00:00:00
it was the government that was the big
00:00:02
buyer then you get everybody leveraging
00:00:04
up then you've got the problem do you
00:00:06
own Bitcoin right yeah I have some not
00:00:08
nearly as much as as gold the AI War
00:00:11
it's a war that no country can lose if
00:00:15
China or the US really lose this war
00:00:19
it's more important than profits we're
00:00:21
at a civil war internally and we're at
00:00:24
an international War simultaneously just
00:00:27
have people behave logically H maybe
00:00:29
that's too much to ask we hope
00:00:33
going all right besties I think that was
00:00:35
another epic discussion people love the
00:00:38
interviews I could hear him talk for
00:00:40
hours absolutely we crush your questions
00:00:42
ad minute we are giving people ground
00:00:44
truth data to underwrite your own
00:00:46
opinion what' you guys think that was
00:00:47
[Music]
00:00:49
fun Ray good morning good morning I'm
00:00:52
going to start off by sharing a couple
00:00:54
Stats today the US has $36.4 trillion of
00:00:59
federal government debt and GDP of 29.1
00:01:02
trillion giving a debt to GDP ratio of
00:01:05
125% and this ratio has climbed steadily
00:01:08
since the pandemic began in 2020 when
00:01:11
the federal government debt was 20
00:01:13
trillion and GDP was just 21 trillion so
00:01:16
since the pandemic federal government
00:01:17
debt has risen by 80% while GDP is
00:01:20
climbed
00:01:21
38% and steady inflation from the large
00:01:25
stimulus of money from both central
00:01:27
banks and the US governments caused the
00:01:29
Federal Reserve which is the US Central
00:01:32
Bank to raise interest rates driving up
00:01:35
the cost of borrowing and despite recent
00:01:38
efforts to cut interest rates again
00:01:39
markets have traded treasuries down
00:01:42
causing the long-term interest rates of
00:01:44
US debt to spike up to levels that we
00:01:47
have not felt since just before the 2008
00:01:50
Global financial crisis to keep the
00:01:52
economy growing the US government's now
00:01:54
running a nearly $2 trillion annual
00:01:57
deficit nearly 7% of GDP while paying
00:02:00
over a trillion dollars per year in
00:02:02
interest alone on just the existing
00:02:04
outstanding debt the Congressional
00:02:06
budget office the CBO projected last
00:02:08
week annual budget deficits are expected
00:02:11
to be equal to 6.1% of GDP through
00:02:15
2035 which the CBO noted is
00:02:17
significantly more than the 3.8% that
00:02:20
deficits have averaged over the past 50
00:02:22
years the national debt slated to rise
00:02:24
by nearly $24 trillion over the next
00:02:27
decade a sum that does not even include
00:02:29
the millions of dollars in additional
00:02:31
tax cuts that the current Administration
00:02:33
may put into place is the US headed for
00:02:37
bankruptcy what are the mechanics of the
00:02:39
looming crisis ahead and can we avoid it
00:02:43
to talk about this what I consider to be
00:02:45
the most important topic in the world at
00:02:47
the moment is Ray Doo who I consider to
00:02:50
be the preeminent thought leader on this
00:02:52
matter in
00:02:54
20121 as everyone knows Ray published
00:02:56
The Changing World Order why Nations
00:02:58
succeed and fail I declared it the book
00:03:00
of the year and I thought it was the
00:03:02
most precient and important thing that
00:03:03
everyone should read and unfortunately I
00:03:05
feel like many in politics many in
00:03:07
government have largely ignored some of
00:03:09
the preent warnings shared in that book
00:03:12
this week Ry is releasing a new book
00:03:15
called how countries go broke in which
00:03:17
he analyzes and shares his studies on
00:03:20
this particular topic and I'm really
00:03:22
excited for Ry to join me here uh today
00:03:25
Ray thanks for being here thanks for
00:03:28
having me here to talk about this
00:03:30
important
00:03:31
issue well so so let me just start by
00:03:33
asking why you wrote the book why you
00:03:35
putting it out now and maybe we can just
00:03:37
talk about the timeliness of all this
00:03:38
from your point of view through my
00:03:40
roughly 50 years of being a global macro
00:03:43
investor I would U keep to myself and
00:03:47
then now I'm 75 and I want to pass along
00:03:50
the things that have helped me and um
00:03:53
the bond markets Global Mar markets I've
00:03:55
been involved with all over the world
00:03:58
for a long time and there's a mechanical
00:04:01
process which is not
00:04:03
understood about the question when is
00:04:06
enough debt when does it matter how does
00:04:08
it work
00:04:10
mechanistically and I feel compelled to
00:04:14
get that understanding out now how do
00:04:17
the mechanics work for countries for the
00:04:20
United States for other reserved
00:04:22
countries I want to make sure that's
00:04:24
understood thanks for doing it and the
00:04:27
basis of the analyses is your work at
00:04:30
Bridgewater and outside of Bridgewater
00:04:32
is that right you you've kind of
00:04:33
gathered quite a bit of material
00:04:34
together for this book and you've shown
00:04:36
a lot of historical context maybe just
00:04:38
share a little bit about where the data
00:04:40
came from and and how you've kind of
00:04:41
conducted these studies over what period
00:04:43
of time you know bridgew and I up until
00:04:47
my passing along
00:04:49
Bridgewater uh maybe a little over a
00:04:52
year ago has been indistinguishable you
00:04:55
know one the same and uh so and over
00:04:59
through that period of time we've been
00:05:01
involved in the markets I've been
00:05:02
involved in the markets and thinking
00:05:04
about such
00:05:06
things so the data is largely public
00:05:11
data that's available for
00:05:13
anybody we just you know collect it from
00:05:17
all different spots and go back through
00:05:19
history like I did in changing world
00:05:21
order we we were in some cases in the
00:05:24
changing World Order because we were
00:05:25
dealing with data that was hundreds of
00:05:27
years ago we would go through archives
00:05:29
pull data out the data is all available
00:05:32
to everyone and so I think that's really
00:05:35
important because this isn't just an
00:05:36
opinion piece you're writing as an
00:05:38
analyst you're sharing quite a lot of
00:05:41
empirical data that's publicly available
00:05:43
that anyone can go access and you're
00:05:45
taking a look at that data and saying
00:05:47
this is the pattern this is the trend
00:05:49
that we've seen historically it has
00:05:50
repeated over and over again I think you
00:05:53
make a really important point at the
00:05:54
front of the book only about 20% of the
00:05:58
750 currency debt markets that have
00:06:00
existed since 1700 still remain and all
00:06:03
of them that still remain have devalued
00:06:06
through the mechanistic process you
00:06:08
describe in the book that's really
00:06:10
important to note you know we all think
00:06:11
that we have this kind of privileged
00:06:13
position in the United States and the US
00:06:14
is different and this time around is
00:06:16
different but you highlight how so often
00:06:20
everyone thinks they're in a good place
00:06:21
and then the cycle repeats you speak
00:06:24
about and and the primary premise of
00:06:25
this is what you call the big debt cycle
00:06:28
and you highlight that the big debt
00:06:30
Cycles typically last about 80 years
00:06:32
they're more easily forgotten than the
00:06:34
short-term debt Cycles which last about
00:06:36
six years on average plus or minus three
00:06:38
years you say and we're now 12 and a
00:06:41
half cycles of the short-term Deb cycle
00:06:43
since 1945 so we've kind of been in this
00:06:46
big debt cycle in the US for about 80
00:06:49
years at this point but maybe we could
00:06:52
start by talking about what the
00:06:53
short-term debt Cycles are that that you
00:06:55
highlight make up the long-term debt
00:06:57
cycle yeah and I I want to emphasize
00:07:00
just based on um what you said that
00:07:03
they're mechanical they can watch you
00:07:05
can watch it you can do the calculations
00:07:07
so if you read the book you can see
00:07:12
these it it'll either make common sense
00:07:14
to you you see the con calculations uh
00:07:17
to me it's it's almost
00:07:21
like the circulatory system you know I
00:07:24
think
00:07:26
that credit is like blood that brings
00:07:30
nutrients to all of the parts of the
00:07:33
body and it passes through a system that
00:07:37
is like
00:07:38
arteries and then credit creates
00:07:44
debt and the key question if it's
00:07:47
healthy is does the debt create an
00:07:50
income that is more than enough to
00:07:53
service the debt and that's like I don't
00:07:56
know eating vegetables or something it's
00:07:59
a health process and if not
00:08:03
credit begins to build up this debt it
00:08:07
begin begins to become like plaque in
00:08:11
the arteries and you can measure it just
00:08:14
just like you could measure it in the
00:08:17
arteries and you can see how it
00:08:21
constricts that circulatory system
00:08:25
because as credit and Debt Service rise
00:08:28
you see that it eats up more and more
00:08:31
consumption because you have to spend
00:08:33
that so you could watch the
00:08:35
government do that you can see that how
00:08:38
interest is eating up and Debt Service
00:08:41
is eating up and that means there's less
00:08:42
money and then you also can see how
00:08:46
heart attacks take place and they're
00:08:49
very you know economic debt heart
00:08:51
attacks and the way they take place is
00:08:54
by looking at the supply and the demand
00:08:57
you if the if you have a lot of debt and
00:09:00
then you have a large supply of debt
00:09:05
that has to be bought somebody's got to
00:09:07
buy it and so that when you get to the
00:09:11
point where there's debt risks there's
00:09:15
not only the new Supply that has to be
00:09:18
offered but there is the possibility of
00:09:22
holders of those debt assets selling
00:09:25
those debt assets and so the supply
00:09:29
becomes
00:09:30
overwhelming relative to the demand and
00:09:34
then what that means is it's it's the
00:09:37
same a dynamic as it for the government
00:09:41
as it is for an individual or a company
00:09:45
except the government can print money so
00:09:47
when that Debt Service burden rise or
00:09:51
there's a big Supply demand
00:09:54
imbalance if the government most
00:09:56
importantly the central bank doesn't
00:09:58
print money buy it then there has to be
00:10:02
a rise in the price of the debt to
00:10:06
constrict borrowing and that borrowing
00:10:09
constricted that credit that is not
00:10:11
going to come will weaken the economy
00:10:15
and and cause bad economic conditions
00:10:17
and so they can let that happen or they
00:10:21
can print money and buy the debt and
00:10:24
monetize it when they do that that's
00:10:28
inflationary and it lowers the value of
00:10:31
the debt in either case you don't want
00:10:33
to hold that debt because either there's
00:10:37
a a Debt Service problem or there's a
00:10:40
depreciation you get paid back with a
00:10:43
greater Supply and
00:10:45
cheaper money and that is the Dynamics
00:10:49
and that's the mech mechanism and
00:10:51
because it can be measured it can be
00:10:54
seen in all countries you can watch it
00:10:58
happen
00:10:59
and so like you're going to your doctor
00:11:02
you can measure these things you can see
00:11:04
them and you can know what needs to be
00:11:07
done so yeah I I want to
00:11:11
just talk about two things real quick
00:11:13
one is just to provide an analogy for
00:11:16
folks watching or listening on what it
00:11:19
means to have interest levels be so high
00:11:22
relative to one's income so if you know
00:11:25
the United States this year is expected
00:11:27
to service debt with over a billion
00:11:29
dollar of interest payments on the
00:11:31
outstanding US Treasury bonds and the
00:11:34
government's only going to bring in just
00:11:36
under 5 trillion of Revenue so nearly a
00:11:39
quarter of every dollar that's being
00:11:41
collected by the federal government is
00:11:43
going out the door just to pay interest
00:11:44
on the existing debt so in order to fund
00:11:47
new programs the government needs to
00:11:49
take on new debt and the folks that are
00:11:53
having to issue that cash to the
00:11:54
government end up saying wait that's
00:11:57
pretty risky now I need a higher
00:11:58
interest rate and over time that
00:12:00
interest rate climbs and then there's
00:12:02
this separate entity called the central
00:12:04
bank that comes in and says well I'll
00:12:06
buy the the debt ultimately to give the
00:12:09
government the ability to continue to
00:12:11
operate or give the economy the ability
00:12:13
to continue to move and the Central Bank
00:12:15
when you say the word monetize you mean
00:12:17
the Central Bank ends up when you say
00:12:19
monetize the debt that means they're
00:12:20
buying the bonds they're buying the debt
00:12:23
that's being issued in the market is is
00:12:25
that the right way to kind that's right
00:12:27
they're they're essentially making the
00:12:29
money up right and buying it so there's
00:12:31
Central in in the US it's our federal
00:12:33
reserve and the US government are the
00:12:35
two players here and the Federal Reserve
00:12:37
ultimately would in this model and
00:12:40
historically obviously during the
00:12:41
pandemic and during 2008 they would go
00:12:44
into the market they would buy bonds by
00:12:46
issuing cash that they're making up
00:12:49
effectively very well described and you
00:12:51
know a good example was in covid money
00:12:55
there were two waves the first wave was
00:12:57
the covid wave in which they put out um
00:13:01
the government wanted to and actually
00:13:03
did deliver a lot more money to people
00:13:09
companies then there was a loss of
00:13:12
income so they first wave a lot of that
00:13:16
money where did they get the money from
00:13:19
they had to borrow
00:13:21
it the central bank then came in and
00:13:24
lent them that was the primary then the
00:13:28
second when when President Biden was
00:13:31
elected there was a second wave of that
00:13:35
after covid it was most mostly like a
00:13:38
universal basic income thing in other
00:13:40
words hand people money and we're going
00:13:42
to be better off and so they handed
00:13:45
people money doing that same exercise
00:13:48
again and so naturally all these people
00:13:51
got a lot of money and so they put them
00:13:54
they deposited them in Banks they went
00:13:57
out and spent and so on and it therefore
00:14:00
shouldn't be surprising that we had a
00:14:03
big wave of
00:14:04
inflation and we also had a lot of banks
00:14:09
buy uh government bonds which they lost
00:14:12
a lot of money on and that was that
00:14:14
crisis so that's how the mechanics work
00:14:18
right and when that money gets printed
00:14:21
it finds its way into the economy and
00:14:23
the money supply goes up and the way I
00:14:25
kind of think about it and you've got a
00:14:26
nice image in your book that I really
00:14:28
appreciate here's a kind of overview of
00:14:29
the big debt cycle that you talk about
00:14:31
which is there's small expansion and
00:14:33
contraction waves as as debt comes into
00:14:36
the market debt should drive
00:14:37
productivity but at some point you
00:14:39
accumulate so much debt that you can't
00:14:41
drive productivity anymore and then you
00:14:44
effectively have to monetize the debt
00:14:46
and everything gets devalued but as I
00:14:48
kind of think about the introduction of
00:14:51
money uh into the economy the increase
00:14:53
in the money supply I always tell people
00:14:56
and everyone screams oh the markets are
00:14:57
going up the markets are going up but I
00:14:59
say the markets are going up in dollar
00:15:02
denominated value and there's more
00:15:05
dollars so you know the nominal meaning
00:15:08
that the actual you know index might go
00:15:11
up the the NASDAQ might go up the the
00:15:14
Dow might go up but if you've got a lot
00:15:16
more dollars a dollar is worth less the
00:15:18
real question is has your purchasing
00:15:20
power gone up have you actually
00:15:22
increased your net worth as the markets
00:15:24
go up and when you do the studies it
00:15:27
turns out that inflation goes up meaning
00:15:29
the cost of everything goes up when you
00:15:31
pump money into the system so of course
00:15:33
it looks like the markets go up of
00:15:35
course it looks like asset values go up
00:15:38
but ultimately if everything's going up
00:15:40
your purchasing power goes down it's
00:15:43
almost like I tell people you have a 100
00:15:45
clams and you use seashells and you're
00:15:47
using seashell to buy stuff and then you
00:15:50
know there's only five things to buy now
00:15:53
if you have 500 seashells to buy stuff
00:15:55
the price of the things you're trying to
00:15:56
buy goes up because everyone's got more
00:15:58
seashells doesn't that ultimately kind
00:16:00
of describe what happens as the money
00:16:02
supply goes up the inflation drives the
00:16:05
the purchasing power down of everything
00:16:06
and everyone kind of gets inflated away
00:16:09
very well said
00:16:11
Dave you can't get richer by making
00:16:16
money you
00:16:18
know and the Val the purpose of money
00:16:21
purchasing power is what matters at the
00:16:23
end of the day what your money's worth
00:16:25
what you can actually buy with it that's
00:16:27
right and there are two purposes of
00:16:29
money which is as a medium of exchange
00:16:32
and a stor hold of
00:16:34
wealth
00:16:36
saving is very important and if you
00:16:40
don't have savers who have it as an
00:16:43
effective storeold of wealth then you
00:16:46
don't have a viable long-term credit
00:16:49
Market yeah people don't understand that
00:16:54
the bonds become a bad deal you need
00:16:56
that like any Market place you need
00:17:00
purchasers and
00:17:02
sellers to be able to have an efficient
00:17:07
NE negotiation to achieve a balance
00:17:10
without the government coming in and
00:17:13
printing a lot of money and messing up
00:17:15
make a me big mess it's like they made
00:17:18
very severe negative real rates right
00:17:22
and we know what happened with the
00:17:23
negative severe negative real rates and
00:17:25
the government while they were making
00:17:27
the significant real rates it was the
00:17:30
government that was the big buyer okay
00:17:33
so the government takes it on and they
00:17:34
make negative rates so what happens is
00:17:38
then you get everybody leveraging up yes
00:17:41
then you've got a problem and so that's
00:17:44
how that's how it works and it's a
00:17:46
global issue it's not just an American
00:17:48
issue well that's what I want to get to
00:17:50
that in a minute because I want to talk
00:17:51
about the relative strength of the
00:17:53
United States and how this plays out
00:17:55
globally firstly in your book you
00:17:57
describe the big debt cycle following
00:17:59
five stages you call it the sound money
00:18:01
stage when net debt levels are low and
00:18:03
money is sound and the country is
00:18:05
competitive and then you talk about the
00:18:07
debt bubble stage where debt and
00:18:08
investment growth are greater than can
00:18:10
be serviced from the incomes being
00:18:11
produced and then you call it the top
00:18:14
stage the bubble pops and the credit and
00:18:16
debt and markets contract and then this
00:18:19
d leveraging stage where the Central
00:18:21
Bank comes in and they start buying all
00:18:22
the debt and issuing more cash and the
00:18:24
inflation goes up and the value goes
00:18:26
down and then finally the de the the big
00:18:28
debt crisis recedes and we start over
00:18:30
again but you speak about in the top
00:18:32
stage a debt crisis can you describe the
00:18:35
debt crisis you know like how do we talk
00:18:37
think about the mechanics of what is a
00:18:40
debt crisis where are we in the United
00:18:41
States today with respect to facing a
00:18:44
debt crisis and what are the the red
00:18:45
flags that you look for first when
00:18:49
there's a lot of borrowing to service
00:18:51
debt there's what's
00:18:54
called you know the um death spiral is
00:18:58
what
00:18:59
we typically refer to that when a
00:19:01
company has it the government can have
00:19:02
it too and that is that Dynamic where
00:19:06
there's uh too much debt and you have to
00:19:09
borrow to service the debt and then
00:19:13
people investors know that that's a
00:19:15
problem to service the debt so the
00:19:18
credit is worse and that means that
00:19:21
interest rates go up which is the worst
00:19:24
thing that can happen to a heavily
00:19:26
indebted entity and then as they rise
00:19:30
you get that spiral you need to borrow
00:19:32
more and so on
00:19:35
so that is also noticed when then there
00:19:39
is uh the the key spot is when The Debt
00:19:43
Service becomes large and then like the
00:19:46
real red flag the biggest red flag is
00:19:49
when there's then the selling of the
00:19:52
debt beyond the new Supply but the
00:19:55
holders of it sell it and then you could
00:19:57
see it in the market action because you
00:20:00
can see that long-term interest rates
00:20:04
rise while short-term interest rates
00:20:06
aren't rising or go down so it's the
00:20:10
free market losing its desire that you
00:20:14
have a balance problem in the free
00:20:16
market out there um and then you start
00:20:20
to see that when the currency then
00:20:25
depreciates particularly
00:20:28
relative to gold or Bitcoin
00:20:33
or um other
00:20:36
assets a and sometimes other currencies
00:20:40
but
00:20:41
typically these things happen broadly
00:20:43
speaking together in which all
00:20:46
currencies go down relative
00:20:50
to other things like gold Bitcoin or or
00:20:55
tangible values and so that's what it
00:20:58
looks like that's that edge then you
00:21:01
start to
00:21:02
see uh you know the dynamic so you
00:21:05
either see the Central Bank comes in
00:21:07
very
00:21:09
quickly and does the buying and um and
00:21:12
when that happens you see then the
00:21:14
currency um to take a uh Japan for
00:21:18
example if you were a holder of Japanese
00:21:20
bonds you lost about 80% of your money
00:21:23
relative to gold and about 60% relative
00:21:28
to us bonds because you received an
00:21:30
interest rate that was 3% less than the
00:21:35
corresponding interest rate in the
00:21:36
United States so you lost the interest
00:21:38
rate and interest rates in the United
00:21:40
States as you know were very low
00:21:42
relative to inflation for most of that
00:21:44
time plus you had a depreciation in the
00:21:46
currency so you lose you know you lost a
00:21:50
ton of money in the debt that way
00:21:53
because the Central Bank came in and
00:21:55
printed the money it's very bad for
00:21:57
holders of the debt and it's a basic
00:21:59
thing you don't have to even get too
00:22:01
technical it's just a supply demand
00:22:03
thing you know well so are we seeing
00:22:05
that in the US today so the Federal
00:22:07
Reserve cut interest rates as of a few
00:22:10
months ago as they've cut interest rates
00:22:13
the market has sold off us bonds rather
00:22:17
than buying them and which is normal
00:22:19
when you know rates go down the price of
00:22:22
bonds is supposed to go up and uh we are
00:22:26
now
00:22:27
seeing r rates actually climb in the
00:22:30
market relative to where they were while
00:22:33
the FED has been cutting rates is is
00:22:35
that a dynamic that's a red flag for you
00:22:38
well gold has gone up and um the Bitcoin
00:22:41
has gone
00:22:42
up and it's so that is that kind of
00:22:46
Market action I'm talking about and
00:22:48
you've seen it in other countries too
00:22:50
you uh the UK very classic the dollar
00:22:53
has been a relatively strong currency
00:22:56
but not measured in gold or Bitcoin
00:23:00
right so all currencies have gone
00:23:04
down and then you've had that Dynamic
00:23:08
you're talking about and you see it also
00:23:11
in like Sterling is a good example
00:23:13
Sterling is gone down while UK Bond
00:23:17
rates have gone up and central banks
00:23:19
have held it steady and so you see it in
00:23:22
the market action you also see it in
00:23:25
terms
00:23:26
of who the buyers are and who you've
00:23:30
seen central banks for example and
00:23:33
Sovereign wealth funds shift to have
00:23:36
lesser amounts of um debt bonds and so
00:23:41
on at the same time as they've
00:23:43
accumulated gold or hard
00:23:46
values now gold is the third largest
00:23:49
reserve currency by the way dollars um
00:23:53
Euros gold and then Yen
00:23:57
so yeah you're seeing that Supply demand
00:24:00
shift and it's it's um partially for all
00:24:03
the reasons we're talking about and also
00:24:06
partially because of issues like
00:24:08
geopolitical issues countries sometimes
00:24:10
worry about
00:24:12
sanctions countries uh China is worried
00:24:16
about holding bonds you would us bonds
00:24:21
um Japanese bought a lot of bonds yeah
00:24:24
even as a percentage of portfolios
00:24:28
the bonds themselves have become such a
00:24:32
large US Treasury bonds and US debt has
00:24:35
become such a large part of the
00:24:37
portfolio that it's even from a
00:24:39
portfolio rebalancing point of view you
00:24:42
don't want so much concentration all of
00:24:44
those factors are in play for the supply
00:24:47
demand and bonds that's why I emphasize
00:24:50
this you have to look at the supply and
00:24:52
demand of bonds you've got a table in
00:24:56
the book where you look at central
00:24:59
government debt level to uh deficit
00:25:02
level across these uh these major
00:25:05
markets so you've got the US Japan China
00:25:07
France Germany and the
00:25:09
UK and the US is running a deficit 7% of
00:25:17
GDP so the federal government is
00:25:19
spending more than it makes at a level
00:25:21
that's about 7% of the total size of the
00:25:23
economy in the United States which is
00:25:25
the highest of all of these these
00:25:27
industrialized markets second is France
00:25:30
at 6% third is the UK at 6% as well and
00:25:34
then China at
00:25:35
5% and then these these these countries
00:25:38
are all
00:25:39
approaching
00:25:41
100% debt to GDP Japan obviously is at
00:25:46
215% so from a from a relative
00:25:49
perspective one of the points that I've
00:25:51
heard a lot of people make is everyone's
00:25:55
got this problem everyone's got rampant
00:25:57
spend
00:25:59
everyone's got Rising debt levels
00:26:01
they're increasing their debt levels to
00:26:02
pay the interest on their existing debt
00:26:05
and to stimulate their economy the US is
00:26:08
the best strongest currency amongst the
00:26:11
group that we just showed why would
00:26:12
anyone trade out of our currency I guess
00:26:16
from a market perspective rate where
00:26:18
else do people go with their worth their
00:26:20
net worth where do they transfer their
00:26:22
value into if it's not
00:26:25
dollars and doesn't it have to be some
00:26:27
denom ated currency and isn't the US
00:26:29
ultimately the best maybe you can talk
00:26:31
about what these alternatives are gold
00:26:33
Bitcoin elsewhere but is that realistic
00:26:36
at scale like is there enough of gold
00:26:39
enough Bitcoin for everyone to transfer
00:26:41
all their net worth into those assets
00:26:43
versus hold some currency denominated
00:26:46
asset maybe we can just talk about that
00:26:48
Dynamic of how do I make the decision
00:26:50
about where to store my value where do I
00:26:51
store my network first of all um the
00:26:54
United
00:26:56
States and countries like China you you
00:27:00
see that U particular Dynamic China um
00:27:04
Japan they're all educational and that
00:27:06
means that the bonds the debt are Bad
00:27:09
Assets so then what where you store it
00:27:13
is in those assets
00:27:15
that benefit rather than suffer from the
00:27:20
reduced value of money and the U the
00:27:24
buying of it
00:27:26
so and obviously
00:27:28
you look at money and what is an
00:27:30
international money that is why gold is
00:27:33
in and then there's a question of you
00:27:36
know Bitcoin or others are a
00:27:39
conversation we can digress into that
00:27:41
but it can be ideally it's International
00:27:45
it's
00:27:46
mobile ideally it's relatively private
00:27:51
so it's relatively secure because in
00:27:54
history there's the value part of it and
00:27:57
then there
00:27:59
the confiscation part of it too in some
00:28:02
fashion or another that
00:28:04
confiscation can easily take the form of
00:28:07
taxing on holding it right for example
00:28:10
one of the problems with real estate B
00:28:13
besides the fact that it doesn't move so
00:28:16
it's not
00:28:17
internationally nego you know you can't
00:28:19
use it uh
00:28:21
internationally is it is a readily
00:28:23
taxable asset it's there it's there and
00:28:27
therefore they're going to get you they
00:28:29
won't take it and you can you can get it
00:28:31
so we have to understand that taxes and
00:28:35
confiscations are one and the same
00:28:37
because during a time of of of a debt
00:28:39
crisis and and I want to get to this in
00:28:41
a minute you talk about the four actions
00:28:43
that can be taken tax or taxation
00:28:46
austerity where governments cut spending
00:28:48
restructuring where the debt gets
00:28:49
restructured and then the Central Bank
00:28:50
buying the debt obviously this notion of
00:28:52
Taxation it's always played a critical
00:28:54
role during these moments and assets are
00:28:57
sees or tax in different ways and
00:28:59
transferred away what about Commodities
00:29:03
and how do commodity markets do non-old
00:29:06
is there a difference in commodity
00:29:07
markets hard soft Etc it's so it's so
00:29:10
interesting I've you know studied
00:29:12
history and I've of course I've been
00:29:13
through a bunch of these like the 70s
00:29:17
Commodities ideally also those that
00:29:19
might do
00:29:21
well if the economy doesn't do well
00:29:23
because you're dealing also with the
00:29:25
inflation environment
00:29:28
uh is um is are always gone to you don't
00:29:33
want economically sensitive Commodities
00:29:35
as much but and if unless the sometimes
00:29:39
maybe the economy will do pretty well
00:29:41
but there's usually that it doesn't but
00:29:44
in like in the Weimar Republic Give an
00:29:47
example rocks were used as store holder
00:29:51
wealth now that sounds really funny but
00:29:55
um they were considered building
00:29:57
ingredient you know in other words the
00:29:59
Rocks were used to build things with and
00:30:02
so they would store the money in rocks
00:30:06
they but they but any asset I should go
00:30:08
store a bunch of GPU chips in my garage
00:30:11
h100s from
00:30:12
Nidia technology devalues them the new
00:30:16
technology devalues them right so that's
00:30:19
the question what is it it is those
00:30:21
things that can't be devalued
00:30:23
Commodities by the way in real terms all
00:30:27
Commodities every single commodity in
00:30:29
real terms over long decline long
00:30:32
periods of time have declined because of
00:30:35
productivity yeah well every
00:30:38
commodity and has declined in real terms
00:30:40
because of productivity so you would
00:30:42
like a productivity producing assets
00:30:46
that cannot be taxed can move around
00:30:49
from place to place so equities of a
00:30:52
certain type tend to do that that's why
00:30:54
currency
00:30:56
depreciations are associ iated with that
00:30:59
combination of things currency
00:31:02
depreciation lowering interest rates and
00:31:05
producing money causes Equity assets to
00:31:09
go up not necessarily in real terms like
00:31:14
in the 70s they didn't go up in real
00:31:16
terms they went down in real terms but
00:31:19
it is those kinds of stor holds of
00:31:21
wealth that can't be taxed as easily
00:31:24
that benefit from inflation rather than
00:31:28
not right okay the purest play is gold
00:31:33
because gold can be transferred between
00:31:36
countries it's used by central banks as
00:31:38
a reserve so central banks will go to it
00:31:42
they are going to it they'll hold it it
00:31:45
can be
00:31:46
private right more so than crypto cryp
00:31:50
is very easily taxed you know in other
00:31:53
words the government knows where it is
00:31:56
and who's doing what and and so on and
00:31:58
it's also an
00:31:59
effective asset to tax but it has you
00:32:03
know benefits too it was very
00:32:05
interesting when we had negative rates I
00:32:08
was with a group of the central Bankers
00:32:10
in a discussion of how Negative they can
00:32:13
have rates and they described that they
00:32:16
can have negative rates only to the
00:32:20
extent that there's not enough capacity
00:32:23
for paper money to be
00:32:25
stored so they estimate it was funny
00:32:29
actually for that they could have over a
00:32:31
short period of time up to 400 basis
00:32:34
points negative rates that's crazy
00:32:37
because there wasn't enough they
00:32:39
calculated how much Vault Storage Bas
00:32:43
there was and then they calculated that
00:32:45
they would produce more Vault Storage
00:32:48
Space because it would be profitable to
00:32:51
do that and then they that and they said
00:32:54
and the good thing is we can tax it okay
00:32:58
yeah because if you have a digital
00:33:00
currency you can tax it yeah do you own
00:33:05
Bitcoin right yeah I have some not not
00:33:08
nearly as much as as gold I'm you know
00:33:11
that's kind of my diversifier I try to
00:33:13
find what are the I have to have some
00:33:16
I'm I'm a but I'm a gold guy much more
00:33:18
than I am a yeah I'm like I'm a
00:33:20
productive asset guy I like owning
00:33:22
businesses that make stuff so in this in
00:33:25
this environment Where do I own that's a
00:33:28
productive asset that's a business that
00:33:30
can still see its revenue and its
00:33:33
incomes grow as this inflationary effect
00:33:36
and this devaluation occurs as we get
00:33:38
through a debt crisis like this what
00:33:41
would be the best kind of productive is
00:33:42
it a mining business is it a commodity
00:33:44
trading business what's the right I'm
00:33:46
with you so you know let that chart that
00:33:49
we showed in the beginning has this line
00:33:51
productivity going up you know and I
00:33:54
think that we're in a um
00:33:58
yeah that's it and it and it and it
00:34:00
tends to Compound on on itself and I
00:34:03
think that that's where Ai and that is
00:34:06
fantastic but it it depends where you're
00:34:09
referring to AI I think the super
00:34:12
scalers in this
00:34:15
world have risk issues be you know you
00:34:19
think
00:34:21
by you know the um the super scales of
00:34:25
or uh Nvidia or or you know those I
00:34:30
think that the tech War certainly
00:34:32
productivity I'm with you man but you
00:34:35
want to invest in productivity but
00:34:37
there's disruption great disruption yeah
00:34:39
that's going to take place and there are
00:34:41
going to be the disruptors and the
00:34:44
disrup and it's not necessarily those
00:34:47
who are producing the vehicles but it's
00:34:50
those who are implementing and changing
00:34:53
as a result of having their big impact I
00:34:56
think that like the the tech
00:34:59
War for the AI War it easily is I think
00:35:06
it is
00:35:08
actually more important it's a war that
00:35:12
no country can
00:35:14
lose okay because it's more important
00:35:16
than
00:35:19
profits if you lose if China or the US
00:35:23
really lose this
00:35:25
war it's more important than profits and
00:35:29
so you have to play that
00:35:31
war that way and it could be like
00:35:34
electric vehicles or or more in terms of
00:35:37
Chinese electric vehicles and the like
00:35:39
you can produce them so I don't think
00:35:44
and I think there's s such expectations
00:35:46
I think we are going to see
00:35:50
applications like I think the
00:35:52
Chinese are a bit behind in the chips
00:35:57
but they're ahead in the applications in
00:36:00
terms yeah did you see the Deep seek
00:36:03
announcement this weekend and
00:36:05
obviously that was known for a little
00:36:08
while now yeah and so I think you're
00:36:11
going to even see well the Chinese play
00:36:14
is going to
00:36:16
be chips very inexpensive chips embedded
00:36:21
into manufactured goods you'll see
00:36:25
robotics so you're you're going to see
00:36:28
Chinese are unbelievably in making
00:36:31
things
00:36:32
inexpensively terrifically they own 33%
00:36:36
of all World manufactured goods which is
00:36:39
more than the combined
00:36:41
us um German and Japanese manufactured
00:36:45
goods Chinese produce more
00:36:49
so you know you're going to see that
00:36:52
type of competition and it may be it's
00:36:54
like solar panels or something you know
00:36:57
right it's profit doesn't matter so you
00:37:00
have to go where there's I I think that
00:37:03
where there's productivity and
00:37:05
Innovation and disruptors to be
00:37:08
essentially long those who are
00:37:10
benefiting themselves through usage or
00:37:13
creating the applications that are
00:37:15
having the big effect is certainly one
00:37:18
thing but you also have to look at
00:37:20
different countries and places and
00:37:22
things um most importantly is price I
00:37:26
think a lot of invest make the mistake
00:37:28
of thinking I want
00:37:30
to buy good things you know that's a
00:37:34
great company but a great
00:37:37
company that gets expensive is much
00:37:41
worse than a bad company that's really
00:37:44
cheap totally so you have to look at
00:37:47
pricing this is all part of the cycle
00:37:49
you know everybody says that's great and
00:37:51
it's going to be great for the future
00:37:53
and and like you know like the internet
00:37:56
and come it was it's great okay but the
00:38:01
price has to be paid attention to and
00:38:03
I'm particularly concerned of those
00:38:06
companies at a time when we are in a
00:38:10
situation with the interest rates
00:38:12
operating as we are in other words this
00:38:15
looks qu a quite a lot alike like 1998
00:38:19
or 99 where the assets of the the you
00:38:24
know the new hot thing the productivity
00:38:26
grow driers yeah yeah so yeah are hot
00:38:30
the prices are high yeah and you have a
00:38:34
rising interest rate environment that is
00:38:37
a classic issue so we have to pay
00:38:41
attention to the interest rates and the
00:38:44
pricing of those assets and you have to
00:38:46
think where is next the other thing is I
00:38:49
think diversification is very very
00:38:51
important because everybody's leverage
00:38:54
long everybody thinks you know
00:38:58
I'm going to buy assets that are going
00:38:59
to go
00:39:00
up and I'm and if they're good I'm going
00:39:03
to do that in a leverage way so the
00:39:05
world is so leverage long you have to
00:39:08
pay at least as much attention to
00:39:11
correlation so that's why when I look at
00:39:14
you know something like gold or these
00:39:16
uncorrelated assets it's interesting as
00:39:19
you add it into the portfolio it reduces
00:39:22
the risk of the portfolio so you have to
00:39:25
pay attention to the
00:39:27
uncorrelated Assets in that kind of an
00:39:30
environment and those could be
00:39:33
geographically looked at or but so
00:39:36
that's part of portfolio
00:39:38
construction well so there's no simple
00:39:40
answer for the audience on what to buy
00:39:42
but I do think this portfolio point of
00:39:44
view in the book you actually talk about
00:39:45
having 10 to 15 uncorrelated bets at any
00:39:48
given time and I I would imagine in your
00:39:50
context truly uncorrelated whereas most
00:39:52
folks buy us equities and think that
00:39:54
they're in different sectors but
00:39:56
obviously there's a great degree of
00:39:57
correlation when you're buying a bunch
00:39:59
of us equities Equity prices just to
00:40:02
keep in in mind there many
00:40:05
times Equity prices in inflation
00:40:08
adjusted B therefore purchasing power
00:40:12
terms have declined 60 or
00:40:16
70% yeah that's incredible that's an
00:40:18
incredible fact for folks to take in so
00:40:20
when you adjust for the the value of
00:40:21
your dollar Equity prices have really
00:40:24
taken a hit um even though the Market's
00:40:26
gone up and I hear
00:40:28
and from from
00:40:32
1966 y until
00:40:35
1984 you had a negative real return I
00:40:38
think this is super important rate I
00:40:40
just want to double click on this and
00:40:41
and then we'll talk about the us but a
00:40:43
lot of folks talk about markets going up
00:40:46
without taking into account what is the
00:40:49
denomination that those markets are
00:40:51
measured in in this case US Dollars and
00:40:54
when you look at the value of your US
00:40:56
dollar and you look at the market going
00:40:59
up even if you bought equities what you
00:41:01
can now turn that dollar into has
00:41:04
actually not gotten much stronger folks
00:41:06
have really taken a hit and I think this
00:41:08
is super important yeah so I just I'm
00:41:10
glad you're uh bringing up I think it's
00:41:12
super important too and I just want to
00:41:14
emphasize you have to look at your
00:41:16
returns in real
00:41:19
dollars what can you buy okay or any and
00:41:23
purch what can you buy yeah it's funny
00:41:28
because I watch the value go up and down
00:41:31
even the currency go up and down and
00:41:34
it's a distorted perspective it's like
00:41:36
being on a boat that's going up and down
00:41:39
and judging the land to be volatile yeah
00:41:44
absolutely okay I want to come back to
00:41:46
the United States and I want to talk
00:41:47
about your point of view on measures
00:41:50
that the United States is going to have
00:41:52
to take or should take going forward in
00:41:55
order to avoid
00:41:57
a more cataclysmic debt crisis in fact
00:42:00
you use this term often the beautiful
00:42:02
deleveraging that's possible when
00:42:04
there's a great deal of debt and a
00:42:08
country faces a debt crisis that there
00:42:11
are several actions that can be taken
00:42:14
together to try and resolve the debt
00:42:16
crisis in a way that is least harmful
00:42:18
but I first want to talk about the
00:42:20
measure that you share of risks so first
00:42:23
is you you show what you call your risk
00:42:25
gauge for us long-term government debt
00:42:28
and so you've got this risk gauge on the
00:42:31
long-term and the risk gauge on the
00:42:32
shortterm for US Government debt on the
00:42:35
short term you say US Government debt is
00:42:38
a 0% risk age there's no risk in the
00:42:40
near term the economy seems fairly
00:42:42
balanced but over the long term your
00:42:44
risk age is 100% And then you follow
00:42:47
that up with an analysis of the Central
00:42:50
Bank and you say the Central Bank
00:42:52
short-term 0% risk age long-term 46%
00:42:56
risk age and nearly the highest you've
00:42:59
seen ever but maybe you can just say
00:43:02
what's the the composition of these risk
00:43:04
ages and what does this tell us and then
00:43:06
we'll come back to the actions just to
00:43:07
be clear
00:43:09
100% does not mean 100% probability of
00:43:13
of it happening it means 100% that's the
00:43:15
highest that it's ever been you know
00:43:18
it's it's at the ma kind of Maximum but
00:43:21
just yeah just to describe it the longer
00:43:24
term risk age is taking existing amounts
00:43:27
projecting those two things that I've
00:43:29
described before the supply demand and
00:43:33
the um uh The Debt Service creating the
00:43:37
squeeze so think of it as going
00:43:40
into you you know your doctor and
00:43:45
having him uh give you your test results
00:43:51
and how much plaque is in there and what
00:43:54
the what it's looking like and how you
00:43:56
did on your stress test and and what
00:43:58
your arteries are looking like and what
00:44:00
your condition is that's what the first
00:44:04
measure is the second is you're in a
00:44:09
seizure in other words now so that
00:44:12
second measure of the Deb is
00:44:16
exhibiting okay it's now happening yeah
00:44:19
and happening means things like you're
00:44:23
seeing the selling you're seeing the um
00:44:26
the the spreads widen in other words the
00:44:32
interest rates Rising on the long end
00:44:34
without the short end you're seeing that
00:44:36
the central bank is put into that
00:44:39
position of being a you know having to
00:44:41
make the difficult choice of coming in
00:44:44
there and monetizing everything very M
00:44:47
and then credit problems and debt
00:44:50
monetization because you're in the
00:44:51
middle of it that's what the that's what
00:44:54
the one on the right means so what we
00:44:57
have is if I'm speaking to you as the
00:45:00
government policy makers your condition
00:45:04
is is very bad right okay you're not in
00:45:08
the middle of it now you in other words
00:45:12
we're not seeing that particular Dynamic
00:45:15
transpire but uh you have to change your
00:45:19
diet you have to change your behavior
00:45:22
you have to maybe have a stent put into
00:45:24
an equivalent so you asked about what
00:45:27
that is
00:45:28
okay okay here's what it is let me let
00:45:31
me pull up this chart for you real quick
00:45:33
Ray so I I just want to highlight the uh
00:45:38
CBO projection right so this is the US
00:45:41
government's debt as a percent of the US
00:45:44
government's Revenue which you you
00:45:46
indicate in your book is more important
00:45:47
than debt to GDP you've got to look at
00:45:49
the actual Revenue being generated by
00:45:50
the government and how much debt they
00:45:52
have and the CBO highlights this
00:45:55
expansion to 00% meaning the government
00:45:59
is going to have a debt level that's
00:46:01
seven times the income it's making every
00:46:03
year over the next uh I believe this is
00:46:06
a 10-year um chart and you propose a
00:46:09
bunch of actions that can keep it flat
00:46:13
over the next 10 years which is the
00:46:14
basis of the book is there's a series of
00:46:16
recommendations in the book I just want
00:46:18
to kind of voice over again you
00:46:21
highlight that there are four actions
00:46:22
one is increased taxes so obviously
00:46:25
citizens are going to lose asset asss
00:46:27
and and lose income uh so there's a loss
00:46:29
to the citizens when when this happens
00:46:32
uh cutting spending or austerity and
00:46:34
there's obviously a loss of services by
00:46:36
the government provided to the citizens
00:46:37
so the citizens are going to lose
00:46:38
Services they're going to lose
00:46:40
benefits a central bank buying the debt
00:46:43
which will typically increase inflation
00:46:45
because more money will come to the
00:46:46
markets and everything costs more so
00:46:48
that's another form of Taxation where
00:46:50
the value of your dollar the value of
00:46:52
your assets goes down and then this kind
00:46:55
of restructuring of the debt where again
00:46:58
the currency gets devalued and everyone
00:47:00
loses things and so I I just wanted to
00:47:02
kind of walk through that maybe you
00:47:03
could frame this up for us a little bit
00:47:05
sure like that chart if you go back to
00:47:07
that
00:47:08
chart think about that chart as being
00:47:12
you know your your
00:47:14
plaque so to speak in in in the arteries
00:47:17
and The Debt Service so you could
00:47:19
calculate all those numbers and you you
00:47:21
know what the picture looks like um and
00:47:23
that is a stability and so number one
00:47:28
is I call it my 3% solution here the
00:47:32
solution is you must cut the deficit
00:47:37
which is the equivalent of bonds selling
00:47:40
down to 3% of
00:47:45
GDP and it's 7 and a half% expected now
00:47:49
different people have different views as
00:47:50
to how to cut it I forget it I don't
00:47:52
really care just you have to have a
00:47:55
unified agreement everybody in Congress
00:47:58
and the president and so on should
00:48:00
pledge to do that and then the question
00:48:03
is how to do it but they shouldn't they
00:48:05
should know that number that's about 900
00:48:08
billion a year yeah roughly and that
00:48:11
means cutting it as you point out by
00:48:13
cutting the deficit by more than half
00:48:15
from where it sits yeah well it's yes
00:48:18
because it with the continuing the uh
00:48:22
the tax guts strum tax guts uh that's
00:48:25
that'll be 7 and a half % and you want
00:48:27
to get it down to
00:48:29
three and and it sounds Draconian but we
00:48:34
did that kind of uh change from
00:48:37
1991 till
00:48:40
1997 and the key there are three keys to
00:48:45
this uh do it soon fast when the time is
00:48:51
good when the economy is good in other
00:48:52
words do it now now okay the temptation
00:48:57
is going to say well we're going to ease
00:48:59
into this and we're going to be there
00:49:01
and we're going to do it in 3 years from
00:49:03
now but if you have a bad economy you
00:49:07
you cannot do it okay and that's the
00:49:09
that's the worst so we have the best
00:49:11
economy and the sooner you do it the
00:49:13
more you're going to do it so 3%
00:49:16
solution do it now and recognize that
00:49:21
you have to De deliver it so if you're
00:49:24
having let's say
00:49:28
Cost Cuts in government you have to own
00:49:31
the number so everybody's got to pledge
00:49:33
3% now the the be arguments as to how to
00:49:36
get there but you have to own the number
00:49:39
um so much so that you'd say if it's not
00:49:41
3% throw me out of office because I've
00:49:44
got to all I've got to deliver that
00:49:46
number so if somebody if um government
00:49:50
cost expense cutting you know and is it
00:49:53
really the two trillion number is it the
00:49:55
one trillion number is it half a
00:49:57
trillion dollar number we all throw
00:49:59
those numbers around you got to own the
00:50:01
number and you got to get to three and
00:50:03
you can't make it any one
00:50:05
thing right but you also have to realize
00:50:10
like if you did it um spread out
00:50:14
nothing's going to be that big so I mean
00:50:17
nothing's going to be
00:50:20
insurmountable that would mean I I go
00:50:24
through the numbers in the book by the
00:50:25
way this book is online free and
00:50:28
everybody everybody can get it I read it
00:50:31
this weekend I have a I and I and I used
00:50:34
a highlighter for the first time in a
00:50:35
long time Ray so there was a lot of
00:50:37
great content to pull out of there I
00:50:39
might uh use AI this being put out not
00:50:43
to sell books anyway it's all free so
00:50:46
everybody can go through the mechanics
00:50:47
but the main thing is you take the
00:50:50
things you can cut from or build from so
00:50:54
what can you cut from and you look look
00:50:56
at government expenditures roughly 70%
00:51:00
of government expenditures are you can't
00:51:03
cut so so it comes down to a small
00:51:06
percentage that you can cut but you you
00:51:08
find out how much can you cut so the
00:51:10
important thing is
00:51:13
3% the other thing about it is to
00:51:17
realize that if you make those
00:51:20
moves the bond market and what it will
00:51:24
benefit you see the and so interest R
00:51:28
interest rates will go down right and
00:51:31
interest rates going down interest rate
00:51:34
expense is most important so when the
00:51:37
president does a interview the other day
00:51:40
and he says we need to get them to cut
00:51:42
interest rates by 1% and he's speaking
00:51:44
about the Central Bank he's effectively
00:51:47
trying to force the central bank or coer
00:51:49
the central bank to take rate action
00:51:52
when if we were to cut spending I think
00:51:55
this is so important if the federal
00:51:57
government were to cut spending
00:51:59
significantly and quickly the market
00:52:02
would naturally react to lower rates
00:52:04
that's right okay I think that is so
00:52:07
important for everyone to hear he's
00:52:08
right if you look at the my calculations
00:52:11
you need 100 basis if if you get a 100
00:52:14
basis points cut in rates that's
00:52:17
equivalent to significant cutting in
00:52:20
spending so he's right but you but if
00:52:23
you do that without
00:52:26
the other parts you're going to take
00:52:29
money away you're going to make it less
00:52:31
desirable to own these things these
00:52:34
bonds and because that's that's going to
00:52:36
be a problem where if you do these
00:52:39
things together they can support each
00:52:41
other so in other words fine cut it from
00:52:44
spending and by the way Ray the longer
00:52:46
we wait the more interest accumulates
00:52:49
because it's at a higher rate the more
00:52:51
the debt accumulates and ultimately this
00:52:54
is the arithmetic death spiral that you
00:52:56
get into the longer we wait the more you
00:52:59
have to cut in the future to get out of
00:53:01
the hole it's not linear it's a
00:53:03
nonlinear cutting that's needed to get
00:53:05
So the faster you do it the less you
00:53:07
have to cut right I think that is so
00:53:09
important let me just say that again the
00:53:11
F for any person in government listening
00:53:14
the faster you cut the less you have to
00:53:16
cut yes and you can do it in a
00:53:19
manageable way you know what a bit here
00:53:21
a bit there these bits add up and if you
00:53:24
don't you're going to have this Arc of
00:53:28
compounding so let's talk let's talk
00:53:30
politics for a second is Doge and the
00:53:32
concept of Doge enough or do we need
00:53:36
legislative action here and then I want
00:53:38
to talk about the politics of the
00:53:39
legislative action needed given like the
00:53:42
election Cycles there's a combination of
00:53:46
a question it's not just Doge it's a
00:53:49
matter
00:53:52
of less
00:53:54
regulation productivity
00:53:58
changes that might come from AI which
00:54:00
then have translate to profits that
00:54:04
might be capital gains profits they
00:54:07
might be
00:54:09
profits and all of that and
00:54:12
so but it really you know when I look at
00:54:16
it it
00:54:18
looks it looks very tough and and but
00:54:22
there's also you know Revenue also
00:54:24
tariffs produce Revenue so but yeah
00:54:28
people think um on the on the tariffs
00:54:30
people don't think of taxes as inflation
00:54:33
but taxes are inflation right because
00:54:36
you it costs you more
00:54:39
so the real question as you play with
00:54:43
the numbers is it's very very difficult
00:54:47
to know and be precise about how much is
00:54:50
going to come from uh productivity and
00:54:53
profit increases from the efficiency is
00:54:56
gained by Ai and new technologies how
00:54:59
much going to come from this and that we
00:55:02
don't honestly know but the important
00:55:05
thing is not to we're at the edge and
00:55:09
not to make it a crapshoot so and and to
00:55:12
get the if the number must be three% and
00:55:16
so you should have handle not hail Mar
00:55:22
passes but uh a clear passage to that 3%
00:55:27
number are we better off with Trump as
00:55:30
president versus if Biden had
00:55:32
won in this context yes I do believe we
00:55:36
are for then the financial context
00:55:38
because in terms of
00:55:40
profitability and the likelihood of
00:55:43
cutting I think the Republicans are
00:55:46
probably more likely to make these moves
00:55:48
than the Democrats but you also have to
00:55:51
take into consideration the impacts the
00:55:53
social impacts and right the other
00:55:55
impact s that are going to come from
00:55:57
this we're at a civil war internally and
00:56:00
we're at an international War
00:56:03
simultaneously so there are second order
00:56:06
effects I think the main thing is uh
00:56:09
take those numbers and make them real at
00:56:12
at 3% not speculating I I worry honestly
00:56:16
about the
00:56:18
Gap like the idea of when profits kick
00:56:23
in from AI
00:56:27
I'm worried that's what I was going to
00:56:28
ask you next so ai ai takes off we lose
00:56:31
a lot of jobs we have a million five 3
00:56:34
million 5 million people that become
00:56:36
unemployed that work in call centers
00:56:38
that work on Automotive lines etc etc
00:56:41
they lose their jobs and while before
00:56:43
the productivity kicks in from AI that
00:56:46
creates new markets and and new parts of
00:56:49
the economy we have a lot of unemployed
00:56:51
people and the government
00:56:53
Representatives the politicians raise
00:56:55
their hands and say we have to support
00:56:56
these people we have to introduce
00:56:58
stimulus we have to introduce new
00:57:00
support programs and is it not likely
00:57:03
the case that with AI coming online we
00:57:05
are going to see a fairly significant
00:57:08
demand for you know public support on
00:57:12
this transition that's coming that's
00:57:14
right but there are two Dimensions the
00:57:16
near term
00:57:18
is what will the pro I don't think the
00:57:21
profit impact and the financial impact
00:57:24
on productivity is going to be nearly
00:57:27
enough near enough to deal with the
00:57:30
supply demand issue that we now have so
00:57:33
let's say we have is it this year is it
00:57:35
next year just imagine you are at risk
00:57:38
of a heart attack you know and then I
00:57:40
say someday we'll have the productivity
00:57:42
conveyed to profits that will cover the
00:57:44
budget deficit okay it may be out there
00:57:46
but it's not um as immediate as it needs
00:57:49
to be and then we have the other aspect
00:57:53
of it which is how is that pi divided
00:57:56
which is going to be very political
00:57:59
because the disruptive effects will be
00:58:03
enormous and we're really all guessing
00:58:06
on how those disruptive effects will
00:58:09
be it's it's too much of a but you're
00:58:13
you're absolutely right lots of jobs are
00:58:15
going to be lost lots of Chang is going
00:58:16
to happen in terms of turbulence and um
00:58:20
how do we have a plan how can we even
00:58:22
agree on a plan of how to deal with that
00:58:25
I don't think we're in a
00:58:27
time maybe in the rest of our lifetimes
00:58:30
that agreement is going to be easy I
00:58:34
think we're going to see fragmentation
00:58:36
of States from from the central
00:58:39
government I think you're going to see
00:58:41
big
00:58:42
fragmentation in the world not just in
00:58:45
the United States on the failure to
00:58:48
agree on most things and so I I'm
00:58:52
worried about uh the timeline think of
00:58:55
the time line is this way this is the
00:58:58
first 100 days we're in a honeymoon
00:59:01
period I've been through I'm old you
00:59:03
know I've been through this a long time
00:59:05
I know what the honeymoon is like right
00:59:07
afterwards there's a 100 days that you
00:59:09
can change legislation you move quickly
00:59:11
and everybody's there then there's the
00:59:13
next important time Horizon is two years
00:59:16
to the midterm elections you get in
00:59:19
about years you know 18 months after the
00:59:22
election and now not everybody goes
00:59:25
everything goes as anyone expects you
00:59:27
could have the supply demand situation
00:59:30
and think of our cycle I mentioned you
00:59:32
know the average cycle is about six
00:59:35
years give or take three years and so
00:59:37
we're going to be later into the cycle
00:59:39
we have this Supply demand situation
00:59:42
right are things going to stay good into
00:59:45
the midterm elections and and and that
00:59:47
mandate I think there there could be a
00:59:49
lot of fighting in the interum elections
00:59:52
let me ask you two questions the first
00:59:56
if we do significant
00:59:58
Cuts there will be a lot of job loss if
01:00:01
AI is successful and moves quickly there
01:00:03
will be significant job loss if there is
01:00:06
significant job loss does that not fuel
01:00:08
the rise of socialism in the United
01:00:11
States I think that we can do it when I
01:00:15
talk about the 3%
01:00:17
solution I think that we can cut and
01:00:20
make the adjustments in a few
01:00:24
percentages to be a able to do this
01:00:27
without great trauma so we can get to
01:00:31
having that limitation done without
01:00:34
great trauma and it will be supported by
01:00:36
interest rate moves so that's first we
01:00:41
can get this thing done we must get that
01:00:44
thing done and if we don't then of
01:00:48
course I think we are in an
01:00:51
era that of course we're going to have
01:00:54
great conflict in the United States
01:00:57
this is not a run to Nirvana this is you
01:01:02
know the the
01:01:04
moment there you're going to have legal
01:01:06
challenges one
01:01:08
state the Democrats you know the blue
01:01:11
States the red States and within the
01:01:13
states you're going to have a lot of
01:01:16
disruption and you're going to have a
01:01:18
lot of
01:01:20
dissatisfaction and it's going to be
01:01:21
about money and power and so that's
01:01:25
ahead
01:01:26
and so like you say there's the
01:01:29
Socialists the left the right and that's
01:01:32
why you're going to
01:01:34
uh this type of civil war or internal
01:01:38
conflict is going to be with us this is
01:01:40
not a straight race to Nirvana and
01:01:44
prosperity and and you have that at the
01:01:46
same time as you have the other elements
01:01:48
you know they're the five big forces so
01:01:52
what I'm calling so you have the debt
01:01:54
money we talked about there's the
01:01:56
internal conflict that is we're going to
01:01:58
test the legal system and you know and
01:02:01
we're in an environment now that might
01:02:02
is Right
01:02:05
internationally you are going to have
01:02:07
the same kind of conflict we touched on
01:02:09
China we're going to have conflict
01:02:12
you're no longer have a a cooperate even
01:02:15
an attempt at a Cooperative world order
01:02:18
things like the World Health
01:02:20
Organization the World Trade
01:02:22
Organization all of those are Obsolete
01:02:25
and so we're going to have again might
01:02:27
is right and so it's going to be a
01:02:29
period of greater conflict you're going
01:02:31
to have a technology War you can have
01:02:35
mil increased military spending in this
01:02:38
kind of environment that's that creates
01:02:41
a budget issue and climate will have uh
01:02:46
it it will be an economic issue as well
01:02:48
as a um environmental issue so these
01:02:52
things these expenses are going to go up
01:02:54
so all of those coming together so
01:02:58
you're yes left right and conflict will
01:03:01
be ahead of us is this a hot Civil War
01:03:05
do people take to the streets I mean how
01:03:07
does this resolve obviously we've got
01:03:09
historical context for social Uprising
01:03:12
but what happens in the United States
01:03:13
over the next 10 years I think two
01:03:15
important aspects of it
01:03:17
is does the legal system work
01:03:22
well so that the Supreme Court
01:03:27
you know you asked me about the
01:03:29
independence of the Central Bank you
01:03:32
know do the does law
01:03:35
work and I think there's going to be a
01:03:38
lot of challenges I'm not saying it
01:03:39
doesn't work I'm saying that's the
01:03:41
question and that'll be very much state
01:03:44
by state you're going to see conflicts
01:03:48
between the states and the central
01:03:51
government so how does that
01:03:54
decisionmaking system system hold up is
01:03:57
it might as is right you know Sanctuary
01:04:00
City issues and such how is or is that
01:04:04
going to all work well I mean that's you
01:04:08
know that's the most important thing and
01:04:11
then we have in a time of great stress
01:04:13
and challenge you know when things get
01:04:16
worse right now things are good this is
01:04:20
pretty
01:04:21
good and but they're going to get worse
01:04:24
and then you have the international
01:04:27
going on at the same time and so
01:04:29
internally within countries we have the
01:04:32
same kind of conflict you're seeing it
01:04:35
happen in Europe you're seeing the same
01:04:37
same Dynamic we talk about the problems
01:04:40
that the United States is having
01:04:42
regarding debt and so on you have then
01:04:44
the expense same problem within the
01:04:46
Europe you're seeing greater polarity
01:04:49
left right you're seeing economic
01:04:51
problems cause more confrontation and so
01:04:56
you're seeing this around the world so
01:04:58
you're coming into an environment that
01:05:01
is likely to have over a period of time
01:05:03
over a period of time not immediately uh
01:05:06
greater conflict when you talk about 10
01:05:08
years there's going to be a period in
01:05:12
that 10-year period where it's going to
01:05:15
it's going to be
01:05:16
hellacious in that 10year period where
01:05:19
you know the coordination of dealing
01:05:22
with our problems our problems will be
01:05:24
greater and the cooperation for dealing
01:05:28
with problems will be less on that point
01:05:33
talk about the role that you have seen
01:05:36
external conflict play in resolving the
01:05:41
fiscal challenges internally so you talk
01:05:43
in your prior Book Changing World Order
01:05:45
about the historical relationship
01:05:47
between external conflict as a cycle
01:05:49
that seems to follow or flow with this
01:05:52
financial cycle maybe you can talk a
01:05:55
little a little bit about what's going
01:05:56
to happen between the United States and
01:05:58
China given the condition in the US
01:06:01
today do we have a higher propensity
01:06:03
when things are difficult at Home Folks
01:06:05
tend to go to war war is
01:06:07
stimulatory is that a driver here and
01:06:09
what's going to happen functionally with
01:06:12
China over the next decade do you think
01:06:14
and the US there's a
01:06:16
cycle that has to do with changes in
01:06:20
money and all of these
01:06:22
things where
01:06:25
you don't have enough
01:06:27
money you need money to
01:06:30
support con International conflict you
01:06:33
need money to make domestic people happy
01:06:36
and then there's no power you know
01:06:39
there's no system for making judgments
01:06:43
internationally the you know the United
01:06:46
Nations doesn't work the World Health
01:06:47
Organization they don't work so there's
01:06:49
no system so you come into this power so
01:06:53
when so when we're talking about the
01:06:55
financial problems that we're talking
01:06:57
about that we covered and recognize that
01:07:01
that's worldwide and then you have the
01:07:04
polarity worldwide that has to do with
01:07:06
wealth different wealth and values and
01:07:09
you have that Pro problem within the
01:07:11
population and then you have no rule
01:07:15
system internationally so it is a might
01:07:19
is Right series you have that Confluence
01:07:23
of things uh particularly
01:07:26
now then you and then there's
01:07:28
disruptions big disruptions technology
01:07:30
we talked about how you can't lose the
01:07:33
technology War because you'll lose the
01:07:36
military war all of that stress and
01:07:40
shortage of what is perceived to be
01:07:43
needed
01:07:45
is incendiary you know it's it's a it's
01:07:49
it's a it's a risky
01:07:51
situation of course productivity helps
01:07:54
but it was like you have to understand
01:07:56
put it in its place the 1920s leading up
01:08:01
to the stock market bubble that that was
01:08:05
the decade that we had the greatest
01:08:07
number of inventions patents Innovation
01:08:11
great productivity increases while we
01:08:15
simultaneously had big debt increases
01:08:18
and we simultaneously had these wealth
01:08:20
Gap and values increases and so you
01:08:24
don't get away from that so this is
01:08:26
going to be a lot of tension in a world
01:08:30
where it's difficult to get all the
01:08:32
parties to
01:08:33
cooperate in Wars if you look at history
01:08:36
when I say Wars there are military Wars
01:08:38
there and then there's less than
01:08:40
military Wars and and I can't tell you
01:08:42
that we're going to go into military
01:08:44
Wars I think like the Soviet Union and
01:08:47
the United States because of the risk of
01:08:51
mass
01:08:54
destruction was able to avoid those but
01:08:58
it it in
01:09:01
history it's going to it's going to be a
01:09:04
very U it's going to be a very difficult
01:09:07
period you describe in your book the
01:09:10
difference between how the United States
01:09:12
goes to war and how China goes to
01:09:14
war correct me if I'm wrong but you
01:09:17
speak to the US goes to war
01:09:19
head-to-head open confrontation whereas
01:09:22
China is much more like a sunu Art of
01:09:26
War style it's a little bit more tricky
01:09:30
a little bit more careful they they
01:09:31
never let you know what they're going to
01:09:33
do is that a fair characterization yeah
01:09:37
the the the um the general belief of um
01:09:41
the Chinese on The Art of War and this
01:09:44
is
01:09:47
existed throughout and it exists today
01:09:50
is that uh if if if you're going into a
01:09:53
fighting War you must not have been
01:09:56
smart enough to win without a fighting
01:09:59
war and you win through deception and
01:10:02
manipulation because fighting Wars are
01:10:05
going to damage you a lot you don't want
01:10:08
to be damaged you you want to get to
01:10:10
your objective so that's how they fight
01:10:13
Wars that's the sounds like a smart way
01:10:16
to fight Wars uh also international
01:10:19
relations there's What's called the
01:10:21
tribute
01:10:22
system and the tribute system was your
01:10:26
power determines where you are in your
01:10:28
hierarchy if you have more power you
01:10:30
have more hierarchy you're higher in the
01:10:32
hierarchy it's like confusion and if you
01:10:36
are and everybody should know what each
01:10:38
other's power is and the Lesser power
01:10:41
should give tribute to the greater power
01:10:45
this is internationally and the greater
01:10:47
power should uh respect that and treat
01:10:51
and they should work and have Harmony
01:10:54
together rather than to have the
01:10:57
conflict because it's all about getting
01:11:01
what you want Harmony and prosperity is
01:11:04
what you want and fighting that destroys
01:11:09
things is not what you want whereas um
01:11:12
yeah the the man who was uh vice
01:11:15
president great uh historian of China A
01:11:18
Man by the name Wan described it to me
01:11:21
that um there's the Mediterranean
01:11:24
approach
01:11:25
right yeah and the Mediterranean
01:11:28
approach which is a very different
01:11:31
approach really began out of that there
01:11:34
were families and there's no borders and
01:11:36
the way it worked is there were no
01:11:40
limitations in fact we didn't have
01:11:42
countries with borders and ideas that
01:11:44
you don't cross
01:11:46
borders
01:11:47
until what's a piece of West failure
01:11:50
after the 30 in the mid 17th century I
01:11:53
think it was like 16 50
01:11:57
something up they had 30 years of war
01:12:00
and everybody would fight so they were
01:12:02
fighting experts and that's what the
01:12:05
norm was and then after 30 years of war
01:12:08
they decided okay let's draw a boundary
01:12:11
around it and try to what goes on in
01:12:14
there is your business and and that's
01:12:16
how it came about so and that's by the
01:12:19
way in history one of the reasons that
01:12:22
the Chinese and Japanese lost they had
01:12:25
what they called their hundred years of
01:12:27
humiliation when the fore Powers came in
01:12:30
in late
01:12:33
1830s um and they had a fight the the
01:12:36
Opium Wars and so on the western Powers
01:12:39
were at strong at fighting because they
01:12:42
were practiced at it and then there was
01:12:44
the Hundred Years of humiliation they
01:12:46
call it in China where they they the
01:12:49
foreign powers came in so anyway I'm
01:12:51
giving you too much history but I'm
01:12:53
saying that
01:12:55
there's a whole different attitude about
01:12:58
how to play that game and so that's what
01:13:00
I think you're going to see you you know
01:13:03
that's when we come back now to the
01:13:05
chips war and you took look at today's
01:13:08
news you know there we are there we are
01:13:13
well look Ray I feel like I always tell
01:13:16
people the the kid that stands
01:13:19
up at the middle school and says I'm
01:13:22
going to make the vending machines free
01:13:24
when the the presidency of the middle
01:13:27
school and unfortunately in a democratic
01:13:30
system the El election process kind of
01:13:34
follows a similar pattern it's very hard
01:13:37
I watched these hearings this week and I
01:13:39
was deeply frustrated when I hear
01:13:41
Senators say I got this money for my
01:13:43
constituents I got this their initiative
01:13:46
their intention is to stand up and say
01:13:49
I'm going to get you this they go into
01:13:50
Congress they get you that money and
01:13:52
over time government spending swells and
01:13:55
there is no incentive to reduce it and
01:13:58
we find ourselves now on the precipice
01:14:01
of a really difficult crisis and I
01:14:03
really do hope that politicians find
01:14:06
within themselves the leadership to
01:14:08
stand up and say we need to do difficult
01:14:10
things because 10 years from now or 20
01:14:13
years from now if we don't things are
01:14:14
going to be very bad for all of us and
01:14:16
convey that to people and I really do
01:14:18
hope that your message gets to them and
01:14:21
that their leadership allows them to
01:14:23
stand up and say we need to make these
01:14:24
really difficult changes deeply and
01:14:27
quickly in order to preserve the union
01:14:30
and that they can make those changes and
01:14:31
we can move forward and continue to
01:14:33
build our lives and so I really
01:14:35
appreciate you taking the time to write
01:14:37
this book share this with us and I
01:14:39
really do hope it's heard I think it's
01:14:41
so important so thank you so much Ray we
01:14:44
can do this and if we don't do this the
01:14:47
power of the United States is going to
01:14:50
be greatly
01:14:52
diminished so it's domestic it's inter
01:14:55
International so I appreciate yeah I'm
01:14:58
appreciate you Dave that we can have
01:15:00
this kind of conversation just have
01:15:03
people behave
01:15:04
logically that's too much to ask yeah
01:15:07
well no look I mean let let's not give
01:15:08
away the vending machines for a couple
01:15:10
years and you know kind of think about
01:15:12
keeping the school open uh for the Next
01:15:14
Generation but that was great thanks Ray
01:15:17
you know your stuff you're great and
01:15:20
this is really invaluable thank you for
01:15:22
doing that for your listeners I think
01:15:24
it's so important too Ray and I spent a
01:15:26
lot of time thinking about it and
01:15:27
worrying about it your message is so
01:15:29
clear and important I think you present
01:15:31
it well and write it well I read your
01:15:33
whole book this weekend I appreciate you
01:15:35
putting it all out there I really do
01:15:36
hope that the folks that listen to our
01:15:38
show in DC listen to this I I I cannot
01:15:41
tell you how disappointed I was after I
01:15:44
spent the weekend at the inauguration I
01:15:45
met a lot of members of Congress I met
01:15:47
most of the members of the new cabinet
01:15:50
and it's just not there I'm just
01:15:53
frustrated and I'm just heartened by it
01:15:56
so anyway I I think I think it's
01:15:59
important to keep harping on it though
01:16:00
we're not going to stop and and I'll
01:16:01
keep talking about it and appreciate
01:16:03
your efforts here too we just have to do
01:16:06
our best that's right really appreciate
01:16:08
it Ray thank you thank you Dave
01:16:13
[Music]
01:16:16
bye I'm going all in
