Jim Rickards: Washington Needs Inflation, Here's Who Pays

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You know, your dollar is like an ice cube melting in your hand.
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When China sells treasuries or or lets them run off, which is you know economically the same thing, um, it's not because they're getting out of dollars.
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They wish they had more dollars.
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If you own gold futures or unallocated gold contracts with JP Morgan or Options on Gold or ATFs, you don't own gold.
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Um, you have a contract.
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All right, Washington can write a bigger check, but it can't rebuild a weapon stockpile overnight, and interest rates won't make a shipping lane safe.
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So when the usual tools aren't enough, what happens next and who pays?
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Now, today, Jim Rickards joins me on what Washington can still control, where China has leverage, and what it all means for your money.
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I also want to know what he's buying that he'd still want to own if the crisis never comes.
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I'm Jeremy Saffron.
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This is Kitco News.
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In Focus with Jeremy Saffron is presented by Calchi.
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Trade Gold and Silver Perpetual Futures 24-7 at Calchi.com.
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Jim Rickards was the lawyer in the room when Wall Street rescued long-term capital management in 1998.
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He's the author of Currency Wars and Money GPT.
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He edits Strategic Intelligence.
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Uh, Jim, welcome back to Kitco.
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It's great to see you.
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Thanks, Jeremy.
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Great to be with you.
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Uh, I should also say happy belated birthday as well.
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Uh, I'd like to like to think that we do our research over here.
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Now, uh, you you've said central banks support gold, but that they had maybe they aren't enough uh on their own to send it much higher here.
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I mean, we've seen a little bit of a correction, but I guess on the buyer, I mean, who is the next big buyer and what finally makes them kind of act?
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Well, you don't necessarily need um a lot of buyers.
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Obviously, you just need a higher price.
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The role of the central banks, uh, the the turning point was uh 2010.
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So from 1970 to 2010, central banks were net sellers.
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Uh the United States, believe it or not, sold a thousand tons in the 1970s, even after Nixon uh closed the gold window.
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Uh in um the late 1990s, it was the UK's turn.
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Uh they sold uh about half their gold uh at$250 an ounce, believe it or not.
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So-called uh it was Gordon Brown was the chancellor of the exchequer, then uh the so-called Brown's bottom.
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He actually picked the bottom of the market to sell their gold.
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Uh in the early 2000s, we got the uh Swiss to do our dirty work.
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They sold about um a thousand metric tons.
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And then as late as 2010, the IMF sold 400 tons.
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We know about half of it went to uh India and a few other countries.
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They never disclosed the other half, probably went to China.
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I think that's uh a very good assumption.
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But that was it.
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Uh 2010 was the year when central banks went from net sellers to net buyers, and that has persisted ever since.
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The particular central banks change, it's not always the same ones.
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The big buyers, of course, Russia and China.
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Uh they both had about 600 metric tons in 2009.
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Uh, Russia's over 2,500, China's approaching 3,000 uh metric tons.
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That's what they tell you.
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The Russians are fairly transparent.
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I think those numbers are about right.
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China, uh, we don't actually know.
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They have two um holding uh companies, if you will.
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One is the central bank, People's Bank of China.
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They do publish their results uh and go to their website, and they're the ones who say we have um close to 3,000 metric tons, not quite.
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But they have another organization called the State Administration for Foreign Exchange, SAFE or SAFE for short.
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They have a lot of gold, pardon me, but they're completely non-transparent.
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We don't know what's in there.
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It so we're estimating it could be double.
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You can estimate when I say double, another 4,000 tons, maybe less, but that would not shock anyone to learn that.
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You can kind of estimate based on when you look at Swiss exports and Hong Kong imports, Hong Kong being uh gateway to uh China, uh, you can come up with some rough numbers.
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What we don't know, and it's hard to ascertain, is even if we know how much is going in, how much of that is safe uh with a central bank, and how much of that is uh private consumption, because the the Chinese buy a lot of gold.
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Um individually, I've been to China quite a few times.
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I've gone to some of these gold uh boutiques, they're kind of interesting, they're open late, sometimes till midnight, and they've got you know hostesses dressed in uh silk uh dresses walking around with trays of gold.
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But uh they they do a business, but we don't quite know how much that is.
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So um so they're the big buyers.
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But uh Turkey has bought a lot of gold.
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Japan has increased its um owning ownership by 300 metric tons.
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Um that's another one where they probably had the gold all along but kept it off the books because they just showed up one day, one quarter in the figures.
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Um, as you know, you can't just, you know, good luck uh calling up JP Morgan and trying to buy 300 metric tons evernight.
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It's impossible to do.
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You you can acquire it over time, uh, and you know, so much per month.
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But um when you see it show up all at once, it pretty much tells you they had the gold and they just you know did some accounting entries and moved it over to the central bank in a more transparent uh format.
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Um Iran is another very big buyer of gold.
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We we have we don't know how much other than what Obama dropped off on the runway uh about seven or eight years ago or ten years ago.
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Um, but uh they uh that's one of the ways they're surviving all the economic sanctions.
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Yeah, they're kicked out of the dollar system, they don't have the hard currency, they're not getting oil export revenue.
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All true.
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But if you have gold, um, gold is money.
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You can use it to buy weapons, buy food, buy whatever you want.
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You have to maybe move it around physically, but it's not that difficult.
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Um, and uh even Mexico, even Vietnam uh is a big buyer of gold.
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So, but what they do, uh Jeremy, and this is important, the central bank buying is not going to cause gold to go to the moon.
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It's not gonna cause a spike.
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But what it does do, it establishes a floor.
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They're actually very savvy buyers.
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They don't chase the you know the mini spikes or whatever.
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They they look for a bottom or a certain kind of stability.
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Now is a is a good time, for example.
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Uh, but that's really good news for investors because it creates what I call an asymmetric trade.
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Meaning uh if you buy it, say at current levels, you have all the upside, which I think is significant, but your downside is limited because the central banks are always there, as they say, buying and putting the floor under it.
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No guarantees, but it's kind of nice when if your downside is limited and your upside is unlimited, that's my uh my favorite kind of trade.
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Yeah, yeah.
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Well, um, you know, I gotta ask you, I mean, uh central banks went from selling gold to wanting more of it, as you kind of mentioned, you know, throughout those years.
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What would make the big pension funds and and other you know long-term investors follow them?
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I mean, what are they waiting for?
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Well, if you're talking about pension funds, endowments, um, you know, insurance companies, you can almost guarantee that they'll be the last ones in, because they always are.
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Um, their allocations to gold are about one to two percent, uh, and some of them have none.
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Um if they I'm not forecasting this, but if they only went from let's just say 2%, and that's high.
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That's that's probably as high as as good as it gets, to 5%, there's not enough gold in the world at anywhere near these prices to satisfy that demand.
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That's the kind of thing that would take gold, maybe it gets to$10,000 an ounce on its own.
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That's the kind of thing that would take it from$10,000 to$20,000 very quickly if they decide to jump in.
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But I'm I'm not uh counting that.
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Like I say, when the frenzy stage begins or these big gaps really start to pile up, then some of them will move in, but they tend to be followers, not leaders.
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Um the demand for gold right now will come, as I say, will continue to come from uh from central banks.
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A lot of it's from uh from individual buyers around the world.
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Um I always uh my my Indian friends uh tease me because I I always I point out that India has about 500 metric tons of uh of gold uh in in the Reserve Bank of India.
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And they say, oh no, Jim, you're all wrong.
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They have 15,000 tons.
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I was like, hold on.
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There are 15,000 tons of gold in India, but it's mostly owned by individuals.
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Um the central bank has about 500 tons, but I got back from India, I was there on a long trip um last year.
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Uh, and if you've ever seen an Indian bride, they're just their wedding presents are just adorned in gold chains.
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It's it's pretty, of course, but that's their life savings.
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Those gold chains are for their children's education, down payment on a house, their own retirement, health care, et cetera.
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That's their savings account because they don't uh they don't trust the currency, they don't trust the uh yeah, retail banking institutions and so forth.
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So um so yeah, the the the Indian consumer is a is a huge buyer.
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Uh again, Chinese consumers, independent of the central bank.
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So that's where the demand will come from.
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Uh I was in Australia recently, and um this was uh uh last August, um, but gold had started its run from around the$1,800 level up to$5,400, which was the peak at the end of January.
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But we were well into that.
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Uh and I was the guest of one of the major uh, well, actually the the large uh largest uh gold dealer, gold refinery in Australia, um, a private uh ABC bullion.
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Uh but they were in the Central Business District of Sydney, they were lined up around the block to to buy gold.
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So a lot of it does come from individuals.
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You know, in that scenario, because you brought up a good point about the upside being able to access that now.
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I mean, it does does the gold owner actually gain purchasing power or or mainly preserve what they already have now?
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Because those are two different sides, you know, kinds of upside.
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Yeah, uh you it's mainly preserving wealth, but what's what's wrong with that in a world where we're getting higher inflation?
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And uh, you know, if you if you're a dollar recipient, so you have um uh pension, uh insurance payment, an annuity, uh, social security, any kind of fixed income in a dollar amount with the kind of inflation we're getting, you're always lagging, you're always losing money.
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Now, some of those things are adjusted for inflation, Social Security gets adjusted every year.
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But that's after the fact.
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They look at the the um any increase in Social Security payments in 2027 will be based on 2026 inflation, but inflation will I expect to continue and maybe get worse in 2027.
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So you're always slightly behind the curve.
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Gold will do a much better job of keeping you ahead of that.
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Um and so as they say, it has the uh kind of upside potential that's not directly in sync with inflation.
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It can just kind of uh uh take on a life of its own.
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So uh so yeah, it is good for that.
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It as far as money is concerned.
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I mean, it's not a currency, at least not today.
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I mean, whether we even if we went back to a gold standard, and I'm I'm not predicting a gold standard, but even if we did, it doesn't mean we'd be walking around with, you know, quarter ounce or eight gram gold coins in our pockets.
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It just means that we'd have dollars that were tied to gold in some fashion.
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You can have a gold standard that way.
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But uh, but as a store of wealth um and as um uh uh a way to uh well you know preserve wealth and and have upside, uh it serves very well.
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Having said that, gold is being used as money to beat sanctions.
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Uh Russia, North Korea, um Iran, I mentioned uh other countries as well.
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I've done quite a bit of work for this, um, for the uh for the CIA and the national security community, director of national intelligence, and we've always understood that uh gold was uh a pretty good way to beat the sanctions because you know it's physical, non-digital, can't be traced.
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Um if you get a gold bar, and I'm sure you've seen 400-ounce gold bars.
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I've been in quite a few vaults, and they're heavy.
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I dropped them on my foot once, actually.
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They are heavy.
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They weigh about 28 pounds, yeah.
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It's like a free weight.
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But um, but they have a bunch of stamps on them.
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They have they'll have a serial number, they'll have the the assayer who determined it was gold, the refiner, the exact weight.
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I say 400 ounces, could be 398.7 ounces, etc.
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That stuff's all stamped on the bar.
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Um boy, a serial number stamped on a dollar bill.
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But all you have to do is melt it down and recast it, and all that's gone.
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That's the record keeping.
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Uh, it's gone and put put new stamps on it.
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It's it's untraceable.
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It's uh it's an element.
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Um, a lot of some of these guys on Bloomberg keep calling it a shiny rock.
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I say it's not a rock, it's a metal.
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Get that straight.
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But um it's uh but it's easy to recast and it really is non-traceable.
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So it's perfect for evading sanctions.
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And that's one of the big uses for it today, particularly with regard to Iran.
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Let me ask you a question on that.
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I mean, does that does that make you know a country more independent or just more dependent on the smaller group of countries willing to trade within it?
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I mean, for Iran, does does gold take leverage away from Washington and hands some of it to Beijing?
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Yes.
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Um it it has it's initially to Iran, uh, but yeah, Iran could ship gold to China uh in exchange for weapons, drones, manufactured goods, semiconductors, et cetera.
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It can ship gold to uh Russia for uh weapons.
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Again, Russia's a major weapons supplier.
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Um I looked at the North Korean portfolio uh uh dossier.
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Russia can pay North Korea in gold uh for North Korean drones and North Korean missiles, et cetera.
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So yeah, there's a pretty uh lively market.
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And again, it it completely escapes sanctions and it's a way to uh it's one of the reasons gold, as I say, it has this floor, maybe illegal from the U.S.
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perspective, but they don't care.
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I mean, we're at war with half these countries, so uh, so uh, you know, all's fair.
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Yeah.
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Yeah.
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Obviously, uh is there an unintended kind of consequence here?
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I mean, Washington's trying to weaken Iran, but it is also strengthening China's hand by making Iran more dependent on Beijing.
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I mean, how how does China use that leverage?
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Does it get cheaper oil?
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I mean, better trade terms, political concessions that Iran otherwise wouldn't accept?
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Um, yeah, it is a two-way street.
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As I say, Iran buys weapons and uh manufactured goods and semiconductors from China.
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But China is the largest purchaser of Iranian oil.
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Now, you run right into um the uh the blockade of the Strait of Hammuz.
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Iran is trying to blockade the strait.
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They've done a pretty good job so far.
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The latest reports are more tankers are getting through with U.S.
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military escorts, uh, U.S.
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Navy escorts, um, but it doesn't, you know, uh as I say, Iran, Iran does not have the capacity to interdict every vessel that's trying to get through the Strait of Hamous.
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They don't have much of a Navy, really, nothing left except these speed boats, um, like kind of PT boats, um, and they don't have a Marine Corps that can go, you know, board the oil tanker and take it over.
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But they don't have to.
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All they and they don't have to stop them all.
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All they have to do is blow up an oil tanker once or twice a week, and that's enough to shut down traffic in the Strait of Hamuz because nobody wants to be next.
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I mean, if you're um if you own the if you own a vessel, you own the cargo, vessels you know, are owned by one group, the cargoes trade separately.
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The the cargoes actually trade while the vessel's underway.
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They just you know sell it to somebody and call the captain and say go to Houston instead of Rotterdam, as the case may be.
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Um you're the insurance company, or you're just the captain, you care about your crew and you don't want your people to get killed.
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Um, do you want to, you know, as uh the dirty Harry said, uh, you know, do you feel lucky?
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I mean, do you want to maybe you'll get through the straight-up amouse, but maybe not?
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It doesn't take much to shut it down.
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Um, the other reason oil's getting out right now, there's a pipeline from eastern Saudi Arabia, which is where the oil fields are, across the peninsula that comes out in the Red Sea near uh a place called Yambu.
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Um, well, uh, okay, that was pretty that was uh transporting three to five million barrels a day.
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Now, Saudi really typically exports closer to 20 million barrels a day when the Strait of Hamous got choked off.
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They went to this pipeline and increased its capacity or the or the flow through and were you know not quite to five million barrels a day, about three million barrels a day.
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Well, the it was blown up by forces in Iraq.
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Now the the forces were allied with Iran, uh they were Iranian proxies, um, but they blew up the pipeline.
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Well, it just announced yesterday that Saudi Arabia repaired it and they're getting ready to start using it again.
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Sounds good, but what's stopping the Houthis or the Iraqis from blowing it up again?
00:17:21.680 --> 00:17:23.200
Um they probably will.
00:17:23.359 --> 00:17:26.640
So um, yeah, things are getting better in terms of oil output.
00:17:26.720 --> 00:17:32.079
And by the way, oil is not a big problem globally right now.
00:17:32.319 --> 00:17:38.559
Yeah, the price is higher, and there are shortages, but we don't put uh crude oil in our gas tanks.
00:17:38.640 --> 00:17:40.079
We put uh gasoline.
00:17:40.319 --> 00:17:47.759
That's really the refined products that are a short supply: gasoline, uh kerosene, which is jet fuel, uh, diesel.
00:17:47.920 --> 00:17:49.920
Um they're the they're the big three.
00:17:50.160 --> 00:17:52.480
They don't come out of the ground, they come out of refineries.
00:17:52.640 --> 00:18:07.759
Well, a lot of the refineries are in Russia, but they're being bombed or attacked with drones coming from Ukraine with help from the United States in terms of targeting surveillance, satellite imaging, etc.
00:18:08.240 --> 00:18:23.440
So you see Trump complaining about, yeah, it Trump said publicly he wanted the Ukrainians to stop attacking Russian refineries because it was driving up the price of diesel, which affects farmers in Iowa, and you got a close center race going on in Iowa.
00:18:23.680 --> 00:18:25.359
So it's kind of all connected.
00:18:25.519 --> 00:18:30.400
And I I've said um, you know, elsewhere, well, fine.
00:18:30.799 --> 00:18:46.079
If you want to stop the Ukrainians from attacking Russian refineries in the United States, why don't you stop giving the Ukrainians intelligence and uh GPS coordinates and uh surveillance and all the other, plus the drones themselves and all the other information they need to do it.
00:18:46.240 --> 00:18:48.880
So we're sort of talking out of both sides of our mouth.
00:18:48.960 --> 00:18:51.200
We don't want the Russian refineries attacked, yeah.
00:18:51.279 --> 00:18:54.160
But we're giving the Ukrainians all all the tools they need to do it.
00:18:54.240 --> 00:18:56.400
So I it's hard to make sense out of that.
00:18:56.799 --> 00:19:00.960
You know, I just want to go a little further on there because to your point, I mean, the shooting in Hormuz hasn't stopped.
00:19:01.119 --> 00:19:07.359
I mean, maritime British uh, I think Brit Britain's maritime agency reported three more tankers, I mean, struck this week.
00:19:07.519 --> 00:19:19.039
So uh JP Morgan this morning, they did say crude exports uh from the region are back to 98% to pre-war levels, but to your point, I mean, refined products like diesel and glass gasoline are only about 58%.
00:19:19.440 --> 00:19:26.799
So, I mean, Jim, can can markets learn to live with this war, or are they just missing a cost that just hasn't shown up yet?
00:19:28.079 --> 00:19:28.880
Uh both.
00:19:28.960 --> 00:19:33.599
I mean, they can learn to live with it, but uh to your point, uh Jeremy, at what price?
00:19:33.759 --> 00:19:36.559
And so what will the price of diesel be?
00:19:36.640 --> 00:19:41.119
Now, there's something um called, not to get too in the weeds, but something called the crack spread.
00:19:41.200 --> 00:19:53.359
Now, the crack spread is basically the difference between you do a barrel equivalent, so the difference between a barrel of crude oil and a barrel of refined product, I'll say diesel, because diesel is the most important.
00:19:53.599 --> 00:19:58.000
Uh, what is that, what is that spread uh again on a barrel equivalent basis?
00:19:58.160 --> 00:19:59.440
It's normally around$20.
00:19:59.839 --> 00:20:03.599
That would be you know how much more you would pay to get the refined product.
00:20:03.759 --> 00:20:05.200
Today it's over$100.
00:20:05.680 --> 00:20:07.200
It's at an all-time high.
00:20:07.440 --> 00:20:20.799
Now, if you work backwards, okay, let's look at the price of diesel at um uh about$200 a barrel, uh, and then subtract$20, which is the normal crack spread.
00:20:21.039 --> 00:20:26.240
What that tells you is that a barrel of crude oil is actually worth$180 a barrel.
00:20:26.400 --> 00:20:32.319
Now I know that Brent uh crude is um uh about$97.98 today.
00:20:32.400 --> 00:20:39.839
It's been cl just a little bit over$100 in recent days, wet West Texas intermediate, a little bit lower, but you know, kind of in the mid-90s.
00:20:40.160 --> 00:20:44.240
Um but but those, again, that people don't understand this necessarily.
00:20:44.400 --> 00:20:46.160
Those are futures contracts.
00:20:46.400 --> 00:20:51.039
And futures contracts settle one to two months forward, number one.
00:20:51.119 --> 00:20:53.119
And number two, they're not predictions.
00:20:53.279 --> 00:20:55.519
They are it's a weighted average of all the bets.
00:20:55.599 --> 00:20:57.680
Some people are betting higher, some people are betting lower.
00:20:57.839 --> 00:21:04.640
You buy and sell your contracts, as the case may be, and the price comes out, as they say, in the mid to high 90s, where it is right now.
00:21:04.880 --> 00:21:12.880
But those are bets, uh, weighted average bet of where people think oil's gonna be um two months from now, uh, when the contract settles.
00:21:13.039 --> 00:21:14.960
Well, that's not where it is today.
00:21:15.039 --> 00:21:41.839
If you if you want a wet cargo, if you want a an oil tanker filled with oil on the seas that can deliver to your refinery right now, and there are brokers who do this and call them up, that oil is running$130,$140 a barrel, which is much closer to that hypothetical$180 a barrel that we got to by working backwards from the crack spread minus the normal difference.
00:21:42.079 --> 00:21:58.319
So the point is that um actual crude oil that is deliverable on you know in a vessel on the water, that's you know, in the range of$140 to$180, uh$180 a barrel, not$98, which is what you see on the futures contract.
00:21:58.559 --> 00:21:59.759
So it actually is quite high.
00:22:00.240 --> 00:22:12.559
But it it uh had I just happened to have um an event this past weekend and had you know a hundred or so uh visitors from uh from around the world and I was wishing everyone you know well.
00:22:12.720 --> 00:22:18.400
Uh and the number of people who said, Hey Jim, my flight was canceled because they didn't have fuel.
00:22:18.960 --> 00:22:21.680
Usually like mechanical difficulties or a pilot or whatever.
00:22:21.759 --> 00:22:24.240
They said, no, they didn't, they couldn't fuel the plane.
00:22:24.400 --> 00:22:33.119
Other people said and they switched into a different airline, or other people said, Yeah, we took off, but we had to stop uh you know halfway across the country to refuel.
00:22:33.279 --> 00:22:42.799
That's because they didn't have enough diesel when they, or sorry, uh kerosene or jet fuel when they took off or um or or ran or couldn't fill it up to begin with.
00:22:42.960 --> 00:22:48.480
So uh those um jet fuel uh shortages are sh are showing up in real time.
00:22:48.559 --> 00:22:50.079
This is not some future problem.
00:22:50.240 --> 00:22:51.440
It's a problem right now.
00:22:51.920 --> 00:23:02.720
And if the fighting stopped tomorrow, I mean, would that gap that we were talking about close quickly, or has enough refining capacity been damaged that consumers would keep paying long after the shooting stops?
00:23:03.920 --> 00:23:08.559
Yeah, the um the the refinery problem uh constraint is real.
00:23:08.799 --> 00:23:12.799
The the US, the last new refinery in the United States is built in 1979.
00:23:13.200 --> 00:23:19.440
Uh and they're running at right now, they're all running at 100% capacity, which you actually can't do.
00:23:19.519 --> 00:23:26.000
I mean, you can do it for a short period of time, but if you run it, it's like, you know, running your car at 8,000 RPM.
00:23:26.079 --> 00:23:29.039
I mean, you can redline it, but good luck staying there.
00:23:29.119 --> 00:23:34.960
Uh, my point being, um, equipment will start to break down, uh, engines will start to burn out, et cetera.
00:23:35.119 --> 00:23:38.880
You have to run it at a lower level in order to make it sustainable.
00:23:39.119 --> 00:23:43.039
So, yeah, everyone's working flat out right now, but it it's not sustainable.
00:23:43.200 --> 00:23:46.400
So the shortages already exist, as I described.
00:23:46.720 --> 00:23:49.680
So, no, we won't be uh we won't be over it quickly.
00:23:49.839 --> 00:23:59.519
What um the there are huge logistical hurdles along the lines we described, but where it affects everyday Americans is in the price and inflation.
00:23:59.680 --> 00:24:03.759
The thing with diesel, like, hey, I put gasoline in my car, I don't put diesel in my car.
00:24:03.920 --> 00:24:15.519
Well, fine, but every single thing you buy, either at the store, on the shelf, or delivered to your porch, arrives by truck at some stage, and trucks run on diesel.
00:24:15.599 --> 00:24:22.640
So when diesel prices are higher, that gets passed along into the price of everything because it all moves by truck.
00:24:22.799 --> 00:24:29.599
The truckers aren't going to eat the increase, they're gonna pass it along to the shippers, uh, and they're gonna pass it along to the retail outlets.
00:24:29.839 --> 00:24:34.079
So uh higher diesel prices mean higher prices for everything you buy.
00:24:34.160 --> 00:24:42.160
Uh, and that that is why the and that will persist, and that's why the inflation will persist, which it it's good for gold.
00:24:42.319 --> 00:24:51.599
Um, inflation is a the correlation between inflation and higher gold prices, it's real, but it's less powerful than most people think.
00:24:51.759 --> 00:24:58.960
The real drivers of gold prices are things like geopolitical risk, um fear of uh the U.S.
00:24:59.119 --> 00:25:05.200
confiscating your treasury securities, uh, and um you know a weak dollar for other reasons.
00:25:05.279 --> 00:25:08.480
Uh those are the things that really uh get people buying gold.
00:25:08.799 --> 00:25:21.920
I gotta ask you, I mean, let's bring it back to the wallet uh for the people watching at home, too, because Americans, we saw this new data this morning, Americans spent 0.6% more in August after inflation, the biggest jump in more than one year, according to the Commerce Department.
00:25:22.079 --> 00:25:24.079
But their income after inflation didn't grow.
00:25:24.160 --> 00:25:28.480
And in September, consumer confidence fell to its lowest level since 2014.
00:25:28.640 --> 00:25:30.160
So, which is it here, Jim?
00:25:30.240 --> 00:25:32.880
I mean, are Americans doing better than they feel?
00:25:34.880 --> 00:25:41.440
Um well, I'm I'm glad you said uh real incomes after inflation, because that gets glossed over.
00:25:41.759 --> 00:25:49.920
First of all, you're right, but it gets glossed over because a lot of the mainstream media will say um, you know, incomes went up, uh, you know, more than inflation.
00:25:50.079 --> 00:25:51.599
But those numbers are nominal.
00:25:51.680 --> 00:25:53.119
They are not adjusted for inflation.
00:25:53.279 --> 00:25:57.039
The ones that the Bureau of Labor Statistics reports are not adjusted for inflation.
00:25:57.119 --> 00:25:58.720
Now you can do it yourself, it's pretty simple.
00:25:58.880 --> 00:26:08.000
Just take the number and subtract the inflation rate, although there are 15 different inflation rates, depending on whether it's you know, PCE core, non-core, supercore.
00:26:08.079 --> 00:26:09.599
We don't need to get into all that.
00:26:09.759 --> 00:26:24.319
But pick an inflation rate that's reasonable and subtract it, and you'll find that real incomes or inflation-adjusted incomes are not keeping up with uh uh with uh other with you know with inflation, well, with the cost of living, basically.
00:26:24.559 --> 00:26:26.960
So um so that so that's right.
00:26:27.839 --> 00:26:32.880
But then you'll hear uh so that's the so-called affordability crisis.
00:26:33.119 --> 00:26:41.279
It's uh you know, gas prices are higher, diesel prices are higher, uh interest rates are higher if you're getting a home mortgage, they're back up over 7%.
00:26:41.920 --> 00:26:42.720
That's all true.
00:26:42.880 --> 00:26:44.720
Those numbers uh bear out.
00:26:44.799 --> 00:26:50.079
Uh, but then that's kind those are the Democrat talking points going into the election, the midterm elections.
00:26:50.319 --> 00:26:55.440
The Republicans will say, hold on, uh, you know, unemployment's quite low, which it is.
00:26:55.680 --> 00:27:02.880
Um the stock markets are you know off a little bit, but they're kind of not far from all-time highs, which uh which is true.
00:27:03.039 --> 00:27:09.039
Uh GDP is expanding at the highest rate in years, uh over 10 years, which is also true.
00:27:09.200 --> 00:27:10.640
Uh so everything's great.
00:27:10.799 --> 00:27:12.720
So, and the question is, which is it?
00:27:12.880 --> 00:27:16.799
You know, because it can give you I can give you a bunch of data that points in two opposite directions.
00:27:17.119 --> 00:27:20.880
This is the I hate to use cliches, but sometimes they they're accurate.
00:27:21.119 --> 00:27:24.559
This is the so-called K-shaped economy.
00:27:24.720 --> 00:27:27.680
Um, you know, the L was it goes down, it stays there.
00:27:27.839 --> 00:27:32.079
The U, it goes down, runs along the bottom for a while, goes back up again.
00:27:32.319 --> 00:27:34.480
The W is back to back recessions.
00:27:34.559 --> 00:27:36.319
We had that in 1980 and 81.
00:27:36.559 --> 00:27:40.319
So people have all these, you know, the V is down sharp, up sharp.
00:27:40.480 --> 00:27:49.920
So people have all these letters, but the um the K-shaped economy is two completely different economies depending on whom you are.
00:27:50.079 --> 00:28:02.880
Uh so if you have assets, home prices are going up, stocks are going up, gold has been going up, um uh, you know, dividends have been been going up, et cetera, IPOs are on the horizon.
00:28:03.200 --> 00:28:09.200
So uh if you have assets and you have inflation hedges, okay, inflation's not great.
00:28:09.359 --> 00:28:15.200
In fact, it's pretty bad, but there are ways to hedge against inflation, and you know, gold being one of them.
00:28:15.359 --> 00:28:17.599
So uh you could be doing okay.
00:28:17.839 --> 00:28:27.119
On the other hand, if you're, you know, particularly people in their 20s, you know, but even people in their 30s and 40s, but definitely people in their 20s, uh, heavy student loan debt.
00:28:27.200 --> 00:28:34.880
Um they can't save because uh um you know, be uh because you know they can't get really good high high-paying jobs.
00:28:35.119 --> 00:28:38.079
Um, you know, you're barista, you're an Uber driver.
00:28:38.160 --> 00:28:39.599
I mean, there's dignity in all work.
00:28:39.680 --> 00:28:51.519
I'm not um uh I'm not disparaging any form of work, but uh there is a difference between the so-called gig economy and you know what used to be high-paying union jobs with benefits, et cetera.
00:28:51.599 --> 00:28:54.240
Those are the ones that have been uh been disappearing.
00:28:54.400 --> 00:29:06.079
So you end up, you know, you're you're living in your parents' uh spare bedroom, you you can't pay off your student loan debt, you can't save to buy a house, you don't want to get married because you've got no place to live, uh, you know, et cetera.
00:29:06.559 --> 00:29:19.279
Well, those people are in bad shape, and they're rightly um, I would say not just depressed, they're a little angry about the situation because they kind of went to college and do what you're supposed to do.
00:29:19.519 --> 00:29:31.680
They're the ones, not all of them, I don't want to overgeneralize, but they're the ones joining the uh Democratic Socialists of America or supporting their candidates, who are winning a lot of races, by the way.
00:29:31.920 --> 00:29:38.160
Um, I tell people, you know, when you say Democrats Socialists of America, socialist is a branding exercise.
00:29:38.319 --> 00:29:39.279
They're communists.
00:29:39.519 --> 00:29:41.680
And when I say that, it's not name-calling.
00:29:41.759 --> 00:29:43.039
That's what they call themselves.
00:29:43.200 --> 00:29:48.000
Go to the DSA, Democratic Socialists of America, go to their website, look at their platform.
00:29:48.160 --> 00:29:50.079
They say, hey, we're communists.
00:29:50.160 --> 00:29:51.359
I mean, the masks are off.
00:29:51.440 --> 00:29:52.640
They're not hiding it.
00:29:52.880 --> 00:30:10.559
And that actually has a lot of appeal because a lot of these, you know, I say people who graduate from college in the last 15, 20 years, I don't they I don't know when they stopped teaching uh you know geography and history and a lot of other things, but they sure teach ideology and Marxism, you know, in kind of dressed-up form.
00:30:10.880 --> 00:30:19.920
So uh now you can debate that, you can criticize it, but you shouldn't be surprised by it given the fact that they're on the down leg of the K.
00:30:20.079 --> 00:30:26.079
So you've got people on the up leg of the K, they're doing fine, people on the down leg of the K not doing fine.
00:30:26.240 --> 00:30:29.119
And it really is uh a tale of two economies.
00:30:29.440 --> 00:30:29.920
Yeah, yeah.
00:30:30.000 --> 00:30:33.359
Uh, what's the free market kind of answer to that frustration you're talking about?
00:30:33.440 --> 00:30:37.200
If someone works, pays their bills, still can't get to the point of owning assets.
00:30:37.279 --> 00:30:41.279
I mean, what what what would you change first to give give them a kind of a way in?
00:30:43.519 --> 00:30:46.960
Well, there is no free market solution because there is no free market.
00:30:47.039 --> 00:30:48.319
That's one of those cliches.
00:30:48.400 --> 00:30:50.160
People like to throw it out there at me.
00:30:50.319 --> 00:31:02.559
Uh yeah, we have freer markets, and uh and I uh you know, yeah, we should I absolutely support market economies and they have efficiencies and they give you prices, they give you a lot of good things.
00:31:02.720 --> 00:31:05.599
But um, you know, take the Tesla for example.
00:31:05.839 --> 00:31:10.720
I I happen to have lived in a couple, I'll just say high-income zip codes.
00:31:10.799 --> 00:31:14.559
So I encounter more than my share of Teslas.
00:31:14.880 --> 00:31:27.680
And every time I see one, I want to pull the driver over and get my$7,000 back because they gave them$7,000 in credits, not deductions, credits dollar for dollar to buy the Tesla.
00:31:27.839 --> 00:31:29.119
Huge government subsidy.
00:31:29.279 --> 00:31:31.759
They would scarcely have been affordable without it.
00:31:31.920 --> 00:31:34.000
I'm a taxpayer, so I'm paying those subsidies.
00:31:34.160 --> 00:31:35.039
I don't have a Tesla.
00:31:35.200 --> 00:31:40.480
I'm I'm uh I like, hey, buy whatever car you want, and if Elon Musk make whatever car you want.
00:31:40.640 --> 00:31:45.519
But when you throw a$7,000 per vehicle subsidy on it, don't tell me that's a free market.
00:31:45.680 --> 00:31:46.400
It's not.
00:31:46.640 --> 00:31:49.359
And so I could give you many other examples.
00:31:49.519 --> 00:32:02.640
So I think you're the real the important part of your question, Jeremy, is what uh leaving aside all those um you know footnotes or conditions or constraints on supposedly free markets, what would the best policy be?
00:32:02.880 --> 00:32:07.519
I think I would start with the student loans because um it's huge.
00:32:07.680 --> 00:32:10.960
It's it's getting close to$2 trillion.
00:32:11.599 --> 00:32:14.640
Last time I checked was about$1.6 trillion.
00:32:15.359 --> 00:32:17.519
Um per student.
00:32:17.680 --> 00:32:27.200
So I I know you know my my my kids are uh well, they're in their you know 40s and 30s, but they certainly have no younger people and they have a lot of friends.
00:32:27.440 --> 00:32:32.319
Um these people have$100,000,$150,000 in loans.
00:32:32.400 --> 00:32:34.640
Some of them are higher, the interest is accruing.
00:32:34.799 --> 00:32:39.680
And they got holidays uh or forgiveness during the Biden administration.
00:32:39.920 --> 00:32:43.359
A lot of that has been reversed under the Trump administration.
00:32:43.519 --> 00:32:48.319
What wasn't reversed is like, well, okay, your your holidays up, now you've got to pay back your loans.
00:32:48.480 --> 00:32:49.359
And they can't do it.
00:32:49.440 --> 00:32:53.759
I'm not I'm not saying uh, I mean, it's the law, it's the deal, it's the contract.
00:32:53.839 --> 00:32:54.480
I understand all that.
00:32:54.559 --> 00:32:57.119
I'm a lawyer, among other things, I get it.
00:32:57.359 --> 00:33:04.799
But don't think that you can run that policy and get the kind of economy you're looking for, at least from that um cohort.
00:33:04.880 --> 00:33:45.119
So I would give student loan um, if not outright forgiveness, reduced interest rates, longer maturities, maybe some forgiveness, in exchange for taking educational programs that actually are productive, not uh, you know, uh gender studies and frogs or whatever, but you know, um a welder, a carpenter, a you know, a landscaper, uh uh metal worker, uh steel worker, uh, vocational type education, or education, science, technology, um, mathematics, where you can apply yourself and you know, join the AI revolution, et cetera.
00:33:45.279 --> 00:33:57.279
So let's um let's offer those programs and let's say to people in their 20s and 30s, um, get one of these degrees, we'll uh subsidize your tuition and forgive your student loans.
00:33:57.359 --> 00:34:17.280
In exchange, we the United States and the taxpayers get a much more productive, uh capable citizen, whether you go into the vocational blue-collar route, which is fine, and you know, try getting a try getting a good plumber or uh or a carpenter or a woodworker these days, you know, good luck.
00:34:17.440 --> 00:34:20.320
Um, uh that would be a that would be a fair trade.
00:34:20.480 --> 00:34:25.840
That would be uh we'd be giving up dollars, uh not spending dollars, by the way, but writing some off.
00:34:26.000 --> 00:34:34.000
And that does affect the budget deficit, but um writing some off, but in exchange, we'd be getting people signing up for a much more productive educational program.
00:34:34.320 --> 00:34:35.679
Education is the key to everything.
00:34:36.159 --> 00:34:43.440
If you've been if you got an ideological indoctrination, you can't offer very much, but the kind of program I'm talking about, you probably could.
00:34:43.920 --> 00:34:52.800
You know, has it surprised you uh uh surprised you how much uh appeal socialism and kind of that greater government control has gained, particularly among younger people?
00:34:53.039 --> 00:34:55.440
Because I want to talk about the trap in that promise.
00:34:55.519 --> 00:35:01.119
I mean, if the frustration pushes voters towards more government ownership and control, what's the economic bill, Jim?
00:35:01.199 --> 00:35:06.000
I mean, who ends up paying for it, including the people those policies are supposed to help?
00:35:07.199 --> 00:35:20.079
Well, if you ask me whether, again, I'm being polite by calling it socialism, it really is communism or neo-Marxism, if you like, you know, sort of the Antonio Gramsci version from the early uh 20th century.
00:35:20.320 --> 00:35:25.760
But um if you ask me if it works, the answer is absolutely not.
00:35:26.000 --> 00:35:30.400
But if you ask me, am I surprised it's popular, the answer is no, I'm not surprised.
00:35:30.480 --> 00:35:32.559
Uh partly for the reasons we discussed.
00:35:32.719 --> 00:35:39.920
But um they the really a generation or really kind of two generations at this point, they've been indoctrinated.
00:35:40.079 --> 00:35:57.760
I mean, if you're sitting in a classroom and instead of learning the kinds of things we were just talking about, uh, I'm telling you that um, you know, uh capital is concentrated and exploits labor, and labor produces uh surplus uh profits and the capitalist takes them and deprives the worker.
00:35:57.920 --> 00:36:07.440
And um, you know, we need to have uh, you know, well the the wealth taxes, they're talking about wealth taxes, not they are they do want higher income taxes, yes.
00:36:07.760 --> 00:36:12.559
But their their platform, and again, this is publicly available, it calls for a wealth tax.
00:36:12.639 --> 00:36:20.320
As a wealth tax, they don't tax you on your income, they tax you on what you have, your actual stocks, real estate, other assets, et cetera.
00:36:20.480 --> 00:36:22.239
They take a slice of that.
00:36:22.400 --> 00:36:29.840
Um, they're getting very close to making this the law in California, and they always start out saying, oh, it's only 1%, it's only on the billionaires.
00:36:30.159 --> 00:36:39.280
Yeah, and give it like three years, it'll be 5% on everybody making more than, you know, with with net worth of more than uh, you know, 200 grand or something like that.
00:36:39.519 --> 00:36:45.679
Um, well, that is confiscation of property and call it whatever you want, but that's what they're doing.
00:36:45.840 --> 00:36:48.960
Uh, Karl Marx wrote thousands of pages.
00:36:49.039 --> 00:36:54.000
I mean, his das capital or capital is several thousand pages, depending on your edition.
00:36:54.159 --> 00:36:55.280
He wrote a lot more.
00:36:55.440 --> 00:37:08.960
Um, but he was asked once, hey, take everything you've done, all your economic philosophy and really heterodox economic doctrine, end up being called Marxism, and reduce it to one sentence, what would you say?
00:37:09.199 --> 00:37:13.280
And he said, the abolition of private property.
00:37:13.599 --> 00:37:14.639
That's it.
00:37:14.880 --> 00:37:18.079
Uh, you know, and we we all know kind of where that goes.
00:37:18.239 --> 00:37:21.599
Well, that's what that's what they're that's what a wealth tax is.
00:37:21.679 --> 00:37:25.039
It's the first step in the direction of the abolition of private property.
00:37:25.280 --> 00:37:25.920
Will it work?
00:37:26.079 --> 00:37:26.239
No.
00:37:26.400 --> 00:37:27.280
Is it destructive?
00:37:27.440 --> 00:37:27.920
Yes.
00:37:28.159 --> 00:37:30.480
But don't be surprised to see it coming.
00:37:30.639 --> 00:37:31.280
Well, it is coming.
00:37:31.360 --> 00:37:33.280
Uh we don't have to guess anymore.
00:37:33.360 --> 00:37:40.239
Um, and don't be surprised to see it gain a lot of adherence because there are a lot of people who just don't have a stake.
00:37:40.559 --> 00:37:48.480
That's just the capitalist system, if you want to call it that, but they don't have a stake in the in the rule of law or the or the property-owning system.
00:37:48.719 --> 00:37:49.840
They don't have any property.
00:37:50.159 --> 00:37:55.360
Hey, that brings us to the Fed because you called the Fed's last move, or I guess hike, you know, kind of a blunder.
00:37:55.760 --> 00:37:57.599
Traders aren't betting on a reversal.
00:37:57.679 --> 00:38:05.119
I mean, I'm looking at Calci, the odds of another hike in October fell from 67% to about 40 in a day, but December 74%.
00:38:05.599 --> 00:38:07.360
So, I mean, what are your thoughts here?
00:38:07.440 --> 00:38:08.159
Should they reverse it?
00:38:08.239 --> 00:38:09.519
Where are we at?
00:38:10.719 --> 00:38:16.239
Well, I have to separate my my own policy recommendations from what they're actually gonna do.
00:38:16.480 --> 00:38:18.719
Because they're often two different things.
00:38:18.880 --> 00:38:22.880
Uh so uh I I think they should reverse it, but they're not going to.
00:38:23.199 --> 00:38:26.960
Um so at the October meeting, they're gonna stamp at.
00:38:27.119 --> 00:38:28.639
They're not gonna raise rates.
00:38:28.800 --> 00:38:31.360
They got that behind them at the September meeting.
00:38:31.519 --> 00:38:34.400
Remember that the next meeting, I think is October 29th.
00:38:34.480 --> 00:38:36.960
It could be off by a day, but I think I think it's the 29th.
00:38:37.119 --> 00:38:38.719
The election's November 3rd.
00:38:39.039 --> 00:38:46.079
Uh so on Tuesday, and the I think the meeting's uh Thursday, October 29th, if I'm not mistaken.
00:38:46.239 --> 00:38:49.039
Are you actually gonna raise interest rates four days ahead of the election?
00:38:49.199 --> 00:38:54.559
I mean, Trump would get up, walk over the Fed, go down, you know, Constitution Avenue and burn down the Fed.
00:38:54.800 --> 00:38:56.320
So they're not gonna do that.
00:38:56.400 --> 00:38:58.719
They're the idea that they're independent is a joke.
00:38:58.880 --> 00:39:00.719
The idea that they're not political is a joke.
00:39:00.880 --> 00:39:03.280
They're they're they're not they're not independent.
00:39:03.360 --> 00:39:14.800
They can be independent of the White House when they feel like it, but they're working at the behest of some pressure group or some consensus of economists or other central bankers, et cetera.
00:39:14.960 --> 00:39:17.519
Uh, you know, of course, they all they all talk to each other.
00:39:17.599 --> 00:39:23.679
Uh, but no, that would be uh, you know, sticking your hand in a fan, so to speak.
00:39:23.840 --> 00:39:25.039
So they're not going to do it.
00:39:25.199 --> 00:39:30.320
Uh, but then there's a meeting in December, uh, around the middle of December, I think it's the 18th or so.
00:39:30.400 --> 00:39:32.800
Um, and they'll probably raise it then.
00:39:32.960 --> 00:39:34.960
The inflation numbers are not great.
00:39:35.119 --> 00:39:42.239
And beyond that, uh people say, well, let's say let's just say inflation comes down.
00:39:42.400 --> 00:39:45.760
Let me be careful about you know what I mean by that.
00:39:45.920 --> 00:39:56.480
So if inflation is, and because the PC number came out today, so if inflation goes from 3.7% to 3.4%, the New York Times will say inflation came down.
00:39:56.719 --> 00:39:59.599
Well, it technically it did, but it's still inflation.
00:39:59.679 --> 00:40:00.400
That's the point.
00:40:00.639 --> 00:40:04.880
Prices didn't come down, prices didn't go negative, we don't have deflation.
00:40:05.119 --> 00:40:10.719
All it means is that your prices are still going up, but they're going up at a slower pace.
00:40:10.880 --> 00:40:12.079
But they're still going up.
00:40:12.159 --> 00:40:12.639
Number one.
00:40:12.800 --> 00:40:15.199
Number two, all that past inflation is still there.
00:40:15.280 --> 00:40:16.320
It never went away.
00:40:16.480 --> 00:40:17.599
And it wasn't that long ago.
00:40:17.679 --> 00:40:24.960
I mean, June 2022, uh, inflation annualized uh on a year-over-year basis with 9.1%.
00:40:25.599 --> 00:40:26.159
9.1%.
00:40:26.320 --> 00:40:28.159
That was the highest in 40 years.
00:40:28.400 --> 00:40:32.559
You have to go back to the early 1980s to find higher inflation figures.
00:40:32.639 --> 00:40:35.440
And I was around then, and I I remember what that was like.
00:40:35.599 --> 00:40:40.079
Uh, you know, in um my first mortgage, it's around 1980.
00:40:40.159 --> 00:40:42.079
Uh, my first mortgage was 13%.
00:40:42.880 --> 00:40:45.199
And I I told my mother, and she cried.
00:40:45.280 --> 00:40:47.840
I mean, her first mortgage was like two and a half percent or something.
00:40:48.400 --> 00:40:54.239
Um, but I said, Mom, yeah, my mortgage is 13%, but inflation was 15%.
00:40:55.039 --> 00:40:59.760
So my real rate was negative two, and it was deductible in a 50% bracket.
00:40:59.920 --> 00:41:01.599
So my real rate was like negative eight.
00:41:01.760 --> 00:41:03.920
So I was like, the they were paying me to borrow money.
00:41:04.079 --> 00:41:07.119
So you have to put all that in context.
00:41:07.280 --> 00:41:10.000
Um, but uh that's a good point.
00:41:11.199 --> 00:41:15.440
Yes, so slowing inflation doesn't undo the price increase families have already observed, right?
00:41:15.519 --> 00:41:19.760
I mean, even if the Fed gets back to 2%, it doesn't restore their old purchasing power.
00:41:19.920 --> 00:41:22.239
So I mean, what what actually repairs that damage?
00:41:22.400 --> 00:41:23.440
Is it prices coming down?
00:41:23.599 --> 00:41:25.760
Is it incomes finally changing up?
00:41:27.440 --> 00:41:29.679
Um nothing repairs it.
00:41:29.840 --> 00:41:35.519
But what what repairs the um, you know, this is the debasement narrative, which I always said was wrong.
00:41:35.679 --> 00:41:37.679
Uh by the way, the dollar is getting stronger.
00:41:38.159 --> 00:41:44.400
You know, euros down from 116 to 113, so don't talk to me about the end of the dollar, the dollar's doing fine.
00:41:44.639 --> 00:41:47.679
But um uh you know, as far as that's concerned.
00:41:47.760 --> 00:41:53.440
But the the point is um that who says the government doesn't want inflation?
00:41:53.599 --> 00:41:55.360
I mean publicly they say that.
00:41:55.679 --> 00:42:03.840
Uh but what what you need to make the debt sustainable, people say they bang the table, we'll never we're never gonna pay off the national debt.
00:42:04.000 --> 00:42:05.199
Well, of course not.
00:42:05.360 --> 00:42:07.039
You don't have to pay off the national debt.
00:42:07.119 --> 00:42:09.119
We're not going to pay off the national debt.
00:42:09.360 --> 00:42:12.880
What you have to do is roll it over at a reasonable interest rate.
00:42:13.039 --> 00:42:17.119
That's that's a challenge, but it's not the same as paying off the national debt.
00:42:17.360 --> 00:42:19.039
We gotta get the deficits to go away.
00:42:19.119 --> 00:42:21.679
Sorry, deficits are not going away, they're here to stay.
00:42:21.840 --> 00:42:27.119
So we're gonna have higher debt and we're gonna have deficits.
00:42:27.519 --> 00:42:30.159
The question is, how do you make that sustainable?
00:42:30.320 --> 00:42:33.840
How do you get the market to sort of help you and roll it over?
00:42:34.000 --> 00:42:38.960
Well, the answer is uh the key metric is the debt to GDP ratio.
00:42:39.199 --> 00:42:43.199
What is the national debt divided by GDP?
00:42:43.519 --> 00:42:44.320
That's a number.
00:42:44.400 --> 00:42:49.360
Well then the answer to it right now that's about 125%, you know, give or take.
00:42:49.760 --> 00:42:51.119
First of all, that's high.
00:42:51.280 --> 00:42:55.039
Uh it's dangerously high, but we've been there before.
00:42:55.119 --> 00:43:01.519
Um in 1945, the debt to GDP ratio was about 120%, a little bit lower.
00:43:01.679 --> 00:43:04.960
By 1980, the debt to GDP ratio was 30%.
00:43:06.079 --> 00:43:12.159
How did we get it from uh 120% to 30% in 35 years?
00:43:12.400 --> 00:43:13.840
Well, it wasn't the debt.
00:43:13.920 --> 00:43:17.519
The debt went up three times, and it wasn't the deficit.
00:43:17.679 --> 00:43:22.000
The size of the deficit tripled what grew was the GDP.
00:43:22.320 --> 00:43:26.400
But when you're talking about debt, you're not talking about real GDP.
00:43:26.480 --> 00:43:28.320
Real GDP is important, real numbers are important.
00:43:28.400 --> 00:43:30.320
You're talking about nominal GDP.
00:43:30.800 --> 00:43:34.960
Nominal GDP is real GDP plus inflation.
00:43:35.440 --> 00:43:41.679
From 1977 to 1981, US inflation was 50% five zero.
00:43:42.079 --> 00:43:50.800
So in that 35 year period from 1945 to 1980, the GDP grew, or sorry, nominal GDP to be clear, grew 10 times.
00:43:50.880 --> 00:43:52.480
It grew a thousand percent.
00:43:52.800 --> 00:43:59.599
So, in other words, um the debt went up and uh the deficit went up, but GDP went up fast.
00:44:00.239 --> 00:44:03.519
Faster, and that lowered the ratio, which made it sustainable.
00:44:03.679 --> 00:44:08.880
But let's not lose sight of the fact that a lot of that faster growth in GDP was inflation.
00:44:09.039 --> 00:44:10.239
That's the key to the whole thing.
00:44:10.320 --> 00:44:12.639
And by the way, one very good reason to own gold.
00:44:13.679 --> 00:44:16.079
I mean, let's the bond market gets a vote here, right?
00:44:16.159 --> 00:44:23.039
I mean, inflation helps shrink the debt relative to the economy, but lenders demand those higher interest rates as the debt rolls over, as you kind of mentioned.
00:44:23.119 --> 00:44:25.840
I mean, how much uh has Washington actually gained?
00:44:25.920 --> 00:44:29.119
I mean, what what keeps the interest bill from eating up the benefit?
00:44:30.400 --> 00:44:31.199
Uh inflation.
00:44:31.519 --> 00:44:31.679
Yeah.
00:44:31.840 --> 00:44:34.079
And then that and that's that's what we were just talking about.
00:44:34.239 --> 00:44:42.159
So um uh yeah, you're if uh if you're uh again, it all comes down to nominal GDP.
00:44:42.480 --> 00:44:45.280
I mean, inflation actually favors the debtor.
00:44:45.519 --> 00:44:53.039
Uh in inflation, uh, if you're the creditor, inflation's the worst thing that can happen to you because your dollars are worth less.
00:44:53.199 --> 00:44:59.599
But if you're the debtor, you love inflation because you owe the same nominal amount of dollars, but they're worth less.
00:44:59.840 --> 00:45:02.800
It's like, hey, here's, you know, here's your trillion dollars back.
00:45:02.960 --> 00:45:04.559
Good luck buying a loaf of bread.
00:45:04.800 --> 00:45:08.320
So inflation favors the debtor, who's the biggest debtor in the world?
00:45:08.400 --> 00:45:09.840
It's the United States of America.
00:45:10.239 --> 00:45:11.039
It's interesting.
00:45:11.199 --> 00:45:14.079
I mean, there's the there's there's the conflict there, right?
00:45:14.239 --> 00:45:15.760
The saver needs inflation under control.
00:45:15.920 --> 00:45:19.440
The government, the biggest debtor benefits from some of that debt being inflated away.
00:45:19.519 --> 00:45:23.360
I mean, what stops the government's interest from winning out over the savers?
00:45:24.960 --> 00:45:25.679
Not much.
00:45:25.760 --> 00:45:33.519
Um, and by the way, you know, if inflation went to 3% right now, you know, the White House would be popping champagne quirks and all that.
00:45:33.679 --> 00:45:42.400
Uh I'm sorry, 3% inflation cuts the value of the dollar in half in um about 24 years.
00:45:42.559 --> 00:45:46.159
So uh, and then half again in another 24 years.
00:45:46.400 --> 00:45:54.159
So in 48 years, this caught a typical career from age you know 25 to age, you know, early 60s or whatever.
00:45:54.320 --> 00:46:00.719
Um 3% inflation, just three, will cut the value of the dollar in half by 75%.
00:46:01.760 --> 00:46:04.880
If you start talking four or five percent inflation, forget it.
00:46:04.960 --> 00:46:08.480
Uh your you know, your dollar is like an ice cube melting in your hand.
00:46:08.719 --> 00:46:13.280
So um it doesn't we don't it doesn't take 10% inflation.
00:46:13.360 --> 00:46:20.480
I mean that's that's brutal, but it doesn't take 10% inflation to make the value of the of the of the dollar go down a lot.
00:46:20.639 --> 00:46:24.800
Uh 3% does just fine over the course of uh a typical career.
00:46:25.119 --> 00:46:28.960
So again, you can have big winners in inflation.
00:46:29.039 --> 00:46:31.840
I got through the 70s, you know, we did we did fine.
00:46:32.000 --> 00:46:33.039
But how do you do it?
00:46:33.280 --> 00:46:48.159
Well, the answer is you own real estate, gold, silver, uh, you own, again, various kinds of hard assets, um, and and your your assets go up in value, even as your dollars are worth less, your assets are going up, and that's how you survive.
00:46:48.320 --> 00:46:56.079
The victims are the people who don't have assets, and we talked about those, or people on fixed incomes of various kinds where they can't make the adjustment.
00:46:56.960 --> 00:47:01.599
You know, the elections five weeks out, uh, government funding runs dry by December 11th.
00:47:01.679 --> 00:47:04.159
I mean, what should investors be watching between now and then?
00:47:04.239 --> 00:47:06.960
Uh realistically, here, I mean, what can change?
00:47:07.199 --> 00:47:13.280
I mean, can Washington realistically change anything about how this economy feels before people vote?
00:47:15.119 --> 00:47:15.760
Not really.
00:47:15.920 --> 00:47:18.159
Uh not uh the war in Iran will not be over.
00:47:18.239 --> 00:47:20.000
Uh prices will not come down.
00:47:20.079 --> 00:47:22.800
Uh the war in Ukraine is getting worse for the Ukrainians.
00:47:22.960 --> 00:47:24.719
I've said all along the Russians are going to win.
00:47:24.800 --> 00:47:27.840
They the people don't understand the Russian way of war.
00:47:27.920 --> 00:47:31.920
It's very slow, very methodical, and entirely lethal.
00:47:32.079 --> 00:47:35.599
Uh but so the Russians are doing it their way, but they're they're winning.
00:47:35.760 --> 00:47:42.559
So um, you know, and diesel prices, I don't know if it came down a little bit maybe, but but I don't expect that.
00:47:42.800 --> 00:47:45.679
So nothing much is going to change.
00:47:45.920 --> 00:47:55.920
Um, what will change is the Republicans have a huge money advantage, and they're prepared to spend upwards of a billion dollars in a variety of races.
00:47:56.000 --> 00:47:59.360
And the Democrats don't have anywhere near that amount of money.
00:47:59.519 --> 00:48:07.119
So I think you'll see, you know, for example, um, they're gonna spend over$100 million in Texas on this Paxton Telerica race.
00:48:07.199 --> 00:48:16.559
Uh, so I I think the Republicans will keep the Senate, um, but they'll do it partly on the basis of spending a billion dollars where they need it.
00:48:16.880 --> 00:48:23.119
I wanted to ask you a little bit more on China as well, because I mean Beijing's shrinking a pile of American IOUs, as you know.
00:48:23.280 --> 00:48:27.679
The Treasury holdings are down about$618 billion, the lowest since 2008.
00:48:27.760 --> 00:48:42.400
It central banks added, I think for 22 straight months, and Chinese buyers imported over 1,141 tons, according to um uh Harriet's uh now I know that we've talked about safe, you know, some of those reserves out there.
00:48:42.559 --> 00:48:47.039
Nobody really knows, and you've argued obviously that the dollar isn't losing its crown.
00:48:47.199 --> 00:48:51.519
So, what can China do to loosen Washington's grip here?
00:48:53.440 --> 00:49:01.280
Well, I think they're they're doing it in part by uh selling the treasuries, but I sh but it that's really misunderstood.
00:49:01.360 --> 00:49:02.400
Now we have the data.
00:49:03.119 --> 00:49:08.079
The United States Treasury publishes the tick report every month, and it's a simple spreadsheet.
00:49:08.159 --> 00:49:10.719
And you look at the major uh holders of U.S.
00:49:10.800 --> 00:49:16.079
Treasuries and you look at you know what they hold each month and by maturity, et cetera.
00:49:16.239 --> 00:49:19.440
So you can see the Chinese holdings of U.S.
00:49:19.519 --> 00:49:20.800
Treasuries going down.
00:49:21.280 --> 00:49:24.159
And that's interpreted as part of this debasement trade.
00:49:24.239 --> 00:49:28.960
You know, they're dumping treasuries, they're getting out of the dollar, there's the end of the dollar, et cetera, et cetera.
00:49:29.119 --> 00:49:30.559
No, that's not what's going on.
00:49:30.719 --> 00:49:32.719
They they are reducing their holdings of treasuries.
00:49:32.800 --> 00:49:33.679
That's just a fact.
00:49:33.840 --> 00:49:38.719
But they but here's the reason: they're doing it because they're desperate for dollars.
00:49:38.880 --> 00:49:39.840
People don't understand.
00:49:39.920 --> 00:49:42.639
They they talk about the dollars, the leading reserve currency.
00:49:42.800 --> 00:49:46.239
Reserves are not in currencies, they're in securities.
00:49:46.400 --> 00:49:46.559
Right.
00:49:46.719 --> 00:49:48.000
And there's a big difference.
00:49:48.320 --> 00:49:52.000
So China holds the reserves, a big portion of them, in U.S.
00:49:52.159 --> 00:49:53.360
Treasury securities.
00:49:53.440 --> 00:49:55.679
Now they're denominated in dollars, that's correct.
00:49:55.840 --> 00:49:56.960
But they're not actually dollars.
00:49:57.039 --> 00:50:01.920
You can't do anything with them except, you know, hold them and collect interest and uh get paid in maturity.
00:50:02.079 --> 00:50:08.880
If you want dollars, you have to sell the treasury and get the dollars, and then what do they use the dollars for?
00:50:08.960 --> 00:50:23.440
They're using them to prop up their own currency because they don't want the cheaper yuan, because they have to buy a lot of inputs to keep their manufacturing going, um, and to prop up their banks, which have a lot of dollar-genominated loans that are going bad.
00:50:23.760 --> 00:50:33.360
So when China sells treasuries or or lets them run off, which is you know economically the same thing, um, it's not because they're getting out of dollars.
00:50:33.440 --> 00:50:34.880
They wish they had more dollars.
00:50:35.039 --> 00:50:42.480
It's because they need dollar, they need currency, not securities, to prop up their own system.
00:50:42.559 --> 00:50:51.360
So it's actually a sign of a global dollar shortage and a Chinese weakness rather than any weakness on the part of the United States.
00:50:52.079 --> 00:50:57.599
So, I mean, what leverage does that leave Washington with the U.S.
00:50:57.760 --> 00:51:03.199
Well, uh the Japanese until recently have been buying a lot of the additional securities.
00:51:03.360 --> 00:51:10.079
Now, now we're in the unwind of the Japanese carry trade, which is a different problem, actually a much bigger problem.
00:51:10.480 --> 00:51:14.639
Um, which basically the carry trade is uh I'm a U.S.
00:51:14.719 --> 00:51:15.039
investor.
00:51:15.199 --> 00:51:18.320
It could be Europe or Switzerland or any place, but I'm a U.S.
00:51:18.480 --> 00:51:24.880
investor, I want to uh borrow dollars to make an investment, buy a company, build a plant.
00:51:25.039 --> 00:51:28.719
Um, but Japanese interest rates are way lower than U.S.
00:51:28.800 --> 00:51:29.360
interest rates.
00:51:29.440 --> 00:51:30.320
So what do I do?
00:51:30.559 --> 00:51:46.639
You borrow yen, you swap the yen for dollars, you invest the dollars, and you get dollar returns, 7, 8, 10%, um, maybe a lot higher if you leverage it three to one like a hedge fund or 10 to 1 like a real estate developer or whatever.
00:51:46.880 --> 00:51:50.880
But you're paying, or we were paying close to zero over here.
00:51:50.960 --> 00:51:59.360
So the spread alone, independent of the gain on the investment, just the spread between your financing costs and your returns is huge.
00:51:59.519 --> 00:52:01.360
Um sounds good.
00:52:01.519 --> 00:52:09.280
And by the way, that's been going on for 30 years, and that yen carry trade basically was Japan financing the world.
00:52:09.360 --> 00:52:10.559
It wasn't just U.S.
00:52:10.639 --> 00:52:16.400
investors, it was Germany, uh, investment in China, uh, Brazil, all over the world.
00:52:16.559 --> 00:52:20.880
It's really been the engine of global investment because you have these cheap financing costs.
00:52:21.119 --> 00:52:21.920
So it sounds good.
00:52:22.079 --> 00:52:22.880
What could go wrong?
00:52:23.119 --> 00:52:27.760
Well, what could go wrong is when Japanese interest rates start to go up, and they are.
00:52:28.480 --> 00:52:34.239
The yield of maturity on the 10-year JGB, Japanese government bond, is now over 3%.
00:52:34.639 --> 00:52:41.119
I think for the first time in, I want to say 30 years, um maybe a little bit uh longer than that.
00:52:41.280 --> 00:52:50.639
But um, and so therefore the spread between US rates and sorry, between US rates and Japanese rates is shrinking.
00:52:50.719 --> 00:52:53.599
Um, and so that makes the carrier trade less profitable.
00:52:53.760 --> 00:53:00.880
Now, it's still profitable, but if you're watching that happen and you're savvy, you're saying, hey, this is gonna get worse.
00:53:01.039 --> 00:53:06.320
Japanese interest rates are gonna go higher, which they are, and so there's gonna be a run for the excess.
00:53:06.480 --> 00:53:09.679
I want to get out of this trade before the stampede begins.
00:53:09.840 --> 00:53:11.199
Yeah, how do you do that?
00:53:11.440 --> 00:53:20.320
Well, one way to do it is to borrow dollars, buy yen, pay back your yen loan, and now you're just dollar, dollar asset liability.
00:53:20.400 --> 00:53:21.519
Uh, that works.
00:53:21.679 --> 00:53:26.320
But what if the bank won't lend to you or you don't have the credit worthiness, or you're too highly leveraged, et cetera?
00:53:26.400 --> 00:53:28.480
Well, then what you do is you sell assets.
00:53:28.719 --> 00:53:40.639
Okay, well, but that can start a complete cascade where all of a sudden you're selling stocks and trying to unload private equity and selling real estate, and that could cause collapses in multiple markets.
00:53:40.719 --> 00:53:49.519
So this unline of the Japanese carry trade is extremely dangerous, um, can lead to a global financial stampede or panic.
00:53:49.679 --> 00:53:50.719
It's starting now.
00:53:50.800 --> 00:53:53.280
So, what what has the treasury done about it?
00:53:53.360 --> 00:53:59.760
Well, Scott Besson, who he was part of the team that broke the Bank of England in 1992, so he gets this.
00:53:59.920 --> 00:54:09.679
Um, he has he has started giving the Japanese dollars uh so that they can prop up the yen um without selling U.S.
00:54:09.840 --> 00:54:10.639
treasuries.
00:54:10.880 --> 00:54:14.239
So the so the Japanese were selling treasuries to get dollars to prop up the yen.
00:54:14.400 --> 00:54:17.840
Scott Besson said, hey, here's a boatload of uh dollars.
00:54:18.079 --> 00:54:21.039
You can prop up your currency and you don't need to sell U.S.
00:54:21.199 --> 00:54:21.760
treasuries.
00:54:21.840 --> 00:54:22.239
Why?
00:54:22.480 --> 00:54:23.519
Because selling U.S.
00:54:23.599 --> 00:54:24.719
treasuries raises U.S.
00:54:24.800 --> 00:54:27.599
interest rates for one month from the election.
00:54:27.760 --> 00:54:29.760
That the White House doesn't want higher U.S.
00:54:29.840 --> 00:54:32.480
interest rates ahead of the election and getting them anyway.
00:54:32.719 --> 00:54:40.159
Um, but basically he was trying to prop up Japan and make it easier for the Bank of Japan not to sell U.S.
00:54:40.239 --> 00:54:40.960
treasuries.
00:54:41.119 --> 00:54:43.599
Now, will that work in the short run?
00:54:43.760 --> 00:54:44.239
Maybe.
00:54:44.480 --> 00:54:45.679
Will it work in the long run?
00:54:45.840 --> 00:54:46.800
No, it never does.
00:54:46.960 --> 00:54:52.559
When you're um, you know, Scott Besson, I think this was kind of a smart guy, kind of a dumb thing to say.
00:54:52.639 --> 00:54:57.119
He said, you know, he said to all the hedge funds and everybody, you know, you're I'm the house.
00:54:57.199 --> 00:54:58.320
Yeah, and I'm the treasury.
00:54:58.400 --> 00:55:00.400
I can I can get all the dollars I want.
00:55:00.480 --> 00:55:02.400
So you're betting against the house.
00:55:02.559 --> 00:55:07.440
Um, he was wrong about that, because the house is not the treasury, it's the market.
00:55:07.920 --> 00:55:15.519
It's one thing bigger than the US Treasury, it's the market as a whole, and that's who's betting against the Treasury.
00:55:15.760 --> 00:55:20.400
He should know because he did break the Bank of Bangkok, but these things never work in the long run.
00:55:20.639 --> 00:55:21.280
Yeah, yeah.
00:55:21.360 --> 00:55:29.920
So I mean they it could help Japan avoid selling treasuries, but doesn't a stronger yen also squeeze the investors who borrowed yen to kind of buy those American assets?
00:55:30.079 --> 00:55:34.000
I mean, could could could Washington do something here?
00:55:34.239 --> 00:55:35.840
What are your thoughts?
00:55:36.559 --> 00:55:38.960
Like at what point does the Fed have to step in, right?
00:55:39.119 --> 00:55:44.400
And and could that stop that selling cascade without abandoning its flight for inflation, I guess?
00:55:45.360 --> 00:55:48.239
Well, the Fed the Fed can monetize the debt.
00:55:48.320 --> 00:55:50.159
They they can buy the debt whenever they want.
00:55:50.320 --> 00:55:53.039
And uh, but that's QE, basically.
00:55:53.360 --> 00:55:56.400
Uh, one thing the research shows is that QE does not work.
00:55:56.559 --> 00:55:57.840
Uh, it's not stimulus.
00:55:58.000 --> 00:55:59.599
Lower interest rates are not stimulus.
00:55:59.760 --> 00:56:09.599
By the way, a really healthy economy, like an economy that's growing in real terms and unemployment's going down and jobs are being created, interest rates should be five, six percent.
00:56:09.760 --> 00:56:11.840
That's that's what a healthy economy looks like.
00:56:12.000 --> 00:56:17.920
When you see an economy with 1% interest rates or 0% interest rates, that's a sick economy.
00:56:18.000 --> 00:56:19.840
That's what we had during the Great Depression.
00:56:20.079 --> 00:56:24.800
So you know, Trump, and Trump's, he's a real estate guy, but he's completely wrong about that.
00:56:25.119 --> 00:56:32.320
To suggest that, you know, taking interest rates down to you know three or two and a half or two percent is stimulus.
00:56:32.480 --> 00:56:33.679
It's not stimulus.
00:56:33.840 --> 00:56:34.960
Uh it's the opposite.
00:56:35.199 --> 00:56:37.440
It tells you that the economy is kind of sick.
00:56:38.079 --> 00:56:41.840
Now like what did the intervention actually fix?
00:56:41.920 --> 00:56:44.800
Did it did it remove the pressure or just buy Japan time?
00:56:44.880 --> 00:56:48.320
What has to kind of change so Washington doesn't have to keep doing it?
00:56:49.360 --> 00:56:50.719
Well, um, everything.
00:56:50.880 --> 00:56:56.480
I mean, they they uh uh you know you've got to say, I want Japanese interest rates lower.
00:56:56.639 --> 00:57:01.840
Well, the the Japanese interest rates are not going to be lower because the Japanese have their own inflation problem.
00:57:02.079 --> 00:57:07.119
Uh, they have a new prime minister, a new finance minister, so they don't want that to get out of control.
00:57:07.199 --> 00:57:08.639
So they're gonna keep doing it.
00:57:08.800 --> 00:57:20.000
They're gonna keep raising interest rates to help prop up the yen, um, make the yen stronger, at least and they've they've had they've had a little bit of success doing this, by the way, in the past month.
00:57:20.159 --> 00:57:24.880
My point is that you can have short-term success, but it won't last for the long term.
00:57:24.960 --> 00:57:26.159
It's just too big.
00:57:26.400 --> 00:57:33.360
Uh so um uh well one thing that would cure the inflation is a recession.
00:57:33.599 --> 00:57:45.760
Uh, you know, if you get if the AI bubble bursts, which I expect it will, and if um uh you know the higher, you know, they say the cure for high oil prices is high oil prices.
00:57:45.840 --> 00:57:52.559
If they're high enough long enough, you'll destroy consumption because the demand for gas in your car is inelastic.
00:57:52.719 --> 00:57:54.719
So you gotta fill up your car no matter what.
00:57:54.800 --> 00:57:57.199
That means you'll do less of something else.
00:57:57.360 --> 00:58:02.719
You won't go out for dinner or entertainment or take a vacation or buy new clothes, whatever, whatever it is.
00:58:02.880 --> 00:58:08.159
So that'll hurt consumption um um because the demand for gasoline is inelastic.
00:58:08.320 --> 00:58:16.559
So uh that could lead to a recession, and then that would bring the inflation down, but then your unemployment would go up.
00:58:16.719 --> 00:58:20.000
So it's not there really there really aren't any good outcomes.
00:58:20.079 --> 00:58:22.000
We kind of pinned ourselves into a corner here.
00:58:22.239 --> 00:58:22.559
Yeah.
00:58:22.880 --> 00:58:27.840
Well, listen, we we've talked about China trying to reduce its financial dependence on on Washington as well.
00:58:28.000 --> 00:58:30.719
Let's finish with uh what an individual can actually control.
00:58:30.880 --> 00:58:37.519
I mean, for someone who owns gold, we kind of know the basics about protection that that ownership kind of gives them.
00:58:37.679 --> 00:58:45.440
Um what's the distinction between owning the gold, being able to access it, and being able to sell it when you need to?
00:58:47.280 --> 00:58:49.039
Well, they're they should all be the same.
00:58:49.119 --> 00:58:58.480
Uh and I tell people if you own gold futures or unallocated gold contracts with JP Morgan or Options on Gold or ETFs, you don't own gold.
00:58:58.559 --> 00:59:00.639
Um, you have a contract, okay?
00:59:00.880 --> 00:59:04.559
You have price exposure, you know, depending on the particular form.
00:59:04.960 --> 00:59:10.079
Um if you want to make a short-term bet and price goes up, you you win, you make some money.
00:59:10.239 --> 00:59:11.760
But you don't own gold.
00:59:12.079 --> 00:59:30.559
And when you most want your goal, when the situation is deteriorating rapidly and um stock markets crashing and other things are are collapsing, and you say, well, now's when I really want my gold, uh, and you go to convert any of those contracts to physical gold.
00:59:30.639 --> 00:59:32.079
Well, some of them, first of all, you can't.
00:59:32.159 --> 00:59:35.039
You cannot convert an ETF into physical gold.
00:59:35.199 --> 00:59:39.519
Uh, an authorized dealer can, but a retail investor cannot.
00:59:39.679 --> 00:59:44.000
Um, futures contracts, if you want to take delivery, good luck.
00:59:44.079 --> 00:59:47.920
Uh, if enough people do that, they will just suspend deliveries.
00:59:48.239 --> 00:59:48.960
And they can do that.
00:59:49.039 --> 00:59:52.719
I've actually enough of a geek, I've read all the rule books of all the exchanges.
00:59:52.880 --> 00:59:55.920
Every one of them has a rule saying that they can change the rules.
00:59:56.079 --> 01:00:06.400
Um, they just have a board of governors meeting and you know, increase margin requirements or give an order, trade for liquidation only, meaning you can unwind or roll over, but you can't actually get your gold.
01:00:06.559 --> 01:00:08.639
And they say we're not a source of supply.
01:00:08.800 --> 01:00:15.599
Uh, an allocated goal forwards, they'll just send you a notice of like, hey, we're terminating your contract, here's your check, we're not stealing your profits.
01:00:15.679 --> 01:00:17.840
And you're like, wait a second, I don't want the money.
01:00:17.920 --> 01:00:19.920
I want to, I want to stay in the contract.
01:00:20.079 --> 01:00:22.079
Sorry, you're out, etc.
01:00:22.480 --> 01:00:30.159
So if you want access to physical gold, buy physical gold, put it in a safe place, hang on to it.
01:00:30.239 --> 01:00:35.280
Um, you know, if you need to sell it down the road for dollars, you know, you need a reliable dealer.
01:00:35.440 --> 01:00:41.679
That's uh um that's can be easier said than done, but uh, but that's the way to actually own physical gold.
01:00:42.000 --> 01:00:45.920
Yeah, you know, the one that keeps up the gold owners at night, and you know this well.
01:00:46.000 --> 01:00:49.280
I mean, Washington obviously froze Russia's reserves in 2022.
01:00:49.440 --> 01:00:52.800
Venezuela's gold has been stuck in Bank of England since 18.
01:00:52.880 --> 01:00:56.320
Uh, could it Washington ever do that to America's gold?
01:00:58.000 --> 01:00:59.119
I would say no.
01:00:59.280 --> 01:01:09.679
Uh, and uh when you say the United States froze Russian reserves in 2022, that is true with regard to approximately$300 billion of U.S.
01:01:09.760 --> 01:01:14.320
Treasury securities that were on deposit at Euroclear in Brussels.
01:01:14.480 --> 01:01:16.159
They did not get the Russian gold.
01:01:16.320 --> 01:01:24.960
Uh Avira Navyalina, who's the head of the Central Bank of Russia, I like to say she's the only central banker in the world who really understands her job.
01:01:25.199 --> 01:01:39.360
She spent 10 years from 2009 to you know beyond 2019, um, increasing Russia's gold reserves, as I mentioned, from 600 tons to uh about a little over 2,500 tons.
01:01:39.519 --> 01:01:52.800
But at the start of the um special military operation in Ukraine in 2022, Russia had 25% of its reserves in gold, uh, physical gold, uh stored in Russia, not at the uh Bank of England.
01:01:53.039 --> 01:02:04.719
Um and uh so their total reserves were about uh$600 billion, and$150 billion or 25% of that was in physical gold.
01:02:04.880 --> 01:02:08.719
And that's, as I mentioned earlier, that's one of the ways that they survived sanctions.
01:02:08.880 --> 01:02:18.719
Now there's a there's an even better irony to this, which is uh, you know, and you're right, Jeremy, they did freeze the treasury securities at 300 bit.
01:02:18.960 --> 01:02:27.840
Once that happened, everyone else around the world said, wait a second, oh, they don't like Russia's policies, uh, so they froze the Treasury securities.
01:02:28.159 --> 01:02:29.760
What if they don't like my policies?
01:02:30.000 --> 01:02:33.599
Maybe they're gonna do the same thing to me, so people will start buying gold.
01:02:33.760 --> 01:02:42.159
Well, that this is part, not the whole, not the only thing, but this is part of what sent the price of gold so much higher, again, up to$5,400 an ounce.
01:02:42.400 --> 01:02:49.760
Russia made um almost as much on the increase in the value of the gold as they lost on the treasuries.
01:02:50.400 --> 01:02:56.639
You're out$300 billion, but the price of gold doubles, they made uh more than doubled over the time period.
01:02:56.719 --> 01:03:01.440
They made more than$150 billion in mark-to-market profits on the gold.
01:03:01.599 --> 01:03:03.039
So gold served its purpose.
01:03:03.199 --> 01:03:04.000
One, the U.S.
01:03:04.000 --> 01:03:05.039
couldn't get their hands on it.
01:03:05.280 --> 01:03:10.719
Two, it went up on fears and concerns that the Treasury might steal, the U.S.
01:03:10.800 --> 01:03:14.000
Treasury might steal your Treasury securities.
01:03:14.159 --> 01:03:16.400
And Russia made a fortune on their gold.
01:03:16.480 --> 01:03:18.800
So it did exactly what it was supposed to do.
01:03:19.119 --> 01:03:20.880
I gotta ask you about silver quick.
01:03:20.960 --> 01:03:27.360
I mean, uh first time I've interviewed you, Jim, unfortunately, and I our times went so damn quick, I could do this uh again soon.
01:03:27.519 --> 01:03:32.480
But uh silver slip below 60 today, down from about 70 earlier this year.
01:03:32.639 --> 01:03:36.559
Um, a lot of people saying that that$60 kind of the land in the sand.
01:03:36.639 --> 01:03:41.119
Uh, what lights the fuse on silver and where would you start buying it?
01:03:42.559 --> 01:03:44.800
I think right now is a is a good place to buy it.
01:03:44.880 --> 01:03:55.039
Uh silver, um is more difficult to analyze than gold because it is a precious metal and a form of money and store of wealth, but it's also a huge industrial input.
01:03:55.199 --> 01:04:04.320
So you can have situations where the you know the precious metal part is going up, but the economy's in a recession, so the industrial input is going down.
01:04:04.480 --> 01:04:06.639
Now, for now, both are going up.
01:04:06.800 --> 01:04:16.480
The precious metals are kind of going sideways after the January 2026 spike, but the that'll that'll get traction that's finding its way back.
01:04:16.639 --> 01:04:26.800
And then the industrial input, I mean, it's in everything, you know, electronics, semiconductors, uh, catalytic converters, um, you know, just electronics generally.
01:04:26.960 --> 01:04:33.280
We all know what's going on there, all these you know, hyperscalers building these data centers, etc., they need massive amounts of silver.
01:04:33.440 --> 01:04:35.920
So the fundamentals of silver are very solid.
01:04:36.079 --> 01:04:39.119
Silver tends to follow gold with a lag.
01:04:39.679 --> 01:04:44.000
So let's keep, if you want to figure out silver, keep an eye on gold.
01:04:44.079 --> 01:04:49.199
When you see gold start to get a lot more traction, you can expect that silver will not be far behind.
01:04:49.599 --> 01:04:54.800
Now, we talked about kind of protecting your money from, I guess one could call bad policy.
01:04:54.880 --> 01:04:58.880
Let's talk about protecting it from technology that you may not even know you're dealing with.
01:04:59.039 --> 01:05:02.559
I was reading a Bloomberg report this morning, and they were talking about the FTC.
01:05:02.639 --> 01:05:10.239
It's scrutinizing OpenAI and Tropic, other AI companies over the safety of their products, according to a person familiar with the matter.
01:05:10.400 --> 01:05:17.599
Meanwhile, Americans over 60 reported$7.7 billion in fraud losses last year, according to the FBI.
01:05:17.760 --> 01:05:24.480
Jim, what can a scammer do today that, you know, even a smart, careful investor might not see coming?
01:05:25.920 --> 01:05:27.199
There's not much they can't do.
01:05:27.280 --> 01:05:31.280
The scams are getting more pervasive and also more sophisticated.
01:05:31.360 --> 01:05:40.239
Uh, and particularly with AI in terms of identifying the most vulnerable targets, older people, people on you know disabilities, uh, but but not exclusively.
01:05:40.320 --> 01:05:46.719
I mean, it could be any age group, but they the scammers definitely target uh the more vulnerable audience.
01:05:46.880 --> 01:05:54.400
But they use AI, they have they can get a recording of a relative and use AI to fake uh uh do a fake voice recording.
01:05:54.559 --> 01:05:55.760
Hi, grandmom, I'm in jail.
01:05:55.840 --> 01:05:57.679
Would you send me bail money, etc.?
01:05:58.079 --> 01:05:59.679
That is that is pervasive and that.
01:06:00.159 --> 01:06:06.320
Is a$100 billion plus industry, if you want to put it that way.
01:06:06.400 --> 01:06:15.360
Now, my most recent book, Money GPT, came out in late 2024, but it was pretty much ahead of the curve.
01:06:15.440 --> 01:06:20.079
A lot of things in the book you're just hearing about today, but I did put them in the book.
01:06:20.320 --> 01:06:27.519
But it's about AI and the impact on financial markets, the stock market in particular, banking system.
01:06:28.239 --> 01:06:34.960
Talk a little bit about what I call moneyness, you know, things that are kind of like money, you know, like cryptos.
01:06:35.280 --> 01:06:37.440
And I actually have a chapter on nuclear war fighting.
01:06:37.519 --> 01:06:47.280
But uh to your point, uh Jeremy, when it comes to the scams, I've invested in a company that has uh absolutely changed my life for the better.
01:06:47.360 --> 01:06:48.719
It's called Call For It.
01:06:48.960 --> 01:06:51.440
Uh C-A-L-L-F-O-R-T.
01:06:51.679 --> 01:06:54.719
It sounds spelled the way it sounds, Call For It.
01:06:55.039 --> 01:06:59.280
Um, they have an app, uh, it's available on the Apple, you know, the iStore.
01:06:59.440 --> 01:07:00.719
You can go to it and download it right now.
01:07:00.880 --> 01:07:04.960
Just do say search, call for it, you'll find it easily.
01:07:05.440 --> 01:07:06.320
It goes on your phone.
01:07:06.480 --> 01:07:11.440
What it does, I'll call, I'll say it's a spam blocker, but it's much, much more than that.
01:07:11.599 --> 01:07:21.840
So ATT and Verizon and um uh T-Mobile, you know, if you get a spam call, they they're pretty good about saying it looks like spam, but your first of all, your phone's ringing.
01:07:22.000 --> 01:07:24.639
I'm in a situation where I can't blow off my phone.
01:07:24.719 --> 01:07:29.599
I wish I could, but if I'm in one room and the phone's ringing in the other room, I've got to run in and look at it and answer it.
01:07:29.679 --> 01:07:30.960
I can't just ignore it.
01:07:31.039 --> 01:07:32.880
I think a lot of people are in the same situation.
01:07:33.039 --> 01:07:34.000
So it says spam.
01:07:34.079 --> 01:07:34.880
I'm like, well, thanks.
01:07:34.960 --> 01:07:37.519
I just ran in for the other room and now I got to get rid of this thing.
01:07:37.679 --> 01:07:42.079
What Call For does, it doesn't let that call get through in the first place.
01:07:42.239 --> 01:07:43.360
It filters it.
01:07:43.679 --> 01:07:46.480
Your phone doesn't ring, keeps a log, and watches it.
01:07:46.559 --> 01:07:48.719
By the way, I'm one of the investors.
01:07:48.880 --> 01:07:56.000
Um, the the other major investor, I mean, the founders, of course, own stock, but the other major outside investor is Robert Kiyosaki.
01:07:56.559 --> 01:07:57.280
You may know Robert.
01:07:57.360 --> 01:07:58.000
Uh, yeah, he's great.
01:07:59.679 --> 01:08:00.480
Yeah, he's great.
01:08:00.639 --> 01:08:00.960
Yep.
01:08:01.119 --> 01:08:06.320
So so Robert and I are the two kind of anchor investors, other than the founders themselves.
01:08:06.559 --> 01:08:10.000
I said to the founder, um, I said, okay, here's the deal.
01:08:10.159 --> 01:08:14.800
I'll be your first investor, but I want to be your first customer because I need this app.
01:08:15.360 --> 01:08:17.920
And it really has uh has made my life better.
01:08:18.079 --> 01:08:20.640
Um, the what it does, it uses AI.
01:08:20.720 --> 01:08:23.600
So first of all, it'll take your contact list.
01:08:23.760 --> 01:08:28.239
So that's the beginning of a whitelist, meaning that, okay, those calls are good, they wouldn't be in your contacts otherwise.
01:08:28.399 --> 01:08:35.359
Then they take people that you call that may not be in your contacts, and they go on the whitelist because why would you call them if they were if they were spam?
01:08:35.600 --> 01:08:36.159
You wouldn't.
01:08:36.319 --> 01:08:39.119
Uh, but this is where the AI and the network effect comes in.
01:08:39.199 --> 01:08:50.800
They're looking across all of their customers, and if they see good calls coming into other calls, they'll whitelist that for you because, again, it passed the test, if you will, it with some other user.
01:08:50.880 --> 01:08:54.479
Uh, the same is true with the blacklist, the calls that get blocked.
01:08:54.640 --> 01:08:59.359
Um, you can add to it, but that's kind of a losing battle, but not for them.
01:08:59.520 --> 01:09:00.800
They actually go on the attack.
01:09:00.880 --> 01:09:07.039
They don't just play defense, they penetrate these spam networks, identify all the related numbers, put them on a blacklist.
01:09:07.119 --> 01:09:12.159
Likewise, if someone else has it blacklisted, it'll get blacklisted on your phone.
01:09:12.319 --> 01:09:21.199
Now there's a third category, which is okay, it's not on the whitelist for any reason, but it hasn't been identified as one of the bad guys, so it's not on the blacklist.
01:09:21.439 --> 01:09:22.960
It maybe is okay.
01:09:23.119 --> 01:09:24.800
We don't necessarily want to block it.
01:09:24.960 --> 01:09:27.520
That call, that caller gets a challenge.
01:09:27.600 --> 01:09:31.359
They say you hear a message, if you want to talk to Jim Rickers, push 4-2.
01:09:31.600 --> 01:09:34.000
So you push 4-2 and it rings through to me.
01:09:34.159 --> 01:09:35.439
Well, a robot can't do that.
01:09:35.520 --> 01:09:36.000
That's the point.
01:09:36.159 --> 01:09:38.800
The robot can't respond in real time to that question.
01:09:38.880 --> 01:09:40.479
So it's a very simple challenge.
01:09:40.640 --> 01:09:42.239
If you pass, the call goes through.
01:09:42.399 --> 01:09:44.079
A human can do it, a robot cannot.
01:09:44.239 --> 01:09:48.319
Uh, Jeremy, all I can tell you is this has changed my life for the better.
01:09:48.479 --> 01:09:50.880
Um, it uh because they don't even ring.
01:09:50.960 --> 01:09:53.760
Uh, I can look at the log if I want to, but I usually don't care.
01:09:53.920 --> 01:09:56.960
So it's called Call For It, available in the iStore.
01:09:57.119 --> 01:09:59.439
It's not a pitch book thing, it's actually a real product.
01:09:59.520 --> 01:10:00.479
You can get it right now.
01:10:00.640 --> 01:10:01.680
I highly recommend it.
01:10:01.760 --> 01:10:03.279
It'll change your life for the better.
01:10:03.600 --> 01:10:06.800
What's one thing outside, you know, if they use call for it or not?
01:10:06.880 --> 01:10:10.159
I mean, what's one thing that they could do before trusting a call, ask them to move money?
01:10:10.319 --> 01:10:13.760
I mean, it sounds basic, but people get scammed into this all the time.
01:10:14.960 --> 01:10:26.720
Yeah, um, it it's good to have um, you know, if you have a uh a caregiver, a relative, somebody you can refer to, or maybe if you think it's real, say, okay, give me your number, I'll write it down.
01:10:26.800 --> 01:10:30.159
And then call somebody else and and say, what do you think about this?
01:10:30.319 --> 01:10:33.279
You know, I think we're past the Nigerian princess stage.
01:10:33.359 --> 01:10:36.319
We've had enough Nigerian princes for years trying to get your money.
01:10:36.399 --> 01:10:38.800
They again, these scams are very sophisticated.
01:10:38.880 --> 01:10:42.079
Uh, even smart people fall for them because they're so convincing.
01:10:42.239 --> 01:10:46.560
But that's where an app like uh Call Ford, it's more than a convenience.
01:10:46.640 --> 01:10:48.720
It can actually save you from being scammed.
01:10:49.119 --> 01:10:52.399
You know, uh I don't actually done a lot of research on you.
01:10:52.479 --> 01:10:54.000
I don't know if you have your own children, Jim.
01:10:54.079 --> 01:10:55.279
You do, because I was gonna ask you.
01:10:55.680 --> 01:10:56.079
I have three.
01:10:56.640 --> 01:10:56.880
Yeah.
01:10:56.960 --> 01:11:01.439
So I mean, what's the what's the best money advice you've ever given to your own kids?
01:11:02.720 --> 01:11:04.399
Well, uh here it is.
01:11:04.479 --> 01:11:08.239
It's pretty I would say you can you can stick to fifth grade math if you know what you're doing.
01:11:08.319 --> 01:11:13.760
Uh Warren Buffett has the re Warren Buffett has the reputation of the greatest investor of all time.
01:11:14.000 --> 01:11:16.960
Um, or say greatest stock picker of all time.
01:11:17.119 --> 01:11:17.680
He wasn't.
01:11:17.760 --> 01:11:18.239
He was okay.
01:11:18.319 --> 01:11:19.760
I'm not dinging Warren Buffett.
01:11:19.920 --> 01:11:21.680
He was not the greatest stock picker of all time.
01:11:21.840 --> 01:11:24.560
But he had one insight, one bit of genius.
01:11:24.800 --> 01:11:28.000
He understood the power of tax-deferred compounding.
01:11:28.319 --> 01:11:37.920
If you put money away and don't touch it and let it grow and compound it, et cetera, et cetera, for a long enough period of time, you'll be rich without even trying.
01:11:38.159 --> 01:11:45.760
And Buffett took it a step further, which is he didn't pay taxes on a lot of it because he because he this is why he kept buying insurance companies.
01:11:46.000 --> 01:11:49.439
Geico, Genry, um, you know, et cetera.
01:11:49.520 --> 01:11:50.880
He bought a string of insurance companies.
01:11:52.239 --> 01:11:55.199
I have a second law degree in taxation, so I know a little bit about this.
01:11:55.359 --> 01:12:03.600
Insurance companies have tax benefits that other companies do not have in terms of you know potentially paying income taxes on your portfolio gains, et cetera.
01:12:03.760 --> 01:12:09.199
So tax deferred compounding, um, using insurance companies for the tax shoulder part.
01:12:09.439 --> 01:12:11.119
Really important not to lose money.
01:12:11.279 --> 01:12:12.800
Making money, yeah, that's a good thing.
01:12:12.880 --> 01:12:16.880
But if you lose it, you get it's like getting set back, thrown for a 20-hour loss.
01:12:16.960 --> 01:12:18.319
You kind of have to start over.
01:12:18.560 --> 01:12:22.960
And finally, and this is where the children and the grandchildren come in, start young.
01:12:23.039 --> 01:12:28.880
Now, these uh one of my grandchildren was eligible for a Trump account.
01:12:28.960 --> 01:12:33.760
Uh, and I don't care if you hate Trump or not, you know, love him, hate them, I'll I'll leave that to the individual.
01:12:33.920 --> 01:12:35.359
But these Trump accounts are winners.
01:12:35.520 --> 01:12:37.359
I don't care, I don't care if you like Trump or not.
01:12:37.920 --> 01:12:43.760
If you're born in a small window, it's kind of like 20, 25, and a little bit in 2026.
01:12:43.920 --> 01:12:46.720
If you owe, and by the way, you can open these online, just go to U.S.
01:12:46.800 --> 01:12:48.880
Treasury, type in Trump account, you'll find it.
01:12:49.039 --> 01:12:49.760
Easy to do.
01:12:49.840 --> 01:12:52.560
The government throws in$1,000 for starters.
01:12:52.640 --> 01:12:56.399
So I've started putting money into this for my grandchildren.
01:12:56.560 --> 01:13:02.239
Um, you know, start early, uh, you know, birthday presents, uh, holiday presents, et cetera.
01:13:02.479 --> 01:13:08.880
They they'll be millionaires by the time they're 21 without trying, because that's just how the money compounds.
01:13:08.960 --> 01:13:12.239
And you get it into a stock index fund, but it gets better than that.
01:13:12.319 --> 01:13:20.159
I think the the CEO of um uh uh trying to think of uh Elon Musk of SpaceX.
01:13:20.479 --> 01:13:28.399
The CEO of SpaceX gave like one share of SpaceX to every you know Trump account holder of a certain age.
01:13:28.560 --> 01:13:32.319
And by the way, these are available for other age children.
01:13:32.399 --> 01:13:38.159
There was there was one slice where they they gave you a thousand dollars, but even if they don't do that, you can still open these accounts.
01:13:38.239 --> 01:13:39.920
They're basically IRAs for kids.
01:13:40.239 --> 01:13:51.039
Well, you take the Warren Buffett formula, which is tax deferred compounding without losing money, and start young, you will make money without even trying.
01:13:51.359 --> 01:13:51.600
Yeah.
01:13:51.760 --> 01:13:52.079
All right.
01:13:52.239 --> 01:13:54.000
We've spent a lot of time on what could go wrong.
01:13:54.079 --> 01:13:57.520
You're ending on what starting early can make possible.
01:13:57.760 --> 01:14:00.000
Uh Jim Rickards, thanks for joining us.
01:14:00.079 --> 01:14:02.079
I appreciate making the time today.
01:14:02.560 --> 01:14:03.199
Thanks.
01:14:03.520 --> 01:14:05.119
All right, Jim, always a pleasure.
01:14:05.279 --> 01:14:12.079
You'll find his work in his newsletter, Strategic Intelligence, his daily reckoning column, and of course his book, Money GPT.
01:14:12.159 --> 01:14:13.359
We appreciate that time.
01:14:13.600 --> 01:14:22.800
And today's show is brought to you by CalShi Trade, the first CFTC regulated gold and silver perpetuals in the US 24-7 with no expiration date.
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See uh in the description here for an exclusive offer and product restrictions.
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Now, if this made you think twice about your money, subscribe, it's free.
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And tell us below over the next year.
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Are you more worried about inflation or recession?
01:14:38.800 --> 01:14:40.960
I'm Jeremy Safran for all of us here at Kitco News.
01:14:41.039 --> 01:14:42.159
Thanks for watching.
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In Focus with Jeremy Saffron is presented by CalShi.
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What is a perpetual?
01:14:58.239 --> 01:15:01.039
You've probably bought something hoping the price goes up.
01:15:01.279 --> 01:15:02.800
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01:15:03.039 --> 01:15:04.479
You're not buying the asset.
01:15:04.640 --> 01:15:07.039
You're trading which direction its price moves.
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Think it will go up, go long.
01:15:09.199 --> 01:15:11.039
Think it will go down, go short.
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01:15:33.600 --> 01:15:36.880
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Leverage cuts both ways.
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The higher the multiple, the smaller the move that matters.
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01:16:11.359 --> 01:16:14.640
To recap, trade direction, not ownership.
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Leverage amplifies the move.
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Liquidation is your floor, and your tools, the risk gauge, stop loss, take profit, keep you in control.