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Tom Bilyeu's Impact Theory
A Recession Worse Than 2008? - How To Survive & Thrive The Next Economic Crisis | Peter Schiff PT 2
01:20:40
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- [00:00]
A
When you manage procurement for multiple facilities, every order matters. But when it's for a hospital system, they matter even more. Grainger gets it and knows there's no time for managing multiple suppliers and no room for shipping delays. That's why Grainger offers millions of products in fast, dependable delivery so you can keep your facility stocked, safe and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Granger for the ones who get it done.
- [00:31]
B
Welcome back to Part two with Peter Schiff. As I was saying in the first part, during periods of economic uncertainty like what we're all living through right now, it is up to each of us as individuals to take that situation head on. You have to come up with a thesis for how you're going to navigate this period. Well, the problem is most people get overwhelmed and they shut down. I am here to beg of you not to let that be you. The intelligent path forward is all always going to be a combination of information and action. And speaking of taking action, if you haven't already, be sure to subscribe to our AD Free feed where you're going to get access to bonus material you're not going to find anywhere else and some deep archives that also is only available on the AD Free feed. And now, without further ado, I bring you Peter Schiff, the man who believes the economy is headed towards a cliff that we can all get off the bus before the inevitable crash. I'm a huge believer that as Kobe Bryant said, you can get so or sorry he said booze don't block dunks. And my interpretation of that is that you can get so good at something that no matter how much people hate you, want you to lose, they just can't stop you because you can outperform them. But to talk about discrimination, I think we really have to separate. And this is something I've heard Jordan Peterson talk about and it's interesting. But I think the right way to think about it is you have to. It's almost a problem that they have the same words for when you're discriminating versus is what you're discriminating based on what you like when you're talking about choosing a sexual partner, whatever. I think everybody has a type. There's just something that you're into. The most basic categorization would be male, female. But even then within that it's going to, you know, go down a list of for whatever weird reason like you're into this thing. So that I get. But when it is systemic discrimination and it is a. A larger societal echo of what I call school of fish. So it's inevitable that the way the human animal is, we are a tribal creature, we're a social creature. So you end up going with people that you identify with, which often takes on very surface level characteristics of, they look like me. And so you're just going to see that people will cluster in groups of people that they identify with. So those two things, to me, while they probably are born of like a similar region of the brain, and from an evolutionary perspective, they're very different. One is like, yes, I would never want to tell somebody what they should do, who they should be attracted to. I think it's absolutely absurd when people are like, oh, you're not into me, Then you're whatever phobic. I'm just like, that is just ridiculous. But at the same time, go ahead.
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C
Yeah, here's an example of that, because, yeah, I mean, obviously to a degree you're going to see a preference that people are going to want to be around people that they're more familiar with, that they have more in common with. That's just a natural tendency for a lot of people, although some people might prefer more variety in their social engagements. But when it comes to employment and the work sector and running a business there, you're focused on profits and making money. And how do you do that? Well, you have to be efficient, you have to generate customers, you have to get them, as I said earlier, to voluntarily patronize your business. And so there, that monetary economic factor is going to be more important than your own preferences. Or even if you had some prejudices, you're willing to overlook those if it improves the bottom line. It's only when there's no cost to that that you'll discriminate for those reasons. And it's the government that takes away the cost of discrimination. And a good example of this is with the Chinese when they were here in the United States. You know, many years ago, there was a lot of discrimination against the Chinese. I mean, but what happened was people, the Chinese were getting jobs, they were getting a lot of jobs, and people were hiring them even though they still had prejudices. And the reason they were hiring them is because to overcome those prejudices, they were willing to offer their services at a lower wage. Right? They were saying, look, I know you don't like me, but I'll do the job for less money. And they're like, well, okay, you got the job. Right? You know, so a lot of Chinese were getting hired. And so the White men didn't like this. They didn't like all these Chinese coming in and working for lower wages and taking their jobs. So they got the minimum wage law passed, and they said, look, you can't do that. You got to pay everybody the same. Doesn't matter if they're white or Chinese. Everybody's got to get paid the same. And now that prevented the Chinese from trying to overcome this prejudice by offering their labor at a lower price. And so now, if I'm a white guy who prefers white guys to the Chinese, if I can't get the Chinese on sale, if I got to pay the same as the white guy, well, what the hell, I might as well hire the white guys. And that's what happened. And that was the motivation for the minimum wage. It was to put the Chinese out of work by forcing the people who were bigots to pay them more money. But the free market was dealing with the prejudice. And if you're prejudice against the Chinese, but you start hiring them anyway because they'll work cheaper, maybe you won't be prejudiced that much longer. Maybe after being around the Chinese, you know, and you're working with them and you're. God, these guys aren't so bad. I don't know why I didn't like them. Right, because the prejudice is all irrational. Right? I mean, and that's why when you say it's systemic, it's not systemic. In fact, there is a lot less racism and prejudice today than there was 100 years ago. And that's a good thing. I think. Fewer people, you know, feel that way. I mean, is nobody out there a racist or. No, of course. And there are races in all races, right? There. There are people who are white who are racist. There are people who are black, Hispanic, every. There's racists in every race. But fortunately, there's. They're a small percentage. The average person is not racist. And so the idea that it's some systemic problem. The problem is smaller than it was 50 years ago. It's smaller than it was 100 years ago. The systemic problem is government. That's it. It's the welfare state. That's the problem. The problem in a lot of these communities is government and what they've done. You know, government has destroyed the black family, not racism. You know, even slavery couldn't do that. Not that I would ever defend that institution. But the minute they came up with the War on poverty under Lyndon Johnson, they started paying women to have babies, and they punished them if they had a husband. They said the Only way you're going to get this money is if you're out of wedlock and you have babies. I mean, we destroyed the family. I mean, it happened with white families, too. It wasn't just African Americans, but they were disproportionately impacted by this. Then you have the war on drugs that is hurting disproportionately. I mean, all this should begin. I talk about capitalism. In capitalism, it wouldn't be illegal. Marijuana would be legal everywhere. Cocaine would be legal. These drugs would be legal. And if they were legal, there wouldn't be any criminals involved. It would all be safer. It would be, you know, the free market. They would be competing. It'd be honest. You know, there wouldn't be all these people dying from, you know, having their drugs cut with something. Just unfortunately, what. Robert De Niro's grandson, 18, died because of some bad drugs he had there. You know, and if they were legal, that wouldn't have happened to him. I mean, not, you know, I'm not condoning drug use, but I think there'd be a lot less drug use if it was legal than what we had now. You know, during Prohibition. More people drank during Prohibition than before Prohibition. There were more speakeasies in New York during Prohibition than bars before Prohibition. So. So the government made it illegal to drink, and then more people drank. But the problem was that also created the mob, because now it was all illegal. So you had all the crime. You legalize drugs, you get rid of the crime, you get rid of the corruption of the police force, all the drug money buying off all the cops. I mean, all this stuff happens. And so much crime is committed by drug addicts who need to buy expensive drugs. Everybody is a victim of the war on drugs. Whereas if drugs were legal and the prices were a lot lower, nobody would have to commit crimes to afford to support their habit. But I think fewer people would even get addicted if it was legalized so that, you know, the government created these problems. And once upon a time, these drugs were legal. And we have much bigger problems now than they were legal. I mean, why do you think cocaine is. I mean, Coca Cola do you think the name came from? There was cocaine in there. It wasn't illegal.
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B
All right, a lot of what you're saying people are going to think is hyper counterintuitive, bringing it back to the economy. The good news is the only way to make money is to bet against the consensus and be right. So you seem to have. It's very interesting to me that you can talk in. In A very. You've obviously thought a lot about both the economy and human nature. To me, they feel like they're the same thing essentially. Like once you understand human nature, you understand the propensity for short term thinking, not understanding second and third order consequences. Wanting your lunch for free, on and on and on. The, the way that people act when they're free, when they're not, the propensity for government to get big, that it is going to inevitably inform the way that you look at the markets. So knowing what's going on right now, knowing that people are getting this short term lunch for free through the inflation of the money supply, that we've just been pumping money into it, what do you think in terms of things like the, the banking crisis? Are we at the beginning of this? Is this something that is over? Have we stabilized? We have a bigger problem coming. Like what, what does the nature of the situation tell you about where that's going?
- [10:45]
C
Yeah, in fact, I'm glad you asked me that question. But even before I do, I just want to just say one thing to finish up that last topic in case some people, after they hear me say these things, oh, this white guy. I mean, I'm, I must be homophobic, I must be a racist. Look, I'm a very tolerant individual. I don't harbor any animosity, any racist feelings myself, but I'm willing to tolerate those feelings in other people even though I don't share them. And I don't think it's right. People have to recognize if you want to consider yourself a tolerant person, you have to tolerate a other people's intolerance. That's just the reality. You have to recognize that people have a right to be wrong. People have a right to be boorish. They have a right to have crazy thoughts and to be mean. And so if you really believe in tolerance, which you should, Right. Then you have to tolerate intolerance. I mean, that's the hypocrisy of the left right now, is they want to pretend that they tolerate. And then if you want to do something that they don't like, they want to punish you, they want to put you in jail, or they want to tax you, or they want to sue you. No, you have to accept everyone, including the bigots, including the racists. They have a right to exist. They have a right to their opinions. They have a right to be wrong and you have a right to ignore them. You have a right not to patronize their businesses. You have a right not to work for them. You could completely disassociate yourself with them. Or you can engage them in a way that may help them overcome those prejudices and realize that they're wrong. But anyway, let me answer your question. Because, yes, the way you make a lot of money as an investor is you figure out where everybody else is wrong and then you take the opposite side of that trade because that's how you can make the most amount of money. Because you've identified something in the market where there's a mispricing because the market is wrong. There's an idea of the efficient market that everything is priced right because everybody has the information and that's all reflected in price. But if everybody is wrong, if everybody thinks something and you know that they're wrong, the price is going to be wrong. Either it's too high or too low. Now, we mentioned earlier the subprime and the way people made money shorting subprime. And not that many people made money because most people took the other side of the trade. They were buying the mortgages. They couldn't figure out the problem. But you had all these people who believe that housing prices can only go up and that these bonds would never default because who would ever default on a mortgage because the price would go up and the bank could just sell the property and get their money back. And people, they're guaranteed or they're high rated. And everybody believed that S and P or Moody's or Fitch or whatever. And so you had this bubble in home mortgages and people didn't care. Hey, Nothing down negative a.m. you know, teaser loan. I mean, you know, the standards went out the window because people just thought that these loans would never go bad. And to me, this was sheer lunacy. I was like, this is, this is an accident waiting to happen. And so it was like by betting against that and eventually all of a sudden in 2007, the bottom dropped out because people figured it out. It took a while, but when they did, the mortgage market collapsed. People lost a lot of money who owned mortgages. Banks failed. I mean, a lot of money would have been lost. But a few people who bet that this was going to happen made money, made a lot of money because not that many other people made the same bet. And so if people ask me, okay, well what do you see now that reminds you of the mortgage market back then? You know, where is everybody wrong and how do I make money betting that they're wrong, right? What, you know, what's going to happen? And they've been wrong for a long time. But I think that the big thing now is the markets believe that the Fed is going to be able to engineer this soft landing, that the Fed could take the inflation rate back down to 2% and it's going to stay there indefinitely, just like we had 10 years or whatever years of 2% inflation as measured by the CPI. That the Fed is going to be able to bring inflation back down to that level so that it can reduce interest rates, which are now at a 16 year high, and they're still not that high, they're going a lot higher. But that these high rates are just temporary because that it's enough to put the inflation genie back in the bottle. And so the Fed's going to be able to cut rates back down and everything is going to be fine because inflation is going to be vanquished and we're going to go back to these low interest rates that everybody needs. The reason everybody needs low interest rates is because everybody has so much debt. Why does everybody have so much debt? Because interest rates were so low. Because the Federal Reserve kept interest rates so artificially low, it encouraged people to keep borrowing more and more money. And not just people, the government, federal government, state governments, corporations. Everybody is loaded up with debt because the government artificially suppressed interest rates. Had they not done that, had the government not done quantitative easing, not blown up its balance sheet, interest rates would have been much, much higher over the last 20 years than they were. And as a result of that, we'd have much less debt. People would not have borrowed so much money. They wouldn't have started up a bunch of harebrained companies that really have no chance of success. We wouldn't have these zombie companies, individuals wouldn't have bought so much on credit. They would have actually saved because they could have got interest on their savings. So we'd have more savings, we'd have less debt, we have a much healthier economy, we'd have a more productive economy. But because of what the Fed did, the economy is all screwed up now. The market just thinks that we can go right back to where we were. They're wrong, that that ship has sailed. We're done. The years of low inflation are over. They're not coming back. There is so much inflation in the pipeline and the dollar is going to start to really fall the minute the Fed stops hiking or indicates that it's done. And that's going to really accelerate the increase in prices. And you have the world now de dollarizing. I mean, we actually sped up the process with the sanctions against Russia, which was One of the dumbest things that Biden did was punish Russia for doing exactly what we need them to do. Russia was holding a lot of its reserves in US Dollars and US Treasuries, which is exactly what we need the world to do so we can export our inflation. And we punished them for doing that. We said, you know what, we're going to take that away from you and we're going to deny you access to the Swift system. And we basically told the whole world, de$ize, or we got you by the balls, we could do the same thing to you. So that was a wake up call for the world. We need an alternative to the dollar. And when they have an alternative, we're sol. I mean, we're going to implode. So the markets are basically assuming that interest rates go down, inflation goes down, and so stocks are overpriced, bonds are overpriced, gold is underpriced, the dollar is overpriced. You have all these prices that are wrong because investors are betting on an impossible outcome because they don't understand all the mistakes that the Fed made since the 2008 financial crisis. In fact, they didn't understand the mistakes that they made before the crisis. That's why they didn't realize it was coming. I understood those mistakes. That's why I warned about the crisis in advance. And I know everything they've done since that crisis was a mistake too, and made the problem worse. And the stuff that we did with COVID exacerbated the problem. But I think the markets are going to correct this, just like they corrected that, the housing and the mortgage market. A lot of people are going to lose a lot of money this time, but a lot of the losses are going to be in real terms because of inflation. So there's two ways you can lose money, right? You could just actually lose your money. Right? I have $100,000 and I invested it and I've got $20,000 left. Right? I lost $80,000. But what if you don't lose any of your money? You still have your $100,000, but prices go up five times because of inflation. Well, I still have 100,000, but it feels like I got 20,000. I lost 80% of my purchasing power to inflation. So most of the losses that I think people are going to have to endure are going to be of that variety where they still have their money, but they don't have much value. Everything costs so much more. So, yeah, your bank doesn't fail. You still have your money, but you can't buy much with it. So it's not that big a consolation to have a bunch of money that's practically worthless. So what people have to do is they have to position themselves now against that consensus by buying non dollar assets, by buying dividend paying stocks around the world in the countries that I think are in best positioned to thrive in a post US dollar reserve currency environment. Because America has benefited from the dollar being the reserve currency at somebody else's expense. We get to live beyond our means, but that's only because other people have been content to live beneath their means. So when America's standard of living goes down because we can no longer just claim so much of the world's production with our printing press, other people are going to see their standard of living go up. They're going to consume the stuff that Americans can no longer afford. And so I want to be invested and have exposure to the economies that are going to expand as ours, contracts, countries that have freer economies, smaller welfare states, sounder fiscal policy, trade surpluses, stuff like that. And I want to own real resources. I think in the inflationary environment that we're in, you want to own energy related investments, agriculture, metals, industrial metals, and in particular precious metals. I think that what's going to replace the dollar as the primary monetary reserve asset, it's not going to be another currency. It's not going to be the pound, it's not going to be the, I mean it's not going to be the Euro, it's not going to be the Japanese yen, it's not going to be the Chinese rmb, it's going to be gold. Because none of those currencies have what it takes. They all have problems. And a lot of people just assume that the dollar is going to reign supreme because they don't see another currency that could take its place. They're ignoring gold. Gold isn't a currency. Gold is money. And before the dollar was the reserve currency, it wasn't the pound, it was gold. Gold was the reserve for every currency, including the dollar up until 1971. And when we did Bretton woods, which is where the dollar really became the reserve back then it was backed by gold. The dollar was as good as gold. Because if you had dollars, you had gold. If you had $35, you had an ounce of gold, you could take those dollars to the United States and they would redeem them with an ounce of gold, give them $35, you get an ounce of gold. So it was gold that backed up the dollar and that's why the rest of the world agreed to use it as the reserve. Now we screwed the world over. In 1971, we defaulted on our commitment. We promised to pay gold, and then we told our creditors we're paying nothing. We basically just said these checks are no good. We made a commitment and we're defaulting on it now. The dollar went down a lot during the 1970s. It lost about two thirds of its value relative to other fiat currencies like the deutsche mark Swiss bank did.
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B
Why didn't when the US dollar or sorry, broke the relationship to gold, why didn't a currency rise at that moment that was tied to gold?
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C
Well, there really weren't many currencies left that were still tied to gold because they were tied to the dollar. And then the dollar de tethered from gold. But what happened was the dollar lost a lot of value during the 70s, right? The Swiss franc went from 25 cents to 75 cents. The yen, it went from 360 yen to the dollar to maybe about 150. I think the Deutsche mark we used to get four marks to the dollar. Then it went down to like one, one and a half. And so the dollar got marked down. Oil went from $3 a barrel to $30 a barrel in the 70s. Gold went from 35 to 800, right? So the dollar lost a lot of value. And that meant every American got poorer in the 1970s. That's the main reason that so many women started working in the 1970s. You know, during the 1960s, if you were a married woman, you didn't have a job, your husband can support you. It didn't even matter what kind of job, blue collar job, he supported his wife. But inflation was so high and people's money lost so much value that in order to pay the bills, the wife had to get a job. It wasn't like, oh, women felt liberated, so they decided to work. They were liberated when they didn't have to work. They were forced to work because their husbands couldn't support them anymore because of the inflation. But the dollar did stabilize in the 80s, you know, with the very high interest rates under, under Volcker rates went to 20%. You know, and Reagan came in and you know, we kind of like kind of saved the dollar, got a reprieve. But now I think the de dollaration is going to be complete because the other thing that happened to support the dollar was the petrodollar. So what happened is we went off the gold standard, so there was no longer any gold. We made A deal with Saudi Arabia, right, to price oil at dollars. Say hey, you know, we'll defend you, we'll defend your regime and we'll, you know, we'll keep your enemies at bay. You just price your oil in our currency. So now all of a sudden we did create a use for the dollar because you, if you wanted oil, which everybody wanted, you needed dollars to pay for it. So that also really helps support the dollar. But the petrodollar now, unless you're blind, is on its way out. A lot of these countries are trying to figure out how to bilaterally deal oil in currencies other than the US dollar. And so when the world moves away from the dollar totally, then the collapse is going to continue. It started in 1970, it's going to continue. We're going to see a huge erosion of purchasing power, but it's going to be even worse. The economy today, the US economy is in much worse shape than it was in 1970. I mean, we were a creditor nation in 1970. Even in 1980, we were still a creditor nation. That meant the world owed us a lot more than we owe the world today. Not only are we the biggest debtor nation, we owe more money than all the other debtor nations in the world combined. Back Even in the mid-1980s, America still had trade surpluses. Our factories were productive enough that we exported more than we imported. Now we have the biggest trade deficits in the world. I mean, and biggest trade deficit error. So the economy is a shadow of what it was. We had much more savings.
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B
Why does debt matter? What's the problem?
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C
Well, because when you're wealthy, I mean, look, if you get into trouble, do you want to have a nest egg to fall back on? We save for a rainy day, right? You don't borrow for a rainy day. Why do you build up a rainy day fund? So you have something to fall back on if you, if times are tough, right? But if you're broke, right? If you have nothing and what are you going to do? I mean we are vulnerable. We're no longer self reliant the way we used to be. I mean the economy is all screwed up. And so I think that the decade ahead is going to be a lot more challenging than was the 1970s. It's going to be a much bigger adjustment. Now obviously women can't start working, they're already working. So it's like we have a spare laborer that can, can pick up the slack like we had back then. So now we have more technology now. That's a positive. And now the whole specter of AI, that could help out. I mean, that could help increase productivity there. I just don't think it's a get out of jail free card that it's going to be like a miracle thing. But I think it's going to help. And a lot of other technologies that we have will help. But the problem is government. Because I'm afraid that instead of getting out of the way, which is what you need, right, we're in a mess. Capitalism is our only way out. The free market, right. We could work our way out of this hole that the government put us in. But if the government reacts to this problem with even more government, more regulation, more spending, there's no way out. I mean, we're just going to be impoverished until there's a violent revolution, which who knows when that's going to be.
- [28:01]
A
When you manage procurement for multiple facilities, every order matters. But when it's for a hospital system, they matter even more. Grainger gets it and knows there's no time for managing multiple suppliers and no room for shipping delays. That's why Grainger offers millions of products in fast, dependable delivery. So you can keep your facility stocked, safe and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Granger for the ones who get it done.
- [28:31]
B
Can you imagine any scenario where government actually gets smaller?
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C
Well, yes, only in a scenario where things get better because it's actually inversely proportionate. Prosperity is inversely proportionate to the size of government. The smaller the government, the more prosperous the society. And the bigger the government, the less prosperous. I mean, you know, all you have to do, look, you know, you compare, you have countries where they split it. East Germany, West Germany, South Korea, North Korea. Right. You know, look at these countries where you take the exact same society and just cut it in half. And you have one that's socialist and one that's more capitalist. Which one has more a higher standard of living? Which, which one does better? Who, who did better? Communist China or Taiwan or Hong Kong? China didn't start doing well until they started adopting free market capitalism.
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B
Yes, but they did it in a government controlled way. I don't want to derail and China,
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C
but I'm talking about if you go back to the 1970s and say, hey, where was it better? In mainland China or Taiwan? Taiwan. It was better in Hong Kong. Why? Because mainland China was run by the communists. It wasn't until really the 1990s that the Communists realized that communism doesn't work right. So they didn't come out and tell the people it didn't work because you still have the Communist Party. But they started changing the nature of the economy to allow entrepreneurship, to allow private ownership of the means of production. That's what made China what it is today. It was as capitalism came into sort
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B
of Xi Jinping looked at Russia and said, okay, what did Russia do wrong? Russia let capitalism break down the control of the government. We're never going to let that happen. And so he, I mean, look, I'm not defending China, but I want to make sure that we're taking a realistic look because remember, my thesis is all about human nature is a thing and if you're not dealing with that, you're going to get blindsided by something. So Xi Jinping said, cool, I saw what Russia did. Mistake, not going to repeat that mistake. And as soon as he realized, oh, these billionaires are getting too uppity, they're getting too much control, giving too much lip back to the government. He kidnaps Jack Ma, takes him into somewhere and like re educates him and then re releases him back into the wild and they're like clamping down. So I'm just saying, like, hey, like they, that was still all communism. It was communism leveraging far smarter tools of an open market and all that stuff. But I would, I don't think communism, the, the authoritarian top down control, that's probably a better word than communism. They never let go of authoritarian top down big government. You can do what I tell you and that's that.
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C
Yeah, I mean, I'm not defending communism. All I'm saying is that as China became more capitalistic, you know, their standard of living went up. But before they did that, before they did that, there was a lot more capitalism in Taiwan or in Hong Kong. You had the same basic, you know, Chinese people there, but they did much better. Their living standards were much higher, 100%.
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B
I want people to hear me. I am a dyed in the wool capitalist. I believe in capitalism. What I'm trying to make sure that we chart a course through here is that you. The question was do, do you see, and I'm talking in an American context, do you really see a path by which Americans start voting for a smaller government? My answer is no. I don't see a way to unwind the direction that we're headed except massive pain and suffering. And once we have enough suffering, then I think that we might rebound and start unwinding. Do you agree with that?
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C
Yes. No, no, I agree until we have a lot of pain and suffering, nothing's going to change. And as long as the government can bail everybody out by printing money, they're going to do it. But if I'm right, and I'm convinced that I am, and we have massive inflation that hopefully doesn't become hyperinflation, but it could, but things are going to be so bad that people may finally have enough of a belly full of government that they just puke it all out and that a message of economic freedom actually works. That you know, some people like me and other people and we have the Internet and we have a way of communicating to let people know, hey, the government did this. The government is not part of the solution. The government is the problem. Right. That's what Ronald Reagan used to say. Right? The government isn't the solution. The government is the problem.
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B
Those are.
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C
And you're not gonna solve your problem.
- [33:07]
B
Those are the consequences. I get it, man. And look, I believe, I believe in all of that. I am totally on that page. But I don't. I. Those are second and third order consequences. And if I'm correct that the masses that, that is a sophisticated idea that you're just never going to get on mass adoption. Now I want to be very clear. I am not a believer in elites get to tell people what to do just to plant that flag. So here I want to walk through after, you know way more about the economy than me. So I'm going to lay out a scenario where I go wrong, point me in the right direction. But this is largely informed by you, Ray Dalio, a handful of other very smart people who I have been following for quite some time and have built my sense of where this all goes. So here is, is, is a layman's understanding of what is a flavor of how this might play out. It's not the only way that the, that this could play out. But here's what I want listeners of this show to prepare themselves for. I live by a maxim that life is a beautiful game, you need to master it. And if you want to do well in this hyper uncertain time that we're about to, I think that you need to understand that it's probably going to look something like this and Peter is going to tell me where I go wrong. Okay? So right now you, you have already done the inflation. The, the person has been shot, they are bleeding out, but somehow they don't recognize yet that they have been shot. So inflation is coming for you now as the Fed tries to manage that inflation by raising Rates, they're, they're probably going to chicken out and so they're going to try to cut or something. But the second they try to cut, inflation is going to rear its ugly head again. And then as inflation starts happening and they realize that they're no longer going to be able to cut rates, you're going to start raising rates as they raise the rates to try to tamp that back down. Then Treasuries are going to take off, bonds are going to tank. You just tweeted about this. In fact, I have a suite. Let me read it. This is from you. We're in what will likely become the worst secular bond bear market in US history. The bear market in the 1970s ended with 10 year treasury yields above 13% and 30 year yields above 15%. With today's 16 year high yields of 4.35% and 4.46%, yields still have a long way to rise. So that makes sense to me. So now if, if we're going to see interest rates going up, people are going to leave the stock market because it's going to be very hard for you to get that kind of yield that you can get in a Treasury bill, which is nice and safe. Just park my money with the government. It's yielding copious amounts of money, if this is correct. And when that happens, they're also going to flee regional banking. Now this is where the scary part starts. As they flee regional banking, regional banks, which are insolvent as far as I can tell because they are not marking to market, which you should probably explain to people in a second. So regional banks then are going to be fucked. And so they're going to start collapsing. The government's going to step in, they're going to print the shit out of money. They're going to inflate it again. And as they inflate the money supply, they're going to have to raise rates again, which is going to pull people out of regional banks even faster. It's going to pull people out of the stock market. So everything consolidates into like four way too big to fail banks. The stock market struggles for God knows how long and now everybody's putting their money into T bills. But that's the government that you're now betting on. And if you're right and de dollarization is happening like crazy because, and I can't remember if you said this exact thing, but right now the BRICS nations are creating a new currency or threatening to, that's backed by gold. And so now your own Thesis comes back to haunt us as Americans. And people like, holy shit, you're inflating this thing to deal with the regional banking collapse. And now we've got, oh, hey, this other sexy thing over here, which is backed by gold. And now. And because I am a believer in a more technical future, I think people are also going to flee into bitcoin. I get it, you're not a bitcoin guy. But I'm just saying, for a techno person like myself and for a lot of younger people, I think that will make sense. Then we'll debate that later. But like, they're, they're going to flee to things that they see as backed by something quote, unquote real. We'll stick with gold for now, not to get into an argument. And that's how the collapse happens. And, and look, no one wants that to not happen more than me, but that's how it fit one flavor of how that could play out. What did I get wrong?
- [37:33]
C
Yeah, well, let me. There's a lot. There's a lot there. But first of all, I think you probably have a better understanding of the problem than a lot of people who have Nobel prizes in economics. So don't sell yourself short because you have common sense, which a lot of professional economists don't have. But also, unfortunately, we actually need a collapse. So it's not like we should say you don't want one. It's like, you know, we don't want it to be as bad as it's going to be. But it's like, you know, in California, those tremors are a good thing because having tremors means you don't have the big one. You got to, you know, there are imbalances that we need to have. Like you need forest fires, because if you don't have some, then eventually you have a really big one. Right. So we have problems in the economy. They have to be unwound. The sooner the better. And so we're going to have to go through some pain if we want gain. I mean, that's just, it's inevitable. But let me go back to the beginning of what you're talking about. So, first of all, yeah, the Fed has been raising rates in an effort supposedly to fight inflation, but it doesn't work because the only way that higher rates impact prices and inflation is if they encourage people to save more and spend less. That's the whole purpose. They have to. The prices are going up because we're buying stuff. And so the Fed is supposed to raise rates to discourage us from spending and causing us to save more. So now the savings, we can have more production. But that hasn't happened. Even though the Fed has raised rates, the savings rate has collapsed and credit card debt is at a record high. Government debts are at a record high. So the Fed's rate hikes have done nothing to impact savings and spending. So they've done nothing to bring down inflation. What they have done is increase costs. Because when prices do go up, I mean, when interest rates go up, everybody who has debt, including all businesses who have debt now have to pay higher interest on that debt. That's the same thing as paying higher wages to your workers, higher rent to your landlord. It's another cost that ultimately gets factored in. So the Fed was artificially suppressing those costs for years and years. And so businesses were able to pass that on to their customers. But now that interest rates are normalizing, they have to raise prices to make up. So it's actually, actually been adding to inflation. The reason that we've had a come down in inflation because of the rate hikes is the rate hikes caused the dollar to go up. Because as the Fed started hiking rates, currency traders bid up the dollar and they expected rates to keep going up. The dollar had a big rally and that brought down oil prices. Oil prices went way down. Other commodity prices went down because the dollar went up. That's what temporarily brought down the cpi. That is all changing. That's stopping. The dollar has topped out and it's headed lower. Commodity prices have bottomed out. They're headed higher. So we're going to lose that benefit. We're going to start to see prices rising again and the rate hikes have done nothing. Because the only way we're going to get to the root cause of inflation is if we cut government spending dramatically. And that's not happening. Government spending is going up. The Fed is going to go back to quantitative easing. They've already showed their hand with these last bank bailouts. And by the way, years and years ago, exactly what happened to these regional banks is exactly what I predicted would happen. Exactly. Like I got the 2008 financial crisis, I nailed this on ahead. I said for years as the Fed held interest rates low, that they were, you know, this was a ticking time bomb for the banks because I said the banks are going to be stuck with all this low yielding debt and when interest rates eventually rise, they're going to go broke. You had all these other analysts that were saying, oh, buy the financials because interest rates are going to go up. And that's going to help the financials. I was like a lone voice saying, no, higher interest rates are going to be the death knell for these financials. Look, people were talking about mortgages, right? Hey, everybody is refinancing their mortgages. Everybody's getting a 3%, 3 1/2% mortgage. Isn't that great? Because now the, you know, the homeowners can pay these low mortgages for the next 30 years. I was the only person out there in the financial community saying, wait a minute, what about the lenders? What about the banks who are going to be stuck with the paper? They're clipping these coupons for 30 years. What happens when interest rates go to 5%, 6%, 7%, and they've already loaned out all their money at 3%? They're all insolvent, which is what they are. Why do you think your bank. Go to your bank, bank of America, Wells Fargo, see what their, what their deposit rates are. See where their CDs are. They're paying nothing. They can't afford to pay you any money because they've already loaned it all out. It's stuck. So they're all insolvent. They're all going to collapse. What's going to happen is the Fed's going to end up bailing them out with inflation. So you're not going to lose your money, but your money is going to lose its value. All this is going to happen. And the situation that you described, the Piper, is going to have to be paid here. But the best thing you could do if you want to try to save yourself financially, but also maybe have a positive impact on the rest of the world, don't go broke. Don't go down with this ship. Get off the ship, right? Get in a lifeboat so that when everybody else is drowning, you can reach in and pull them out, right? So preserve your own wealth. And the way you do that is take your money out of the bank. You know, don't leave it there. You're going to lose it one way or the other. Do something with it. You could buy gold. You can invest it productively outside the US you could buy quality stocks that pay good dividends that will rise with the falling dollar, that will also go up with inflation. Because the businesses, you know, are selling things where they, they have pricing power. You know, in an inflationary period, you want to be in a business where you're selling stuff that people have to buy, not the stuff that they stop buying because they can't afford the stuff they have to Buy. So there are certain types of companies that you want to own, and we own those companies, and they're paying good dividends. And, you know, we manage these portfolios. So, you know, that's the first thing. We can't do anything to stop this. Right. Like, I was powerless to stop the 2008 financial crisis, but I could try to figure out how to profit from it. I can't do anything about this. I've tried my best to warn people. I've been out there. I've testified before Congress twice. I wish I could have gone there more often. But nothing I say matters to these guys because, again, they don't care about the country. They care about themselves. They care about getting reelected. Everything that they would have to do that was right for the country jeopardizes their reelection. The only way they can stay in office is to do what's wrong for the country. So that's their paramount concern, is perpetuating their political careers, not helping the country. So all you can do is save yourself at this point, because we can't. There's not enough of us who are gonna figure this out to have any influence on the next election. But we can protect ourselves. I mean, that's why, you know, at my company, your Pacific Asset Management, I'm doing my best to save as many people as I can get them with the right portfolios that will allow them to come off of this. Like, there were people that made money in the 1970s with all that inflation. Most people lost a ton of money during that decade, But a few people who read the writing on the wall were positioned properly and they cleaned up in the 1970s. I think the same thing is going to happen in this decade. I think I'm extremely well positioned. And I think everybody who's been following my advice. I mean, sure, I mean, I've been giving this advice out for a while, so I've been early, But I know that I'm right. And the fact that we've kicked a can down the road for as long as we have simply means that it's that much more important to be positioned this way, because the bubble has gotten much bigger. So, yes, I had to wait a little bit longer to get paid, but I think it's a bigger payday because the problems that I was worried about a decade ago, none of them have been solved. They're all much worse. And so now the fallout is going to be much greater. And so the losses for the people who don't anticipate this and position themselves properly Those losses are going to be greater. And yes, people need to own. People need to own gold. I mean, I've been operating shift gold for a long time, and, you know, people should take advantage of. Of that and buy gold. It's still about $1,900 an ounce. That may seem like a high price, but I think it's actually very low relative to where it's going to be. And again, it's not gold going up. Gold pretty much stays the same. It's the dollar that's going down. You're going to need more and more dollars to buy that ounce of gold. And so if you want to preserve your purchasing power, you convert your dollars into gold now and then when you need to buy something in five or 10 or 20 years, you'll be able to afford it. If you just keep your money in cash, you may not be.
- [46:18]
B
This stuff is terrifying, and I really wish I didn't have to think about this. It is a level of complexity that I do not enjoy and really want to think about other things. But I think that not focusing here would be a mistake. And I encourage everybody, if you're anything like me, you want to bury your head in the sand. Not a winning strategy. To that point, Michael Burry, who predicted the housing crisis along with you, he's one of the rare voices that was like, hey, this bad thing is coming. He just bet, essentially, is a way to look at it. $1.6 billion, I'll call it, against the stock market. Have you looked closely enough at that to know what. What is he really trying to say with that bet?
- [47:00]
C
Well, look, he may make a lot of money and it's all leverage. So he didn't basically put up 1.6 billion. He put up a much smaller amount, and he's willing to lose it if he's wrong. But he's probably controlling with leverage or options or whatever. I haven't looked at the way he's constructed that position. I know, I thought myself a few weeks ago, even near the highs, about, maybe I should get short the stock market. I've been short the bond market. Not in, not. Not in, not in a big way like that. But if the Fed did the right thing, and if they do the right thing, he's going to clean up on that position. If the Fed does the right thing. The problem is the Fed might cave and do the wrong thing, in which case he'll lose. Right. But I don't know what, you know, what the rest of his bets are, because given where interest rates are and where they have to go. And given what's going to happen to corporate earnings, stocks are so extremely overpriced right now, they have to collapse. The only way they won't is if the dollar goes down instead. Right? So if the Fed is willing to sacrifice the dollar to save the stock market and to bail out the US government, then they might do that, right? The Fed may decide to change its rhetoric and okay, we're done hiking rates, or they might cut rates or go back to QE in an official way and the market's going to rally if that happens. But in real terms, the market's not going to rally because the dollar, I think, will lose more value than the stock market gains. But when you're buying puts or you're doing some of these shorts, it's nominal. That's what matters. So if gold goes from 1900 to 3000 and the stock market goes up 10% in real terms, the stock market got killed. But you're going to lose on your short, right? Because it's all about the nominal price when it comes to a short, not the real price. So for my money, I know that no matter what, the Fed is going to eventually do the wrong thing. But even if they do the right thing in the environment where they do the right thing, the price of gold is still going to go up. I just don't really see any scenario where it goes down and I don't really see any scenario where the dollar goes down, goes up. I mean, it could go up in the short run, but in the long run it has to go down. I mean, there's no way this thing is going to shake out where the dollar has more value and not less value. So I think my portfolios, I think are more likely to, to do well. And then just being short, I mean, you could make money short, but you could end up losing money in the long run, depending on what happens with inflation. But I think that for most people, being long, the underpriced assets that will benefit from these events as they play out is probably a better way to play it than to just make a short term speculative bet on the direction of the stock market where you could end up being wrong and losing everything. If you work in university maintenance, Grainger
- [50:02]
B
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- [50:08]
C
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B
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C
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- [50:25]
B
by Grainger for the ones who get it done. Now, do you think that that's true? Because getting the timing right is the hardest of all the bets?
- [50:37]
C
Yeah, I mean, look, it's very hard to get the timing right. But look, you know, I think the market looks weak. I mean, I mean, if I had to place a bet on where I thought the market was going to go, I would bet it's going lower. So, you know, Barry's made that bet and you know, I'm not sure exactly when he put on the trade. I mean, how early was he, I mean, did he get it on right at the top or was it a few months ago and you know, is he kind of break it even now?
- [51:05]
B
It was reported on the 8th, I think of August.
- [51:10]
C
If that's when he put it on, then he's in good, he's in, he should be in pretty good shape on that trade right now because I think the market topped out about four weeks ago and you know, we're still, you know, very close to the highs. And so there's a lot of, there's a lot of air to come out of this, especially in the nasdaq, especially in a lot of these tech stocks that have had really big rallies. But again, it's hard to know what the government's going to do and when they're going to do it to try to put a band aid on this because they could change policy. The Fed could just reverse if they start to see the markets really coming under pressure, if they see some blow ups in the banks again in the money markets. Because, you know, this, this commercial real estate problem, which I also warned about years and years ago, is playing out the way I warned. I mean, commercial real estate prices are already down in many parts of the nation by 50% or more.
- [52:10]
B
How did you see that coming without Covid?
- [52:14]
C
Hmm.
- [52:14]
B
Was, were you predicting that before COVID
- [52:17]
C
Well, because I knew that interest rates would eventually go up because real estate prices are a function of interest rates, especially income producing commercial property. They kind of trade like a bond. And so when interest rates are really low, you have, it affects the cap rates on commercial real estate. So people were willing to overpay for real estate in an environment of 0% inflate of interest rates. I knew eventually rates would go up and then commercial prices would have to go down just like I knew bonds would come down. And so that's going to put problems and I also could see what was happening with the Internet and more and more people, you know, buying online. And so there wasn't as much need for all this retail space. People weren't, you know, going to the stores, they were just clicking, you know, a mouse or on their smartphone. But with COVID it accelerated it. Yeah, I didn't see that aspect coming of it. I already knew that it was going to be bad. Just Covid made it that much worse. You know, it just took a bad situation and, you know, made it an even more horrific situation. But as you know, real estate owners are losing a lot of money on their commercial real estate. A lot of those losses are with the lenders because if the real estate is not worth the loan, then the owner just walks away and the bank is stuck with the collateral that isn't worth what they loaned. And now they have huge losses that they have to deal with on their books and with all this supply on the market. In fact, I was particularly warning about what was going on with WeWork back in the day when WeWork was like buying up all this office space and committing itself to long term leases and then renting out short term. I was predicting the demise of WeWork long before it demised. It collapsed. But I also was saying that how it's going to impact the property market when all their property comes up for lease or comes up for sale. So this commercial real estate problem is a banking problem. And the banking problem means it's an inflation problem because how do you bail out the banks? You have to print more money. And so all this is happening, but you know, the residential market is also completely dysfunctional disaster. What's happening in residential markets? And I predicted this years ago. I mean, if you listen to my podcast, I mean, I talked about all this stuff years ago. I mean, it wasn't like I'm reacting to it after it happens. I warned about it years before it happened. So I predicted that a big problem in the real estate market and apart apart from all these banks that were going to be underwater, that were stuck with these loans. But I said that Americans who have mortgages are going to be stuck in their homes because they're not going to be able to sell because the mortgage isn't assumable. So let's say I have a 3 1/2% mortgage and now mortgage rates are 7 and a half, 8% and they're headed higher. I can't, I can't move, I can't sell my house because then I'd have to take On a new mortgage. Most Americans, if you're a homeowner, your most valuable asset is your mortgage, right? Because you have the right to keep paying that mortgage for the next 20, 25 years, 30, however many years you got, the bank is losing a fortune on that mortgage. You're making a fortune. So people are going to stay in homes. Even if they'd rather have a bigger home or a different home, they're stuck where they are now. Maybe they could rent it out, you know, and keep the mortgage. But a lot of the housing stock is off the market now because nobody is going to get rid of it because that's tied to their mortgage. And in many cases, rents are rising so fast that paying your mortgage is cheaper than paying rent. If you've got one of these, you know, they had. The low was two and five eighths. I think there are people that got mortgages below 3%, you know, during like, Covid days. So those people are never selling. They're. They're there, right? They're, you know, if they die, their kids will keep the place. They have to keep that mortgage. So you don't have this housing stock. Meanwhile, landlords know that those houses aren't coming up for sale. They got a captive audience. Their tenants can't afford to buy anymore because the rates are so high, so they can jack up the rent. I mean, eventually home prices have to collapse. What's keeping that from happening is an absence of supply. But at some point, you know, people are going to die. You know, people get divorced. I mean, there's going to be circumstances. People lose their jobs, and even though they have a low mortgage, they can't even afford to pay that, right? So there's going to be housing that's going to come on the market, and then the price is going to implode because nobody can afford to buy the houses at these high mortgage rates. I mean, the reason for real estate prices went up so much is because the mortgage rates went down so much because people didn't buy price, they bought the monthly payment. That's what was the deciding factor on what they can pay. And the monthly payment was determined by the rates. Now also the absence of a down payment. So down payments went from 20% down to zero. I mean, they've come back up a little bit. I think the average down payment now is more like 5 or 6%, but that's like nothing because it costs 5% to sell your house. You got to pay the real estate agent the commission. But the absence of lending standards and a Lot of that was because of government guarantees and Fannie and Freddie and all this stuff. I mean, people were encouraged to overpay for homes that they really shouldn't have bought. And I think it's important that people put up a down payment when they buy a home. They need to have some skin in the game. They need to demonstrate the ability to save money. Because as a homeowner, I know that real estate is very expensive. You own a house, things go wrong. They're like money pits. They cost a lot of money. If you're a renter, that's your landlord's problem. You just pay your set rent. You don't have to worry about any, you know, unanticipated major expenses. Americans don't have money for unanticipated major expenses. So the banks did a good job when they required 20% down, you know, to making sure that people didn't buy houses unless they were responsible enough to take on the liability. But the government incentivized everybody to buy houses and overpay and you get tax breaks and government guarantees and, you know, so the government caused people to buy houses that shouldn't have bought them. But the point I'm making now is that eventually real estate prices are going to fall. They have to, if rates stay up. And now, and now, and now there's defaults now, you know, and now the banks are going to lose money on their residential real estate loans in addition to they're commercial. And I think you're going to see a wave of defaults in credit card debt. I mean, right now, credit card debt is at a record high. Interest rates on credit card debt are at a record high. It's over 20%. If you've got a balance on your credit card and you're paying over 20% interest and you have record balance, there's going to be waves of defaults in credit card debt. In fact, I think what people are doing now who have credit card debt before they default, they're just running up as much debt as they can. Because if you know that you're going to default and go bankrupt, you might as well go out with a bang, right? The more money you can borrow while you can, the better. Buy as much stuff as you can on credit and then default. So I think we're going to see a wave of default in credit cards. And what does that mean? That means the banks are going to lose because they, they're not going to get that money back. They're going to have to write off all those Losses. So it's just more money printing. I mean, this financial crisis that we're headed for is worse than the one we had in 2008. It's going to make 2008 look like a Sunday school picnic, which is why I think we're going to have a dollar crisis instead. The Fed is not going to sit back and let all this happen. They're going to think they can make it all go away with massive quantitative easing, more money printed. Because, hey, it worked before, it worked in 2001. You know, it worked in 2008, it worked during COVID So we'll just do it again. Well, you know what? It's not going to work this time. It's like, you know, you can only take so much of a drug until you die of an overdose. And every time we did more of this monetary heroin, we had to up the dosage because we kept upping the problem. But it's so big right now that if the Fed tries to drug us up again, the amount of monetary heroin that would be required would kill us. And that's kill the dollar. Right. And everything is going to come bobbling down.
- [60:30]
B
Well, that is certainly optimistic. That all hits a little too close to home. It feels very real. That was the thing that you were saying there about people defaulting on their credit card. That's something that we hadn't really gotten into, which is, you know, rising interest rates. Seems, from my perspective, seems good because I can, you know, take my money out of the stock market or whatever and put it into T bills. And if T bills are kicking off 15% like I'm laughing, like, that would be amazing. Except for when you look across the entire economy, people have so much debt, the government has so much debt that when you try to service something with a raising interest rate, it gets gnarly really fast.
- [61:09]
C
Think about this. So we have a $32.7 trillion national debt, which is rising by trillions of dollars a year as of today. Interest on the national debt is now the third biggest line item in the budget. So number one is Medicare, then Social Security, then interest on the debt, then national defense. We're actually spending more to pay interest on the money we borrowed than we're spending on defense. And of course, I think we're spending too much on defense. I think we should spend less, but we're spending more on interest. But here is the real problem. That number keeps growing. A couple of years ago, interest on the national debt was 300 billion a year. Now it's over 700 billion. By the end of the year, it'll be a trillion. By the end of next year, it'll be 2 trillion.
- [61:57]
B
What?
- [61:59]
C
In three or four years, the US government will be paying more in interest on the national debt than it collects in taxes. So, I mean, this is impossible. Now, the only way around that is if possible. Well, because the only way around that is if the Fed slashes interest rates. But what if they can't? What if they have to keep rates where they are? The government must default. There is no way that it can afford to make these payments because the Fed would have to print so much money to monetize that debt that it would create so much inflation that it would push interest rates even higher. Because the more inflation there is, the less private sector demand there is for government debt. But the more money the Fed prints to prevent interest rates from rising, the more inflation they create and the less attractive the government debt becomes. And now the Fed is the only buyer of Treasuries. But now it's not just Treasuries. What about municipal debt? What about all these municipalities and states that loaded up on debt? What's going to happen when it matures and they have to roll it over at much higher rates? What about all these corporations that borrowed a bunch of money to buy back their own stock? What's going to happen when that debt matures and now they have to try to refinance it and the rates have tripled or quadrupled for them? Everybody is going to collapse. Look, the problem is we need higher interest rates. Higher interest rates is what is part of the cure, but it's also what's going to kill the current economy. You can't get rates from where they are now to where they need to be without a collapse. It's like you can't make an omelet without breaking eggs. Well, we're going to break a hell of a lot of eggs because of how much debt we have. Why do we have so much debt? Because we had 20 years of artificially low interest rates, of punishing people who saved and rewarding people who borrowed. And so the whole economy screwed up. We, we can't unscramble this egg. You know it's going to be bad. But I think that because it's going to be so bad, the Fed is going to choose what it perceives to be the lesser of the two evils. It will choose inflation over collapse. Depression, financial crisis, bankruptcy. That's why I'm convinced that my portfolios are the correct approach. Just be in Real assets, be out of the dollar, be in precious metals, be prepared to avoid the inflation tax, because that's the tax that's going to clobber everybody.
- [64:25]
B
What time period is this all going to play out over?
- [64:29]
C
Well, I mean, look, I mean, I've sounded the alarm in the past. I thought that the problem was more imminent in 2008 and nine, and they pulled a few rabbits out of the hat. I mean, we really bought a lot of time. When I was warning about the financial Crisis back in 2002 and three, my first book, how to Profit from the Coming Economic Collapse, came out in February of 07. And so when I was writing that book, in fact, that book was initially going to be something like the American Nightmare. It was going to be about real estate and why real estate was going to crash and all that. But I didn't think that that book had brought enough appeal, so I made a more, you know, a broader book about the economy in general and real estate was, you know, a part of it. There was a chapter on the real estate bubble and how the government inflated it. But back then I thought that if we did what I thought we were going to do, which we ended up doing, I predicted quantitative easing before they even came up with a word, right? I knew what they were going to do. I just didn't know what they were going to call it until they did it. But I wouldn't have thought back then, and I didn't think back then that we would be here in 2023 and they would have been able to run up the debt to 32 trillion and they would have been able to keep interest rates as low as they did for as long as they did. So that already surprised me. But because they succeeded in doing that, they just made the problems that I was worried about back then so much worse. And so now I think, you know, we're pretty much run out of time. I mean, we're literally living on borrowed time. So, I mean, any day, I mean, I just think any day you go to sleep, you could wake up and it could be a whole new world. And that's why, you know, you got to be prepared. I mean, I, you know, I know that I'm not going to wake up to that disaster financially. I mean, it could be bad just as an American, but as an investor, I think I'm prepared. And I think our fate will likely be sealed in the foreign markets. It's going to be our creditors. During the debt ceiling debate, right? We keep saying we got to raise the debt Ceiling. We have to raise the debt ceiling so we can keep borrowing. And if we can't keep borrowing, we're going to default. Which is an admission that we're running a Ponzi scheme. You know, I used to joke, you know, in fact, there's a. You can see my standup routine on YouTube if you Google, you know, if you YouTube Peter Schiff stand up. But I used to. I used to tell this joke. I used to get a lot of laughs. But, you know, back in the Bernie Madoff days, when, when Bernie Madoff, you know, when they were first talking to him, the New York Times, you know, was. Did an article, and Bernie Madoff said, look, you know, the US Government's running the biggest Ponzi scheme ever. I mean, I'm. I'm a piker compared to the government, right? And so people would say, well, who cares what Bernie Madoff says, right? He doesn't have any credibility. He's a criminal. And what I used to say back then was, well, he's got credibility in one area, and that's Ponzi schemes, Right? He knows one when he sees one. And if Bernie Madoff says the US Government is running a Ponzi scheme, he ought to know. And then I used to joke, and I said, you know, instead of putting him in jail, we should make him Secretary of the treasury because he would do a much better job of running the scheme. Because I pointed out that you had secretaries of the treasury like current Janet Yellen. She comes out and says, hey, if we don't raise the debt ceiling, we're going to default. That's an admission it's a Ponzi scheme. Janet Yellen didn't say, if we don't raise the debt ceiling, we're going to raise taxes so we can pay our bills. We're going to cut Social Security so we can pay our bills. No, if we don't raise the debt ceiling, we're going to. Going to stop paying our bills. Right? That's why I would get a laugh. They say we have to raise the debt ceiling so we pay our bills. Or so America always pays its bills. No, we need to raise the debt ceiling to continue not paying our bills. The reason we have a stack of $32 trillion of unpaid bills is because we don't pay them, we go deeper into debt. And so I used to joke, and I said, you know, it's Ponzi 101. When you're running a Ponzi scheme, you keep it quiet. You don't tell the people that you're running a Ponzi scheme. So at least we could have bluffed and pretended that no matter what, we're going to pay. No, we told everybody that the only way America is going to pay its bills is if we can find some other sucker who will lend us the money. But at the minute, we run out of suckers and we can't borrow. Well, you're sol. That's basically what they admitted. So, yeah, I mean, it's a gigantic Ponzi scheme. And I think the Fed is going to try to prevent the government from defaulting by buying those bonds and printing the money. And that means the default takes the form of depreciation of the currency because the debt is unpayable. The one thing that you know for sure is the government's not going to pay its bills. It's not going to pay the debt. The only question is, how does it default? Does it do it honestly by just not paying or dishonestly through inflation? Personally, not paying default would be much better. I mean, I would like to see a complete restructuring of the government where the government cuts a lot of spending, including the debt. I think we should basically try to negotiate or, you know, maybe $0.50 on the dollar, $0.25 on the dollar. You know, it's better to repay our creditors less money than pay them in full with inflated money where they end up with even bigger losses. But unfortunately, that's the path we're gonna go down. Because from a political perspective, nobody wants to do the truth now. They just want to kick the can down the road. I mean, you don't want to defuse the bomb before it blows off. You want to let it, you know, before it blows up. You want to let the bomb explode and then point the fingers and blame it on somebody else and say that there's nothing we could have done. No, nobody could have predicted this.
- [70:18]
B
Peter, what would your advice be to the youth of the nation? They're going to inherit this mess. They are, though, part of the human nature that makes this problem. Do we need an era of austerity? Is it just what you're saying? Restructure, slash. I've. I heard you give a talk where you were like, there's whatever, 15 governmental units keep five kill 10. Those aren't the exact numbers, but that was the spirit.
- [70:46]
C
Yeah.
- [70:46]
B
What. What is your letter to. To the youth of the nation?
- [70:50]
C
Well, I think the youth are actually in better shape than, let's say, my generation. I'm at the tail end of the baby boom. I'm 60. But if I'm right that inflation is how this ends, it's a lot of older people who are going to get wiped out. If you're young, chances are you don't have a lot of savings. In fact, you probably have no savings whatsoever. And so inflation is not going to affect you in that way. And you're still out there working, you can demand a raise, right? You can earn more money to cover the fact that costs have gone up. But if you're older, if you're retired, if you're living off investments, you get decimated. A lot of people say, oh, we're leaving all this debt to our grandkids. The grandkids don't have to pay it. I mean, they can leave. I mean, in theory, we'd have to raise taxes massively on the younger generation to pay off the debts of their parents and grandparents. But what if they just leave? You know, when I ran for Senate, I did that, you know, once in 2010, and obviously I didn't get elected. You know, saying the type of stuff I say, right, it's difficult. But I ran one time in 2010, but people used to ask me, you know, where do you stand on a wall, on building a wall, you know, between Mexico and the United States? And I was always against the wall. And the main reason I was against it is I said, you know, if we build that wall and it works both ways, right, it's not just that it keeps Mexicans out, but it can be used to keep the Americans in. That's what scares me, because what if we have to raise taxes so much on the young generation to make the Social Security payments and the Medicare payments and all that that they want to leave, that they just say, screw this, I'm not paying 50, 60, 70% income tax. I'm going. I'm going to Mexico. I'm going someplace else. You know, I mean, that's what happens with countries when people want to leave because the governments are too big, they make it illegal to leave. You know, in order to renounce your citizenship, there was a form that you had to fill out, and that form was free. Then they raised the price of the form to like 500 bucks. Now it's $5,000. You have to pay $5,000 if you want to give up your citizenship. Now, why is the government making it more expensive to give up your citizens? Because more people want to do it. Well, what if they increase the price to a million dollars? Well, I mean, they could. I mean, they could. I mean, they're forcing people to stay that, you know, obviously there's a reason for that and because they can keep on taxing you. Right? Because if you're a U.S. citizen and you live someplace else and work and earn money, you still owe taxes to America. You know, that's not the case with just about everybody else in the world. Right? We talked about the UK I mean, if you're British, your British passport, and you go to, let's say, Dubai and you live and work in Dubai, they have no income tax in Dubai. You don't pay any taxes back to Britain. You live in Dubai, you're still a British citizen. Right? You can go, you know, but you don't pay any taxes to the UK Government if you're not in the uk. But if you're an American citizen and you go to Dubai and you work right next to that British guy and you have, like, work for the same company, you know, you're doing the same job, you're paying taxes to America even though you're not in America. Right? So America is unique in that we tax your income no matter where you are in the world earning it. But, yeah, I mean, it's going to be difficult to keep the young people. I mean, they, you know, obviously it's harder for the IRS to get you if you're in another country and you never come back. But I think that the younger people are going to ultimately get off the hook from the debt because we're going to inflate it away. But if we don't do that, if we try to tax them, they're just going to leave, you know, and even if we build walls, you know, they'll get under them, they'll get over them. I mean, it's, you know, it's a big country. We got two oceans. You know, if they, if they try to force the young people to stay, it ain't going to be easy. But, you know, that's one of the reasons that I oppose, you know, the government getting more power over us, to snoop on us and know everything we're doing. Because if people are ever at the point where they want to flee the country, I want them to be able to do it. I don't want the government to be able to stop them. I don't want the US Government to be able to force people to stay here if they want to leave. I want people to be free to go, you know, and in fact, if the government knows that people will leave, then that's going to keep them more honest, right? If they know that they people can escape the taxes by leaving that, then that's an incentive not to raise them up too high. If they think that they've got the border sealed and everybody is captive, well, then they can, they can tax even more.
- [75:25]
B
Peter, that is a sobering answer to the youth of America. You can still escape, boys and girls, don't worry.
- [75:35]
C
But, but it's not just that. It's that, it's that, you know, they don't have a lifetime of savings that's going to get destroyed by inflation. And I don't think they're going to get stuck with the debt again. The debt's going to be inflated away. And so it's almost like a debt jubilee. We're kind of going to start over. But when the debt gets inflated away, one person's debt is somebody else's asset, right? If somebody owes money, they owe it to somebody else. So somebody is a debtor and somebody is a creditor. So when inflation wipes out debt, it wipes out the creditor as well. Now, who is the biggest debtor on the planet Earth? The US Government. In fact, we might be the biggest debtor in the universe. I mean, I think if we can find life on another planet. I doubt there's a government on that planet that has as much debt as the United States. I think, you know, I mean, maybe I'm wrong, but I doubt it. But so, but the US Government is the biggest debtor, and so the US Government actually has the most to gain from inflation. That's why it creates it, right? That's that the government wants inflation. They just don't want us to realize that they're creating it and they don't want it to get out of hand. But it will get out of hand, right? It's like, you know, you, you know, it's like you let loose the monster, right? It's like the government is, you know, Dr. Frankenstein and they think they can control the monster, but the monster is, is going to, is going to end up beyond their control.
- [76:56]
B
Peter, this has been an incredible conversation. Thank you for taking the time. Where can people follow you?
- [77:03]
C
Well, I'm doing a lot of social media. I do my own podcast. I'm going to do one live tonight, as a matter of fact. So got to rest up my voice because I'm going to do a podcast after the Republican debate on Fox tonight. So at 10 o', clock, I'm going to go live on my website. It's on YouTube, it's Peter Schiff show and it's called the Shift Report. And, you know, my YouTube channel got about 500 and I don't know, 60,000 or so subscribers. So small, you know, compared to what you guys are doing. But I hope it grows. And I'm trying to, you know, get the word out there on freedom and liberty and economics and all that. I do a lot of tweeting. You know, you mentioned, you know, one of my tweets. I do all that myself. I mean, I don't have somebody else that does it for me. I've got almost a million followers now. There's a lot of engagement on my site. I noticed that compared to other Twitter sites that even have a lot more followers, have a lot less engagement. So there's a lot of discussion going on on my Twitter. So people should, you know, take part in that and follow me there. But I'm on, you know, the other ones, Instagram, Facebook, TikTok. I mean, I'm. I have a presence everywhere, but you should try to follow me wherever I'm active and try to encourage other people to do that. And, you know, if you're somebody who has the wealth, right, if you've got savings, if you've got a portfolio that is at risk right now from inflation and overpriced US Stocks and bonds, you really should do something. And I can help you through my asset management company at Euro Pacific Asset Management. You know, the website is zeropac.com and you can go on there and you can call us up or, you know, exchange emails and talk with an advisor about how we can help you. I have five mutual funds that I actually own and operate. They're available, no load, on all of the major discount brokerage platforms. So you can kind of do it yourself at Schwab Fidelity, E. Trade, TD Interactive Brokers. I mean, you can get my funds a lot of other places and I'll manage them for you. Have a gold fund that invests in gold stocks, emerging market fund, a foreign dividend payers fund, a foreign value fund, international bond fund. So all this stuff is foreign assets that I think will help get you out of harm's way. I mentioned Gold Shift Gold is the company where I sell gold and silver. I strongly recommend that if you don't have any, you buy some. Not as an investment, but as savings, as insurance. You don't put your whole portfolio in there, but 5, 10%, maybe a little more, depending on your circumstances. Everybody should have some. It's, it's, you know. But more of your money, I think should be invested in growing companies. That pay dividends. It's just that the us, they're too expensive. And I think there's a huge economic financial crisis that's going to devalue all US financial assets. So I'd rather invest abroad. Just like people made a lot more money during the 1970s in the Japanese stock market or in the German stock market than they did in the US Think the same thing's going to happen this decade, only I think the discrepancy is going to be even greater. So I think the outperformance of the foreign markets will be even greater than it was during then, especially when you look at where we're starting from, because the US market has never been so expensive in relation to those foreign markets as it is right now. And in fact, developed markets have really never been this expensive relative to emerging markets. So I think the emerging markets actually have the most potential when it comes to the equity investments. So if you're, you know, you've got portfolios or money, you should contact me or if you're young. But your father, you know, or your uncle or your boss or somebody that, you know, you know, has the means and they need to protect themselves and they should, they should, they should give me a call as well so we can do something. And it's not just. Again, I say not just so I can protect you. I think that the country is going to go through a big problem. And as an American, I'm hoping that we can come out of this in a good way. And so the more Americans that don't go broke, the more Americans that preserve their wealth by getting it abroad, by owning gold, the better off we're all going to be collectively, because that means there'll be more people who can supply the capital that we need to rebuild, to re. Industrialize, to rehire. You know, if you go wipe, if you get wiped out and you're broke, what can you do? You don't have the means to help anybody. So preserve your wealth and then you can help a lot of people as you redeploy that wealth here, right? All the money that we send abroad we can bring home after the crisis. In the aftermath of the crisis, we can repatriate all that money and help rebuild what's going to collapse in a better way, in a stronger way, get a viable economy again, not one gigantic bubble.
- [82:02]
B
Well said. All right, everybody, if you haven't already, be sure to subscribe. And until next time, my friends, be legendary. Take care.
- [82:10]
C
Peace.