy an
asset which is why when you speak to a
millennial now they're like we can't
afford a house why because they came in
to the labor force after the FED started
monetizing or or um or lowering the
value of the denominator so property's
got more and more expensive for them
it's impossible for them to buy property
really unless they're really lucky in
the workforce or in entrepreneurship or
whatever it is but generally speaking
it's become impossible and everything
has got more and more expensive assets
have because of this optical illusion
but wages haven't gone up remember right
that's the key thing assets are going
like this we were doing this before
because of demographics and it was
making people pissed and now we're doing
it from debasement and there's there's
no way around it so what debasement does
on the other hand remember it makes the
price of assets look like it's going up
this is why you can't have a banking
crisis of the order of magnitude that
existed before 2008
the reason being is you just print money
the moment you see it and voila
everything goes up so the value of your
collateral so if you think about a debt
it's collateral plus the debt and the
collateral is what guarantees the debt
if you've got a banking crisis your
collateral is often falling so
fast that like commercial real estate
right we're going to have a problem with
that so there's a bunch of debt and the
and the and the banks have got this real
estate is collateral and it's all bloody
empty and everybody's going to try and
get out of it so the answer to that is
print money and and
essentially magic that collateral
higher or put it on the central bank
balance sheet Europe has already done
this so I don't think you can have a
systemic collapse because the value of
the assets can never go down enough this
is what most people can't get their
heads around well so I'm gonna get there
is we we'll play out the future a bit
because there are ways where it could go
even more wrong than this ongoing
mutualization amongst the people of the
of the costs it can go even more wrong
well this is wrong because it's it's
Insidious you don't see it you don't
notice it you just sense it right that's
what's going on but it
could lead
to another outcome the other outcome
could be a total loss of control of the
financial system I don't think that is
going to be the case but there's a
possibility yes and so this is getting
into I have a growing thesis that is
it's beginning to touch everything I
need to find a word for this but the
level of awareness of a problem when it
is
ubiquitous you would think that's good
because it kills the Arbitrage where
only the people who are aware of it are
able to take advantage of it that sounds
bad and it sounds evil but as everyone
becomes aware of it the only outcome
that I see from that is cynicism and I I
come at it from an entertainment
perspective which may seem very weird
for people but I grew up in the 80s
which I actually want to talk about the
80s and why the 80s felt so awesome
living through it uh because I think it
actually planted a seed for something
problematic but anyway so the 80s from a
film perspective was awesome uh you
could have a movie where Arnold
Schwarzenegger throws a and it goes
through a guy and it pinss him to the
the wood beam behind him and he says
stick around and it and it isn't uh
you're you're actually laughing in the
moment you're not laughing at how uh
many times you've heard a line said like
that or oh my God that's like an AR line
it was the first time you'd ever heard
or seen anything like that and it was
just legitimately funny and over time
though we become aware of all these
patterns to the point where if you grew
up watching movies and you grew up in a
world where 80s movies were a thing and
they've been mimicked so many times and
done to death everything happens with a
wink and once everything happens with a
wink everybody lives in this ironic
world where being more cynical than the
next person meing something faster than
the next person becomes the thing and so
one of the things and and I feel a moral
obligation to get the information out
about what the world of Finance really
is as fast as I can and yet I know that
as everybody becomes aware of the trick
the trick won't work anymore so I'm in
this weird spot of like
wanting to tell people hey when they
print money quantitative easing they are
counterfeiting money it is destroying
your buying power and but it is the only
way that we Glide so it's like no but
you're keeping the the monkeys Happy by
lowering the cost of TV sets and other
stuff right that's the other weird thing
consumable goods are
cheap now we're really getting in
because now we have to talk about
metaverse and how if you you want to
pacify people that's a totally different
thing no but we have pacified them with
cheap TVs cheap beer cheap food cheap
everything but they're still derailing
man they are still derailing because
we've got because the asset which is
your future
self it's your future consumption has
gone up so much that nobody can afford
them so you've kept them happy with
dopamine and sugar hits of crap you've
kept them numb I won't say you've kept
them happy you've kept them numb okay
yeah happy is the wrong word but you're
right but look this is I went down this
journey that you're going down now in
2012 and that Journey led me to
crypto I saw it and I knew that this was
the answer and that's why I first bought
Bitcoin in
2013 was exactly this is once you see
what has happened we know the system now
regardless of How It Ends whether it
ends in slow ongoing death of of
economic vibrancy or a spectacular
blowup the answer is you need to
transition to what I call the Bitcoin
life raft or the parallel Financial
system it's there and you can
participate with
$1 or a billion dollars it's an we're
going get crypto but we have to get to
your um everything code uh I think this
is this is crazy important so um I went
in and listened I I must to listen to it
oh God you're going to think I'm kidding
30 times to write it down verbatim you
you delivered I had never heard you do
it so succinctly um and so I I wrote it
down verbatim and what I want to do is
I'm going to go through your everything
code but we're going to stop in a couple
key areas to make sure that people
really understand this so I'm going to
read a section and then give you a
chance to if you think there's something
that you can say even more concisely or
whatever but I you just delivered this
so well so here it goes so Ral has a a a
theory that everything is related to one
phenomena and once you understand it
things get a lot easier to predict so
here we go this a quote from Ral what I
had suddenly stumbled across in the
everything code was the fact that the
global central banks had probably agreed
together sometime around 2012 after
Europe blew up that with governments at
100% of GDP in debt they were going to
crowd out all of the private sector and
we were going to just keep having
Financial
crises okay so you mentioned earlier
this idea of 100% debt uh 100% of GDP in
debt so I don't think we have to go over
that again but the part in this section
that I don't understand is uh this
concept of the government competing with
private sector so this is the this is
the bit we talked about right
so the economy grows at
2% the government needs that to pay its
interest because it's how does it use
that to pay its interest well basically
it comes because they're just taking
more in taxes exactly right there's a a
level of economic growth that needs to
service the interest payments but if
everybody's interest payments are too
high the the answer is firstly to have
the interest rate as low as possible
which is why the um which is why the
Japanese have a much lower natural rate
of interest than everybody else because
they're 260% of GDP in debt
but the companies are less in debt so
they they've trapped themselves they
have so much debt they can't let the
interest rate rise nobody can this is
why we gonna have a recession and we're
going to cut rates back down to zero it
doesn't it's impossible to work so this
is the thing is once all of these
governments hit 100% then they either
blow up the private sector the banking
sector
corporates or the government sect choose
because there's not enough income to
service that level of debt cu GP growth
keeps declining okay so let me see if I
understand this so when you say private
sector you mean private banking no I
mean all private sector households so
how do you how does the average person
service that the interest it's again
from economic activity the activity that
they have so the same with corporations
and the banking system is involved
intricately within that whole
system so economic activity is pays the
interest if you don't have a job you
can't service your mortgage or your
credit card right
fact and if your growth if your debt
growth keeps going
up you need to keep your wages going up
to pay your debts that's that's the GDP
side of the
equation but what we're finding is
that all debt that is in excess of GDP
at government
level is ending up on the balance sheet
three and a half years later okay
how quantitative easing they and I did
the maths on this and I think I was the
first person to really fig I don't think
anybody's really figured this out yet I
went and looked at this and I realized
that what they were
monetizing was the interest payments on
the debt three and a half years later
okay why three and a half years in
2008 ALL interest rates went to zero
everybody every government refinanced
itself at
zero and most of the debt for all
governments is in the 3 to five year
sector so somewhere between 3 to five
years three and a half four years and
what happens is every time you service
the debt you need to get the interest
rates back down again you end up having
a recession you get this very cyclical
phenomena because they they are they
deferring the need to pay for 3 to 5
years
nobody pays back debt no
nobody nobody is paying back any debt
anywhere so what they're doing is every
time it comes to pay to service the next
amount of debt it ends up on the fair
balance sheet now actually happens
because there's an economic slowdown
driven by the debt but that's what
happens and the there is a marginal
difference in the size this is sorry
this is true of the US the UK the EU
Japan they're all the
same and the difference of the balance
sheets is slightly bigger and the
difference is every time there's a
direct financial crisis they have to put
direct money
in so we you know we're already just
seen a little bit of that in the US okay
the difference difference would be
buying the Federal Bank buying assets
versus just stimy
checks is that what you mean by direct
money so stimy checks is that's coming
in onto the bank balance sheet because
that is government debt that ended up
will end up getting monetized three and
a half years later which happens to be
end of this year into next year which is
why I think we've got a lot of
quantitative easing coming because we've
got to monetize all of the bloody
interest payments from the pandemic and
when we say monetize we mean print money
print money and put it on the FED
balance sheet I just print money expand
the balance sheet of the Federal Reserve
to match what
we will create money correct and that
that's using a credit card to pay off
your other credit card essentially right
or printing is that what you mean by
nobody is servicing debt is just
everybody's printing more money correct
because
surely nobody's making debt payments no
no debt is getting paid off you're just
rolling the interest payments so it
keeps getting bigger every year hold on
if we owe China money there's no way
China's just like oh word it's all good
push it off
so surely we are at a minimum printing
money in order to pay those government
debts right when that comes up for no
after four
years you just issue new
debt but you issue new debt to yourself
so that you can then pay off whoever you
owe money to surely no because the
government is borrowing the money here
right so what they they just pay off
they don't pay pay off the debt they
just do it again so it's like your
mortgage comes up at the
end and imagine you just had interest
payments you just roll it again and say
I'm just going to pay interest for
another 30 years nobody ever pays off
the actual loan and nobody cares as long
as you get the
interest which is weird now if you pay
off the loan you optically do it but you
asso a new one again so it's like I'm
going to pay off my credit card with my
brand new credit card I've got and so
One credit card yeah that's what I'm
saying is when they're printing the
money they are paying off the debt
they're just creating new debt in the
equal amount or more but they are
technically paying that debt off
otherwise I can't fathom how anybody do
it Deb so debt is growing in all of
these countries at
GDP plus the interest payments and that
interest payment component is going on
the balance sheet and that's happening
everywhere
including Japan so they're all doing
exactly the same
thing which is interesting that doesn't
happen by accident there is an
understanding that the world is too much
in debt and there's no way of dealing
this without us all going back into
caveman times so this is the
answer yeah so I think this is this is
where we have to look at Ray Delio's
thesis and I think this is what has
really painted my thinking so Ray just
like Look Backwards last 500 years of
History every time every time you've
gotten to this point where you're
gliding uh it it always ends with either
economic war or actual hot Weaponry war
and you need this level of trauma so
that people will finally go fine
everything that I owe I'm I'm just going
to let go of it whatever it is what it
is I just want peace and so you get this
complete upending of everything we reset
we go back to zero but we do it in the
most grueling brutal sacrificial way
possible me and and I hear this a lot
from people like ah this all rebalanced
in 100 years sure but that is cold
comfort to Millennials who could never
buy a house right like
so yes but this is where the fourth
turning comes to me right I think we are
at economic
Warfare everybody needs an enemy so
we've decided that China russan whoever
we want to be our enemy is our
enemy so we are economic Warfare for the
share of the pie but the world is not
it's not actually a fixed pie there's an
abundance and that abundance is the
other economic Warfare which is
technology but that's happening at a
massive scale and it's going into space
it's going everywhere so we've got
physical kind of
warfare economic Warfare over technology
which is what Taiwan is all about you
know they own the secret code which is
the ability to produce um computer chips
uh in ways that nobody else can
replicate so there's
that and
then we are at war with each
other as the population is split and
wants to blame each other for what has
happened when in fact it was actually
the Baby Boomers that actually caused
the problem in the first place the
people cause the problems of the People
In fairness it was the greatest
Generation that had all the sex that
gave birth to the Baby Boomers that
created the problem and this is where it
gets tricky because God bless the
greatest Generation for fighting the
wars etc etc okay before we keep going
down that road because I I want to keep
this all in the construct of your um
everything code this was very
enlightening okay so you just walked us
through uh that first part about why
we're going to keep having these
Financial crises and the only way out of
that uh is to print money basically uh
okay next section and the only way way
here we go and the only way of solving
this uh is putting it on the central
bank balance sheet because there's not
enough GDP to pay the interest this is
what you're just talking about so if you
think about GDP growth let's call it 2%
and let's assume that interest rates are
2% which is roughly where they've been
since 2008 so if the government is 100%
GDP in debt and GDP grows at 2% but
interest payments are also at 2% that's
all of GDP growth just to pay the
interest on the US government debt but
the private sector excluding the
financial sector so households and
corporations are another 120% of GDP in
debt uh well that will give you negative
growth every year of 2% and it just com
compounds so what happens is those
interest payments go to the FED balance
sheet and they monetize it again this is
what we were just talking about so then
the private sector is not competing with
the government and that was provable
across all major economies it's like
they all decided that they're they're
too far in debt and the only way to
solve this is quantitative easing and
then started thinking well if I know
this to be true and I know that the
central bank balance sheets are 97%
correlated with the asset prices well
all I need to do is use forward-looking
indicators to predict the central bank
balance sheets Andor interest
payments dude talk to me about this 97%
correlated with assets that that seems
like having a crystal
ball so it doesn't it actually reflects
today so you could basically
as I explained before the thing that's
actually driving the S&P 500 is the Fed
balance sheet it's not companies getting
you say driving you mean driving the
price correct so it's a optical illusion
it's a money illusion so the price
simply Rises to meet the level of
inflation caused by printing money
correct you're readjusting the
price so that is what's going
on and so then when you understand that
and it's
97% you understand that nothing matters
apart from this liquidity which is what
I've been trying to tell people is sorry
all your economic models are wrong yes
you need to forecast the business cycle
to know where you are in the probability
of printing money cycle but that's all
that matters and it drives assets and
that's why people right now are getting
very angry because the stock market's
going up and they're like but don't you
know there's a recession yeah I know
that the answer to recession is more
cowbell printing of more money which is
what people this this is what I'm
talking about with as people become
aware of these issues as you zoom out
and you see the gigantic crater you
begin to realize oh we're in a recession
that means they're going to print money
so in a recession prices are going up
and people are like yeah I know where
this goes so that that's crazy and that
it it'll be very interesting to see what
the KnockOn effects are of the um
Everybody becoming aware of these
patterns and I've heard you say that uh
it's almost always the path of most pain
is the the path that ends up actually
happening and so as we begin to predict
oh this is what's going to happen the
fact that we can predict will have some
very sort of painful uh consequences the
important point being here is I know
what drives
liquidity it's driven by the business
cycle and there are certain cycles that
are forward-looking the Chinese credit
cycle happens to lead by about 18 months
or two years people that don't know what
the business cycle is can you give a
quick primer the business cycle is the
EB and flow in economic activity that
occurs and that's a boom and bust a
recession expansion is it caused by
interest
rates we don't really know what causes
the business cycle it's caused partly by
interest
rates it's caused by excess production
excess inventories too limited
inventories too there's many things that
can can drive a business cycle but it's
observable and has been observable for
Millennia and one of the things we do is
when the business cycle is too hot and
inflation starts Rising central banks
tend to rise raise interest rates that
tends to bring down economic activity I
think even without a central bank
interest rates would rise naturally um
because I think the free market can set
interest rates without a central bank
and then the economy slows down again
and we see this this endless cycle so
what I think my hypothesis is is that
okay this is very observable I think
it's going to last this relationship
between assets and the central bank
balance sheet because of the mechanism
of debasement of currency and I can
forecast out what the business cycle
looks like and I also know the amount of
interest payments that need to be made
because they they happened three and a
half years ago and I can see how far the
balance Sheet's going to expand so the
balance sheet right now is what $6 and
A5 trillion dollar and it looks like it
will get $7 trillion or so and it looks
like it will get to 12 to 14 trillion by
the end of
2025 so that puts and there's of other
ways I've proven this out in this whole
thing and I'll send you the whole piece
uh myself I've not really gone public
with all all of the whole thing of how
it works but in the end that
puts asset prices massively higher than
here hugely higher um so we're looking
at more than a doubling of the NASDAQ
from here we're looking at another
gigantic crypto run that's into 2025 so
we're seeing huge moves that just come
from the
debasement and I've gone through in the
everything code article that I wrote for
Global macro investor which is my kind
of Premium research service in that I've
gone through various ways of proving
this all out um so that's what I think I
can do but your observation I think is
really important okay when people I mean
I've sent this to quite a few people and
obviously the subscribers of global
macro invester kind of lot the world's
most famous hedge fund managers um asset
managers and I think it it really
shocked people and resonated with people
they're like oh my God everything makes
sense now and so once you see it it all
makes sense um now as it becomes more
public as a thesis and Mike how at
crossb capital's been talking some
elements of this liquidity you can see
liquidity becoming part of the the
conversation on financial Twitter and
stuff
now what I think we'll probably do is
create boom bus
Cycles again you can't have the bus
cycle going below the level of Central
Bank liquidity because optically they
make it rise this is what people don't
yet understand but of course stock
market should go down 90% can't
happen literally can't happen because of
the debasement it's a money
illusion but what I think we'll do is
see hey off we go to the races that's
what happened in 2018 2018 sorry 19 uh
early 20 we actually diverged from the
central bank balance sheet uh massively
because people starting to figure out
this game which is the moment the FED
stopped tightening cycle markets take
off because they know that the
probability of more cowbell more more
Central Bank printing of money more
interest rate Cuts is coming and so
therefore we get boom bus Cycles so the
boom times are too big and then you get
a bust and we people know that from
crypto as well the long-term Trend
remains intact but we keep getting these
huge booms collaps boom collaps but the
trend is still up I think that's what
we'll see we'll be more like the crypto
cycle which is pretty much what we've
just seen as well we had a big collapse
last year and now we're straight back
into the boom as we're starting to
forecast this if you like that clip
check out the full powerful episode here
and I'll see you there