Kind: captions
Language: en
we have a financial
system that is a volcano waiting to
erupt and it is inevitable that it will
erupt and will obliterate Life as we
know it and it is only a question of
when and so I don't know if it happens
in five years 50 years a hundred years
can't imagine this more than 50 but but
I think it's going to be cataclysmic am
I
barking up the right tree
no
all right here we go tell me about it so
where where do you think we are right
now
the world blew up in 2008.
the world is now entirely about the
management
of the debts
that is everything now
and there are two ways for that to
happen if we didn't do quantitative
easing in 2008 9 10 11 you know all of
that stuff
the world would have burnt and destroyed
in the manner that you thought
which is like the Argentina collapse you
know the Cyprus collapse this huge
destruction
what we chose
was a Glide path
Glide to wear
because my my thinking is you Glide
until you crash it's a slower crash for
sure
well the the crash is ongoing
but you're buying time
for GDP growth to come back
right our problem is
if you're in debt
and you don't have enough income
uh your income's not
um growing enough to service your debts
you get into a problem
so what we've been doing is monetizing
those interest payments
on the debt which is basically using a
credit card
to pay off your credit card or using a
credit card to pay off your mortgage
okay that's not sustainable
but what you're hoping
is that eventually your income goes up
and there are ways to do that
and the the big issue here is
demographics
let me ask you a very pointed question
before we move on when was the last time
real wages went up
they haven't really written since about
1972 not easy for why I think the Glide
path is is going to be gnarly so I don't
want to skip ahead too much because
we're definitely not ready for this part
of the conversation but I'm very curious
is is it increased productivity born of
the exponential technologies that are
happening is that what you think is that
that is the only option we have okay and
right now I want people to hear
like playing in the background because I
I think that that will that is going to
create the world's gnarliest 20-year
period And so agreed we get on the other
side of this we hey I'm super optimistic
20 years from now I am just real worried
about the next 20 years
okay so planting that terrifying seed
for people now if you don't mind walk us
through so we know what your punchline
is we're gliding and it's buying us
enough time that we can get to a new
lily pad that Lily Pad is exponential
technology that increases productivity
and addresses real wage increase for the
first time since 1972 but I want people
to hear that 1972 was a long time ago so
we haven't been able to do it yet even
with the internet
yeah that was the death of the American
dream that happened
is the American dream was you
participate in the US economy you get
richer
the reality is it didn't happen and I'll
come back to why because this is the
this is a really important story because
everybody has a thesis on who's to blame
what's to blame how it happened
who's to blame
is probably
as an Englishman the French
it was actually
it's actually all about the the Treaty
of Versailles actually the Germans who
are to blameful of this
um so after World War One
everybody was so pissed what happened
with Germany and the war that the US the
UK and the French got together and said
we want Germany to pay War
repatriations I that would make good for
the devastation of Europe
Germany can pay it
so they
eventually hyperinflated their economy
and the rise of populism
which was okay Hitler's German hyper
hyperinflation is going to be so
important in this discussion yeah uh I
think it's worth taking a second to
explain why hyperinflation is a go-to
strategy one that we're using right now
by my estimation
what is hyperinflation how does it
happen why is it a go-to strategy
hyperinflation is when you issue more
money to pay your debts
and it just it comes in an endless cycle
because you're not generating GDP growth
so you're you're just keep printing
money so in excess of anything
in extremist everything becomes
worthless
um you know so if you're thirst and
you've come out of the desert and
somebody gives you a bottle of water
you'll pay pretty much anything for it
if somebody's there with a million
bottles of water
was a bottle worth you almost nothing
once you've had the first one right so
so anything in a in excess Supply just
supply and demand too much supply of
currency the value goes down so what
happened in Germany is they had these
gigantic impossible to pay debts
to the West
so they printed as much money as
possible
that blew up spectacularly Prices rose
millions of percent and really fast I
want to use a different word for people
and a shout out to Robert Breedlove for
introducing this idea to me uh if you
change one word from print to
counterfeit people understand what's
actually happening and so if you think
of printing money as Government approved
counterfeiting then it's like oh because
I think people have an intuitive
understanding for why counterfeiting is
bad but they I certainly didn't have an
intuitive understanding for why
government printing is bad
which shame on me uh but once I realized
oh yes this is literally the equivalent
of a guy at home with a printing press
just making more money
that's right but so let's carry on with
the story so the Germans destroyed their
economy the people got angry
because the only way to pay their debt
was to make up fake money fake it's not
really fake but they make it up so they
can pay it and every time you got paid
as a German citizen
that Fistful of notes barely brought you
a loaf of bread one day and half a loaf
of bread the next day and then nothing
at all until you have wheelbarrows full
of cash and we've seen this in Argentina
we've seen it in Venezuela we've seen it
in plenty of countries we just saw in
Lebanon recently as well that's a total
collapse of the valley of a currency
okay so therefore all of your
productivity is a human
is devalued as well because you can't
buy anything so you end up having to
ignore currency in Bata
and we've seen that in many places as
well because the the value exchange of a
currency in the middle
because it falls so fast in value
it's a nightmare to deal with and it's a
destruction of total Destruction of
wealth except those who own assets
and that's an important point we'll come
to much later
so Germany goes to war again
end of World War II
everybody's like okay we're done with
this now out of curiosity how how well
do you know the story of Hitler's rise
what how does he re-stabilize the
economy
um he starts building roads
he starts rebuilding Germany and making
them proud in Germany nationalism
how does he pay them like if their
money's worthless how does he get I
think they'd already reset the currency
after that so he didn't rise out of the
currency collapse he wrote post the
currency collapse so you
you've now got the new currency I can't
remember this is the right smart
whichever one it was at the time so or
the Deutsche Mark so anyway so Hitler
comes so World War II peace in our time
and humans celebrate in the way the
humans do
they all had sex
and have babies because they felt like
there was security
and what we got and this is the most
important point of the story
what we got was the largest population
bulge the world has ever seen
they're called the Baby Boomers
the Baby Boomers
were all doing the same thing at the
same time
because there's a massive group of them
76 million of them were born in the
United States alone but we had it across
Europe we had it everywhere
that cohort was what caused the 1970s
inflation
because they're a bunch of 20 to 30 year
olds go into the workforce at the same
time and this is the important point
I'll come onto this Workforce point they
come into the workforce at the same time
and they all buy their first house their
first car their first suit their first
tie their first everything they all get
married they all have kids all at the
same time right so that's a competition
for resources that was unparalleled the
rate of change of demand increase was
massive and that was the 70s inflation I
don't think it's a monetary phenomena I
think it's a demographic phenomena and I
spent a long time talking about that
demand driven which is why it's so
impossible to deal with
well right now it's not demand driven
inflation it was supply issues okay
but those
baby boomers
remember went into the workforce at the
same time
so I'm an employer I have a factory in
America
and suddenly I've got 76 million people
I can choose from to give a job to
of course I'm not going to pay them more
money
why should I
I don't have to because they're all
looking for a job
so there's too many people
remember excess Supply means falling in
prices excess supply of people wages
don't go up
so this is a function of demographics
it's not a function of the map it's not
a function of somebody doing something
bad it's the problem of people shagging
in celebration for the end of World War
II
that is the actual issue quick question
is is that moment of the flood of
um the Boomers coming in is that a good
moment for the greatest Generation their
parents who are basically now the owners
of the factories by the time that they
come into the workforce and it's like
hey I don't have to pay more money and
PS the the price at which I can sell the
things that I'm making is going up
because there's so many people buying it
that moment feels like it would be good
for someone yes because labor cost is
low
versus a booming economy
which is what we had so we had labor
costs not going up so margins for
Corporation goes up but we had inflation
that ate into it but then the 80s
onwards it's been a one-way Street
so
that competition for wages actually gets
worse
because by
the mid-80s
the computer's now in the workforce
you know and it's everywhere the PC the
Mainframe everything so now you've got
something that can do jobs so what
happens is Wages don't go up
and then
1996 we have the World Trade
Organization agreement and NAFTA the
North American Free Trade Agreement
so now you're bringing in other workers
who are paid less
to compete against U.S workers
there was a guy that warned against this
right like
walk me through that this is very
interesting so he he in 1996 I in 1996
was a free trade person I was like of
course everybody should trade free and I
think they should
but he said you have to do it on the
right terms because you'll totally
destroy Society
because everybody will undertake labor
Arbitrage
and that means all of the capital and
the labor
or
um a cruise to China
Vietnam and other places so these
Chinese workers
were the were the cost input for goods
in the west so Goods fell in value we
had kind of deflation disinflation Etc
but what happened was U.S workers didn't
have jobs and you could never raise
their wages because if you try and raise
your wage you're just going to Offshore
and get it from India or China or
somewhere else
but James Goldsmith's point was it's it
yes it will benefit the Chinese economy
but the Chinese worker probably won't
benefit to the same order of magnitude
because a lot a lot of these economies
are kleptocracy so somebody's going to
take the money
so there'll be a bunch of super rich
who'll make all of the money in those
countries and the business owners in the
west will make all of the money and the
worker will get destroyed and he said
this is going to lead to populism anger
um and this is not the right answer his
idea was the right answer and there's a
Charlie Rose interview I urge everybody
to watch Charlie Rose James Goldsmith
the guys terrifyingly intense and
terrifyingly smart incredible interview
so his idea was don't allow labor to be
the Arbitrage
allow a U.S company to go manufacture
Goods in China for Chinese market but
don't export those goods because that's
going to create this problem and he was
absolutely right everybody thought he
was an idiot and he was a you know he's
a true capitalist James Goldsmith say
ultimate capitalist and everyone's like
well this guy's being you know some sort
of trade protectionist he's crazy but he
was right
but then so that WTO and then China
eventually enters in 2000 so we've got
no chance for wages to go up and now
we've just added the next leg of the
equation which is AI and Robotics
the wages are never going to go up
they're never going to stay up
so what has happened is
so as a CEO that doesn't feel true to me
but to channel your boy William
Goldsmith
James thank you uh what it feels like is
happening right now is that you have so
many workers refusing to work that even
though there are a lot of people that
are of that age that theoretically you
would expect to be flooding the market
you have so many people going out and
we're printing so much money that they
can afford to do that you've got so many
government subsidies whatever that now
people willing to work become a scarce
resource even though there are a
technically a lot of workers so I am
paying more for sure now than I was even
two or three years ago now what that
comes out at a population level I don't
know but I saw somebody ask this poll on
Twitter uh or in a I think it's actually
at an event that my wife was speaking at
anyway they asked like who here has had
to pay more for High Caliber in the last
couple years and massive number of
people raise their hand I was like oh my
God yes like I didn't even think about
it sort of Beyond myself I wasn't
thinking about it as a trend but that
really feels true does that happen true
to you or once you even it across the
population like no firstly you're
confusing real and nominal
real wages have not gone up versus
prices
okay meaning and prices raise more than
wages so if you look at Peach P I don't
know what Peak wages were but let's say
they were six percent
um
last year yo year-on-year wage growth
but Peak prices were nine percent
so people actually got poorer
which is why we've got a recession going
on because everybody
lost purchasing power versus just basic
Goods
so would you say we are in a recession
already yes
Yeah by every indicator I've got we're
in a recession already
um and it will become more abundantly
clear the other thing I think is a point
that's also important is we need to
think about total aggregate demand
within an economy and who are you giving
those increased wages to right so yes
you are paying more for scarce labor
certain skill sets expertise whatever
but when the labor force participation
rate is only 65 percent
you have to average that
over 65 percent of the economy not a
hundred percent and that's the function
of demographics so there's a whole bunch
of people who are retired who wages
can't go up which is retirees which is
basically that 35 is that bucket plus
people who've opted out so
so you you actually reduce it by that
and the labor force participation rate
is actually a function of
the birth deaths rate forward lagged 30
years so what what we know is we know in
the future that there's going to be less
and less people in the workforce
which is interesting and it actually
mirrors inflation GDP growth
everything's driven by this Monumental
demographic issue
so yes you're paying up for wages
but your margins have gone down anyway
because you're the the other cost of
input so real wages for everybody have
actually gone negative massively
negative which is why everybody's
feeling the pinch
that's the issue we've got and that
demographics does not go away
we know that because we can look at the
birth deaths rate today
and we can figure out
what the population is going to be like
in 50 years time 70 years time 20 years
time all of this
the only difference of changing that
is immigration so why this is important
is it something called I call the magic
formula
magic formula is economic growth
economic growth is driven by three
factors and three factors only at a long
term level in an aside from just the
normal business cycle ups and downs
population growth the more population
you have the more your economy has
activity
so population growth well population
shrinking the entire Western world
the only way of offsetting that is
immigration but we talked about the fact
that the workers are angry they can't
get wage Rises there is a less of a
desire to have immigration than there
was maybe 20 years ago so most countries
have started to restrict immigration
fine
so there's no way of solving
the population side the next part of the
magic formula
is productivity
that's how much output each of us can
generate for the economy and that
becomes more efficient problem is it
seems to be a function of demographics
too and productivity has been declining
since the 70s well actually since the
50s
so productivity is going down
the population is shrinking over time
so the answer was debt
the answer all the way through this
equation
from these people who were sold the
American dream
back in the 1950s
the Baby Boomers
you know they're listening to Elvis
Presley getting into the Beatles they're
like let's go let's go the American
dream I'm gonna get rich
but as we pointed out their wages never
went up but because there were so many
of these people they competed for houses
and houses went up they invested in the
stock market the stock market went up
everything all assets got more expensive
because of their demand
so they did the rational thing which is
I'm just going to borrow money
and the difference between the rise of
the assets and their wages is
essentially
what were the debt was
the debt side of the equation is what
the government's done too because GDP is
declining the trend rate GDP keeps going
down
what's up guys it's Tom bilyu and if
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do this
one question that I don't quite
understand is
why is debt taken into account when we
Factor GDP
is it because we're essentially bringing
new money online when we make those
loans essentially yes you're leveraging
your ability to consume stuff or invest
in stuff
now at an economic level you might argue
well you know you're taking it from one
person for another but there's interest
payments there's a whole bunch of
mechanism but but really if you see the
Chinese economy and what happened is
they did the same they just they had
population coming in productivity
probably Rising but then they massively
borrowed money so the head of the
fastest growing colony in the world for
a long period of time
you know leverage gives the illusion of
growth but obviously it has a payback
later
and this is the payback we've got now
the leverage that the Baby Boomers took
on their governments took on
and the corporations took on for all of
this issue
is what we're dealing with now
so what wages didn't go up assets went
up because they were competing for them
like you're competing for scarce
resources of people right now but when
you put 76 million people in
the housing market goes up
the stock market goes up because they
start pension plans and stuff like that
so the difference is debt
and that was okay although we were all
starting to look at this saying whoa
this is now getting
absurdly
debt Laden the government's 100 of debt
the private sector is 100 of debt Health
households are 100
of GDP in debt it's like well this is
out of control
then 2008 comes along
and that is the debt crisis I mean every
[ __ ] bank blew up I mean everything
blew up it was a complete total collapse
and that rolled on into Europe in 2012
when the government Spain Italy
Etc blew up
and all the banks in Europe blew up I
think this is where you and I began to
diverge so when I look at 2008 it feels
like we just kicked the can
and the thing that I'm worried about is
that you can only Kick the Can for so
long and at some point you're going to
run out of ability to Glide and you do
hit the ground and well let's go through
this because this is an important point
my view is 2008 was
the uncovering that the geyser is not a
geyser it's a volcano hmm
they see it and it's like the holy [ __ ]
moment so they did something
unparalleled the great reset happened
they reset all interest rates to zero I
had not realized this until recently
that was the debt Jubilee
we will we set all payments to zero
because we understand
and then Europe kind of forced the car
2012. it was then okay there's no way
around this
so the blow up happens but it's now
disguised
and the disguise is the important next
part of the story
because what they did
is somewhere around 2012 I believe G7
made the agreement learned from the
Japanese which is seven or the seven
biggest uh nations in the world uh Seven
Nations in the world okay nothing to do
with their central banks at this point
no but it's the finance ministers who
get together but there's a realization
and I think the Japanese realized it
first
when your government debt is a hundred
percent of GDP this is the really
important point of the everything code
when your government debt is a hundred
percent of GDP
and your private sector debt is for easy
math call it 100 of GDP in debt okay now
interest rates
let's say they're two percent for easy
numbers
so when the government
has to pay well economic growth is what
pays for debt right it's the earnings of
the economy
so if economic growth is growing at two
percent
and interest rates are at two percent
then the government which is 100 of GDP
in debt uses all economic growth
to pay the interest so then the private
sector
has got to pay its two percent
and that means the economy will contract
and this will continue in perpetuity
before we move on to the everything code
because I want to go through that in
detail I want to recap uh how we've got
here and what here is so here is
effectively we have this constant
looping
um cycle of debt where we have these
boom and bust periods because we are
masking that a blow up 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 we've 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
their 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 going to be a big
part of it yep I mean this is why why
this is necessary before we can talk
about the everything coach so
okay so that we're in that world where
everybody is disguising the problem
through debt but eventually you're going
to hit uh come to Jesus moment where you
just can't keep going up we had a
massive bubble in the housing market
that pops boom 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 how 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 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 bust 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
neutralizing the bankruptcy of the
system by the debasement of currency
which is that when you're saying
neutralizing you may mean making
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 pair of
dollars so how many dollars are in the
economy
or access printed and what you find is
something like the S P 500 has gone
nowhere real estate Gold's 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 on our 401ks
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 like
the value of my assets aren't going up
but that is a mutualization but it is
bad because it neutralizes it amongst
people who don't have assets
so you'll never be able 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 gonna have a problem with that
so there's a bunch of debt and the and
the and the banks have got this
commercial real estate it's 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 hire
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 but we will get you know but there
is 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 and 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 knife and it
goes through a guy and it pins 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 Arnie
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 memeing 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 yeah 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 cheats
now we're really getting in because now
that we have to talk about metaverse and
how if you you want to pacify people
that's a totally different thing
with cheap TVs cheap beer cheap food
cheap everything but there's a real
derailing man they are still derailed
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's
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 blow
up
the answer is you need to transition to
what I called the Bitcoin life raft or
the parallel Financial system it's there
and you can participate with one dollar
or a billion dollars it's okay we're
gonna we're gonna get to 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 have
listened to it oh God you're gonna 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
you just deliver this so well so here it
goes so Raul has 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 it's
a quote from Rel
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 a hundred percent debt uh 100 of GDP
in debt so I don't think we have to go
over that again but the part in the
section that I don't understand is uh
this concept of the government competing
with private sector so
this is the bit we talked about right so
the economy grows at two percent
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
there's 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 their 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're gonna have a
recession 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 percent
then they either blow up the private
sector the banking sector corporates
or the government section how how is
there's not enough income to service
that level of debt because GDP 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 the 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 what 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 think 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 refinance
itself at zero
and most of the debt for all governments
is in the three to five year sector
so somewhere between
three 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 say are they deferring the
need to pay for three to five years
nobody pays back debt 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 FED balance sheet now it
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 they say 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 stimi checks
is that we mean by direct money so stemi
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 as we mean print money
print money and put it on the FED
balance I just print money
expand the balance sheet of the Federal
Reserve to match what is owed 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 they are actually
nobody's making the debt payments no no
debt is getting paid off you're just
rolling the interest payment 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
what 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
shortly no because the government is
borrowing the money here right so
what that
they just pay off they don't pay off the
debt they just do it again so it's like
your mortgage comes up at the end
and imagine you've just had interest
payments you just roll it again and say
I'm just gonna 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 wish you 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 that's what
I mean Capital 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
they are technically paying that debt
off otherwise I can't fathom how anybody
would do it okay 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 because that
doesn't happen by accident
that 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 the
caveman times so this is the answer yes
I think this is this is where we have to
look at Ray dalio's thesis and I think
this is what has really painted my
thinking so rage is 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 owed 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 I mean 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 Russian 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 right 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 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 has 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 problem
to 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 et cetera okay before we keep
going down that road because I I want to
keep this all in the construct of your
um everything code because 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 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 that's what
you're just talking about so if you
think about GDP growth let's call it two
percent and let's assume that interest
rates are two percent which is roughly
where they've been since 2008. so if the
government is 100 GDP in debt and GDP
grows at two percent but interest
payments are also at two percent that's
all of GDP growth just to pay the
interest on the U.S government debt but
the private sector excluding the
financial sector so households and
corporations are another 120 percent of
GDP in debt uh well that will give you
negative growth every year of two
percent and it just come compounds so
what happens is those interest payments
go to the FED balance sheet and they
monetize it again this is what we're
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 I 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 and or
interest payments
dude talk to me about this 97 correlated
with assets that that seems like having
a crystal ball
so it doesn't 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
you mean driving the price
correct
so it's an 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 percent
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 don't
you know there's a recession yeah I know
that the answer to a recession is more
cowbell printing of more money
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's crazy and that it'll be very
interesting to see what the knock-on
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 ebb and flow and 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 to limited inventories to
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
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
that that happened three and a half
years ago and I can see how far the
balance sheet is going to expand so the
balance sheet right now is what six and
a half trillion dollars and it looks
like it will get over seven trillion
dollars or so and it looks like it will
get to 12 to 14 trillion dollars by the
end of 2025.
so that puts and there's a number of
other ways I've proven this out in this
whole thing and I'll send you the whole
piece uh myself because I've not really
gone public with 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 investment 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 the global
backer investor are kind of looked the
world's most famous hedge fund managers
um asset managers and I 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 Howell at cross-border
Capital has been talking some elements
of this liquidity you can see liquidity
becoming part of the conversation on
financial Twitter and stuff now
what I think we'll probably do is create
boom bust 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 do