← Tom Bilyeu's Impact Theory
Tom Bilyeu's Impact Theory
The Fed Just Changed How They Measure Inflation — Right Before The Election. Not A Coincidence
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The US government owes $39 trillion. There's no plan to pay it back. Instead, they plan to steal it all from you. I mean that literally. The debt hit $39.28 trillion last week, and that works out to about $115,000 for every single person in the country. It grows by roughly $9 billion a day, and it will cross $40 trillion around September this year. The government will spend more than a trillion dollars just on the interest. And at the current elevated interest rates, if we don't do something beginning immediately, the roughly $10 trillion that we have to refinance this year will eat the country alive. The interest alone is. Is already more than we spend on the entire US Military. Inflation is already running hot, but we can't cut rates, at least not yet, for reasons that I'm going to explain. So what do we do? Given that the mess in Iran just made the AI growth strategy that much more improbable, what is likely to be the strategy? Well, last month, Kevin Warsh became the new Chairman of the Federal Reserve. I want Kevin to be totally independent. No, he doesn't. He threatened to fire sue and or indict the last Fed chair because he needs someone with a plan to get America out of the mess we've been making since 1913. And my belief is that Wash and Trump have that plan together. It's a wealth pump built to siphon the debt repayment out of your pocket without you being able to track the missing dollars and. And they know exactly how to turn the pump on and hide it from you. In this video, we're going to go through their plans step by step and then talk about how you avoid falling out of a financial window like a Russian general who just upset Putin. That's a real clip, by the way, and let it serve as your reminder to stay through the end. We've got three parts. They all matter, especially the end, where I'm going to show you how. How to make sure you end up on the right side of this wealth pump. Don't skip around this time. Welcome to Part one There are only two ways Out In January, the President's Justice Department opened a criminal investigation into the sitting chairman of the Federal Reserve, Jerome Powell. Why? Because the Fed's renovation of their headquarters ran roughly $600 million over budget. The Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Sen. Banking Committee last June. What's wild is that the same president whose DOJ criminally investigated Powell over renovation overruns is currently running over budget on the White House Ballroom by $400 million. Trump didn't go after Powell because of the overrun. He went after Powell because he wanted him on the same page as Trump. He wanted him to run the playbook that Wash is now going to run. So if you're Wash, there's no way that you took this job unless you think you're already rowing in the same direction as the president. So the question becomes, what direction is that? Let's look at the options. The government owes $39 trillion with 9.7 trillion of it coming due this year. You strip away the noise and there are only two ways out of this mess that are politically viable in a populist moment. One, you grow your way out, or two, you inflate your way out. There's no secret menu. Ray Dalio has been telling people for years to do what he calls a beautiful deleveraging. But that is politically untenable right now. So whatever Warsh is going to do, it's going to be aiming at one of the two paths that I just mentioned. Growth is what everyone wants, of course, but. But it becomes less likely with each passing day. Warsh and Trump are both looking at AI like a baby looks at boobs. The logic goes something like this. Artificial intelligence makes workers and companies far more productive. More gets produced with the same number of people. And when you produce more for less, prices will fall on their own. And if prices are falling because of productivity, the Fed can cut interest rates without without kicking off inflation. The debt then shrinks against a bigger, faster growing economy. That's what everyone wants. Warsh has said that his whole plan in coming into the Fed hinges on AI being deflationary. And I think a big part of why Trump went ass over tea kettle into Iran was because he wanted to secure those $2 trillion in Gulf AI infrastructure investment promises while simultaneously trying to slow China down to deny them cheap oil and win the AI race. That's the growth strategy. If it worked, it would be awesome. But now that Iran has blown up and AI revenue is coming in much, much slower than AI, infrastructure costs are absolutely exploding. I think the growth strategy becomes more of a long term hopeful play and is far less likely to help right now when it's needed. If you want my full thoughts on how AI is going to play out, make sure you watch this video here. As for why Iran matters, Iran is the blade that cuts twice in this moment. First, the closing of the Strait of Hormuz has pushed oil prices up higher already. And if the extraordinarily fragile on again, off again ceasefire ultimately falls apart, those higher energy costs will act exactly like inflation, driving the price of almost everything up. That's why Trump is so desperate to end the Iran war. At least one of the reasons not only does he not want people to die, if he can't get the straight open, he risks setting off a global recession that will make it nigh impossible to get out from under the crushing $40 trillion in debt without catastrophic economic consequences. Now, if he can bring the conflict in Iran to an end and quickly, and then oil prices come back down, inflation will likely slow or even also come back down. And with lower inflation, at least then the Fed can credibly cut rates without giving the game away that Trump and Warsh are on the same page. So as of now, the war is the single biggest thing standing between Trump's administration and the cheap money it needs to refinance the debt and buy themselves enough time to slowly debase the currency. The second cut that the war in Iran delivers is that now that the region has suffered so much infrastructure damage and is less secure than it was six months ago, the odds that the GCC nations who promised the $2 trillion will be as quick to actually invest in the US have dropp dramatically. They'll likely need to preserve their capital for repairs and defense spending. So if the goal is growth, but the growth is coming slowly while the debt is compounding fast, what do you actually do? Where can Warsh and Trump actually row the boat that's advantageous to America. You could simply default on the debt, that would be honest, but they're never going to do that. It is way too politically destructive and it's quite honestly absolutely horrible for America's future. You could also cut budgets and run a Malay, Argentinian style playbook here in America. But that's also political suicide because nobody wants less free stuff. So if growth is shaky and you can't cut, that leaves you with one option you steal via inflation. There's a twist. Warsh knows he needs to lower rates, but if he lowers them now, he knows he looks like a puppet and he knows that he and Trump will get torn to shreds. It will be way too obvious that the Fed is no longer independent. So he has to hold steady for now. To buy time, the committee decided to maintain the target range for the Fed funds rate at three and a half to three and three quarters percent. And with a little extra time on his side, he prays, he prays, that Trump can get a favorable deal done in Iran, because if the price of oil really does come down, then inflation will come down. And then as the inflation is dropping, he can cut that. Not because Trump is pressuring him to, though he is, but because the market conditions are perfect for it. So if Trump seems in a rush, almost irrationally so, to get a deal done in Iran now, you know one of the key reasons it is a pillar of the strategy to deal with our debt. Being able to cut rates is also a key part of Warsh and Trump's strategy for inflating the debt away, but without getting caught red handed. Because if they do it in an obvious way, the pitchforks will come out. So they have to row the boat in a very specific direction. That gives them a very strong cover story for why they're cutting rates. They have to bury the quantitative easing deep enough that it can't be seen and where you filthy plebs can't stop them from doing it without changing the whole banking system. But how on earth are they going to do that? Welcome to part two. Control what you show them, to control what they see. Warsh wants to change things up, or so he says. He wants to modernize how we measure inflation, but his preferred inflation gauge just happens to read 2.3%, while the Fed's traditional way of measuring inflation reads over 3%. But I would like to remind everyone where you place the ruler may change the length of your penis on paper, but it does not change anything. In the bedroom. And that's why Goldhart's law is so important to understand. It states that when a measure becomes a target, it ceases to be a good measure. This is extremely true on inflation. Why? Because the Fed has a target inflation rate and they will change the measurement in any way possible to ensure that they get the result that they want. Especially if the Washington Trump admin are aligned on their long term goal and are truly rowing in the same direction towards devaluing the dollar as a method of reducing the debt. To be clear, data manipulation is nothing new to the Fed under Warsh. The Fed has been doing it for years regardless of who's in control. But during his confirmation hearing, Wash signaled very clearly that he prefers a trimmed mean method of measuring inflation. And during his first FOMC meeting he indicated that he would be convening different task forces to assess how the Fed operates. And wouldn't you know it, one of those task forces will be focused on how inflation itself is measured and another one is going to be focused on how the data itself is collected. Leaning towards something that is closer to real time than what we have now. Now listen, he's not wrong to want a real time picture of inflation and to use modern technology like AI to get it. But he is out of his mind to use a trimmed mean PCE that will frequently pull the cost of energy out of the equation. That's insane. Energy is so foundational. Now look, it is entirely possible that Warsh has only good intentions and is really just trying to modernize the Fed. But it is also possible that this is all part of a larger strategy to manage the debt. Taking a short break, but there's more impact theory after Stay tuned. I want to talk about Summer heat is unforgiving and it exposes exactly how bad most clothing actually is. Cheap synthetic fiber does not breathe. It traps that heat against your skin, makes you sweat more and then you spend the whole day uncomfortable. Meanwhile, quality natural fabrics, real linen, real cotton actually help regulate your body temperature. You stay cooler because the material is helping do the job. 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That's T R u e M-E-D.com/True Med is for qualified customers. HSA, FSA, tax savings are going to vary all right, thanks for sticking with us. Let's jump right back in. The Brookings Institute has already warned that switching to a new metric after inflation has been above target four years could look like moving the goalposts, which of course it is. And that trim mean measure can exclude much of the impact of tariffs and energy shocks, two of Trump's specialties. The very things that if you take out at this moment in time, you're literally just trying to manipulate the number. In my opinion, given the absolutely catastrophic nature of the looming debt, it is impossible for us to analyze this situation honestly without acknowledging that even if Warsh's pursuit of a new data and measurement paradigm isn't specifically designed to paint an artificially rosier picture of inflation, it will still likely do exactly what that the trim mean method that he prefers already shows lower inflation right now, today, as of the latest reading, TRIM mean PCE was running about 2.3% while core PCE was at 3%, despite headlines CPI being at a shocking 4.2%, more than double the target inflation rate. The trimmed gauges are at or very near multi year low lows. And I just cannot imagine why Warsh would prefer to use the TRMM mean PCE given that. And what's really wild is that even the Dallas Fed, which is the organization that builds the trim mean report, warned specifically that the trim means currently lower reading may not be strong evidence of disinflation coming ahead. So the very people who make the gauge are telling you it's probably understating inflation right now. Additionally, the timing of the data regime change is just way too coincidental for what is politically expedient. Warsh expects this to be a largely decided change by fall and then fully implemented by the end of the year. This would perfectly match the timing of the midterms, at which point a rate cut would be maximally beneficial to guess who Donald J. Trump. It of course still requires Trump to get a deal done in Iran asap. This is for two reasons. First, data manipulation will only get you so far if a prolonged closure of the strait of horror moves sends the entire world into an economic tailspin, so that obviously has to be avoided. And second, you need to get energy prices down sooner rather than later to give inflation time to actually come back down before the midterms so that wash can cut. If oil is already down, bringing inflation with it, and you switch to a new measurement paradigm at that point that makes it even lower. Suddenly, the data really does make it look like it's time to cut. Now, when you control the data, you control the narrative. So keep your eye on what Warsh does, both with data collection and and data interpretation, and watch how hard Trump goes to get the straight back open. That will help you track the direction that they're headed in and the COVID story that they're using to explain why exactly they would go in that direction. But the COVID story and the direction of travel are only going to tell you what they want to do. It doesn't tell you how they're going to actually do it. For that, you need to understand the wealth pump that they're building so you can see how people's wealth is going to be siphoned without them even knowing it. Welcome to Part three. The Invisible Money Printer Go. Brrr. A single crypto company, tether, holds roughly $117 billion in U.S. treasuries. That makes it roughly the 18th largest holder of U.S. government debt in the world. It owns more of America's debt than Germany. Why is that worth noting? Because this year the government has to sell that nearly $10 trillion in debt that we talked about to roll things forward. The Fed says it wants to reduce its balance sheet so it can't buy the debt as it's done historically when other people aren't there to pick it up. But I think this is incredibly wise, because if the Fed just loads up a bunch of debt on its balance sheet to create artificial interest in the debt, that is going to really piss taxpayers off. They have gotten way too wise to that strategy for it to work again without causing massive political backlash. Plus, a shrinking balance sheet says, see, look, we're not money printing. So given that, who's going to pick up the debt? Someone has to. And foreign governments have made it clear that they're not going to be the ones to do it anymore. We have been far too abusive to dollar holders. We sanction anyone we can, and we deficit spend with reckless abandon, making it entirely too obvious to anybody that understands the economy that we are indeed going to inflate our way out of the debt. So anyone that holds that debt is going to be paid back in way weaker dollars. So who has the incentive to buy US Treasuries at the interest rates the government can actually afford to pay? The honest answer is no one, unless they're forced to. But who can the government actually force to buy their debt? Well, I'm glad you asked. Compelled buyer number one is the banks on April 1, a rule called the supplementary leverage ratio got loosened for America's biggest banks. In plain English, regulators cut how much capital banks are required to hold in reserve by about 28%. That is massive. Now why does that force them to buy Treasuries? Because the bank can't just let the capital sit around. If they don't have to hold it in reserve, they are going to put it to work. But there are all kinds of regulations about what they can actually own. And everything that they can own gets a risk score. And the banks have to keep their risk score as low as possible. And guess what asset carries a zero risk Score? That's right, U.S. treasuries. By one estimate, this will free up banks to consume about $3 trillion in additional treasuries, which is roughly 9% of the entire market. Man, if you're looking to create appetite for your Treasuries, that's pretty good. Now who is compelled buyer number two, Stablecoins. People like Tether. In July, Trump signed the Genius Act. By law, every compliant stablecoin in America now has to be backed one for one by cash and or short term US Treasuries. So every single dollar that floats into a Stablecoin becomes a forced purchase of government debt. That market is already about $300 billion today, and Wall street expects it to reach 1 to $3 trillion within just a few years. That's why Tether holds more Treasuries than Germany. And if the Wall street projections are right, they've only just begun their buying spree. And when you put those things together, that's how this magic trick is done. If the Fed runs the QE playbook of old and buys government debt, the whole world calls it what it is. Money printing, creating money out of thin air. They freak out, get very angry. They see a repeat of 2008. They know you're robbing from the poor to give to the rich. But when a bank buys, that same debt creates that same appetite. The money from nothing. Sleight of hand still happens, but it's buried a layer deeper. And because of that, it effectively becomes invisible. It's not necessarily that no one sees it. Savvy people are going to know it's happening. But it's even harder to understand than normal money printing. First, money creation through debt is actually the only way that money is created, full stop. So given the system that we have, it's necessary. You have to do it. So it's not artificial demand for debt per se, like it is when the Fed is buying the debt. It's debt created when people and businesses actually want to borrow. So there's real demand for that debt. So when asked, the Fed is going to be able to point to their perfect cover story and say, we're not printing money, we're supporting businesses and that's going to help us on our mandate to achieve maximum employment. This is what you've asked us to do. And in some ways it's true. But it's also true that it is money printing just from another type of press. And that printer really does go brrr. If every person in every company that borrows money were able to magically create an equal amount of high value goods and services to buy, then there wouldn't be any inflation. But if they don't, then there will be, and spoiler alert, they won't be able to. Creating things of value is just too hard. And the government actually needs the inflation to weaken the dollar, to make that looming $40 trillion and growing debt easier to pay off. So you can absolutely count on there being enough new money created that inflation, however it is measured, steals purchasing power. And the more purchasing power the government is able to steal through inflation, the lighter the debt burden becomes. Follow the incentives. Now, this isn't going to happen in one overnight flood. It'll be a gradual build. But the direction that Trump and Warsh are rowing, the boat is locked in. It has to be the people who own assets, stock, real estate, gold, Bitcoin, Pokemon. They're all going to watch their assets climb and the people who only hold dollars will watch their lives get harder and never quite understand why. The rich are going to keep getting richer, the poor are going to keep getting poorer, and the debt will in fact get paid down by you and everyone that holds dollars. That is the wealth pump. There was almost certainly never a sincere plan to pay off the US debt. I hate that that is true. But that's the way that it goes. At this stage in an empire's life, in every late stage empire, when you're the reserve currency and you're in decline and locked in populism the way that we are now, the only plan that ever gets implemented is the one where the debt burden is forced upon the people in a way where the average person just can't see it happening. So expect Warsh to hold rates steady for now, to look tough, to pick a new data regime to control the narrative and make inflation look lower than it is, quite frankly. Frankly. And then work with the Trump administration to create a regulatory environment that forces massive entities like banks and crypto to mop up the debt market and make it harder to track. Why? The dollar grows weaker every day as you inject new inflationary money into the system via highly desired but overly cheap debt. So here's where all of this leaves you. As a country, we have to contend with the debt. We can't ignore it. And the solution was always going to hurt. Now, I'll be honest, it does not need to be the purchasing power siphon that I've been describing here. But the pump is already running, so here we are. But it's critical to note that this plan only works if the government slows the rate at which it expands the national debt. You cannot inflate away a debt that's growing faster than you can safely debase the currency. If you go too fast, instead of bleeding people out slowly where they don't really notice, you break the economy and people riot. So expect Trump and Warsh to avoid that. Now, even if we embrace the way that Trump and Warsh are going to deal with the debt, it's still not going to be easy. The last time we were able to inflate away an otherwise unmanageable debt burden was after World War II. And what did that time period show us we can expect now? Slowing the borrowing is critical, and you have to also practice something called yield curve control to ensure the interest payments don't rise in lockstep with inflation, which would stop the debt from being eroded by inflation. So as you plan, make sure you price in financial repression via yield curve control. The Fed will hold interest rates below the rate of inflation so that the dollar loses value a little faster than the interest payments that the government has to pay on the debt will grow. This will cause them to force the banks and the crypto industry to soak up the debt as a way of ensuring there's enough natural demand for debt that those rates don't have to be artificially crushed down too far, which would give the game away. This is the same trick that Japan has been using for the better part of a decade now. Because of all of that, my go forward plan looks something like this. I'm not going to be sitting in dollars, at least not beyond my emergency fund. And I'm trying to remember that long term debt is likely to now carry additional risk. So I've got to make sure if I'm going to hold it, that I get an appropriate premium. I know I can't effectively time the market, so I'm just planning for the Long game. Plus, the last time that this kind of wealth extraction pump ran, it ran for decades, literally from the mid-1940s until the 1980s 80s. For however long the pump runs, everyone has to understand that their purchasing power is going to be stolen from them. But only asset holders with the stomach for risk have a chance of beating inflation. And my goal as I build out my plan is to end up on the right side of the wealth pump. I'm also going to be watching for the tell. When the dollar slides. While stocks, gold, crypto, Pokemon assets like that climb together, I'm going to recognize that's not a boom, that is just the wealth siphon. Hard at work as always, if I really want to outpace the true inflation and erosion of the dollar, I've got to find assets that are based on true innovation. Those are the only things that deliver returns over the long haul. I'm going to go broad and I'm going to try not to be clever. When I'm at my most certain, I know I am at my most at risk. Now, if you do all of that, you can avoid ending up looking like this guy. All right, that's it for today's episode. If you got value out of this, it would mean the world to me if you would go give us a five star rating. It helps more than you know. 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